Palladyne AI Corp. 10-K

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our units, Class A common stock and warrants are listed on the New York Stock Exchange (“NYSE”) under the symbols ROT.U, ROT and ROT WS, respectively. Holders As of March 31, 2021, there were one holder of record of our units, one holder of the Class A common stock, 12 holders of the Class B common stock and 13 holders of record of our warrants. We believe we have in excess of 300 beneficial holders of our securities. Dividends We have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our initial business combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities In September 2020, the sponsor purchased 5,750,000 shares of our Class B common stock par value $0.0001 per share (“Class B common stock”) for an aggregate purchase price of $25,000, or approximately $0.004 per share. In January 2021, the Company effected a stock dividend of 0.2 shares of our Class B common stock for each outstanding share of Class B common stock resulting in an aggregate of 6,900,000 of such shares being outstanding. The foregoing issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Up to 900,000 of such shares were subject to forfeiture depending on the extent to which the IPO underwriters’ over-allotment option was exercised. On January 20, 2021, we consummated the IPO of 27,600,000 units, which included the full exercise by the underwriters of the over-allotment option to purchase 3,600,000 units, at $10.00 per unit, generating gross proceeds of $276,000,000. Each unit consists of one share of Class A Common Stock, par value $0.0001 per share (“Class A common stock”), of the Company and one-half of one redeemable warrant, with each warrant entitling the holder to purchase one share of Class A common stock at a price of $11.50 per share. The securities issued in the IPO were registered under the Securities Act on a registration statements on Form S-1 (No. 333-251521 and 333-252110). The Securities and Exchange Commission (“SEC”) declared the registration statements effective on January 14, 2021. Simultaneously with the closing of the IPO, we consummated the sale of an aggregate of 7,270,000 private placement warrants at a price of $1.00 per warrant in a private placement to the sponsor and certain funds and accounts managed by the anchor investors. The private placement warrants are identical to the warrants underlying the units sold in the IPO, except that the private placement warrants are not transferable, assignable or salable until after the completion of our initial business combination, subject to certain limited exceptions. Also, concurrently with the IPO, we issued to the anchor investors an aggregate of 790,384 shares of our Class B common stock and cancelled a like number of shares of our Class B common stock owned by the sponsor. The foregoing issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The sale of the private placement warrants and the Class B common stock generated gross proceeds of $7,270,000. 2 The shares of our Class B common stock will automatically convert into shares of our Class A common stock on the first business day following the completion of our initial business combination. In this Form 10-K, we sometimes refer to the shares of Class B common stock issued to the sponsor and the anchor investors (and the shares of our Class A common stock that will be issued upon the automatic conversion of the shares of our Class B common stock at the time of our initial business combination) as “founder shares” and the holders of the founder shares as “initial stockholders.” Of the gross proceeds received from the IPO, the exercise of the over-allotment option and the sale of the private placement warrants and Class B common stock, $276,000,000 was placed in a trust account located in the United States at JP Morgan Chase Bank NA, with Continental Stock Transfer & Trust Company, acting as trustee (the “trust account”). We paid a total of $5,520,000 in underwriting discounts and commissions and $382,855 for other costs and expenses related to the IPO. In addition, the underwriters agreed to defer $9,660,000 in underwriting discounts and commissions. ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements All statements other than statements of historical fact included in this Form 10-K including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are contained in “Item 8. Financial Statements and Supplementary Data”. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Overview We are a blank check company formed under the laws of the State of Delaware on August 27, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate our business combination using cash from the proceeds of the IPO and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful. 3 Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities since our inception through December 31, 2020 were organizational activities, those necessary to prepare for the IPO, described below. We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of interest income on cash and cash equivalents held after the IPO. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing a business combination. For the period from August 27, 2020 (inception) through December 31, 2020, we had a net loss of $1,450, which consisted of formation and operating expenses. Liquidity and Capital Resources As of December 31, 2020, we had no cash. Until the consummation of the IPO, our only source of liquidity was an initial purchase of common stock by the sponsor and loans from the sponsor. On January 20, 2021, we consummated the IPO of 27,600,000 units, at a price of $10.00 per unit, which included the full exercise by the underwriters of their over-allotment option in the amount of 3,600,000 units, generating gross proceeds of $276,000,000. Simultaneously with the closing of the IPO, we consummated the sale of 7,270,000 private placement warrants to the sponsor and the anchor investors at a price of $1.00 per warrant generating gross proceeds of $7,270,000. Following the IPO, the full exercise of the over-allotment option, and the sale of the private placement warrants, a total of $276,000,000 was placed in the trust account. We incurred $15,562,855 in transaction costs, including $5,520,000 of underwriting fees, $9,660,000 of deferred underwriting fees and $382,855 of other offering costs. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (less deferred underwriting commissions and income taxes payable), to complete our business combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination. In order to fund working capital deficiencies or finance transaction costs in connection with a business combination, the sponsor or an affiliate of the sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a business combination, we may repay such loaned amounts out of the proceeds of the trust account released to us. In the event that a business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post-business combination entity at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to the private placement warrants. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our business combination. If we are unable to complete our business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. 4 Off-Balance Sheet Financing Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2020. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriter of our IPO is entitled to a deferred fee of $0.35 per unit, or $9,660,000 in the aggregate. The deferred fee will become payable to the underwriter from the amounts held in the trust account solely in the event that we complete a business combination, subject to the terms of the underwriting agreement. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies. Recent Accounting Standards Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information appears following Item 15 of this Form 10-K and is included herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 5