Palladyne AI (PDYN) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01We are an early stage company with a history of losses, and expect to incur significant losses for the foreseeable future
2. 02maintain our general and administrative functions and systems to support our operations and to operate as a publicly-traded company
3. 03Our operating and financial projections rely on management assumptions and analyses. If these assumptions or analyses prove to be incorrect, as they often have in the past, our actual operating results may be materially different from our expected or forecasted results
4. 04We have yet to achieve positive operating cash flow, and our ability to generate positive cash flow is uncertain
5. 05We have no previous history or experience with commercializing software products and may not be able to do so efficiently, effectively or at all. We were unsuccessful in our efforts to commercialize the hardware technologies that we and our predecessor companies developed over the past several decades
6. 06Successful commercialization of our AI/ML Foundational Technology and related products may be delayed beyond our current expectations and therefore product availability to customers, customer acquisition and receipt of software licensing revenue could be delayed
7. 07do so. If we are unable to develop and commercialize our software products in a cost efficient manner, our financial results, financial condition and prospects would be materially and adversely affected
8. 08Our anticipated revenues are expected to be primarily derived from the licensing of our AI/ML software products for the foreseeable future
9. 09Any issues in the development and use of our AI/ML Foundational Technology or related products, or issues in products developed by others, may result in reputational harm or liability
10. 10Our AI/ML Foundational Technology and related products are new technologies, and customer trials and discussions may not result in purchases
11. 11If we are unable to successfully introduce and implement enhancements, new features or modifications to our AI/ML Foundational Technology and related products, our business would be harmed
12. 12We may fail to attract or retain customers at sufficient rates or in sufficient numbers or at all
13. 13We have no previous history with our licensing sales model
14. 14Important assumptions about market demand, pricing, adoption rates and sales cycles for our software products may be inaccurate
15. 15The benefits of our AI/ML Foundational Technology and related products to customers and projected return on investment have not been substantiated through customer use
16. 16We currently intend to target many customers that are large businesses with substantial negotiating power, exacting product standards and potentially competitive internal solutions. If we are unable to sell our software products to these customers, our prospects and results of operations will be adversely affected
17. 17A portion of our revenue is currently and will continue to be generated by contracts with government entities, which make us subject to a number of uncertainties, challenges and risks
18. 18We operate in a competitive industry that is subject to rapid technological change, and we expect competition to increase. Our products may not be competitive with other alternatives
19. 19We may not be able to complete or enhance our product offerings through our research and development efforts

Risks Related to Our Operations and Growth

1. 20Even if our AI/ML Foundational Technology performs properly and our products are used as intended, if personal injuries occur while operating third-party products that use our AI/ML software, we could be exposed to liability and our results of operations, financial condition and reputation may be adversely affected
2. 21We use "open source" software, which could negatively affect our ability to offer our AI/ML Foundational Technology and related products and subject us to possible litigation
3. 22an open source license to release our proprietary source code to the public, competitors could create similar products with lower development effort and time, which ultimately could result in a loss of sales for us
4. 23Our business and prospects depend significantly on our ability to build our brand. We may not succeed in establishing, maintaining and strengthening an effective brand, and our brand and reputation could be harmed by negative publicity regarding us or our AI/ML Foundational Technology and related products
5. 24If we fail to effectively manage our business, we may not be able to design, develop, market and commercialize our software products successfully
6. 25implementing and enhancing administrative infrastructure, systems, controls and processes
7. 26We may be unable to adequately control the costs associated with our operations in order to achieve profitability
8. 27We expect to incur substantial research and development costs and devote significant resources to developing and commercializing our AI/ML Foundational Technology and related products, and we may never reach profitability and/or achieve significant or any licensing revenue
9. 28We face risks related to wars, natural disasters, health epidemics and other calamities and supply chain disruption, any of which could significantly disrupt our operations

Risks Related to Our Finances

1. 29Our financial results may vary significantly from period to period due to fluctuations in our operating costs, revenues (including from development contracts), product demand and other factors
2. 30our customers, employees, investors and other third-party partners, and could have an adverse impact on our business and results of operations
3. 31We incur significant expenses and administrative burdens as a publicly-traded company, which could have a material adverse effect on our business, prospects, financial condition and operating results
4. 32If we fail to maintain and strengthen effective systems of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected
5. 33We have incurred losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. To the extent that we continue to generate tax losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire
6. 34We have been and may in the future be subject to risks associated with strategic relationships or transactions and may not identify or form desired strategic relationships in the future

Risks Related to Legal Claims and Regulatory Compliance

1. 35Issues in the development and use of AI/ML, combined with an uncertain regulatory environment, may result in reputational harm, liability or other adverse consequences to our business operations
2. 36Changes in tax laws could have a material adverse effect on our business, cash flows, results of operations or financial condition
3. 37We may be subject to claims, lawsuits, arbitration proceedings, government investigations and other legal, regulatory and administrative proceedings and face potential liability and expenses related thereto, which could have a material adverse effect on our business, operating results and financial condition
4. 38The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. We may not be able to monitor and react to all developments in a timely manner
5. 39We are subject to cybersecurity risks to our operational systems, security systems, infrastructure and data processed by us or third-party vendors
6. 40We are subject to laws, regulations and contractual provisions as a government contractor or subcontractor, which may pose increased risk of potential liability and expenses related thereto, which could have a material adverse effect on our business, operating results and financial condition
7. 41We are subject to governmental export and import controls and laws that could subject us to liability if we are not in compliance with such laws
8. 42Moreover, international sales of our software may be subject to first obtaining licenses, clearances or authorizations from various regulatory entities. If we are not allowed to export our software or the clearance process is burdensome and costly, our ability to generate revenue would be adversely affected

Risks Related to Our Intellectual Property

1. 43Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to our software and other technologies
2. 44We may not be able to effectively protect our intellectual property rights in our target markets or at all
3. 45We may be subject to intellectual property infringement claims or misappropriation claims, which may be time consuming and expensive and, if adversely determined, could limit our ability to commercialize our software products
4. 46We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees' former employers

Risks Related to Ownership of our Securities

1. 47The issuance or sale of shares of our Common Stock, or rights to acquire shares of our Common Stock could depress the trading price of our Common Stock and may cause dilution to our existing stockholders
2. 48The price of our Common Stock could decline due to the large number of shares of our Common Stock being subject to employee equity awards
3. 49The markets for our publicly traded securities have been volatile and may not continue at all
4. 50general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism
5. 51Our publicly traded securities are subject to potential delisting from the Nasdaq Global Market if we do not meet Nasdaq's continued listing requirements, which would likely impair the liquidity of the trading market for our Common Stock and warrants
6. 52If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Common Stock, then the price and trading volume of our Common Stock could decline
7. 53There is no guarantee that the deSPAC Public Warrants or the deSPAC Private Placement Warrants will ever be in the money, and they may expire worthless
8. 54We may redeem unexpired deSPAC Warrants prior to their exercise at a time that is disadvantageous to deSPAC Warrant holders, thereby making their deSPAC Warrants worthless
9. 55DeSPAC Warrants are exercisable for Common Stock, and their exercise would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders
10. 562024 Warrants are exercisable for Common Stock, and their exercise would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders
11. 57Anti-takeover provisions contained in our Charter and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt, which could limit the price investors might be willing to pay in the future for our Common Stock
12. 58Our Bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders
13. 59The JOBS Act permits "emerging growth companies" like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies