Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Throughout this section, unless otherwise noted, the "Company," "Palladyne AI Corp.," "Palladyne," "we," "us," and "our" refers to Palladyne AI Corp., and its subsidiaries, collectively. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report (this "Report") as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "2025 Form 10-K") and our other filings, including Current Reports on Form 8-K, that we have filed with the SEC through the date of this Report. As discussed in the Special Note Regarding Forward-Looking Statements below, in addition to historical information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in Part II Item 1A Risk Factors and elsewhere in this Report.

Special Note Regarding Forward-Looking Statements

Certain statements in this Report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:

These forward-looking statements are based on information available as of the date of this Report and our management's current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and, in any event, you should not place undue reliance on these forward-looking statements. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include those factors described in Part II Item 1A Risk Factors of this Report. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Our Risk Factors are not guarantees that no such conditions exist as of the date of this Report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information known to us as of the date of this Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Overview

We are a U.S.-based technology company developing and offering embodied artificial intelligence ("AI") software and collaborative autonomy solutions, advanced avionics, unmanned aerial vehicles ("UAVs"), advanced UAV engineering services and precision-manufactured components for aerospace, defense and commercial/industrial markets. Our core AI software offerings, Palladyne IQ and SwarmOS/Palladyne Pilot, consist of full-stack, closed-loop autonomy software that is intended to enhance the functionality and operational effectiveness of third-party robotic systems across a range of applications and our proprietary UAVs. These products are designed to be hardware agnostic, enabling integration across a wide range of robotic platforms, whether third-party or our own proprietary platforms, including industrial robots, collaborative robots ("cobots"), UAVs, unmanned ground vehicles ("UGVs"), and remotely operated vehicles ("ROVs") across multiple domains.

We have modeled our embodied AI architecture after nature to enable machines to filter out irrelevant data, interpret relevant data, quickly make decisions in real time and act in the real world, all at the edge and without centralized decision-making. We refer to this architectural class as Decentralized Embodied Collaborative Autonomy ("DECA"). DECA describes biologically inspired autonomy in which physically embodied agents perceive, decide and act locally while collaborating through decentralized interaction rather than centralized control. AI is the enabling mechanism, but autonomy and execution occur entirely at the edge. Intelligence that must act in the physical world operates under fundamentally different constraints. Machines that move, coordinate and make decisions in real time cannot rely solely on centralized reasoning, constant connectivity or energy intensive computation. They must operate locally, respond in milliseconds, collaborate with other machines and do so within tight limits on power, size and cost. Our AI technology is being built to act, not only think. It is edge-native and decentralized by necessity. It is designed for systems in which each machine operates autonomously while collaborating locally with others, without reliance on continuous centralized control or excessive compute. We have already implemented early versions of a DECA architecture through our Palladyne IQ and SwarmOS platforms, proving the approach in real systems today while remaining at the early edge of a much larger and inevitable opportunity: becoming the intelligence layer for autonomous machines operating beyond the reach of the cloud.

We are positioning our defense business as a mid-tier U.S. technology prime defense contractor aiming to combine innovative autonomy, practical engineering and American production to bring intelligent systems into active service faster, safer and more cost-effectively than legacy approaches. We seek to harness our advanced, ethical embodied AI to provide cost-effective lethality and precision harm mitigation through rapidly delivering scalable, low-cost, intelligent and collaborative attritable weapons, including by developing proprietary UAVs incorporating our avionics and AI technologies. We support these efforts and those of other defense contractors and commercial customers through our vertically integrated aerospace engineering design services, enhanced avionics compute hardware and machining and fabrication services. Palladyne SwarmOS is designed for unmanned platforms and includes advanced autonomy and coordination capabilities that enable multiple UAVs to swarm, collaborate and execute complex missions through distributed tasking and edge-native orchestration. Our embodied AI is designed to operate in complex, contested and high-risk environments, enabling distributed tasking, human-on-the-loop oversight, degraded-communications resilience, multi-domain coordination and real-time responsiveness. Our platform-agnostic autonomy stack combines real-time sensor fusion, adaptive AI models, and edge-native orchestration to support autonomous and collaborative systems across air, ground, maritime and industrial domains where performance, resilience, trust and mission assurance are critical to operational outcomes. These capabilities are intended to meet the performance and reliability requirements of military and defense customers, particularly in applications where it is essential to conduct coordinated multi-vehicle operations in contested environments with degraded communications.

For commercial and industrial customers in particular, Palladyne IQ is designed to enable poly-functional robots, including industrial robots and cobots, to become capable of performing multiple tasks across dynamic real-world industrial environments. Palladyne IQ enables industrial robots and cobots to adapt to variability in tasks, parts, and environments, thereby reducing the need for rigid automation, custom fixtures, and manual intervention. We believe Palladyne IQ has applications across manufacturing, logistics, warehousing, and other industrial settings where unstructured or semi-structured environments have historically limited the adoption of automation. We also offer Palladyne Pilot, a derivative version of SwarmOS tailored to meet the requirements of public safety and commercial customers by delivering core autonomy capabilities with reduced system complexity and cost. Please see Part II Item 1A Risk Factors for a discussion of the risks related to these activities, in particular those discussed under "Risks Related to our Business".

Revenue

We derive revenue from multiple sources, including the sale of both software and hardware products, product development contracts with the Department of War ("DoW"), and engineering services. We accordingly classify our revenue into three primary streams: product revenue, product development contract revenue and engineering services revenue, with product revenue further disaggregated into software and hardware categories. Software product revenue is comprised of the sale of our proprietary AI software products based on our AI/ML Foundational Technology (i.e., Palladyne IQ, SwarmOS and Palladyne Pilot). Hardware product revenue consists of the sale of our hardware products, including our advanced avionics compute hardware (BRAIN) and our UAV products under development (i.e., Gremlin-X and SwarmStrike). We also classify as hardware product revenue sales of our precision machined and fabricated components and structures. Product development contract revenue consists of contracts to develop, design and modify our technology and related products. Engineering services revenue is derived from aerospace and defense customers focused on developing high-performance unmanned systems.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in Part II Item 1A Risk Factors.

Development, Testing and Commercial Launch of our AI/ML Software, Avionics and UAV Products

We expect to continue commercialization efforts, internal testing and customer trials for our products through the remainder of 2026. Whether we are successful in these efforts depends on many factors, including those discussed under Part II Item 1A Risk Factors. Such risks may result in delay in achieving product revenues, which would adversely affect our financial condition and operating results.

Financing of Operations

We intend to use our cash on hand to continue to enhance our products, conduct product development activities, pursue marketing and sales opportunities and fund operations as we seek to further commercialize and enhance and achieve revenue from our products and services. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product commercialization and enhancement efforts, our ability to sell our products and services and thereby recognize associated revenue, capital and human capital requirements to develop and sell products, support our partnership efforts as they develop and provide services prior to receiving payments sufficient to cover our costs and our ability to lower costs as volumes increase.

We have taken and continue to take numerous steps to manage our use of cash. For example, in 2023 we suspended our legacy hardware product development efforts and focused our product development efforts on our AI/ML Foundational Technology and related products, and terminated our operations in Pittsburgh, Pennsylvania in early 2024. Beginning in the fourth quarter of 2024 and through September 30, 2026 we raised approximately $98.9 million in gross proceeds from the sale of our Common Stock and warrants. For further information on our financing activities, see "Liquidity and Capital Resources."

We believe we have sufficient liquidity to operate for at least the next 12 months without the need to raise additional capital. However, we may decide to seek additional financing during that time to bolster our cash reserves, increase our ability to continue to pursue our business objectives and to support partnership efforts and investments as opportunities materialize. As a result, we intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when we consider market conditions are good or a favorable opportunity exists or when we otherwise deem it to be necessary or advisable. Any delays in the sales of our products and services will negatively impact our ability to generate revenue, our profitability, our cash flows, our overall operating performance and our ability to continue operations and may result in the need to raise additional capital. We will continue to carefully evaluate our use of cash and liquidity.

Strategic Acquisitions

On November 14, 2025, we acquired GuideTech, LLC, an engineering company, MKR Fabrication, LLC (also known as MKR Fabricators), a fabrication company, and Warnke Precision Machining, LLC (also known as Warnke Precision Machining), a precision machining company. Our results presented and discussed below include the operating activity for these acquired companies from the acquisition date through September 30, 2026. Our results for periods prior to the acquisition date do not include the financial information of these acquired companies.

Customer Demand

Although demand for AI/ML software products has grown in recent years, the market continues to evolve. The market demand for our software is unproven, and important assumptions about the characteristics of targeted markets, pricing and sales cycles may be inaccurate. Based on interaction with dozens of potential customers, we believe that the sales cycle for Palladyne IQ is likely to be between 12 and 18 months, or even longer, while the sales cycles for our other products are unknown. While we believe that our products will provide significant benefits and return on investment to customers, as it is a new technology, we are dependent on customers who are willing to adopt, purchase and implement new technologies and products. Further, we have U.S. government revenue-generating contracts related to various aspects of our AI/ML Foundational Technology and our Palladyne IQ and Palladyne SwarmOS/Pilot products and we have been affected by government shutdowns. For example, during the U.S. government shutdown in the fourth quarter of 2025, we experienced delays in our interactions with certain government agencies that affected our collection efforts, our ability to consummate new government contracts and our ability to maintain or renew government contracts in a timely manner. The duration of government shutdowns could have a compounding effect, and the longer they continue or the more frequently they occur, the more significant the potential adverse impact may be on our anticipated revenues. For additional information around the risks associated with our government contracts, see Part II Item 1A Risk Factors "A portion of our revenue is currently and will continue to be generated by contracts with government entities, which makes us subject to a number of uncertainties, challenges and risks." If customer demand does not develop as expected or we do not accurately estimate pricing, adoption rates and sales cycles for our products, our business, results of operations and financial condition will be adversely affected.

Continued Investment and Innovation

We are a pioneer in the robotic systems industry and benefit from lessons learned over 30-plus years and significant investment in research and development. Through our hardware development efforts over many years, including our related AI-software development efforts, we developed a significant amount of advanced technology that we are leveraging to develop our AI/ML Foundational Technology and related products. Our recent acquisitions have also brought us additional and new skills and expertise related to the products and services of the acquired companies. We believe our financial performance is dependent on our ability to enhance and update our products. It is important that we continually identify and respond to rapidly evolving customer requirements and competitive threats, develop and introduce innovative products, enhance our products and generate active market demand for and sell our products. If we fail to do this, our market and financial position and revenue may be adversely affected, and our investments in these technologies will not be recovered.

Geopolitical and Macro-economic Environment

Geopolitical and macro-economic factors, such as inflation, changes in United States trade policy, including tariffs, interest rates, oil prices, unemployment rates, international conflicts, such as the current wars between Russia and Ukraine and between the United States and Iran, other conflicts in the Middle East, volatility in the stock market and political or social unrest, can have significant impacts on economic activity, which in turn could affect demand for our products or our ability to cost-effectively develop and sell our products. Among other things, these and similar factors can affect our ability to hire or retain qualified personnel, our labor and materials costs, the prices we charge for our products and services and the budgets of our customers and their expected return-on-investment from the purchase of our products and services. Many of these factors are outside of our control but can have a significant impact on our business success and operating results. If we are unable to manage our business successfully in response to any such factors, our business and results of operations would be adversely affected.

Results of Operations

Comparison of the Three Months Ended September 30, 2026 and 2025.

Revenue, Net

The following table presents our revenue for the three months ended September 30, 2026 and 2025, respectively:

*NM - Not Meaningful

Revenue increased $7.7 million or 895%, from $0.9 million for the three months ended September 30, 2025, to $8.6 million for the three months ended September 30, 2026, as explained below.

Product Revenue

Product revenue was $3.4 million for the three months ended September 30, 2026. Our product revenue during the three months ended September 30, 2026, was derived mainly from the companies that we acquired in November 2025. It includes revenue from the sale of precision machined parts and components from our manufacturing business, from the sale of our BRAIN avionics products and Palladyne legacy hardware product sales.

Product Development Contract Revenue

Product development contract revenue increased by $1.9 million, or 222%, from $0.9 million for the three months ended September 30, 2025 to $2.8 million for the three months ended September 30, 2026. The increase was primarily due to new product development contracts that started during the second quarter of 2026, partially offset by contracts that were completed during the prior year. We expect future revenue from contracts to fluctuate due to the timing of new contracts signed, contract options being exercised, and the completion of existing contracts. We intend to take on only those product development contracts that we believe support and contribute to our product development efforts. As a result, there may be fewer opportunities to replace completed product development contracts in the future.

Engineering Services Revenue

Engineering services revenue was $2.4 million for the three months ended September 30, 2026. Engineering services revenue is derived from one of the businesses acquired in November 2025.

Operating Expenses

The following table presents our operating expenses for the three months ended September 30, 2026 and 2025, respectively:

*NM - Not Meaningful

Cost of Revenue

Cost of revenue increased by $4.3 million or 939%, from $0.5 million for the three months ended September 30, 2025 to $4.8 million for the three months ended September 30, 2026. Cost of revenue consists of labor, materials and third-party costs associated with our products and services. Cost of revenue increased primarily due to increased revenue recorded during the period.

Research and Development

Research and development expenses increased by $0.8 million, or 27% from $3.1 million for the three months ended September 30, 2025, to $4.0 million for the three months ended September 30, 2026. Research and development costs during the three months ended September 30, 2026 increased due primarily to labor and labor related expenses associated with product design, testing, debugging, stabilization and enhancements of our UAV products and software in development.

General and Administrative

General and administrative expense increased by $6.0 million, or 144%, from $4.1 million for the three months ended September 30, 2025, to $10.1 million for the three months ended September 30, 2026. General and administrative expense increased primarily due to increased labor and labor related expenses associated with increases in headcount from the November 2025 acquisitions and hiring to support our new business activities. Stock compensation expenses also increased during the current year period driven primarily by the increased headcount and the 2025 Executive RSU awards that were granted in June 2026.

Sales and Marketing

Sales and marketing expense increased by $1.5 million, or 129%, from $1.2 million for the three months ended September 30, 2025, to $2.7 million for the three months ended September 30, 2026. This increase was driven by increased labor and labor related expenses as we have increased headcount to support our sales, business development and marketing efforts as we continue our initial sales development and outreach activities.

Intangible Amortization Expense

Intangible amortization expenses increased to $0.4 million for the three months ended September 30, 2026. The increase in intangible amortization expense is attributable to the recognition of amortization related to identified intangible assets acquired as part of the acquisitions completed in November 2025.

Other Income

The following table presents other income for the three months ended September 30, 2026 and 2025, respectively:

Other income decreased by $3.0 million for the three months ended September 30, 2026, compared to the three months ended September 30, 2025, due to decreased gains from changes in the fair value of our outstanding warrants and a decrease in interest income due primarily to a decrease in invested funds.

Provision for Income Taxes

We had no significant income tax expense for the three months ended September 30, 2026 and 2025, respectively. The provision for income taxes for the three months ended September 30, 2026 and 2025 is based on the Company's estimated annualized effective tax rate for the fiscal years ending December 31, 2026 and 2025, respectively. For the three months ended September 30, 2026 and 2025, the Company's recognized effective tax rate differs from the U.S. federal statutory rate as the Company recorded net taxable losses during the period with a corresponding full valuation allowance on the net deferred tax assets created from the losses.

Comparison of the Nine Months Ended September 30, 2026 and 2025.

Revenue, Net

The following table presents our revenue for the nine months ended September 30, 2026 and 2025, respectively:

*NM - Not Meaningful

Revenue increased by $14.3 million, or 399%, from $3.6 million for the nine months ended September 30, 2025, to $17.9 million for the nine months ended September 30, 2026, as explained below.

Product Revenue

Product revenue was $7.8 million for the nine months ended September 30, 2026. Our product revenue during the nine months ended September 30, 2026, was derived mainly from the companies that we acquired in November 2025. It includes revenue from the sale of precision machined parts and components from our manufacturing business, from the sale of our BRAIN avionics products and Palladyne legacy hardware product sales.

Product Development Contract Revenue

Product development contract revenue increased by $0.4 million, or 12%, from $3.6 million for the nine months ended September 30, 2025, to $4.0 million for the nine months ended September 30, 2026. The increase was primarily due to new product development contracts that started during the second quarter of 2026, partially offset by contracts that were completed during the prior year and funding delays during the first quarter of 2026 due to the government delays and shutdowns.

Engineering Services Revenue

Engineering services revenue was $6.1 million for the nine months ended September 30, 2026. Engineering services revenue is derived from one of the businesses acquired in November 2025.

Operating Expenses

The following table presents our operating expenses for the nine months ended September 30, 2026 and 2025, respectively:

*NM - Not Meaningful

Cost of Revenue

Cost of revenue increased by $10.1 million, or 782%, from $1.3 million for the nine months ended September 30, 2025, to $11.4 million for the nine months ended September 30, 2026. Cost of revenue consists of labor, materials and third-party costs associated with our products and services. Cost of revenue increased primarily due to increased revenue recorded during the period.

Research and Development

Research and development expenses increased by $3.1 million, or 34% from $9.1 million for the nine months ended September 30, 2025, to $12.2 million for the nine months ended September 30, 2026. Research and development costs during the nine months ended September 30, 2026 increased due primarily to labor and labor related expenses associated with product design, testing, debugging, stabilization and enhancements of our UAV products and software in development.

General and Administrative

General and administrative expense increased by $12.6 million, or 101%, from $12.5 million for the nine months ended September 30, 2025, to $25.1 million for the nine months ended September 30, 2026. General and administrative expense increased primarily due to increased labor and labor related expenses associated with increases in headcount from the November 2025 acquisitions and hiring to support our new business activities. Stock compensation expenses also increased during the current year period driven primarily by the increased headcount and the 2025 Executive RSU awards that were granted in June 2026. Legal and professional services also increased during the current year to support increased business activities.

Sales and Marketing

Sales and marketing expense increased by $3.1 million, or 83%, from $3.7 million for the nine months ended September 30, 2025, to $6.8 million for the nine months ended September 30, 2026. This increase was driven by increased labor and labor related expenses as we have increased headcount to support our sales, business development and marketing efforts as we continue our initial sales development and outreach activities.

Intangible Amortization Expense

Intangible amortization expenses increased to $1.1 million for the nine months ended September 30, 2026. The increase in intangible amortization expense is attributable to the recognition of amortization related to identified intangible assets acquired as part of the acquisitions completed in November 2025.

Other Income

The following table presents other income for the nine months ended September 30, 2026 and 2025, respectively:

*NM - Not Meaningful

Other income decreased by $32.9 million from $34.6 million for the nine months ended September 30, 2025, to $1.8 million for the nine months ended September 30, 2026. Other income decreased almost entirely as a result of changes in the fair value of our outstanding warrants as well as decreased interest income primarily due to a decrease in invested funds.

Provision for Income Taxes

We had no significant income tax expense for the nine months ended September 30, 2026 and 2025, respectively. The provision for income taxes for the nine months ended September 30, 2026 and 2025 is based on the Company's estimated annualized effective tax rate for the fiscal years ending December 31, 2026 and 2025, respectively. For the nine months ended September 30, 2026 and 2025, the Company's recognized effective tax rate differs from the U.S. federal statutory rate as the Company recorded net taxable losses during the period with a corresponding full valuation allowance on the net deferred tax assets created from the losses.

Backlog and Total Estimated Contract Value

Our backlog, as of September 30, 2026, was $18.7 million, $15.3 million of which was funded and $3.4 million of which was unfunded. Our backlog, as of December 31, 2025, was $13.9 million, $13.5 million of which was funded and $0.4 million of which was unfunded. Our backlog is equal to our remaining performance obligations under contracts or the total value of committed customer contracts and purchase orders, both funded and unfunded, less revenue recognized through September 30, 2026. Our total estimated contract value, which combines backlog with estimated potential contract value, including unexercised options from existing firm contracts, was $21.8 million as of September 30, 2026 and $20.0 million as of December 31, 2025.

Liquidity and Capital Resources

Cash, cash equivalents and marketable securities were $47.0 million as of September 30, 2026, compared to $47.1 million as of December 31, 2025. We have incurred losses from operations and negative cash flows from operations since inception and are likely to continue to incur losses from operations and negative cash flows from operations in the near term. As of September 30, 2026, we had an accumulated deficit of approximately $517.7 million and working capital of $47.3 million.

On November 13, 2024, we entered into an open market sale agreement (the "Sales Agreement") with Jefferies LLC to sell shares of our Common Stock from time to time through an "at-the-market" equity offering program (the "ATM Program"), under which Jefferies is acting as our sales agent. During the nine months ended September 30, 2026, we sold a total of 4,581,269 shares pursuant to the ATM program, for gross sales proceeds of approximately $29.9 million, before deducting commission and other expenses. Through September 30, 2026, we have sold a total of 12,703,853 shares pursuant to the ATM program, for gross sales proceeds of approximately $85.4 million, before deducting commission and other expenses.

We believe that our cash, cash equivalents and marketable securities on hand will be sufficient to support operations, working capital and capital expenditure requirements for at least the next 12 months from the date of this Report.

Our primary use of cash is for operations and administrative activities including employee-related expenses and general, operating and overhead expenses. While we do not have any significant debt, we do have a long-term lease for our facilities in Salt Lake City, Utah. Future capital requirements will depend on many factors, including the timing and extent of development efforts, the expansion and results of sales and marketing activities, the sales cycle for our products, customer acquisition and revenues, revenue growth rate, customer retention, the introduction of new and enhanced product offerings and market acceptance of our products.

We have taken many steps to reduce our use of cash. For example, in 2023 we suspended our legacy hardware product development efforts and focused our product development efforts on our AI/ML Foundational Technology and related products, and terminated our operations in Pittsburgh, Pennsylvania in early 2024. We plan to use our existing capital to further commercialize and conduct sales and marketing efforts for our commercially available products and services, as well as continue product testing, debugging and stabilization efforts, conduct product development efforts for initial and updated versions of our products, and to fund purchases for our work-in-process inventory and long lead time components.

The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our product development efforts, our ability to commercialize our products and thereby recognize associated revenue and capital requirements to conduct marketing and sales activities prior to receiving payments sufficient to cover our costs. Any delays in the sales of our products and services will negatively impact our ability to generate revenue, profitability, overall operating performance and financial condition. If we are unable to raise additional capital when desired or needed, our business, results of operations and financial condition would be materially and adversely affected.

We may enter into arrangements to acquire or invest in additional businesses, services and technologies, which may require acquisition capital as well as operational capital for these acquisitions or arrangements. We may be required to seek additional equity or debt financing to facilitate these arrangements. If additional financing is required from outside sources in connection with these arrangements, we may not be able to raise it on terms acceptable to us, or at all.

We currently primarily use cash from equity financings to fund operations and capital expenditures and meet working capital requirements. If additional funds are required to support our working capital requirements, for acquisitions, support for our partnerships or for other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. We intend to continue monitoring our liquidity, financial and business results and outlook and market conditions, and may be opportunistic and raise capital when market conditions are good or a favorable opportunity exists or we otherwise determine it to be necessary or advisable, including under our "at-the-market" equity offering programs. Any delays in the successful further commercialization and sales of our products and services will negatively impact our ability to generate revenue, our profitability and our overall operating performance and result in the need to raise additional capital sooner than expected. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur additional interest expense. Additional financing may not be available at all or, if available, may not be available on terms favorable to us or that we find acceptable. For additional information around the risks associated with our capital needs see Part II Item 1A Risk Factors "Our business plans require a significant amount of capital. We may sell additional equity or debt securities to meet capital needs or as we may otherwise determine to be advisable that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends. If we require additional capital and are not able to secure new funding, we may not be able to continue our business operations."

Cash Flows

The following table summarizes our cash flow data for the periods presented:

Net Cash Used in Operating Activities

Cash flows used in operating activities during the nine months ended September 30, 2026 increased by $9.0 million to $28.2 million from $19.1 million during the same period in 2025. The increase to net cash used in operating activities was primarily attributable to an increased net loss resulting from higher operating expenses, driven by increased headcount and operating costs from companies acquired in November 2025, as well as increases in accounts receivable and inventories, partially offset by changes in non-cash items such as stock-based compensation, intangible asset amortization and changes in fair value of warrant liabilities, as well as increases in accrued liabilities.

Net Cash Provided (Used In) by Investing Activities

Our net cash provided by investing activities during the nine months ended September 30, 2026 increased by $28.2 million compared to the same period in 2025. This increase was primarily driven by $9.6 million of maturities net of purchases, of marketable securities during the nine months ended September 30, 2026, as compared to $19.8 million of purchases net of maturities, of marketable securities during the nine months ended September 30, 2025. Additionally, purchases of property and equipment increased by $1.3 million to $1.8 million for the nine months ended September 30, 2026, up from $0.5 million during the nine months ended September 30, 2025.

Net Cash Provided by Financing Activities

Our net cash provided by financing activities decreased by $6.4 million during the nine months ended September 30, 2026, compared to the prior year period. This decrease was primarily attributable to lower net proceeds from equity issuances; specifically, we received $29.0 million, after deducting transaction costs, in net proceeds from the sale of our Common Stock during the nine months ended September 30, 2026, compared to $35.5 million, after deducting transaction costs, in net proceeds from the sale of our Common Stock and warrants during the nine months ended September 30, 2025.

Emerging Growth Company Status

Section 102(b)(1) of the Jumpstart our Business Startups Act of 2012 (the "JOBS Act") exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

We are an "emerging growth company" as defined in Section 2(a) of the Securities Act, and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of Common Stock that is held by non-affiliates exceeds $700 million as of the end of that year's second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2026, and we expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to our critical accounting policies or estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

Recent Accounting Pronouncements

See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to our unaudited interim condensed consolidated financial statements included elsewhere in this Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Report.