Palladyne AI Corp. Fair Value Disclosure
2. Fair Value Measurements
ASC Topic 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset, or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
Level 1—Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2—Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.
Level 3—Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as an option pricing model, discounted cash flow or similar technique.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
On a recurring basis, the Company measures certain of its financial assets and liabilities at fair value. The fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis was determined using the following inputs:
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As of December 31, 2025 |
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(In thousands) |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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Marketable securities: |
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U.S. treasury securities |
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$ |
28,836 |
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$ |
— |
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$ |
— |
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$ |
28,836 |
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Total assets |
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$ |
28,836 |
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$ |
— |
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$ |
— |
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$ |
28,836 |
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Liabilities: |
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Warrant liabilities |
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$ |
928 |
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$ |
330 |
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$ |
1,514 |
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$ |
2,772 |
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Other non-current liabilities: |
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Contingent consideration |
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— |
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— |
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1,382 |
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1,382 |
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Total liabilities |
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$ |
928 |
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$ |
330 |
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$ |
2,896 |
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$ |
4,154 |
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As of December 31, 2024 |
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(In thousands) |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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Cash equivalents: |
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U.S. treasury securities |
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$ |
12,927 |
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$ |
— |
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$ |
— |
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$ |
12,927 |
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Marketable securities: |
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U.S. treasury securities |
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8,883 |
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— |
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— |
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8,883 |
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Total assets |
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$ |
21,810 |
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$ |
— |
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$ |
— |
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$ |
21,810 |
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Liabilities: |
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Warrant liabilities |
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$ |
11,630 |
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$ |
4,128 |
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$ |
35,638 |
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$ |
51,396 |
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Total liabilities |
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$ |
11,630 |
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$ |
4,128 |
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$ |
35,638 |
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$ |
51,396 |
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As of December 31, 2025, the Company held $28.8 million of available-for-sale debt securities with maturity dates within one year. The fair value of the Company's available-for-sale debt securities approximates their amortized cost basis. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amounts of accounts receivable, unbilled receivables, accounts payable and accrued expenses approximate their fair values because of the relatively short periods until they are required to be settled. The contingent consideration relates to the acquisition of GuideTech during 2025, as discussed in Note 5, Acquisitions. The contingent consideration was initially valued as of November 14, 2025, the acquisition date, and will be remeasured at fair value at each reporting date, or more frequently, if events or changes in circumstances indicate that a remeasurement is warranted. The valuation of the contingent consideration requires the use of a valuation model and assumptions such as projected cash flows and discount rates.
The following table sets forth a reconciliation from the opening balances to the closing balances for the Company's Level 3 warrant values:
(In thousands) |
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Warrants |
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Balance at December 31, 2024 |
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$ |
35,638 |
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Decrease in fair value of warrants |
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(23,240 |
) |
Exercise of warrants |
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(10,884 |
) |
Balance at December 31, 2025 |
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$ |
1,514 |
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 28, 2024 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.