RCAT 10-K & 10-Q changes, risk factors and insider trading
Red Cat Holdings, Inc. · Nasdaq · Services-Prepackaged Software · CIK 748268 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “We identified a material weakness in internal control over financial reporting, and may in the future identify additional material weaknesses. Until we remediate the identified material weakness or if we identify additional material weaknesses, we may not be able to accurately and timely report our financial results, in which case our business may be harmed and investors may lose confidence in the accuracy and completeness of our financial reports.”
New heading “We may be subject to litigation, legal proceedings, and class action claims that could adversely affect our business and financial condition.”
New heading “There are difficult issues to navigate in the development and use of machine learning and artificial intelligence technologies (“AI Technologies”), which may result in reputational harm or liability, and failure to introduce new and innovative products that have AI Technology capabilities could put us at a competitive disadvantage.”
New heading “Our financial success is dependent on contracts awarded through a lengthy, uncertain and competitive process.”
New heading “Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise, or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our revenue.”
New heading “The U.S. Government provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal policies of the U.S. Government and other governmental entities.”
New heading “Government contracts differ materially from standard commercial contracts, involve competitive bidding and may be subject to cancellation or delay without penalty.”
New heading “Significant delays or reductions in appropriations for our programs and U.S. Government funding more broadly may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations, and/or cash flows.”
New heading “We are subject to the DoD CMMC requirement issued by the Pentagon which may limit our ability to bid and win projects. The cost for the DoD CMMC requirement may be significant.”
New heading “If the drone industry does not experience significant growth, if we cannot expand our customer base or if our products do not achieve broad acceptance, or if the products we have developed or will develop do not become programs of record, then we may not be able to achieve our anticipated level of growth.”
New heading “The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of our common stock owned by you at times or at prices you find attractive.”
New heading “We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.”
New heading “We are currently listed on The Nasdaq Capital Market. If we are unable to maintain listing of our securities on Nasdaq or any stock exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired and it may be more difficult for our shareholders to sell their securities.”
Removed heading “Risks Related to Our Enterprise Segment”
Removed heading “Our products may experience declining unit prices and we may not be able to offset that decline with production cost decreases or higher unit sales.”
Removed heading “Several steps of our manufacturing processes are dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.”
Removed heading “Risks Related to Our Enterprise Segment”
Removed heading “A decline in U.S. government budgets, changes in spending priorities, or delays in contract awards could adversely affect the revenues of our Teal subsidiary.”
Removed heading “Our work for the U.S. government could expose us to security risks.”
Removed heading “We have never paid dividends and we do not expect to pay dividends for the foreseeable future.”
Removed heading “The listing of our securities on Nasdaq subjects us to additional regulations and compliance requirements.”
Removed heading “The market price of our shares of common stock is subject to fluctuation.”
Removed heading “Our results of operations may suffer if we are not able to successfully manage our exposure to foreign exchange rate risks.”
Largest changes
“We design, develop, and manufacture technologically advanced and innovative products, which are applied by our customers in a variety of environments. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and intellectual property rights, labor, manufacturing materials or components could prevent us from meeting requirements. Either we or the customer may generally terminate a contract as a result of a material uncured breach by the other. …”see in full comparison
“Acquired businesses may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition, including cyber and other security vulnerabilities. In particular, to the extent that prior owners of any acquired businesses or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to the U.S. …”see in full comparison
“We currently incorporate AI Technologies into certain of our products, solutions and business functions, and may seek to expand or alter the use of AI Technologies in the future. As with many innovations, AI Technologies present risks, challenges, and unintended consequences that could affect our business. AI Technology algorithms and training methodologies may be flawed. These deficiencies and other failures of AI Technologies could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm. …”see in full comparison
“We identified a material weakness in internal control over financial reporting, and may in the future identify additional material weaknesses. Until we remediate the identified material weakness or if we identify additional material weaknesses, we may not be able to accurately and timely report our financial results, in which case our business may be harmed and investors may lose confidence in the accuracy and completeness of our financial reports.”see in full comparison
“If we are unable to successfully remediate existing or any future material weaknesses in our internal controls over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, investors may lose confidence in our financial reporting, and/or we could become subject to litigation or investigations by The Nasdaq Capital Market, the SEC or other regulatory authorities.”see in full comparison
“We may be subject to litigation, legal proceedings, and class action claims that could adversely affect our business and financial condition.”see in full comparison
Full comparison: every changed paragraph (207)
•We have incurred net losses since inception.
•We may need additional capital to fund our expanding operations until we reach profitability, and if we are not able to obtain sufficient capital, we may be forced to limit or curtail our operations.
•Lack of long-term purchase orders and commitments from customers may lead to a rapid decline in sales.
•Our products require a continuing investment in research and development, and may experience technical problems or delays, which could lead the business to fail.
•The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnity.
•Product quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.
•Our operating results may be adversely impacted by worldwide political, economic and public health uncertainties and specific conditions in the markets we address.
•Acquisitions could divert the attention of key personnel, be difficult to integrate, dilute our existing stockholders and adversely impact our financial results.
•Our failure to effectively manage growth could harm our business.
•Our products are subject to lengthy development cycles.
•We expect to incur substantial research and development costs related to identifying and commercializing new products and services which may never result in revenues.
•Our operations may be adversely affected if we lose our rights under third-party technology licenses.
•If our customers are not satisfied with our technical support, firmware or software updates, they may choose not to purchase our products which would adversely impact business and operating results.
•Our use of open-source software could negatively affect our ability to sell our products and could subject us to possible litigation.
•We must recruit and retain highly trained and experienced employees, especially engineers, in order to succeed in our business.
•Our facilities and information systems and those of our key suppliers could be damaged as a result of disasters or unpredictable events which could have an adverse effect on our business operations.
•We rely on third-party suppliers, some of which are sole-source suppliers, to provide components for our products which has in the past and may continue to lead to supply shortages, long lead times for components, and supply changes, any of which could disrupt our supply chain, increase our costs, and adversely impact our operating results
•We depend on third parties to provide integrated circuit chip sets and other critical components for use in our products.
•We operate in an emerging and rapidly growing industry which makes it difficult to evaluate our current business and prospects.
•We face competition from larger companies that have substantially greater resources which challenges our ability to establish market share, grow our business segments, and reach profitability.
•Our business is dependent upon our ability to keep pace with the latest technological changes.
•Cybersecurity risks could adversely affect our business and disrupt our operations.
•U.S. government contracts are generally not fully funded at inception and may include provisions that are not favorable to us which could adversely impact our cash flows and results of operations.
•Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise, or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our revenue.
•A decline in U.S. government budgets, changes in spending priorities, or delays in contract awards could adversely affect our revenues.
•Our work for the U.S. government could expose us to security risks.
•We are subject to extensive government regulation and our failure to comply with these regulations could subject us to penalties that may adversely impact our ability to operate our business.
Risks Related
to Our Enterprise Segment
•Our management has voting control of the Company.
•Our failure to maintain effective internal controls over financial reporting could have an adverse impact on the Company.
•Our Board of Directors may authorize and issue shares of new classes of stock that could adversely affect current holders of our common stock.
•Our shares will be subordinate to all of our debts and liabilities which increases the risk that investors could lose their entire investment.
•The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of our common stock owned by you at times or at prices you find attractive.
•Future capital raises may dilute our existing stockholders’ ownership and adversely impact the fair value of their investment.
•The drone industry is subject to various laws and government regulations which could complicate and delay our ability to introduce products, maintain compliance, and avoid violations which could negatively impact our financial condition and results of operations.
•Our business and products are subject to government regulation, and we may incur additional compliance costs or be forced to suspend or cease operations if we fail to comply.
•Our international operations, including the use of foreign contract manufacturers, subjects us to international operational, financial, legal, political and public health risks which could harm our operating results.
•We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act or similar anti-bribery laws in other jurisdictions in which we operate.
•We are subject to governmental export and import controls, and economic sanctions laws that could subject us to liability and impair our ability to compete in international markets.
•Changes in trade policy in the United States and other countries may have adverse impacts on our business, results of operations and financial condition.
•We may collect, store, process and use the personal information of our customers which subjects us to governmental regulation related to privacy, information security and data protection. Any cybersecurity breaches or our failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business.
•Our products could infringe on the intellectual property rights of others.
•Our intellectual property rights and proprietary rights may not adequately protect our products.
We
have never been profitable and reported an accumulated deficit of approximately$196.8 $81,100,000million at AprilDecember 30,31, 2024.2025. These losses have had
an adverse effect on our financial condition, stockholders’ equity and working capital. We will need to generate higher revenues,
improve profit margins, and control operating costs in order to attain profitability. We can provide no assurances that we will be able
to reach profitability.
The
products that we sell couldhave in the past and may in the future contain defects in design or manufacture. Defects couldhave also occuroccurred in the products or components that are
supplied to us. There can be no assurance we will be able to detect and remedy all defects in the hardware and software we sell which
could result in product recalls, product redesign efforts, loss of revenue, reputational damage and significant warranty and other remediation
expenses. If we determine that a product does not meet product quality standards or may contain a defect, the launch of such product
could be delayed until we remedy the quality issue or defect. The costs associated with any protracted delay necessary to remedy a quality
issue or defect in a new product could be substantial.
Our
products may experience declining unit prices and we may not be able to offset that decline with production cost decreases or higher
unit sales.
Prices
of established enterprise electronics, displays, personal computers, and mobile products tend to decline significantly over time or as
new enhanced versions are introduced, frequently every 12 to 24 months in the markets in which we compete. In order to maintain adequate
product profit margins over the long term, we believe that we will need to continuously develop product enhancements and new technologies
that will either slow price declines of our products or reduce the cost of producing and delivering our products. While we anticipate
opportunities to reduce production costs over time, we may not be able to reduce our component costs. We expect to attempt to offset
the anticipated decrease in our average selling price by introducing new products, increasing our sales volumes, or adjusting our product
mix. If we fail to do so, our results of operations will be materially and adversely affected.
Acquisitions
could divert the attention of key personnel, be difficult to integrate, dilute our existing shareholdersstockholders and adversely impact our financial
results.
Since
January 2020, we have completed fourmultiple acquisitions which have significantly increased the scope of our operations and our employee headcount.
Acquisitions include a wide range of risks, any of which could hurt our business, including the following:
•difficulties in integrating the operations of a newly acquired company including existing products and contracts, differences in corporate culture, operating systems and other integration issues;
•challenges supporting and transitioning the customers of acquired companies and the loss of any acquired customers will adversely impact our revenues and operating results;
•assumption of known and unknown operating problems and our potential inability to address them in a timely and efficient manner;
•risks of entering new geographic markets where we have no prior experience and are required to gain an understanding of the legal, regulatory, labor and business laws of these new markets;
•complexities associated with managing the geographic separation of the combined businesses and consolidating multiple physical locations where management may determine consolidation is desirable; and
•difficulties or delays in transitioning U.S. Government contracts pursuant to federal acquisition regulations.
Acquired businesses may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition, including cyber and other security vulnerabilities. In particular, to the extent that prior owners of any acquired businesses or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to the U.S. Government or other customers, we, as the successor owner, may be financially responsible for these violations and failures and may suffer reputational harm or otherwise be adversely affected. Acquisitions also frequently result in the recording of goodwill and other intangible assets that are subject to potential impairment in the future that could harm our financial results. In addition, if we finance acquisitions by issuing debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our stock. If we finance the cost of an acquisition using debt, such financing could include restrictive covenants that restrict our operating and financial flexibility. If the stock market perceives that we overpaid for the acquisition, then our stock price could decrease.
Acquisitions and/or the related equity financings could also impact our ability to utilize our NOL carryforwards. As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. Acquisitions frequently involve benefits related to integration of operations. The failure to successfully integrate the operations or to otherwise realize any of the anticipated benefits of the acquisition could seriously harm our financial condition and results of operations. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful.
In
addition, there are many financial risks associated with the cost of acquisitions. If we finance the cost of an acquisition using common
stock, then our existing shareholders will be diluted and our stock price could decrease. If we finance the cost of an acquisition using
debt, such financing could include restrictive covenants that restrict our operating and financial flexibility. If the stock market perceives
that we overpaid for the acquisition, then our stock price could decrease.
•New Product Launches: With the changes in and growth of our product portfolio, we will experience increased complexity in coordinating product development, manufacturing, and shipping. As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effectively market to stimulate demand and market acceptance. We have experienced delays in the past. If we are unable to scale and improve our product launch coordination, we could frustrate our customers and lose possible retail shelf space and product sales;
•Existing Products Impacted by New Introductions: The introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of a successful product introduction and may cause customers to defer purchasing our existing products in anticipation of the new products. These occurrences could potentially lead to challenges in managing inventory of existing products. We may also provide price protection to some of our retailers as a result of new product introductions and reduce the prices of existing products. If we fail to effectively manage new product introductions, our revenue and profitability may be harmed; and
Management's Discussion & Analysis (MD&A)
New heading “Change in Fiscal Year”
New heading “Discussion and Analysis of Year Ended December 31, 2025 compared to Eight Month Transition Period Ended December 31, 2024 and Year Ended April 30, 2024”
New heading “Revenue Recognition”
New heading “Recently adopted accounting pronouncements”
New heading “Recently issued accounting pronouncements not yet adopted”
Removed heading “Plan of Operations”
Removed heading “Results of Operations”
Removed heading “Discussion and Analysis of Fiscal 2024 compared to Fiscal 2023”
Removed heading “Financial Instruments”
Removed heading “Off-Balance Sheet Arrangements”
Largest changes
“Goodwill and Long-lived Assets – Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and separately recognized. We test goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. …”see in full comparison
“The analysis of the Company's results of operations for the year ended April 30, 2024 ("Fiscal 2024") compared to the year ended April 30, 2023 ("Fiscal 2023") includes only the Company’s Enterprise segment as our Consumer segment was divested in February 2024. At the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which was written down to zero. In addition, its operations were consolidated into Teal. Skypersonic's operating results represented 0% and 2% of consolidated revenues and operating loss for Fiscal 2024. …”see in full comparison
“Significant estimates reflected in these financial statements include those used to (i) complete purchase price accounting for acquisitions, (ii) the evaluation of long-term assets, including goodwill, for impairment, and (iii) the evaluation of other-than-temporary-impairment of equity method investments.”see in full comparison
“Discussion and Analysis of Year Ended December 31, 2025 compared to Eight Month Transition Period Ended December 31, 2024 and Year Ended April 30, 2024”see in full comparison
“The Company has never been profitable and has incurred net losses related to acquisitions, as well as costs incurred to pursue its long-term growth strategy. During the year ended April 30, 2024, the Company incurred a net loss from continuing operations of $21,526,696 and used cash in operating activities of continuing operations of $17,687,063. As of April 30, 2024, working capital for continuing operations totaled $18,746,419. These financial results and our financial position at April 30, 2024 raise substantial doubt about our ability to continue as a going concern. …”see in full comparison
“Discussion and Analysis of Fiscal 2024 compared to Fiscal 2023”see in full comparison
Full comparison: every changed paragraph (68)
Change in Fiscal Year
In September 2024, our Board of Directors approved a change in fiscal year end from April 30 to December 31, effective as of December 31, 2024. In accordance with SEC regulations, our Consolidated Financial Statements are comprised of our Consolidated Balance Sheets as of December 31, 2025 and 2024 and our Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows for the year ended December 31, 2025, eight months ended December 31, 2024, and year ended April 30, 2024. As a result, this Management’s Discussion and Analysis of Financial Condition and Results of Operations is comparing our results of operations for the year ended December 31, 2025 with our results of operations for the eight month period ended December 31, 2024 and the year ended April 30, 2024.
Corporate developments
during the two years ended April 30, 2024 include:
In April 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we issued and sold, in a registered direct offering, an aggregate of 4,724,412 shares of our common stock, par value $0.001 per share, at a price of $6.35 per share. The gross proceeds were approximately $30 million, before deducting the placement agents’ fees and other offering expenses.
In June 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we issued and sold, in a registered direct offering, an aggregate of 6,448,276 shares of our common stock, par value $0.001 per share, at a price of $7.25 per share. The gross proceeds were approximately $46.8 million, before deducting the placement agents’ fees and other offering expenses.
In September 2025, we entered into an underwriting agreement with a certain institutional investor pursuant to which we issued and sold, in a registered direct offering, an aggregate of 15,625,000 shares of our common stock, par value $0.001 per share, at a price of $9.60 per share. We also granted the underwriters a thirty day option to purchase up to an additional 2,343,750 shares of common stock at the public offering price, which the underwriters exercised in full at closing. The gross proceeds were approximately $172.5 million, before deducting the underwriters’ fees and other offering expenses.
Discussion and Analysis of Year Ended December 31, 2025 compared to Eight Month Transition Period Ended December 31, 2024 and Year Ended April 30, 2024
During
the first quarter of fiscal 2022, the Company completed two firm commitment underwritten public offerings with ThinkEquity, a division
of Fordham Financial Management. The first offering, in May 2021, generated gross and net proceeds of $16 and $14.6 million, respectively.
The second offering, in July 2021, generated gross and net proceeds of $60 and $55.5 million, respectively.
On
December 11, 2023, the Company completed a firm commitment underwritten public offering with ThinkEquity of 18,400,000 shares of common
stock which generated gross and net proceeds of $9.2 and $8.4 million, respectively.
Plan of Operations
Since April 2016, the
Company's primary business has been to provide products, services, and solutions to the drone industry which it presently does through
its four wholly owned subsidiaries. Beginning in January 2020, the Company expanded the scope of its drone products and services through
four acquisitions, including:
Following the Teal
acquisition in August 2021, we concentrated on integrating and organizing these businesses. Effective May 1, 2022, we established the
Enterprise segment and the Consumer segment to focus on the unique opportunities in each sector. The Enterprise segment’s initial
strategy was to provide UAVs to commercial enterprises, and the military, to navigate dangerous military environments and confined industrial
and commercial interior spaces. Subsequently, the segment narrowed its near-term attention on the military and other government agencies.
Skypersonic's technology has been redirected to military applications and its operations consolidated into Teal.
The Enterprise segment’s
current business strategy is focused on providing integrated robotic hardware and software for use across a variety of applications.
Its solutions provide critical situational awareness and actionable intelligence to on-the-ground warfighters and battlefield commanders
as well as firefighters and public safety officials. Our Enterprise segment’s efforts are centered on developing and scaling an
American made family of systems. We have since completed construction of a manufacturing facility in Salt Lake City and believe that
an increased focus by the United States government and American businesses on purchasing products that are “Made in America”
provide our Enterprise segment with a competitive advantage.
On February 16, 2024,
we closed the sale of our Consumer segment, consisting of Rotor Riot and Fat Shark, to Unusual Machines. The sale reflects our decision
to focus our efforts and capital on defense where we believe there are more opportunities to create long term shareholder value.
Results of Operations
The
analysis of the Company's results of operations for the year ended April 30, 2024 ("Fiscal 2024") compared to the year ended
April 30, 2023 ("Fiscal 2023") includes only the Company’s Enterprise segment as our Consumer segment was divested in
February 2024. At the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which
was written down to zero. In addition, its operations were consolidated into Teal. Skypersonic's operating results represented 0% and
2% of consolidated revenues and operating loss for Fiscal 2024. Based on its immateriality, Skypersonic is not included in the operating
analysis set forth below.
Discussion and
Analysis of Fiscal 2024 compared to Fiscal 2023
Consolidated revenues totaled $40.7 million during the year ended December 31, 2025 (or the “2025 Period”) compared to $4.9 million during the eight months ended December 31, 2024 (or the "Transition Period") and compared to $17.8 million during the year ended April 30, 2024 (or the "2024 Period"). This represents an increase of $35.8 million, or 739% compared to the Transition Period and an increase of $22.9 million, or 128% compared to the 2024 Period. The increase compared to both periods is attributable primarily to increased revenue associated with the commencement and scaling of drone deliveries to the U.S. Army under the SRR program.
Consolidated
revenues totaled $17,836,382 during the year ended April 30, 2024 (or the "2024 period") compared to $4,620,834 during the
year ended April 30, 2023 (or the "2023 period") representing an increase of $13,215,548, or 286%. The increase primarily related
to higher product revenue related to the launch of the Teal 2 in April 2023. Product revenue totaled $13,588,372 during the year
ended April 30, 2024 compared to $3,012,470 during the year ended April 30, 2023 representing an increase of $10,575,902, or 351%.
The increase in revenue also partially related to increased contract revenues during the 2024 period. Contract revenues totaled $4,173,005
during the 2024 period compared to $1,312,427 during the 2023 period, representing an increase of $2,860,578, or 218%. Contract
revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables
and amendments.
Consolidated
gross profit totaled $3,680,546$1.3 million during the 2025 Period compared to gross loss of $1.4 million during the Transition Period and gross profit of $3.7 million during the 2024 periodPeriod. This represents an increase of $2.7 million, or 195% compared to negativethe $834,311Transition duringPeriod and a decrease of $2.4 million, or 65% compared to the 20232024 period representing an increase
of $4,514,857, or 541%.Period. On a percentage basis, gross profit was 3% during the 2025 Period compared to gross loss of 28% during the Transition Period and gross profit of 21% during the 2024 period compared to negative 18% during the 2023 period.
The percentage basis increase in gross profit in the 2024 period primarily related to obsolete inventory write-offs that occurred during
the 2023 period. Additionally, lower manufacturing levels in the 2023 period resulted in higher relative overhead costs compared to the
2024 period.Period. Our manufacturing facility is presentlycurrently producingoperating dronesbelow at a lower level than it isits designed for,production andcapacity. theseThese lower production
levels, combined with higher fixed overhead costs, continuehave to resultresulted in lower than targeted gross profits.margins during the 2025 Period. As production levelsvolumes increase,
our we expect fixed overhead costs, including labor, are expected to be allocated toacross a greater number of dronesunits, which is expected to drivereduce our
per-droneper-unit production costs lower and increaseimprove gross profits.margins.
Research and development expenses totaled $17.9 million during the 2025 Period compared to $6.6 million during the Transition Period and $6.3 million during the 2024 period. This represents an increase of $11.3 million, or 171% compared to the Transition Period and an increase of $11.6 million, or 186% compared to the 2024 Period. The increase compared to both periods was attributable primarily to increased investment in research and development activities, including engineering personnel costs, prototype development, testing, and other expenses associated with the development of new and enhanced drone platforms and related technologies.
Sales and marketing costs totaled $13.1 million during the 2025 Period compared to $6.3 million during the Transition Period and $5.1 million during the 2024 Period. This represents an increase of $6.8 million, or 107% compared to the Transition Period and an increase of $8.0 million, or 158% compared to the 2024 Period. The increase compared to both periods was attributable primarily to higher payroll and related personnel costs associated with expanding our sales and marketing team to support increased business development and customer engagement activities.
General and administrative expenses totaled $36.9 million during the 2025 Period compared to $11.5 million during the Transition Period and $11.2 million during the 2024 Period. This represents an increase of $25.4 million, or 222% compared to the Transition Period and $25.7 million, or 229% compared to the 2024 Period. The increase compared to both periods was attributable primarily to higher payroll and related personnel costs resulting from increased headcount, as well as higher stock-based compensation expense. These increases reflect the expansion of our corporate, administrative, and compliance functions to support growth during the 2025 Period.
Research and development
expenses totaled $5,896,037 during the 2024 period compared to $5,595,281 during the 2023 period, representing an increase of $300,756,
or 5%. Supplies and materials expense totaled $2,017,979 in the 2024 period compared to $1,444,051 in the 2023 period. This increase
of $573,928, or 40%, primarily related to increased efforts in developing new products and represented substantially all of the total
increase in research and development costs.
Sales and marketing
costs totaled $4,568,617 during the 2024 period compared to $3,731,776 during the 2023 period, representing an increase of $836,841 or
22%. The increase was driven by higher payroll expenses to support increased sales efforts of the Teal 2.
General and administrative
expenses totaled $10,679,105 during the 2024 period compared to $12,383,470 during the 2023 period, representing a decrease of $1,704,365
or 14%. The decrease primarily related to lower professional fees.
During the 2024 period,
we incurred stock-based compensation costs of $3,609,267 compared to $3,656,724 in the 2023 period, resulting in a decrease of $47,457
or 1%.
Other IncomeExpense
Other expense totaled $5.0 million during the 2025 Period compared to $17.8 million during the Transition Period and $2.2 million during the 2024 Period. This represents a decrease of $12.8 million or 72% compared to the Transition Period and an increase of $2.8 million, or 126% compared to the 2024 Period. During the 2025 Period, other expense consisted primarily of a fair value adjustment on convertible notes payable of $11.4 million, partially offset by a gain on extinguishment of convertible notes payable of $3.2 million and net interest income of $2.7 million. During the Transition Period, other expense consisted primarily of a fair value adjustment on convertible note payable of $13.1 million and a loss on sale of equity method investment of $4.0 million. During the 2024 Period, other expense consisted primarily of impairment on equity method investment of $11.4 million, partially offset by a gain of $9.6 million related to the divestiture of the Consumer segment.
Net Loss
Net loss from continuing operations totaled $72.1 million during the 2025 Period compared to $43.6 million during the Transition Period and $21.5 million during the 2024 period. This represents a decrease of $28.5 million, or 65% compared to the Transition Period and a decrease of $50.6 million, or 235% compared to the 2024 Period.
Other expense totaled
$3,650,484 during the 2024 period compared to $1,004,887 during the 2023 period, representing a decrease of $2,645,597 or 263%. During
the 2024 period, the divestiture of the Consumer segment resulted in a gain of $9,642,427, impairment of $11,353,875, and an equity method
loss of $503,625. Additionally, during the 2024 period, the Company was awarded a manufacturing modernization grant from the State
of Utah for $750,000 of which $675,000 is attributable to the 2024 period.
Net Loss from Continuing
Operations
Net loss from continuing
operations totaled $21,526,696 for the 2024 period compared to $26,376,643 for the 2023 period, resulting in a decrease of $4,849,947
or 18%. Total operating expenses totaled $21,556,758 for the 2024 period compared to $24,537,445 for the 2023 period. The decrease in
operating expenses was offset by the increase in other expense. Higher gross profit is attributable to the decrease in net loss from
continuing operations.
Results of Discontinued
Operations
Net loss from discontinued
operations totaled $2,525,933 for the 2024 period compared to $1,730,386 for the 2023 period, representing an increase of $795,547, or
46%. Net loss for Fat Shark totaled $1,365,707 for the 2024 period, compared to $543,962 for the 2023 period, representing an increase
of $821,745 or 151%, and represents 103% of the total increase in net loss from discontinued operations. Fat Shark’s results were
adversely impacted by a charge of $1,244,920 during the 2024 period related to the write-off of excess quantities of Dominator inventory
based on sales volumes. Net loss for Rotor Riot totaled $1,160,226 for the 2024 period compared to $1,186,424 for the 2023 period, representing
a decrease of $26,198 or 2%.
Net cash used in operating
activities was $17,687,063 during the 2024 period compared to net cash used in operating activities ofwas $24,313,674$89.1 million during the 20232025 period,
representingPeriod a decrease of $6,626,611 or 27%. The decreased use of cash primarily relatedcompared to timing$20.5 ofmillion accountsduring receivablethe receiptsTransition for
governmentPeriod customers.and Net$17.7 cash used in operations, net of non-cash expenses, totaled $8,512,449million during the 2024 period,Period. comparedThis to $7,784,364
during the 2023 period, resulting inrepresents an increase of $728,085,$68.6 ormillion 9%.compared to the Transition Period and an increase of $71.4 million compared to the 2024 Period. The increase compared to both periods was attributable primarily to the increase in net loss during the 2025 period. Non-cash expenses totaled $20.5 million during the 2025 period, compared to $22.6 million during Transition Period and $8.5 million during the 2024 Period. Net cash used related to changes in operating assets and liabilities
totaled $4,672,816$37.6 million during the 2025 Period. Net cash provided by related to changes in operating assets and liabilities totaled $0.4 million during the Transition Period. Net cash used related to changes in operating assets and liabilities totaled $4.7 million during the 2024 period,Period. compared to $5,721,395 during the 2023 period, representing a decrease of $1,048,579 or 18%.
Changes in operating assets and liabilities can fluctuate significantly from period to period depending upon the timing and level of
multiple factors, including inventory purchases, vendor payments, and customer collections.
Net cash used in investing activities was $6.6 million during the 2025 Period compared to net cash provided by investing activities of $4.2 million during the Transition Period and $13.6 million during the 2024 Period. During the 2025 Period, net cash used in investing activities consisted entirely of purchases of property and equipment totaling $6.6 million, compared to purchases of property and equipment of $0.2 million during the Transition Period and $0.3 million during the 2024 Period. During the Transition Period, net cash provided by investing activities was primarily attributable to proceeds of $4.4 million from the sale of equity method investment and note receivable. During the 2024 Period, net cash provided by investing activities was primarily attributable to proceeds of $12.8 million from the sale of marketable securities and $1.0 million from the divestiture of the consumer segment.
Net cash provided by investing activities was $13,567,078
during the 2024 period compared to net cash provided by investing activities of $29,590,235 during the 2023 period, resulting in a decrease
of $16,023,157 or 54%. Proceeds of $12,826,217 and $32,290,448 from the sale of marketable securities were used to fund operations during
the 2024 period and the 2023 period, respectively.
Net cash provided by investing activities was $254.5 million during the 2025 Period compared to $19.4 million during the Transition Period, and $7.8 million during the 2024 Period. This represents an increase of $235.1 million compared to the Transition Period and an increase of $246.7 million compared to the 2024 Period. The increase compared to both periods relates to the proceeds from issuance of common stock during the 2025 Period.
Net cash provided by
financing activities totaled $7,802,076 during the 2024 period compared to net cash used in financing activities of $1,215,325 during
the 2023 period. Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific
to the Company. During the fiscal 2024 period, the company received net proceeds from issuance of common stock of $8,395,600.
At AprilDecember 30,31, 2024,
2025, the Company reported current assets totaling $22,397,549,$226.9 million, current liabilities totaling $3,651,130$14.8 million and net working capital of $18,746,419.
$212.1 million. Cash totaled $6,067,169$167.9 million at AprilDecember 30,31, 2024.2025. Inventory related balances, including pre-paid inventory, totaled
$8,610,125. $30.4 million.
Going Concern
The
Company has never been profitable and has incurred net losses related to acquisitions, as well as costs incurred to pursue its long-term
growth strategy. During the year ended April 30, 2024, the Company incurred a net loss from continuing operations of $21,526,696
and used cash in operating activities of continuing operations of $17,687,063.
As of April 30, 2024, working capital for continuing operations totaled $18,746,419. These
financial results and our financial position at April 30, 2024 raise substantial doubt about our ability to continue as a going
concern. However, the Company has recently taken actions to strengthen its liquidity. On December 11, 2023, we completed a public
offering of 18,400,000 shares of common stock which generated net proceeds of approximately $8,400,000. Subsequent to year end, the Company
sold its equity method investment for $4,400,000. In addition, the Company’s operating plan for the next twelve months has been
updated to reflect recent operating improvements. Revenues have accelerated and are expected to continue growing. The Company’s
manufacturing facility is scaling production and gross profits are projected to increase. If necessary, the Company will seek to
obtain additional debt financing for which there can be no guarantee. Management has concluded that these recent positive developments
alleviate any substantial doubt about the Company’s ability to continue its operations, and meet its financial obligations,
for twelve months from the date these consolidated financial statements are issued.
Our financial statements
and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these
policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience,
information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.
Actual results could differ from those estimates made by management.
In addition to our critical accounting estimates and polices below, refer to “Note 2 – Summary of Significant Accounting Policies” for further information.
Revenue Recognition
We recognize revenue in accordance with ASC Topic 606 - Revenue from Contracts with Customers, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. We determined there to be judgment in the determination of performance obligations identified in certain contracts. Our revenue transactions include the shipment of goods to customers as orders are fulfilled, completion of non-recurring engineering, completion of training, and customer support services. We recognizes revenue upon shipment of product or prototypes unless otherwise specified in the purchase order or contract.
Significant estimates reflected in these financial
statements include those used to (i) complete purchase price accounting for acquisitions, (ii) the evaluation of long-term assets, including
goodwill, for impairment, and (iii) the evaluation of other-than-temporary-impairment of equity method investments.
Goodwill
and Long-lived Assets – Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that
are not individually identified and separately recognized. We test goodwill for impairment in accordance with the provisions of ASC
350, Intangibles – Goodwill and Other, (“ASC 350”). Goodwill is tested for impairment at least annually at
the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that
an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing
the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit
is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then
it is required to perform an impairment test. The impairment test involves comparing the estimated fair value of a reporting unit with
its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however,
the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount
that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting
unit.
The
estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both.
Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit. Significant assumptions
inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross
profit, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present
value based on estimated weighted average cost of capital (i.e., the selected discount rate). Our assumptions are based on historical
data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market
approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.
The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size,
geography, and diversity of products and services.
Fair
Values, Inputs and Valuation Techniques for Financial Assets and Liabilities and Related Disclosures – The fair value measurements
and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants
at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities
into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.
The
fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and
the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair
value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has
been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment
of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific
to the asset or liability.
The
guidance establishes three levels of the fair value hierarchy as follows:
Level
1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level
2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices
for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the related assets or liabilities; and Level
3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported
by little or no market data.
Financial Instruments
The Company's financial
instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of
cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term
nature of these instruments.
Off-Balance Sheet
Arrangements
What changed in the latest 10-Q
Risk Factors
New heading “Our business has been significantly dependent on U.S. Department of War contracts and programs, and we face risks associated with the transition of our revenue base to a broader portfolio of government and international customers.”
Removed heading “We may be subject to litigation, legal proceedings, and class action claims that could adversely affect our business and financial condition.”
Removed heading “Our pending acquisition of Quaze Technologies, Inc. (“Quaze”) is subject to customary closing conditions, including regulatory approval under the Investment Canada Act, which may delay, prevent, or impose burdensome conditions on the consummation of the transaction, potentially materially adversely affecting our business, financial condition, and stock price.”
Largest changes
“We may be subject to litigation, legal proceedings, and class action claims that could adversely affect our business and financial condition.”see in full comparison
“From time to time, we are subject to claims, legal proceedings, and class action lawsuits arising in the ordinary course of our business or otherwise. For example, we and certain of our current and former executive officers and directors are defendants in a federal class action securities lawsuit filed in May 2025 and two related federal shareholder derivative lawsuits filed in August 2025 and January 2026. …”see in full comparison
“Our pending acquisition of Quaze Technologies, Inc. (“Quaze”) is subject to customary closing conditions, including regulatory approval under the Investment Canada Act, which may delay, prevent, or impose burdensome conditions on the consummation of the transaction, potentially materially adversely affecting our business, financial condition, and stock price.”see in full comparison
“Our business has been significantly dependent on U.S. Department of War contracts and programs, and we face risks associated with the transition of our revenue base to a broader portfolio of government and international customers.”see in full comparison
“Government contracts and programs are subject to numerous risks and uncertainties beyond our control. These include changes in military priorities, national security strategy, procurement policies, budgetary constraints, congressional appropriations, continuing resolutions, agency funding decisions, competitive procurements, bid protests, evolving operational requirements, and changes in applicable laws or regulations. Government agencies generally have broad rights to modify, delay, reduce the scope of, or terminate contracts and agreements, including for convenience.”see in full comparison
“A significant portion of our recent historical revenue has been derived from contracts, agreements, and programs with agencies of the U.S. Department of War ("DoW"). Our future operating results are dependent, in part, on our ability to successfully execute, maintain and grow relationships with new and existing government customers, perform under current contracts, obtain follow-on awards, and secure additional government and international business. …”see in full comparison
Full comparison: every changed paragraph (13)
Our business has been significantly dependent on U.S. Department of War contracts and programs, and we face risks associated with the transition of our revenue base to a broader portfolio of government and international customers.
A significant portion of our recent historical revenue has been derived from contracts, agreements, and programs with agencies of the U.S. Department of War ("DoW"). Our future operating results are dependent, in part, on our ability to successfully execute, maintain and grow relationships with new and existing government customers, perform under current contracts, obtain follow-on awards, and secure additional government and international business. There can be no assurance that we will successfully complete efforts on new revenue opportunities or that anticipated replacement revenues from new programs and customers will be realized in the timeframes or at the levels we expect.
Government contracts and programs are subject to numerous risks and uncertainties beyond our control. These include changes in military priorities, national security strategy, procurement policies, budgetary constraints, congressional appropriations, continuing resolutions, agency funding decisions, competitive procurements, bid protests, evolving operational requirements, and changes in applicable laws or regulations. Government agencies generally have broad rights to modify, delay, reduce the scope of, or terminate contracts and agreements, including for convenience.
The loss of, or a material reduction in, one or more significant government contracts or programs, or our inability to secure new contracts — whether with other branches of the U.S. armed services, allied foreign governments, or other customers, could have a material adverse effect on our business, financial condition, results of operations, cash flows, and prospects.
We may be subject to litigation, legal proceedings, and class action claims that could adversely affect our business and financial condition.
From time to time, we are subject to claims, legal proceedings, and class action lawsuits arising in the ordinary course of our business or otherwise. For example, we and certain of our current and former executive officers and directors are defendants in a federal class action securities lawsuit filed in May 2025 and two related federal shareholder derivative lawsuits filed in August 2025 and January 2026. Each lawsuit alleges that, among other items, the defendants made false and/or misleading statements related to the production capacity of the Company’s manufacturing facility in Salt Lake City and the potential value of the Company’s contract for the U.S. Army’s SRR Program of Record. Although we do not currently believe that any pending or threatened legal proceedings or claims will have a material adverse effect on our business, financial condition, or results of operations, we cannot provide assurance that pending legal matters, including the class action and derivative lawsuits, will not result in significant liabilities. The defense of litigation, regardless of its merit, can be costly and time-consuming, may divert management's attention and resources, and could result in settlements, judgments, or other outcomes that adversely affect our business, financial condition, and results of operations. Any adverse resolution of such matters could also harm our reputation and negatively impact our relationships with customers, partners, and government agencies.
Our pending acquisition of Quaze Technologies, Inc. (“Quaze”) is subject to customary closing conditions, including regulatory approval under the Investment Canada Act, which may delay, prevent, or impose burdensome conditions on the consummation of the transaction, potentially materially adversely affecting our business, financial condition, and stock price.
The completion of our proposed acquisition of Quaze (the "Acquisition") is subject to customary closing conditions, including the receipt of required regulatory approvals. Specifically, the Acquisition is subject to review and clearance under the Investment Canada Act (the "ICA"). There can be no assurance that the necessary clearances under the ICA will be obtained in a timely manner, or at all. The Canadian governmental authorities possess significant discretion in their review process.
If we fail to satisfy any of the closing conditions, including failing to obtain the required ICA clearance, or if the governmental authorities seek to impose conditions that are unacceptable to us or that permit either party to terminate the definitive transaction agreement, the Acquisition may not close. If the Acquisition is delayed or not consummated:
•the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the transaction will be completed;
•we will have incurred significant transaction costs, including legal, accounting, and advisory fees, and committed substantial management time and resources, which must be absorbed regardless of whether the Acquisition is completed; and
•we will not realize the anticipated strategic and financial benefits of the Acquisition, which could adversely affect our future business plans and growth strategy.
Any of these outcomes could have a material adverse effect on our business, financial condition, and results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Discussion and Analysis of the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025”
New heading “Other (Income) Expense”
Removed heading “Operating Expenses”
Removed heading “Stock-Based Compensation”
Largest changes
“Discussion and Analysis of the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025”see in full comparison
“Other income totaled $4.2 million during the 2026 period compared to other expense of $11.3 million during the 2025 period, representing an increase of $15.4 million or 137%. This increase was primarily attributable to the change in fair value and extinguishment of convertible notes payable, which resulted in a loss of $11.5 million during the 2025 period compared to a loss of $0.5 million during the 2026 period. Interest income also increased from $0.2 million during the 2025 period to $3.2 million during the 2026 period. …”see in full comparison
“General and administrative expenses totaled $38.0 million during the 2026 period compared to $11.1 million during the 2025 period, representing an increase of $26.8 million or 242%. The increase was attributable primarily to higher payroll and related personnel costs resulting from increased headcount, as well as higher stock-based compensation expense. These increases reflect the expansion of our corporate, administrative, and compliance functions to support growth during the 2026 period.”see in full comparison
Full comparison: every changed paragraph (26)
We are a drone technology company integrating robotic hardware and software for military, government and commercial operations. We were originally incorporated under the laws of the State of Colorado in 1984 under the name “Oravest International, Inc.” In November 2016, we changed our name to “TimefireVR, Inc.” and re-incorporated in Nevada. In May 2019, we completed a share exchange agreement with PropwarePropware, which resulted in the Propware shareholders acquiring an 83% ownership interest,interest and management control,control of the Company. In connection with the share exchange agreement, we changed our name to “Red Cat Holdings, Inc.”, and our operating focus to the drone industry.
Discussion and Analysis of the Three Months Ended MarchJune 31,30, 2026 Compared to the Three Months Ended MarchJune 31,30, 2025
Consolidated revenues totaled $15.5$20.2 million during the three months ended MarchJune 31,30, 2026, or the “2026 period” compared to $1.6$3.2 million during the three months ended MarchJune 31,30, 2025, or the “2025 periodperiod,” representing an increase of $13.9$17.0 million, or 849%.527%. The increase is attributable primarily to increased revenue associated with the scaling of drone deliveries to the U.S. Army underand the SRRcommencement program.of drone deliveries to the Japan Ground Self-Defense Force.
Consolidated gross profit totaled $2.0$3.3 million during the 2026 period compared to a gross lossprofit of $0.8$0.4 million during the 2025 periodperiod, representing an increase of $2.8$2.9 million. On a percentage basis, gross profit was 13%16.1% during the 2026 period compared to a gross lossprofit of 52%11.6% during the 2025 period. The gross profit increase was primarily due to higher revenue and lowerincreased inventorymanufacturing write-offsefficiencies in the 2026 period compared to the 2025 period.
Operating Expenses
General and administrative expenses totaled $16.7$21.2 million during the 2026 period compared to $4.9$6.2 million during the 2025 period, representing an increase of $11.8$15.0 million or 243%.241%. The increase was attributable primarily to higher payroll and related personnel costs resulting from increased headcount, as well as higher stock-based compensation expense.expense, Theseand increasesincreased reflectsoftware and technology costs associated with corporate IT infrastructure and the expansionCompany's pursuit of ourCybersecurity corporate,Maturity administrative,Model andCertification compliance functions to support growth during the 2026 period.compliance.
Stock-Based Compensation
During the 2026 period, we incurred stock-based compensation costs of $4.8$5.0 million compared to $1.6$2.0 million in the 2025 period, resulting in an increase of $3.2$3.0 million or 201%.148%. This increase was driven by expenseequity fromawards granted to new employees, as well as annual equity grants awarded since March 31, 2025, primarily duemade to increasedeligible headcount.employees as part of the Company's employee compensation program.
Other income totaled $0.8$3.4 million during the 2026 period compared to other expense of $10.6$0.6 million during the 2025 period, representing an increase of $11.4$4.0 million or 107%.639%. This increase was attributable primarily to the change in fair value and extinguishment of convertible notes payable, which resulted in a loss of $10.7$0.8 million during the 2025 periodperiod, comparedwhich towas anot loss of $0.9 millionpresent during the 2026 period. Interest income also increased from $0.1$0.2 million during the 2025 period to $1.3$1.9 million during the 2026 period. Additionally, the Company recognized an unrealized gain on equity securities of $1.5 million in the 2026 period, which was not present during the 2025 period.
Discussion and Analysis of the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025
Revenues
Consolidated revenues totaled $35.7 million during the six months ended June 30, 2026, or the “2026 period” compared to $4.8 million during the six months ended June 30, 2025, or the “2025 period,” representing an increase of $30.8 million, or 636%. The increase is attributable primarily to increased revenue associated with the scaling of drone deliveries to the U.S. Army and the commencement of drone deliveries to the Japan Ground Self-Defense Force.
Gross Profit
Consolidated gross profit totaled $5.2 million during the 2026 period compared to a gross loss of $0.5 million during the 2025 period, representing an increase of $5.7 million. On a percentage basis, gross profit was 14.7% during the 2026 period compared to a gross loss of 9.8% during the 2025 period. The gross profit increase was primarily due to higher revenue and increased manufacturing efficiencies in the 2026 period compared to the 2025 period.
Research and development expenses totaled $22.2 million during the 2026 period compared to $7.0 million during the 2025 period, representing an increase of $15.2 million or 216%. The increase was attributable primarily to increased investment in engineering personnel costs, prototype development, testing, and other expenses associated with the development of new and enhanced drone platforms and related technologies.
Sales and marketing costs totaled $11.0 million during the 2026 period compared to $6.5 million during the 2025 period, representing an increase of $4.5 million or 69%. The increase was attributable primarily to higher payroll and related personnel costs associated with expanding our sales and marketing team to support increased business development and customer engagement activities.
General and administrative expenses totaled $38.0 million during the 2026 period compared to $11.1 million during the 2025 period, representing an increase of $26.8 million or 242%. The increase was attributable primarily to higher payroll and related personnel costs resulting from increased headcount, as well as higher stock-based compensation expense. These increases reflect the expansion of our corporate, administrative, and compliance functions to support growth during the 2026 period.
During the 2026 period, we incurred stock-based compensation costs of $9.9 million compared to $3.6 million in the 2025 period, resulting in an increase of $6.2 million or 171%. This increase was driven by equity awards granted to new employees, as well as annual equity grants made to eligible employees as part of the Company's employee compensation program.
Other (Income) Expense
Other income totaled $4.2 million during the 2026 period compared to other expense of $11.3 million during the 2025 period, representing an increase of $15.4 million or 137%. This increase was primarily attributable to the change in fair value and extinguishment of convertible notes payable, which resulted in a loss of $11.5 million during the 2025 period compared to a loss of $0.5 million during the 2026 period. Interest income also increased from $0.2 million during the 2025 period to $3.2 million during the 2026 period. Additionally, the Company recognized an unrealized gain on equity securities of $1.5 million in the 2026 period, which was not present during the 2025 period.
Net cash used in operating activities was $31.9$78.7 million during the threesix months ended MarchJune 31,30, 2026 (or the “2026 period”) compared to net cash used in operating activities of $15.9$28.8 million during the threesix months ended MarchJune 31,30, 2025 (or the “2025 period”), representing an increase of $16.0$49.9 million or 101%.173%. The increase was attributable primarily to inventory purchases made during the 2026 period, partially offset by accounts receivable collections. NetNon-cash cash used in operations, net of non-cash expenses,expenses totaled $6.2$11.2 million during the 2026 period, compared to $12.9$16.2 million during the 2025 period, resulting in a decrease of $6.7$5.0 million, or 52%.31%. Net cash used related to changes in operating assets and liabilities totaled $11.6$28.1 million during the 2026 period, compared to net cash used of $5.7$8.6 million during the 2025 period, representing an increase of $5.9$19.5 million. Changes in operating assets and liabilities can fluctuate significantly from period to period depending upon the timing and level of multiple factors, including inventory purchases, vendor payments, and customer collections.
Net cash used in investing activities was $6.8$13.0 million during the 2026 period compared to net cash used in investing activities of $0.3$0.6 million during the 2025 period, resulting in an increase of $6.5$12.4 million. This increase was primarily due to increased purchases of property and equipment.
Net cash provided by financing activities totaled $2.8$249.4 million during the 2026 period compared to net cash provided by financing activities of $14.7$86.2 million during the 2025 period. This decreaseincrease is attributable primarily to proceeds from issuancethe ofMay convertibleRegistered notesDirect Offering which was approximately $258.75 million, before deducting the underwriters’ fees and other offering expenses payable of $15.0 million received duringby the 2025 period which were not present in the 2026 period. This decrease was partially offset by proceeds from warrant exercises of $2.8 million during the 2026 period which were not present in the 2025 period.Company.
At MarchJune 31,30, 2026, we reported current assets totaling $209.7$425.1 million, current liabilities totaling $19.1$28.6 million and net working capital of $190.6$396.5 million. Cash totaled $131.9$325.6 million at MarchJune 31,30, 2026. Inventory related balances, including prepaid inventory, totaled $62.7$84.8 million.
In addition to our critical accounting estimates and policespolicies below, refer to “Note 2 – Summary of Significant Accounting Policies” for further information.
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Proprietary technology is being amortized over six to seven years. Backlog is being amortized over two years. Customer relationships isare being amortized over seven years. Non-compete agreements are being amortized over three years. Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
RCAT insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 7 filings (4 insiders, 7 trade dates, 765,028 shares, about $7.4M; 3 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: -765,028 (purchases minus sales); net value about -$7.4M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-02 | Funk Paul Ii |
Option exercise | 868 | — | — |
| 2026-09-15 | Thompson Jeffrey M |
Open-market sale |
150,000 | $7.74 | $1.2M |
| 2026-09-15 | Thompson Jeffrey M |
Other |
750,000 | — | — |
| 2026-08-28 | Liuzza Nicholas Reyland Jr |
Open-market sale | 65,000 | $8.50 | $552.5K |
| 2026-08-17 | Thompson Jeffrey M |
Open-market sale |
150,000 | $10.45 | $1.6M |
| 2026-08-11 | Moe Christopher R. |
Open-market sale | 20,000 | $10.51 | $210.2K |
| 2026-08-11 | Liuzza Nicholas Reyland Jr |
Open-market sale | 55,000 | $10.63 | $584.6K |
| 2026-07-15 | Thompson Jeffrey M |
Open-market sale |
150,000 | $8.51 | $1.3M |
| 2026-06-11 | Funk Paul Ii |
Open-market sale | 165,028 | $11.50 | $1.9M |
| 2026-04-30 | Funk Paul Ii |
Option exercise | 7,429 | — | — |
| 2026-04-30 | Liuzza Nicholas Reyland Jr |
Option exercise | 7,429 | — | — |
| 2026-04-30 | Freedman Joseph David |
Option exercise | 7,429 | — | — |
| 2026-04-30 | Moe Christopher R. |
Option exercise | 7,429 | — | — |
| 2026-04-06 | Thompson Jeffrey M |
Option exercise | 5,295 | — | — |
| 2026-04-06 | Thompson Jeffrey M |
Shares withheld for tax | 1,570 | $13.06 | $20.5K |
| 2026-03-31 | Hitchcock Geoffrey Wayne |
Option exercise | 2,175 | — | — |
| 2026-03-31 | Hitchcock Geoffrey Wayne |
Shares withheld for tax | 645 | $13.09 | $8.4K |
| 2026-03-31 | Morrison Christian Spenst |
Shares withheld for tax | 145 | $13.09 | $1.9K |
| 2026-03-31 | Morrison Christian Spenst |
Option exercise | 422 | — | — |
| 2026-03-31 | Ericson Christian |
Option exercise | 4,073 | — | — |
| 2026-03-31 | Ericson Christian |
Shares withheld for tax | 1,176 | $13.09 | $15.4K |
| 2025-08-25 | Moe Christopher R. |
Open-market sale | 10,000 | $10.04 | $100.4K |
Well-known investors holding RCAT (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 3,441,774 | $36.7M | 0.02% | Added 1971% |
| D. E. Shaw & Co. | 2026-06-30 | 1,563,608 | $20.5M | — | Sold out |
| Renaissance Technologies | 2026-06-30 | 514,126 | $5.5M | 0.01% | Reduced 64% |
| Two Sigma Investments | 2026-06-30 | 164,172 | $1.7M | 0.0% | New position |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 13,824 | $181.0K | — | Sold out |