Red Cat Holdings, Inc.
For the period ended Mar 31, 2026. Filed May 7, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed May 7, 2026
RCAT$4.04+18.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-09-30; filed 2025-11-13.
0000748268-25-000010
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-03-31; filed 2026-05-07.
0001628280-26-032121
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 59 previous paragraphs and 40 current paragraphs.
15 unchanged; 7 reworded; 18 added; 36 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 0 previous and 6 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (18)
Current report
Consolidated revenues totaled$15.5 million during the three months ended March 31, 2026, or the “2026 period” compared to$1.6 million during the three months ended March 31, 2025, or the “2025 period” representingan increase of$13.9 million, or 849%. The increase is attributable primarily to increased revenue associated with the scaling of drone deliveries to the U.S. Army under the SRR program.
Current report
Research and development expenses totaled $8.0 million during the 2026 period compared to $3.4 million during the 2025 period, representing an increase of $4.5 million or 132%. 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.
Current report
Sales and marketing costs totaled $4.6 million during the 2026 period compared to $3.3 million during the 2025 period, representing an increase of $1.3 million or 38%. 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.
Current report
General and administrative expenses totaled $16.7 million during the 2026 period compared to $4.9 million during the 2025 period, representing an increase of $11.8 million or 243%. 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.
Current report
Stock-Based Compensation
Current report
Other (Income) Expense
Current report
Other income totaled $0.8 million during the 2026 period compared to other expense of $10.6 million during the 2025 period, representing an increase of $11.4 million or 107%. This increase was attributable primarily to the change in fair value of convertible notes payable, which resulted in a loss of $10.7 million during the 2025 period compared to a loss of $0.9 million during the 2026 period. Interest income also increased from $0.1 million during the 2025 period to $1.3 million during the 2026 period.
Current report
The following table summarizes our cash flows for the periods indicated (in thousands):
Current report
Net cash used in investing activities was $6.8 million during the 2026 period compared to net cash used in investing activities of $0.3 million during the 2025 period, resulting in an increase of $6.5 million. This increase was due to increased purchases of property and equipment.
Current report
Net cash provided by financing activities totaled $2.8 million during the 2026 period compared to net cash provided by financing activities of $14.7 million during the 2025 period. This decrease is attributable primarily to proceeds from issuance of convertible notes payable of $15.0 million received during 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.
Current report
In addition to our critical accounting estimates and polices below, refer to “Note 2 – Summary of Significant Accounting Policies” for further information.
Current report
Revenue Recognition
Current report
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 recognize revenue upon shipment of product or prototypes unless otherwise specified in the purchase order or contract.
Current report
Purchase Price Accounting
Current report
The fair value of brand names, backlog, customer relationships, non-compete agreements, and proprietary technology acquired in our acquisitions are determined using various valuation methods based on significant assumptions specific to each acquisition. We evaluate each acquired intangible asset individually to determine whether its useful life is finite or indefinite. Brand names are assigned an indefinite useful life when no factors are identified that would limit the period over which the brand name is expected to contribute to the Company's cash flows; otherwise, brand names are amortized over their estimated useful lives.
Current report
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Proprietary technology is being amortized oversix toseven years. Backlog is being amortized overtwo years. Customer relationships is 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.
Current report
Recent Accounting Pronouncements
Current report
For information on recently issued accounting pronouncements, if any, refer to Note 2 - Summary of Significant Accounting Policies in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Removed paragraphs (36)
Previous report
Plan of Operations
Previous report
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 wholly owned consolidated subsidiaries.
Previous report
Consolidated revenues totaled$9,646,392 during the three months ended September 30, 2025 (or the “2025 period”) compared to$1,292,447 during the three months ended September 30, 2024 (or the “2024 period”) representingan increase of$8,353,945, or 646%. The increase related to higher product revenue as the Company started delivering drones to the US Army under the SRR program.
Previous report
Research and development expenses totaled $5,968,131 during the 2025 period compared to $1,879,486 during the 2024 period, representing an increase of $4,088,645 or 218%. The increase was primarily due to an increase in professional fees for continued product development and higher payroll expenses due to higher headcount across all entities.
Previous report
Sales and marketing costs totaled $2,984,677 during the 2025 period compared to $1,968,441 during the 2024 period, representing an increase of $1,016,236 or 52%. The increase was driven by higher payroll and stock based compensation expenses due to an increased headcount.
Previous report
General and administrative expenses totaled $9,215,783 during the 2025 period compared to $4,108,844 during the 2024 period, representing an increase of $5,106,939 or 124%. The increase was mainly due to payroll expenses and stock based compensation as a result of a higher headcount.
Previous report
Other Expense
Previous report
Other income totaled $2,209,203 during the 2025 period compared to other expense of $3,991,934 during the 2024 period, representing a decrease of 6,201,137 or 155%. This decrease is primarily related to a loss of $4,008,357 recognized in the 2024 period on the impairment of the investment in Unusual Machines, Inc. In the 2025 period, a gain of $2,448,328 was recognized on extinguishment of convertible notes payable.
Previous report
Net Loss from Continuing Operations
Previous report
Net loss from continuing operations totaled $16,016,448 for the 2025 period compared to $12,433,718 for the 2024 period, resulting in an increase of $3,582,730 or 29%.
Previous report
Discussion and Analysis of the Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
Previous report
Revenues
Previous report
Consolidated revenues totaled$14,494,631 during the nine months ended September 30, 2025 (or the “2025 period”) compared to$14,326,145 during the nine months ended September 30, 2024 (or the “2024 period”) representingan increase of$168,486, or 1%. The increase related to higher product revenue as the Company started delivering drones to the US Army under the SRR program.
Previous report
Gross Profit
Previous report
Consolidated gross profit totaled $162,146 during the 2025 period compared to a gross profit of $997,045 during the 2024 period representing a decrease of $834,899, or 84%. On a percentage basis, gross profit was 1% during the 2025 period compared to a gross profit of 7% during the 2024 period. The gross loss in the 2025 period was due to inventory write-offs occurring as we transition sales and production from the Teal 2 to the Black Widow.
Previous report
Operating Expenses
Previous report
Research and development expenses totaled $12,998,991 during the 2025 period compared to $4,838,004 during the 2024 period, representing an increase of $8,160,987, or 169%. The increase was primarily due to an increase in professional fees for continued product development and higher payroll expenses due to higher headcount across all entities.
Previous report
Sales and marketing costs totaled $9,487,010 during the 2025 period compared to $5,582,469 during the 2024 period, representing an increase of $3,904,541 or 70%. The increase was driven by higher payroll and stock based compensation expenses due to an increased headcount.
Previous report
General and administrative expenses totaled $20,331,980 during the 2025 period compared to $9,931,624 during the 2024 period, representing an increase of $10,400,356 or 105%. The increase was mainly due to payroll expenses and stock based compensation as a result of a higher headcount across all entities.
Previous report
Other Expense
Previous report
Other expense totaled $9,068,362 during the 2025 period compared to other expense of $6,140,259 during the 2024 period, representing an increase of $2,928,103 or 48%. This increase is primarily related to a fair value adjustment loss of
Previous report
$12,939,387 recognized in the 2025 period on the February 2025 Note to Lind, based on its fair value, offset by a gain on extinguishment of convertible notes payable of $2,448,328.
Previous report
Net Loss from Continuing Operations
Previous report
Net loss from continuing operations totaled $52,418,759 for the 2025 period compared to $26,001,360 for the 2024 period, resulting in an increase of $26,417,399 or 102%.
Previous report
Net cash used by investing activities was $1,249,217 during the 2025 period compared to net cash provided by investing activities of $5,250,314 during the 2024 period, resulting in a decrease of $6,499,531. During the 2025 period, proceeds from the divestiture of the consumer segment was $0 compared to $1,000,000 during the 2024 period and proceeds from the sale of equity method investment was $0 compared to $4,400,000 during the 2024 period.
Previous report
Net cash provided by financing activities totaled $251,177,596 during the 2025 period compared to net cash used in financing activities of $588,003 during the 2024 period. The increase relates to the proceeds from the issuance of common stock and convertible notes payable during the 2025 period.
Previous report
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.
Previous report
Significant estimates reflected in these financial statements include those used to (i) complete purchase price accounting for acquisitions, (ii) evaluate long-term assets, including goodwill, for impairment, (iii) evaluate inventory reserves for excess and obsolescence and (iv) determine valuations of convertible notes payable and warrants.
Previous report
The fair value of brand name, backlog, customer relationships and proprietary technology acquired in our acquisitions are determined using various valuation methods, based on a number of significant assumptions. We determine which assets have finite lives and then determine the estimated useful life of finite assets. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end for impairment. Backlog, customer relationships and proprietary technology are being amortized over seven years.
Previous report
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.
Previous report
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.
Previous report
Inventories – We measure inventory at the lower of cost or net realizable value considering judgments and estimates related to future customer demand and other market conditions. Although we believe these estimates are reasonable, any significant changes in customer demand that are less favorable than our previous estimates may require additional inventory write-downs and would be reflected in cost of sales resulting in a negative impact to our gross margin in that period.
Previous report
Convertible Notes Payable –We measure convertible notes payable at fair value based on significant inputs not observable in the market, which causes them to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of the convertible notes payable relate to updated assumptions and estimates are recognized as a convertible notes payable fair value adjustment within the consolidated statements of operations and comprehensive loss.
Previous report
In determining the fair value of the convertible notes payable, we use a market-based approach. The valuation method utilizes a negotiated discount rate and a market yield rate which are unobservable inputs.
Previous report
An increase or decrease in any of the unobservable inputs in isolation could result in a material increase or decrease in the estimated fair value. In the future, depending on the weight of evidence and valuation approaches used, these or other inputs may have a more significant impact on the estimated fair value.
Previous report
Warrants – The fair value of the warrants issued is estimated using a Monte Carlo simulation model. The significant unobservable inputs for the Monte Carlo model include the stock price, exercise price, risk-free rate of return, time to expiration, and the volatility. An increase or decrease in the unobservable inputs in isolation could result in a material increase or decrease in the estimated fair value. In the future, depending on the weight of evidence and valuation approaches used, these or other inputs may have a more significant impact on the estimated fair value.
Reworded paragraphs (7)
Previous wording
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Transition Report on Form 10-KT for the Transition Period ended December 31, 2024 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Current wording
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2025 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Previous wording
Consolidated gross profit totaled$637,502 during the 2025 period compared to a gross loss of$391,963 during the 2024 period representingan increase of$1,029,465. On a percentage basis, gross profit was 7% during the 2025 period compared to a gross loss of 30% during the 2024 period. The gross profit increase was primarily due to higher revenue and lower warranty expense for the Company's product mix in the 2025 period compared to the 2024 period.
Current wording
Consolidated gross profit totaled$2.0 million during the 2026 period compared to a gross loss of$0.8 million during the 2025 period representingan increase of$2.8 million. On a percentage basis, gross profit was 13% during the 2026 period compared to a gross loss of 52% during the 2025 period. The gross profit increase was primarily due to higher revenue and lower inventory write-offs in the 2026 period compared to the 2025 period.
Previous wording
During the 2025 period, we incurred stock-based compensation costs of $3,621,387 compared to $1,277,177 in the 2024 period, resulting in an increase of $2,344,210 or 184%.
Current wording
During the 2026 period, we incurred stock-based compensation costs of $4.8 million compared to $1.6 million in the 2025 period, resulting in an increase of $3.2 million or 201%. This increase was driven by expense from new grants awarded since March 31, 2025, primarily due to increased headcount.
Previous wording
Net cash used in operating activities was $52,656,680 during the nine months ended September 30, 2025 (or the “2025 period”) compared to net cash used in operating activities of $14,692,766 during the nine months ended September 30, 2024 (or the “2024 period”), representing an increase of $37,963,914 or 258%. The increased use of cash primarily related to lower gross profit and higher cash based operating expenses compared to the 2024 period. Net cash used in operations, net of non-cash expenses, totaled $20,094,751 during the 2025 period, compared to $11,135,324 during the 2024 period, resulting in an increase of $8,959,427, or 80%. Net cash used related to changes in operating assets and liabilities totaled $20,332,672 during the 2025 period, compared to net cash provided of $173,270 during the 2024 period, representing an increase of $20,505,942. 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.
Current wording
Net cash used in operating activities was $31.9 million during the three months ended March 31, 2026 (or the “2026 period”) compared to net cash used in operating activities of $15.9 million during the three months ended March 31, 2025 (or the “2025 period”), representing an increase of $16.0 million or 101%. The increase was attributable primarily to inventory purchases made during the 2026 period, partially offset by accounts receivable collections. Net cash used in operations, net of non-cash expenses, totaled $6.2 million during the 2026 period, compared to $12.9 million during the 2025 period, resulting in a decrease of $6.7 million, or 52%. Net cash used related to changes in operating assets and liabilities totaled $11.6 million during the 2026 period, compared to net cash used of $5.7 million during the 2025 period, representing an increase of $5.9 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.
Previous wording
At September 30, 2025, we reported current assets totaling $248,802,498, current liabilities totaling $23,886,568 and net working capital of $224,915,930. Cash totaled $206,425,996 at September 30, 2025. Inventory related balances, including prepaid inventory, totaled $30,595,667.
Current wording
At March 31, 2026, we reported current assets totaling $209.7 million, current liabilities totaling $19.1 million and net working capital of $190.6 million. Cash totaled $131.9 million at March 31, 2026. Inventory related balances, including prepaid inventory, totaled $62.7 million.
Previous wording
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.
Current wording
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.
Previous wording
Purchase Price Accounting – We record our acquisitions under the acquisition method of accounting, under which most of the assets acquired and liabilities assumed are initially recorded at their respective fair values and any excess purchase price is reflected as goodwill. We utilize management estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration, if any. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.
Current wording
We record our acquisitions under the acquisition method of accounting, under which the identifiable assets acquired and liabilities assumed are initially recorded at their respective fair values and any excess purchase price is reflected as goodwill. We utilize management estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed, and contingent consideration, if any. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
During the 2025 period, we incurred stock-based compensation costs of $7,255,420 compared to $3,041,219 in the 2024 period, resulting in an increase of $4,214,201 or 139%.