Red Cat Holdings, Inc.
For the period ended Mar 31, 2025. Filed May 14, 2025.
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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, 2025 · Filed May 14, 2025
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 2024-10-31; filed 2024-12-16.
0001554795-24-000344
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-14.
0001641172-25-010350
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 71 previous paragraphs and 50 current paragraphs.
23 unchanged; 16 reworded; 11 added; 28 removed; 4 previous and 0 current paragraphs rearranged.
Tables are not compared: 4 previous and 4 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 (11)
Current report
In April 2025, we entered into the First and Second Amendments to the February 2025 SPA with Lind. Additionally, in April 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we agreed to issue and sell, in a registered direct offering. See Note 19 for further information.
Current report
Discussion and Analysis of the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024
Current report
Net loss from continuing operations totaled $23,123,351 for the 2025 period compared to $5,407,623 for the 2024 period, resulting in an increase of $17,715,728 or 328%.
Current report
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 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.
Current report
The estimated fair values are subject to change during the measurement period, which is limited to one year subsequent to the acquisition date.
Current 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.
Current 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.
Current 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.
Current 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.
Current 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.
Removed paragraphs (28)
Previous report
On September 4, 2024, the Company entered into an Asset Purchase Agreement (the “APA”) with FlightWave Aerospace Systems Corporation (the “Seller”). The seller sold certain assets used in designing, developing, manufacturing, and selling long range, AI-powered UAVs for commercial use. Pursuant to the APA, the Company has acquired substantially all of the assets owned, controlled or used by the Seller for an aggregate purchase price of $14,000,000 worth of shares of the Company’s common stock. See Note 3 for further information.
Previous report
On September 23, 2024, we entered into a Securities Purchase Agreement (the “SPA”) with Lind Global Asset Management X LLC (“Lind”). Under the SPA, we received $8 million in funding from Lind in exchange for our issuance to Lind of a Senior Secured Convertible Promissory Note in the amount of $9,600,000 (the “Note”) and a Common Stock Purchase Warrant for the purchase of 750,000 shares of our common stock at a price of $6.50 per share, exercisable for 5 years (the “Warrant”). As additional consideration to Lind, we paid a commitment fee in the amount of $280,000, which was paid by deduction from the funding to be received. The Note, which does not accrue interest, shall be repaid in eighteen (18) consecutive monthly installments in the amount of $533,334 beginning March 23, 2024. See Note 13 for further information.
Previous report
On November 26, 2024, we entered into a First Amendment to our Securities Purchase Agreement (the “SPA Amendment”) with Lind. The SPA Amendment amends the terms of our original Securities Purchase Agreement with Lind dated September 23, 2024. Upon closing of the SPA Amendment, we received an additional $6,000,000 in funding from Lind in exchange for our issuance to Lind of a Senior Secured Convertible Promissory Note in the amount of $7,200,000 (the “Note”) and a Common Stock Purchase Warrant for the purchase of 326,000 shares of our common stock at a price of $9.20 per share, exercisable for 5 years (the “Warrant”). As additional consideration to Lind, we have agreed to pay a commitment fee in the amount of $210,000, which may be paid by deduction from the funding to be received. See Note 20 for further information.
Previous report
Following the Teal acquisition in August 2021, we concentrated on integrating and organizing these businesses. Effective May 1, 2022, we established the Enterprise segment (“Enterprise”) and the Consumer segment (“Consumer”) to focus on the unique opportunities in each sector. Enterprise'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, Enterprise 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.
Previous report
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, Utah 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.
Previous report
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.
Previous report
Results of Operations
Previous report
The analysis of our results of operations for the three and six months ended October 31, 2024 compared to the three and six months ended October 31, 2023 includes only our Enterprise segment as our Consumer segment was divested in February 2024.
Previous report
Discussion and Analysis of Three Months Ended October 31, 2024 compared to Three Months Ended October 31, 2023
Previous report
Consolidated revenues totaled $1,534,727 during the three months ended October 31, 2024 (or the “2024 period”) compared to $3,930,868 during the three months ended October 31, 2023 (or the “2023 period”) representing a decrease of $2,396,141, or 61%. The decrease related to lower product revenue and lower contract revenue as the Company has begun shifting manufacturing focus from the Teal 2 to the Black Widow. Product revenue totaled $1,524,791 during the quarter ended October 31, 2024 compared to $3,383,238 during the quarter ended October 31, 2023 representing a decrease of $1,858,447, or 55%. There were no contract revenues during the 2024 period compared to $529,438 during the 2023 period, representing a decrease of $529,438, or 100%. Contract revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables and amendments.
Previous report
Net loss from continuing operations totaled $13,334,618 for the 2024 period compared to $5,244,299 for the 2023 period, resulting in an increase of $8,090,319 or 154%. Total operating expenses totaled $9,092,944 for the 2024 period compared to $6,092,862 for the 2023 period. This increase of $3,000,082 or 49%, related to the increase in sales and marketing expenses and general and administrative expenses.
Previous report
Discussion and Analysis of Six Months Ended October 31, 2024 compared to Six Months Ended October 31, 2023
Previous report
Revenues
Previous report
Gross Profit
Previous report
Operating Expenses
Previous report
Research and development expenses totaled $3,857,910 during the 2024 period compared to $3,575,688 during the 2023 period, representing an increase of $282,222, or 8%. The increase was primarily driven by the increased investment in the development of new products as well as the FlightWave acquisition.
Previous report
Other Income
Previous report
Other expense totaled $8,907,088 during the 2024 period compared to $614,910 during the 2023 period, representing an increase of $8,292,178 or more than 13 times. This increase is primarily related to a loss incurred on the sale of our equity method investment of $4,008,357 as well as a loss of $4,230,307 recognized on the issuance of the Note to Lind, based on its fair value.
Previous report
Net Loss from Continuing Operations
Previous report
Net loss from continuing operations totaled $25,750,994 for the 2024 period compared to $10,838,594 for the 2023 period, resulting in an increase of $14,912,400 or 138%. Total operating expenses totaled $16,337,040 for the 2024 period compared to $11,598,931 for the 2023 period. This increase of $4,738,109 or 41%, related to the increase in sales and marketing expenses and general and administrative expenses.
Previous report
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, we have categorized our recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.
Previous report
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. Our 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.
Previous report
The guidance establishes three levels of the fair value hierarchy as follows:
Previous report
Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Previous report
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
Previous report
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.
Previous report
Financial Instruments
Previous report
Our financial instruments mainly consist of cash, accounts receivable, current assets, accounts payable, accrued expenses, notes payable, and convertible notes payable. The recorded carrying amounts of cash, accounts receivable, current assets, accounts payable, accrued expenses, and notes payable are considered to approximate their estimated fair values due to their short-term nature. Liabilities recognized at fair value on a recurring basis in the consolidated balance sheets consist of convertible notes payable. These items are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Reworded paragraphs (16)
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 Annual Report on Form 10-K for the fiscal year ended April 30, 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 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.
Previous wording
We are a technology company focused on developing products, services, and solutions to the drone industry. 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 Propware which resulted in the Propware shareholders acquiring an 83% ownership interest, and management 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.
Current wording
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 Propware which resulted in the Propware shareholders acquiring an 83% ownership interest, and management 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.
Previous wording
Since April 2016, our primary business has been to provide products, services, and solutions to the drone industry which we presently do through our three wholly owned subsidiaries Skypersonic, Teal, and Propware. Beginning in January 2020, we expanded the scope of our drone products and services through five acquisitions, including:
Current wording
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. Beginning in January 2020, the Company expanded the scope of its drone products and services through five acquisitions, including:
Previous wording
Consolidated revenues totaled $4,311,262 during the six months ended October 31, 2024 (or the “2024 period”) compared to $5,678,997 during the six months ended October 31, 2023 (or the “2023 period”) representing a decrease of $1,367,735, or 24%. The decrease related to lower product revenue. Product revenue totaled $3,359,991 during the 2024 period compared to $4,796,365 during the 2023 period representing a decrease of $1,436,374, or 30%.
Current wording
Consolidated revenues totaled $1,629,662 during the three months ended March 31, 2025 (or the “2025 period”) compared to $6,614,029 during the three months ended March 31, 2024 (or the “2024 period”) representing a decrease of $4,984,367, or 75%. The decrease related to lower product revenue as the Company has begun shifting manufacturing focus from the Teal 2 to the Black Widow.
Previous wording
Consolidated gross loss totaled $23,475 during the 2024 period compared to a gross profit of $1,200,582 during the 2023 period representing a decrease of $1,224,057, or 102%. On a percentage basis, gross loss was 2% during the 2024 period compared to a gross profit of 31% during the 2023 period. The gross loss in the 2024 period was due to lower-than-planned manufacturing levels due to the transition to the Black Widow which resulted in higher relative overhead costs compared to the 2023 period. Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production levels, combined with higher overhead costs, continue to result in lower than targeted gross margins.
Current wording
Consolidated gross loss totaled $850,410 during the 2025 period compared to a gross profit of $1,121,204 during the 2024 period representing a decrease of $1,971,614, or 176%. On a percentage basis, gross loss was 52% during the 2025 period compared to a gross profit of 17% during the 2024 period. The gross loss in the 2025 period was due to lower-than-planned manufacturing levels due to the transition to the Black Widow which resulted in higher relative overhead costs compared to the 2024 period. Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production levels, combined with higher overhead costs, continue to result in lower than targeted gross margins.
Previous wording
Research and development expenses totaled $2,231,470 during the 2024 period compared to $2,222,137 during the 2023 period, representing an increase of $9,333, or 0.5%.
Current wording
Research and development expenses totaled $3,432,593 during the 2025 period compared to $2,669,502 during the 2024 period, representing an increase of $763,091, or 29%. The increase was primarily due to a higher headcount, including the addition of employees from the FlightWave acquisition.
Previous wording
Sales and marketing costs totaled $2,343,779 during the 2024 period compared to $1,032,645 during the 2023 period, representing an increase of $1,311,134 or 127%. The increase was driven by higher payroll expenses due to an increased headcount and an increase in tradeshow attendance in efforts to spread awareness of new products and the Red Cat Futures Initiative.
Current wording
Sales and marketing costs totaled $3,314,748 during the 2025 period compared to $1,410,506 during the 2024 period, representing an increase of $1,904,242 or 135%. The increase was driven by higher payroll expenses due to an increased headcount and an increase in tradeshow attendance in efforts to spread awareness of new products and the Red Cat Futures Initiative.
Previous wording
General and administrative expenses totaled $4,517,695 during the 2024 period compared to $2,838,080 during the 2023 period, representing an increase of $1,679,615 or 59%. The increase was mainly due to a higher headcount, including the addition of employees from the FlightWave acquisition. In anticipation of winning the production contract under the Army’s Short Range Reconnaissance program of record, the Company increased investment in personnel necessary to fulfill the contract as well as anticipated demands for future products.
Current wording
General and administrative expenses totaled $4,880,448 during the 2025 period compared to $3,084,495 during the 2024 period, representing an increase of $1,795,953 or 58%. The increase was mainly due to a higher headcount, including the addition of employees from the FlightWave acquisition. In anticipation of winning the production contract under the Army’s Short Range Reconnaissance program of record, the Company increased investment in personnel necessary to fulfill the contract as well as anticipated demands for future products.
Previous wording
During the 2024 period, we incurred stock-based compensation costs of $1,304,037 compared to $1,196,325 in the 2023 period, resulting in an increase of $107,712 or 9%.
Current wording
During the 2025 period, we incurred stock-based compensation costs of $1,598,972 compared to $805,634 in the 2024 period, resulting in an increase of $793,338 or 98%.
Previous wording
Other expense totaled $4,218,199 during the 2024 period compared to $352,019 during the 2023 period, representing an increase of $3,866,180 or more than 10 times. This increase is primarily related to a loss of $4,230,307 recognized in the 2024 period on the issuance of the Note to Lind, based on its fair value.
Current wording
Other expense totaled $10,645,152 during the 2025 period compared to other income of $635,676 during the 2024 period, representing an increase of $11,280,828 or more than 17 times. This increase is primarily related to a loss of $10,699,677 recognized in the 2025 period on the February 2025 Note to Lind, based on its fair value.
Previous wording
Net cash used in operating activities was $12,487,713 during the 2024 period compared to net cash used in operating activities of $11,240,359 during the 2023 period, representing an increase of $1,247,354 or 11%. The increased use of cash primarily related to timing of accounts receivable receipts for government customers. Net cash used in operations, net of non-cash expenses, totaled $13,088,786 during the 2024 period, compared to $7,427,197 during the 2023 period, resulting in an increase of $5,661,589, or 76%. Net cash used related to changes in operating assets and liabilities totaled $601,073 during the 2024 period, compared to negative $3,813,162 during the 2023 period, representing an increase of $4,414,235 or 116%. 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 $15,907,737 during the 2025 period compared to net cash used in operating activities of $4,375,260 during the 2024 period, representing an increase of $11,532,477 or 264%. 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 $12,886,204 during the 2025 period, compared to $1,129,679 during the 2024 period, resulting in an increase of $11,756,525, or more than 10 times. Net cash used related to changes in operating assets and liabilities totaled $5,670,590 during the 2025 period, compared to $97,316 during the 2024 period, representing an increase of $5,573,274. 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
Net cash provided by investing activities was $4,276,207 during the 2024 period compared to net cash provided by investing activities of $10,065,641 during the 2023 period, resulting in a decrease of $5,789,434 or 58%. During the 2023 period, proceeds of marketable securities were approximately $10,200,000 compared to $0 during the 2024 period. During the 2024 period, we received proceeds of $4,400,000 from the sale of equity method investment.
Current wording
Net cash used by investing activities was $273,103 during the 2025 period compared to net cash provided by investing activities of $924,009 during the 2024 period, resulting in a decrease of $1,197,112 or 130%. During the 2025 period, proceeds from the divestiture of the consumer segment was $0 compared to $1,000,000 during the 2024 period.
Previous wording
Net cash provided by financing activities totaled $6,755,429 during the 2024 period compared to net cash used in financing activities of $286,206 during the 2023 period. The increase related to the proceeds from the issuance of convertible notes payable during the 2024 period.
Current wording
Net cash provided by financing activities totaled $14,748,953 during the 2025 period compared to net cash used in financing activities of $147,147 during the 2024 period. The increase related to the proceeds from the issuance of convertible notes payable during the 2025 period.
Previous wording
At October 31, 2024, we reported current assets totaling $20,913,163, current liabilities totaling $14,672,706 and net working capital of $6,240,457. Cash totaled $4,611,092 at October 31, 2024. Inventory related balances, including pre-paid inventory, totaled $12,554,330.
Current wording
At March 31, 2025, we reported current assets totaling $29,412,488, current liabilities totaling $28,906,372 and net working capital of $506,116. Cash totaled $7,722,410 at March 31, 2025. Inventory related balances, including pre-paid inventory, totaled $17,107,860.
Previous wording
We have never been profitable and have incurred net losses related to acquisitions, as well as costs incurred to pursue its long-term growth strategy. During the six months ended October 31, 2024, we incurred a net lossof approximately $25,750,000 and used cash in operating activities of approximately $12,500,000. As of October 31, 2024, working capital totaled approximately $6,240,000. These financial results and our financial positionat October 31, 2024 raise substantial doubt about our ability to continue as a going concern. However, we have recently taken actions to strengthen our liquidity. In November 2024, the Company was selected as the winner of the U.S. Army’s Short Range Reconnaissance (SRR) Program of Record. The Company’s manufacturing facility is scaling production of its most recent products and gross profits are projected to increase. As described in Note 13 and Note 20, the Company closed financings with proceeds of approximately $8,000,000 and $6,000,000 in September 2024 and November 2024, respectively. Additionally, the Company’s Form S-3 became effective on December 11, 2024. If necessary, the Company will seek additional equity 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.
Current wording
We have never been profitable and have incurred net losses related to acquisitions, as well as costs incurred to pursue our long-term growth strategy. During the three months ended March 31, 2025, we incurred a net loss of $23,123,351 and used cash in operating activities of $15,907,737. As of March 31, 2025, working capital totaled $506,116. These financial results and our financial position at March 31, 2025 raise substantial doubt about our ability to continue as a going concern. We have recently taken actions to strengthen its liquidity through additional financings. Additionally, in November 2024, we were selected as the winner of the U.S. Army’s Short Range Reconnaissance (SRR) Program of Record which we are currently in negotiations regarding the initial purchase. We are currently in the process of scaling our production manufacturing facility in order to increase revenue and improve gross margins in hopes to increase cash flows from operations. As described in Note 12, we closed financings with proceeds of $7,681,000, $5,775,000, $14,432,880 in September 2024, November 2024, and February 2025, respectively. Additionally, our Form S-3 became effective on December 11, 2024 and as described in Note 19, on April 10, 2025, we raised an additional $30 million. Management has concluded that these recent positive developments alleviate any substantial doubt about our ability to continue our operations, and meet our financial obligations, for twelve months from the date these consolidated financial statements are issued.
Previous wording
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, (iii) the evaluation of other-than-temporary-impairment of equity method investments, and (iv) valuations of convertible notes payable.
Current wording
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.
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
Consolidated gross loss totaled $506,866 during the 2024 period compared to a gross profit of $1,375,247 during the 2023 period representing a decrease of $1,882,113, or 137%. On a percentage basis, gross loss was 12% during the 2024 period compared to a gross profit of 24% during the 2023 period. The gross loss in the 2024 period was due primarily to the delivery of final prototypes under the Short Range Reconnaissance Tranche 2 contract with the U.S. Army which occurred in the first quarter. This is also due to lower-than-planned manufacturing levels in the transition to the Black Widow which resulted in higher relative overhead costs compared to the 2023 period. Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production levels, combined with higher overhead costs, continue to result in lower than targeted gross margins.
Previous report — wording carried elsewhere
Sales and marketing costs totaled $4,385,290 during the 2024 period compared to $2,321,405 during the 2023 period, representing an increase of $2,063,885 or 89%. The increase was driven by higher payroll expenses due to an increased headcount and an increase in tradeshow attendance in efforts to spread awareness of new products and the Red Cat Futures Initiative.
Previous report — wording carried elsewhere
General and administrative expenses totaled $8,000,790 during the 2024 period compared to $5,701,838 during the 2023 period, representing an increase of $2,298,952 or 40%. The increase was mainly due to a higher headcount, including the addition of employees from the FlightWave acquisition. In anticipation of winning the production contract under the Army’s Short Range Reconnaissance program of record, the Company increased investment in personnel necessary to fulfill the contract as well as anticipated demands for future products.
Previous report — wording carried elsewhere
During the 2024 period, we incurred stock-based compensation costs of $2,750,075 compared to $2,107,931 in the 2023 period, resulting in an increase of $642,144 or 30%.