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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☑ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended ~~April~~December 3031, ~~2024~~2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~________~~__________ to ~~_________~~__________

Commission ~~File~~ ~~Number~~file number: 001-40202

Red Cat Holdings, Inc.

(Exact name of registrant as specified in its charter)


Nevada						88-0490034
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

15 Ave. Munoz Rivera, Ste 2200 San Juan, PR	00901
2800 S West Temple, Suite 5, South Salt Lake, UT		84115
(Address of principal executive offices)	~~(Zip Code)~~	(Zip Code)

Registrant’s telephone number, including area code: (~~833~~800) ~~373~~466-~~3228~~9152

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001

RCAT

Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ ☒ No ☑☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑☒ Smaller reporting company ☑☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~Exchange~~ Act). Yes ☐ No ☑ ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was ~~$50~~620,~~844~~715,~~411~~483.

As of ~~August~~March 517, ~~2024~~2026, there were 74121,~~600~~138,~~737~~764 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the ~~2024~~2026 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this annual report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the registrant’s fiscal year.

Table of Contents

TABLE OF CONTENTS

		~~Page~~		Page
PART I	~~PART I~~
Item 1.	~~Business~~	Business	4	4
Item 1A.	~~Risk Factors~~	Risk Factors	10	11
Item 1B.	~~Unresolved Staff Comments~~	Unresolved Staff Comments	27	32
Item 1C.	~~Cybersecurity~~	Cybersecurity	27	32
Item 2.	~~Properties~~	Properties	28	33
Item 3.	~~Legal Proceedings~~	Legal Proceedings	29	34
Item 4	~~Mine Safety Disclosures~~	Mine Safety Disclosures	29	34
PART II	~~PART II~~
Item 5.	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29	34
Item 6.	~~Reserved~~	[Reserved]	30	34
Item 7.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30	35
Item 7A.	~~Quantitative and Qualitative Disclosures About Market Risk~~	Quantitative and Qualitative Disclosures About Market Risk	34	38
Item 8.	~~Financial Statements and Supplementary Data~~	Financial Statements and Supplementary Data	35	F-1
Item 9.	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	60	36
Item 9A.	~~Controls and Procedures~~	Controls and Procedures	60	36
Item 9B.	~~Other Information~~	Other Information	61	37
Item 9C.	~~Disclosure Regarding Foreign Jurisdictions that Prevent Inspections~~	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	61	37
PART III	~~PART III~~
Item 10.	~~Directors, Executive Officers, and Corporate Governance~~	Directors, Executive Officers, and Corporate Governance	61	38
Item 11.	~~Executive Compensation~~	Executive Compensation	62	38
Item 12.	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62	38
Item 13.	~~Certain Relationships and Related Transactions, and Director Independence~~	Certain Relationships and Related Transactions, and Director Independence	62	40
Item 14.	~~Principal Accountant Fees and Services~~	Principal Accountant Fees and Services	62	40
PART IV	~~PART IV~~
Item 15.	~~Exhibits and Financial Statement Schedules~~	Exhibits and Financial Statement Schedules	62	41
Item 16.	~~Form 10-K Summary~~	Form 10-K Summary	63	43
Signatures			64	44

Table of Contents

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "“Securities Act"”) and Section 21E of the Securities Exchange Act of 1934, as amended (the "“Exchange Act"”). Such forward-looking statements include, among others, those statements including the words "“believes"”, "“anticipates"”, "“expects"”, "“intends"”, " “estimates"”, "“plans"” and words of similar import. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. Therefore, we caution you that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include (i) the market and sales success of our existing and any new products, (ii) our ability to raise capital when needed and on acceptable terms, (iii) our ability to make acquisitions and integrate acquired businesses into our company, (iv) our ability to attract and retain management, (v) the intensity of competition, (vi) changes in the political and regulatory environment and in business and economic conditions in the United States and globally, (vii) geopolitical conflicts throughout the world, including those in Ukraine, Iran and Israel. These risks and others described under the section "“Risk Factors"” below are not exhaustive.

Given these uncertainties, readers of this Annual Report are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

All references in this Annual Report to the "“Company"”, "“we"”, "“us"”, or "“our"”, are to Red Cat Holdings, Inc., a Nevada corporation, including its wholly owned consolidated subsidiaries ~~Skypersonic~~, ~~Inc.~~which ~~(“Skypersonic”),~~include Teal Drones, Inc. (“Teal”), ~~and~~ Red Cat Propware, Inc. (“Propware”), asFW ~~well~~Acquisition, asInc. ~~Rotor~~(“FlightWave”), ~~Riot~~Blue ~~LLC~~Ops, Inc. (“~~Rotor~~Blue ~~Riot~~Ops”), ~~Fat Shark Holdings~~Skypersonic, ~~Ltd~~Inc. (“~~Fat Shark~~Skypersonic”), ~~which~~and ~~were~~UAVPatent ~~wholly owned subsidiaries until February 16, 2024~~Corp.

Table of Contents

PART I

ITEM 1. BUSINESS

Overview

~~The~~We ~~Company~~are ~~was~~a ~~originally~~U.S.-based ~~incorporated~~provider ~~under the laws~~ of ~~the~~advanced ~~State~~all-domain ofdrone ~~Colorado~~and inrobotic ~~1984~~solutions ~~under~~for ~~the name Oravest International~~defense, ~~Inc.~~national ~~In November 2016~~security, ~~we changed our name to TimefireVR, Inc.~~ and ~~re-incorporated~~commercial ~~in Nevada~~applications. InWe ~~May~~develop ~~2019,~~American-made ~~the~~hardware ~~Company~~and ~~completed~~software athat ~~share~~supports ~~exchange~~military, ~~agreement~~government, ~~with~~and ~~Propware~~public ~~which~~safety ~~resulted~~operations inacross ~~the Propware~~air, ~~shareholders acquiring an 83% ownership interest~~land, and ~~management~~sea. ~~control,~~Our family of ~~the~~systems ~~Company.~~delivers Intactical ~~connection~~capabilities ~~with~~in ~~the share exchange agreement~~small, weunmanned ~~changed~~aircraft ~~our~~systems ~~name~~(sUAS) toand ~~Red~~uncrewed ~~Cat~~surface ~~Holdings,~~vessels ~~Inc.~~ (~~“Red~~USVs), ~~Cat”~~delivering orintegrated ~~the~~platforms ~~“Company”~~designed orto ~~“we”)~~enhance safety and ~~our~~ ~~operating~~multi-domain ~~focus~~mission ~~to the drone industry~~effectiveness.

~~Prior~~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, the Company completed a share exchange agreement, with Propware ~~was focused~~which onresulted in the ~~research~~Propware shareholders acquiring an 83% ownership interest, and ~~development~~management control, of ~~software~~the ~~solutions~~Company. ~~that~~In ~~could~~connection ~~provide~~with ~~secure~~the ~~cloud-based~~share ~~analytics~~exchange agreement, ~~storage~~we ~~and~~changed ~~services~~our ~~for~~ name to Red Cat Holdings, Inc. (“Red Cat” or the ~~drone~~“Company” ~~industry~~or “we”). Following the share exchange agreement and ~~its~~our name change, ~~Red~~we ~~Cat has~~ completed a series of acquisitions and financings which have broadened the scope of ~~its~~our activities in the drone industry. ~~These acquisitions included:~~

~~• In January 2020, we acquired Rotor Riot, a reseller of drones and related parts, primarily to the consumer marketplace through its digital storefront located at www.rotorriot.com.~~ The ~~total~~Drone ~~purchase price was $2.0 million.~~Industry

•The Indrone ~~November~~industry ~~2020,~~continues ~~the~~to ~~Company~~expand ~~acquired~~to ~~Fat~~become ~~Shark~~a ~~which~~powerful ~~sells~~business ~~consumer~~tool ~~electronics~~and ~~products~~recreational toactivity, ~~the~~with ~~first-person~~growth ~~view~~occurring ~~(“FPV”)~~broadly ~~sector~~and ofacross ~~the~~our ~~drone~~targeted ~~industry~~industries. ~~Fat~~Unmanned ~~Shark’s~~systems ~~flagship~~have ~~products~~become ~~are~~an ~~headsets~~increasingly ~~with~~important acomponent ~~built-in~~of ~~display~~modern ~~(or~~military ~~“goggles”)~~operations. ~~that~~Unmanned ~~allow~~aerial asystems, ~~pilot~~as towell ~~see~~as aunmanned ~~real-time~~surface ~~video~~vessels, ~~feed~~enable ~~from~~military aforces ~~camera~~to ~~typically~~conduct ~~mounted~~intelligence, onsurveillance, anand ~~aerial~~reconnaissance, ~~platform~~target oracquisition, ~~drone.~~electronic ~~The~~warfare, ~~total~~and ~~purchase~~strike ~~price~~missions ~~was~~while ~~$8.4~~reducing ~~million~~risk to personnel.

•Advances Inin ~~May~~autonomy, ~~2021~~sensors, ~~we acquired Skypersonic~~communications, aand ~~provider~~artificial ofintelligence ~~drone~~have ~~products~~expanded ~~and~~the ~~software~~operational ~~solutions~~capabilities ~~that~~of ~~enable~~these ~~drone~~systems ~~inspection~~and ~~flights~~broadened ~~that~~the ~~can~~range beof ~~executed~~missions bythey ~~pilots~~can ~~anywhere in the world~~support. ~~Skypersonic~~Compared ~~powers drones~~ to ~~“Fly~~traditional ~~Anywhere”~~manned ~~and~~platforms, ~~“Inspect~~many ~~the~~unmanned ~~Impossible”.~~systems ~~Its~~can ~~patented~~be ~~software~~deployed ~~and~~more ~~hardware~~rapidly, ~~solutions~~operate ~~allow for inspection services~~ in ~~restricted~~high-risk ~~spaces~~or ~~where~~contested ~~GPS~~environments, isand ~~denied~~be orprocured ~~unavailable.~~at ~~The~~significantly ~~total~~lower ~~purchase price was $2~~cost.~~8 million.~~

•Recent Inconflicts ~~August~~have ~~2021,~~further demonstrated the ~~Company~~operational ~~acquired~~effectiveness ~~Teal,~~of arelatively ~~leader~~low-cost unmanned systems in ~~providing~~areas ~~sophisticated~~including ~~and~~battlefield ~~complex~~intelligence, ~~unmanned~~force ~~aerial~~protection, ~~vehicle~~and ~~("UAV")~~precision ~~technology,~~targeting. ~~primarily~~As ~~drones~~a result, tomilitary ~~government~~organizations ~~and~~are ~~commercial~~increasingly ~~enterprises,~~integrating ~~most~~unmanned ~~notably,~~platforms ~~the~~into ~~military~~tactical units and broader operational planning. ~~Teal~~Many ~~manufactures~~defense ~~drones~~planners ~~approved~~view byunmanned ~~the~~systems ~~U.S.~~as ~~Department~~a offorce ~~Defense~~multiplier ~~for~~that ~~reconnaissance,~~can ~~public~~complement ~~safety,~~or ~~and~~augment ~~inspection~~conventional ~~applications.~~platforms ~~The~~across ~~total~~air, ~~purchase~~land, ~~price~~and ~~was~~maritime ~~$10~~domains.~~0 million.~~

~~Following~~Defense ~~the~~Spending ~~Teal acquisition in August 2021, we concentrated on integrating~~ and ~~organizing~~Modernization 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.Priorities

~~The~~Demand ~~Enterprise~~for ~~segment’s current~~unmanned ~~business~~systems ~~strategy~~ is ~~focused~~supported onby ~~providing~~increasing ~~integrated~~global ~~robotic~~defense ~~hardware~~spending and ~~software~~evolving ~~for~~military ~~use~~modernization ~~across a variety of applications~~priorities. ~~Its~~ ~~solutions~~Governments ~~provide~~worldwide ~~critical~~continue ~~situational awareness and actionable intelligence~~ to ~~on-the-ground~~invest ~~warfighters~~in ~~and~~advanced ~~battlefield~~technologies ~~commanders as~~intended ~~well~~to asenhance ~~firefighters~~military ~~and~~readiness, ~~public~~improve ~~safety~~operational ~~officials.~~effectiveness, ~~Our Enterprise segment’s efforts are centered on developing~~ and ~~scaling~~maintain ~~an American~~technological ~~made~~advantages ~~family of systems. We have since completed construction of a manufacturing facility~~ in ~~Salt~~areas ~~Lake~~including ~~City~~autonomy, ~~and~~artificial ~~believe~~intelligence, ~~that an increased focus by the United States government~~ and ~~American~~networked ~~businesses on purchasing products that are “Made in America” provide our Enterprise segment with a competitive advantage~~systems.

OnIn ~~February~~the ~~16,~~United ~~2024~~States, we ~~closed~~ the ~~sale~~Department of ~~our~~War ~~Consumer~~(“DoW”) ~~segment,~~has ~~consisting~~identified ofautonomous ~~Rotor~~systems, ~~Riot~~artificial intelligence, and ~~Fat~~advanced ~~Shark,~~sensing tocapabilities ~~Unusual~~as ~~Machines,~~key ~~Inc.~~priorities ~~(or~~within ~~“Unusual~~its ~~Machines” or~~broader ~~“UMAC”)~~modernization strategy. ~~The~~Multiple ~~sale~~branches ~~reflects~~of ~~our~~the ~~decision~~U.S. tomilitary ~~focus~~have ~~our~~initiated ~~efforts~~programs ~~and~~focused ~~capital~~ on ~~defense~~expanding ~~where~~the wedeployment ~~believe~~of ~~there~~tactical ~~are~~unmanned ~~more~~systems, ~~opportunities~~ including small drones designed to ~~create~~support ~~long~~frontline ~~term~~units ~~shareholder~~with ~~value~~real-time intelligence and situational awareness.

On November 5, 2024, the U.S. Presidential and Congressional elections occurred, with Donald Trump being elected President of the United States, and the Republican party controlling both the U.S. Senate and the U.S. House of Representatives. On March 14, 2025 the Senate voted to pass the “Full-Year Continuing Appropriations and Extensions Act of 2025” (H.R. 1968) to further extend appropriations and avert a government shutdown through the end of the federal government’s fiscal year 2025 on September 30, 2025. This continuing resolution (“CRA”) largely extended fiscal year 2024 spending levels, including certain limited flexibility to reallocate certain program funds, and, according to the Congressional Budget Office, would allow for $1.6 trillion in discretionary spending in the federal government’s fiscal

~~Key~~Table ~~Business Accomplishments~~of ~~during Fiscal 2024 and to date include:~~Contents

~~Scaling Teal~~year 22025, awith ~~military~~$893 billion for defense (an approximately $6 billion increase) and $708 billion for non-~~grade~~defense ~~sUAS~~spending ~~Designed~~(an toapproximately ~~“Dominate~~$13 ~~the~~billion ~~Night™”~~reduction).

~~Following~~On ~~its~~July ~~acquisition by~~4, ~~Red~~2025, ~~Cat~~the inOne ~~August~~Big ~~2021,~~Beautiful ~~Teal~~Bill ~~accelerated~~Act ~~efforts~~(OBBBA) onwas ~~the~~enacted. ~~development~~This ofreconciliation ~~its~~bill ~~next~~appropriated ~~generation~~an ~~drone~~additional $156 billion for ~~our~~defense ~~Enterprise~~spending ~~segment.~~and ~~These efforts~~national ~~culminated~~security priorities and is expected to result in ~~the~~increased ~~launch~~investment ofby the ~~Teal~~DoW 2 in ~~April~~defense ~~2023.~~modernization ~~The~~projects ~~Teal~~and 2increasing isweapons ~~the~~and ~~first~~armaments ~~small,~~production ~~unmanned~~capacity. ~~aircraft~~Approximately ~~system~~$113 ~~(“sUAS”) designed~~billion toof ~~“Dominate~~ the ~~Night”,~~$156 ~~when~~billion ~~most~~in ~~combat~~OBBBA ~~operations~~funding ~~take~~for ~~place,~~defense ~~through~~and ~~its~~national ~~enhanced~~security ~~capabilities.~~priorities ~~The~~is ~~Teal~~intended 2to ~~offers~~ be added to the ~~latest~~final ~~intelligence,~~2026 ~~surveillance,~~defense ~~and~~appropriations ~~reconnaissance~~bill (~~“ISR”~~see below) ~~technology~~The ~~and~~appropriated ~~delivers~~funds ~~time-critical~~will ~~information~~remain ~~that~~available ~~enables the~~to ~~warfighter~~be toobligated ~~make~~until ~~faster~~September 30, 2029 and ~~smarter~~can ~~decisions~~be expended through 2035.

The ~~Teal~~federal ~~2 is manufactured exclusively at Teal~~government’s ~~purpose-built~~2026 ~~factory~~fiscal inyear ~~Salt~~began ~~Lake~~on ~~City, Utah. Teal originally moved into the facility in~~ October ~~2021.~~1, ~~In January 2022~~2025, ~~Teal~~without ~~doubled~~ the ~~size~~passage of ~~the~~Appropriation ~~facility,~~Acts ~~which~~or ~~now~~a ~~totals approximately 22~~CRA,~~000~~ ~~square~~resulting ~~feet, to fully scale production capacity to meet the forecast growth~~ in ~~demand~~a ~~and to house its expanding team of software and technology engineers~~U.S. WeGovernment believe that maximum production capacity for this facility can reach 5,000 or more drones per month over the next few years, provided that additional capital investments are made and manufacturing efficiencies realizedshutdown. ~~Manufacturing~~On inNovember ~~the United States~~9, ~~“Made in the USA~~2025,” is a ~~critical~~stopgap ~~consideration of~~spending ~~the~~measure ~~U.S.~~was ~~government~~enacted, ~~and~~which ~~other~~expired ~~state~~on ~~and~~January ~~local~~30, ~~government agencies~~2026.

~~During~~ The U.S. Department of War’s Fiscal ~~2024,~~Year ~~Teal~~2026 ~~continued~~budget torequest ~~scale~~totals ~~the~~approximately ~~manufacturing~~$961.6 ~~facility~~billion, ~~including~~which ~~dedicated~~represents ~~teams~~$843.3 ~~for~~billion ~~production~~in base budget (discretionary) and ~~assembly,~~$113.3 ~~manufacturing engineering,~~billion ~~supply~~in ~~chain~~reconciliations ~~and~~(mandatory) ~~logistics~~funding, ~~warranty~~representing ~~and~~a ~~returns,~~continuation asof ~~well~~the assustained aincrease ~~flight~~in ~~operations~~U.S. ~~team~~defense ~~that~~spending isand ~~focused~~reflecting onongoing ~~manufacturing~~investments ~~and quality~~in ~~assurance~~advanced technologies including autonomous systems, artificial intelligence, cybersecurity, and ~~quality~~counter-unmanned ~~control~~aerial capabilities.

~~Designation~~The ofpotential ~~Teal 2~~challenges aspresented ~~Blue~~by ~~UAS~~the ~~received~~recent ~~from~~ U.S. ~~Department~~Government shutdown, Presidential and Congressional changes, proposed new tariffs, the current budgetary and deficit funding environment, the Trump Administration’s stated fiscal policies, Israel, Ukraine, Venezuela and Taiwan funding support, potential heightened levels of ~~Defense~~inflation, ongoing supply chain disruption, and the challenging appropriations process, among other items, all continue to potentially create significant short and long-term risks to the industry and the Company. Additionally, the Trump Administration has recently executed certain executive orders directly related to significantly changing the current DoW procurement policies and procedures, and the Federal Acquisition Regulations, the potential impact of which such changes, if effected either by executive orders or changes to the relevant law, to the industry, are unknown at this time.

InWe ~~June~~believe ~~2023,~~however ~~the~~that ~~Teal~~our 2business ~~received~~is ~~clearance~~well-positioned, ~~from~~ including in areas that the ~~U.S.~~Trump ~~Department~~Administration, ofthe ~~Defense~~DoW, ~~("DoD")~~the toFCC beand ~~designated~~national assecurity arelated ~~Blue~~and ~~UAS.~~other ~~The~~customers ~~DoD~~currently ~~defines~~indicate ~~these~~are ~~drones~~priorities asfor ~~NDAA~~future ~~(National~~defense ~~Defense Authorization~~spending. ~~Act)~~As ~~compliant~~noted above, ~~validated~~we asbelieve ~~cyber~~that ~~secure,~~there ~~and~~is ~~safe~~a togenerational ~~fly.~~recapitalization ~~This~~of ~~designation~~weapon ~~enables~~systems ~~Teal~~and tothe ~~fill~~defense ~~orders~~industrial ~~from~~base ~~federal,~~occurring ~~state, and~~with ~~local~~the ~~government~~U.S. ~~agencies~~and ~~subject~~its allies to ~~oversight~~address bypeer ~~the~~and ~~DoD~~near peer threats, including ~~those~~Russia, ~~orders~~China, ~~that~~North ~~were~~Korea ~~contingent~~and ~~upon~~Iran. ~~receiving~~We ~~certification. In~~believe ~~addition,~~that ~~many~~our ~~governments~~positioning as a proven provider of ~~allied~~military ~~nations~~grade ~~are~~hardware, ~~more~~products, ~~likely~~systems and software to ~~purchase~~address ~~Blue~~these ~~UAS~~threats ~~approved~~for ~~drones.~~and ~~Teal's~~with ~~legacy~~our ~~drone,~~customers ~~the~~and ~~Golden Eagle,~~partners is ~~also~~recognized onin the ~~cleared list~~industry.

~~After~~Reporting the U.S. Army banned its forces from using Chinese-made quadcopters due to security risks (the radio controls of the drone are unencrypted and the devices could potentially capture, store and upload sensitive information to the Chinese government), the DoD began developing its own alternatives under a defense program known as Blue sUAS. Blue sUAS is an initiative of the Defense Innovation Unit (“DIU”), the only DoD organization focused on accelerating the adoption of commercial and dual use technology to solve operational challenges at a speed and scale that is faster and higher than normal for government agencies.Segments

~~Red~~We ~~Cat~~operate ~~Futures~~as ~~Initiative~~one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker ("CODM"), who is our Chief Executive Officer, in deciding how to allocate resources and assess performance. Our CODM evaluates our financial information and resources, and assesses the performance of the resources, on a consolidated net income (loss) basis. The CODM does not evaluate profitability below the level of the consolidated company. The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. Our significant segment expenses are included in the consolidated statements of operations. The significant segment expenses that are reviewed by our CODM on a regular basis to manage performance and allocate resources include cost of goods sold, research and development and sales and marketing.

InOur May 2024, we announced the formation of the Red Cat Futures Initiative (RFI). RFI is an independent, industry-wide consortium of robotics and autonomous systems (RAS) partners dedicated to putting the most advanced and interoperable uncrewed aircraft systems into the hands of warfighters. Anchored by Red Cat’s Teal Drones, the RFI unites the world’s most innovative UAS hardware and software companies focused on AI/ML, swarming, FPV, command and control, and payloads.Strategy

~~Founding~~Our ~~members~~strategy ~~include~~is ~~Ocean~~to ~~Power~~provide ~~Technologies (NYSE:~~products ~~OPTT),~~to ~~Sentien~~the ~~Robotics,~~war ~~Primordial~~fighter ~~Labs,~~that ~~Athena~~work. AIIn executing our strategy, ~~Unusual~~Red ~~Machines~~Cat primarily seeks to utilize proven technology, ~~Reach~~which ~~Power~~we modify, ~~Doodle~~adopt, ~~Labs~~change, integrate and ~~MMS~~apply ~~Products~~to address market opportunities that we identify jointly with our customers and with our partners. ~~The~~This ~~shared~~approach ~~goal is~~allows ~~advocacy,~~us ~~integrations~~to rapidly develop and ~~co-marketing~~field ~~that~~relevant ~~bridges~~offerings, ~~considerable~~while ~~technology~~reducing ~~gaps~~technical, ~~through~~schedule ~~modular~~and ~~open~~financial ~~architecture~~risk.

Our Divisions and Products

Teal

~~Government~~Table ~~Contracts~~of ~~and Orders~~Contents

Teal designs and manufactures small, tactical unmanned aircraft systems for defense and public safety customers. In July 2025, Teal Drones achieved AS9100 certification from NSF International Strategic Registrations (NSF-ISR), a leading global certification body for aerospace and defense quality systems. The ~~Enterprise~~AS9100 ~~segment~~standard, isdeveloped ~~focused~~by the International Aerospace Quality Group (IAQG) and based on UISO 9001, is the globally recognized benchmark for quality management in the aviation, space, and defense sectors.S. ~~federal government~~It ~~agencies~~includes aerospace-specific requirements that strengthen quality control, ~~particularly~~safety, and traceability. The certification confirms that Teal Drones meets these demanding standards across the ~~DoD~~full product lifecycle, ascovering ~~its~~design, ~~initial~~manufacturing, ~~target~~and ~~market~~maintenance, ensuring consistent quality, reliability, and performance for customers and partners worldwide. ~~Its~~In ~~longer~~November ~~term~~2024, ~~target~~Teal ~~customer~~was ~~base~~selected ~~includes~~as a winner of the U.S. ~~state~~ Army’s Short Range Reconnaissance (SRR) Program of Record. The production selection was made after a test and ~~local~~evaluation ~~government~~process ~~agencies~~of Teal’s next generation sUAS, ascompleted ~~well~~by asthe ~~governments~~Army ofProject ~~foreign~~Management ~~allies~~Office for Uncrewed Aircraft Systems, Army Maneuver Battle Lab, Army Test and Evaluation Command, and Army Operational Test Center. An ~~overview~~Teal products include the Black Widow™, which enables swift adaptation to mission requirements, including SRR with selectable integrated AI software capabilities. The system is purpose-built for defense and security and designed to increase survivability for the war fighter. Teal 2 is another SRR product whose primary application encompasses combat soldiers, police officers, firefighters, wildlife managers, and industrial inspectors rely on the Teal 2 to achieve mission success. Teal 2 is Blue UAS Certified product by the U.S. Department of ~~existing~~Defense. ~~government~~FANG™ ~~contracts~~is a 7" or 10" First Person View (FPV) small UAS designed to put operators directly “in the cockpit” with full manual control. Built as a versatile, lower-cost flying camera system, it enables repetitive training and ~~recent developments~~immersive ~~include:~~flight experiences without the expense of higher-end platforms.

~~Finalist for Short Range Reconnaissance Program of Record~~FlightWave

InFlightWave ~~March~~develops ~~2022,~~and ~~Teal~~produces ~~was~~long-endurance, ~~selected~~vertical bytakeoff ~~the DoD’s DIU~~ and ~~the~~landing ~~U.S. Army to compete in the Short Range Reconnaissance Tranche 2~~ (~~SRR T2~~"VTOL") ~~Program~~fixed-wing ofunmanned ~~Record.~~aircraft ~~The~~systems ~~rigorous~~designed ~~technical~~for ~~requirements and~~extended-range ~~program~~intelligence, ~~objectives~~surveillance, ofand ~~SRR~~reconnaissance T2missions. ~~dramatically~~FlightWave ~~narrowed~~produces the ~~field~~Edge ~~from~~130, 37which ~~drone~~combines ~~manufacturers~~its ~~down~~innovative tovertical ~~two~~take-off ~~vendors.~~and ~~The~~landing ~~Army~~capabilities, ~~has indicated~~seamless ~~that~~transition ~~Tranche~~between 2hover and 3forward ~~have~~flight ~~been~~modes, ~~combined~~ and ~~will~~tool-free ~~represent~~payload ~~the~~swapping ~~final~~designed ~~tranche~~to ofoperate in the ~~SRR~~most ~~program~~challenging environments.

~~Teal~~Blue was selected to develop a next-generation sUAS designed for intelligence, surveillance and reconnaissance (ISR) duties, with a focus on autonomous capability, for the U.S. Army. The ultimate goal of the SRR T2 program is to provide a small, rucksack portable, fully encrypted sUAS that provides all Army infantry platoons (consisting of 20-50 soldiers) with situational awareness beyond the next terrain.Ops

AsIn August 2025, we announced the launch of ~~May~~our ~~2024~~newest division, ~~Teal~~Blue ~~has~~Ops, ~~completed~~Inc., ~~all~~focused ~~milestones in~~on ~~its~~developing ~~SRR~~a T2family ~~contract,~~of ~~whose~~battle-tested ~~value~~USV ~~totaled~~weapons $5systems that meet the rapidly evolving demands of the modern battlefield.7 ~~million~~This new division underscores our strategy to expand our family of systems and evolve into an all-domain defense company. ~~Teal~~As ~~expects~~part of the ~~Army~~all-domain toand ~~announce~~multi-use ~~vendor~~case ~~selection~~(ISR, tactical strike) strategy, we will be integrating various sensors, kinetics, and other capabilities into this new USV weapons system, including the transportation and deployment of aits ~~production~~existing ~~award~~aerial by UAS systems. Blue Ops' first USV was built and delivered to its Florida showroom in the ~~fourth~~4th quarter of ~~calendar 2024~~2025.

~~U.S.~~Industry ~~Border Patrol~~Partnerships

~~$1.8~~We ~~Million~~view ~~Purchase~~strategic ~~Order~~partnerships ~~from~~as Ua means by which to further the reach of our innovative solutions by accessing new markets, customers, and complementary capabilities.S. ~~Border Patrol~~We also consider acquisitions as a method to obtain valuable products, capabilities or technologies that can further enable our growth strategy.

InPartnership ~~September~~to ~~2023,~~Enable ~~Teal~~FANG™ ~~was~~FPV ~~awarded~~Drone aDeployment ~~$1.8 million contract~~ from ~~U.S.~~AeroVironment's ~~Customs~~P550™ and Border Protection to provide Teal 2 systems to U.S. Border Patrol. The U.S. Border Patrol is using the Teal 2 to provide supplemental airborne reconnaissance, surveillance and tracking capability, enhancing situational awareness for U.S. field commanders and agents.UAS

~~Customs~~We ~~and~~announced ~~Border~~a ~~Protection~~development ~~Contract~~roadmap ~~Worth up~~with AeroVironment, Inc. ("AV") (NASDAQ: AVAV) to ~~$90~~enable ~~Million~~our ~~over~~FANG™ ~~Five~~FPV ~~Years~~drones to be deployed as a payload from AV’s P550™ all-electric Group 2 eVTOL UAS.

InWe ~~December~~are ~~2021,~~actively ~~Teal~~working ~~was~~with ~~one~~AV ofto ~~only~~develop ~~five~~a ~~contractors designated~~marsupial configuration that enables the P550 to ~~participate~~carry inand arelease ~~firm,~~FANG ~~fixed~~from ~~price,~~its ~~multiple~~modular ~~award~~CLIK ~~blanket~~interface. ~~purchase~~Leveraging ~~agreement~~the P550’s Modular Open Systems Approach (~~BPA~~MOSA) byarchitecture, the ~~United~~concept ~~States~~demonstrates ~~Customs~~how ~~and~~interoperable ~~Border Protection.~~unmanned ~~The~~systems ~~BPA~~can ~~has~~work antogether ~~estimated~~to ~~value~~deploy ofa ~~$90~~smaller ~~million~~FPV indrone ~~total~~from ~~over~~ a 5long-~~year~~endurance ~~period~~Group 2 platform to extend reach and tactical flexibility within a single mission framework.

~~The~~AV’s ~~Department~~P550 ofis ~~Homeland~~an ~~Security~~autonomous, ~~agencies can~~all-electric ~~place~~Group ~~orders~~2 ~~through~~eVTOL ~~the~~UAS ~~BPA~~featuring ~~for~~a ~~unmanned~~15-pound ~~aircraft~~modular ~~systems~~payload ~~(UAS).~~capacity, ~~The~~five-hour ~~drones~~endurance, ~~will~~and ~~provide~~advanced ~~supplemental~~AI-enabled ~~airborne~~autonomy. ~~reconnaissance,~~Our ~~surveillance~~FANG™ FPV drone, ~~and~~ ~~tracking~~part ~~capability~~of toits ~~enhance~~Arachnid ~~situational~~Family ~~awareness~~of ~~for~~Systems, ~~field~~is ~~commanders~~an ~~and~~NDAA ~~agents~~compliant inFPV ~~areas~~platform ~~that~~built ~~lack~~for ~~nearby~~ISR ~~traditional~~and ~~surveillance systems~~tactical orapplications. ~~available~~When ~~manned~~deployed ~~air~~from ~~support.~~a P550 in a marsupial

U.S. Defense Logistics Agency

In August 2023, Teal received two purchase orders totaling $5.2 million from the U.S. Defense Logistics Agency (DLA). Both orders were requested by U.S. Air Force Security Forces, whose role is to defend Air Force bases and installations.

The procurements were sourced by global operations support company Noble Supply & Logistics, LLC (NOBLE) as part of the DLA’s Special Operational Equipment Tailored Logistics Support (“SOE TLS Program”). NOBLE is a DLA-designated provider for the SOE TLS Program. This 10-year program, capped at $33 billion, covers the delivery of logistics support to federal agencies, military bases and other DLA customers worldwide, helping them meet their special operational equipment requirements.

~~NATO~~Table ~~Allied~~of ~~Countries~~Contents

~~In March 2024~~configuration, ~~Teal~~FANG ~~received~~can ~~$2.5~~provide ~~million~~ close-in ~~new~~ ~~contract~~situational ~~awards~~awareness ~~with~~beyond ~~two~~visual ~~NATO~~line ~~allied countries. As part~~ of ~~our~~sight, ~~expanded~~enhance ~~global~~operator ~~sales~~decision-making ~~strategy~~and, ~~the~~in ~~contract~~future ~~delivery featured Teal 2 drone systems~~iterations, ~~training,~~support ~~and~~additional ~~accessories~~payload configurations.

~~Product Development~~We are collaborating on the engineering, interface, and control requirements needed to enable this payload deployment concept. The teams are conducting design and compatibility work ahead of future demonstrations to showcase how modular systems can expand mission flexibility for U.S. and allied defense forces. This forward-looking collaboration aims to demonstrate interoperability between Group 2 and FPV-class systems, extend FPV operational range through aerial deployment, combine long- and short-range ISR capabilities within one mission, showcase modular, MOSA-aligned pathways for the Army’s evolving sUAS ecosystem.

~~Product development~~Successful ~~efforts~~Flight inTesting ~~fiscal~~of ~~2024~~Palantir’s ~~were~~VNav ~~focused~~Software on ~~the~~Black ~~scaling~~Widow™ of the Teal 2 which was officially launched in April 2023 at the Army Aviation Mission Solutions Summit. Significant resources were also expended developing the next generation system under the Army's SRR Tranche 2 program.Drone

We successfully completed flight testing of our Black Widow™ drone equipped with Palantir Technologies Inc. (Nasdaq: PLTR) Visual Navigation (VNav) Software. The test demonstrated that the Black Widow™ drone can navigate in GPS-denied conditions using Palantir’s visual-based navigation software. This marked the first known commercial demonstration of visual navigation software on a drone already accepted into a U.S. Army program.

The testing sequence validated full integration of VNav with the Black Widow™ flight controller, including compatibility with GPS-assisted operation, accurate navigation in simulated GPS-denied environments, reliable operation at altitudes as low as one hundred fifty feet AGL and speeds up to sixteen miles per hour, robust performance in twilight and extremely low-light conditions, and a simulated reconnaissance mission with dynamic flight parameters, completed successfully without GPS or human input.

Apium Joins Red Cat Futures Initiative to Advance Swarming Autonomy for Tactical Drones

Apium Swarm Robotics, Inc., a developer of distributed autonomy for unmanned systems, signed a memorandum of agreement with the Company and joined the Red Cat Futures Initiative. The Futures Initiative is a strategic collaboration aimed to fast-track the deployment of autonomous systems across air, land, and sea. Apium's technology was successfully integrated onto the Teal 2 drone enabling the drones to autonomously perform multi-agent missions.

Apium’s system scalability is a result of moving the swarm logic from a centralized ground station to the drone itself. This allows each drone to make independent decisions through cooperation with neighboring vehicles without requiring a constant up-link or ground control. This architecture eliminates single points of failure, allowing the swarm to continue to operate even when vehicles fail or ground station communications are lost. The system has also demonstrated resiliency when degraded by jamming or interference.

Operators can engage any of the variety of behaviors found in Apium's Swarm Library with just a few taps on a touch screen interface. These behaviors range in complexity from orbiting over a target, to fully automated collaborative sorties. Behaviors may be changed or adjusted, at any time, even after the swarm has been launched. Vehicles may join or leave the swarm mid-mission, allowing vehicles to be temporarily reassigned for direct individual control, sensor ops, or kinetic action and later reintegrate with the swarm seamlessly.

Sales and Marketing

~~Since acquiring~~Our ~~Teal in August 2021, we have built a~~ sales and marketing ~~team which presently consists of 16 direct and support professionals. Most of their~~ efforts inhave ~~fiscal~~been ~~2024 were~~ focused on developing relationships with the military agencies of the U.S. Federal Government. While the sales cycle for government agencies can be extensive and take considerable time and effort to establish, they can often become a long-term buyer once initial sales are closed. Our sales and marketing teams have also been active in international markets looking at establishing long term relationships with foreign government and military clients as well.

During fiscal 2024, we continued global expansion efforts among U.S. allies. In December 2023, the team showcased the Teal 2 drone at Expodefensa 2023 in Latin America. Expodefensa 2023 is a main hub for security and defense in Latin America, allowing international exhibitors to present their systems and products in response to a growing regional demand. The aim of the event was to help governments and armed forces face their operational and capability challenges while playing a role in building a safer Latin America.

In February 2024, the team showcased the Teal 2 drone at the World Defense Show in Saudi Arabia. The World Defense Show provided a unique platform for the world’s defense industry to network, partner, share knowledge, and discover new innovations and capabilities across all defense domains. The World Defense Show attracted key defense figures, government officials, decision-makers, and thought leaders across all levels of the supply chain.

Other Teal Information

Suppliers

~~Teal~~We ~~purchases~~are ~~inventory from~~dependent ~~over~~upon 35the ~~suppliers.~~availability ~~Approximately~~of ~~80%~~materials ofand ~~this~~major ~~inventory~~components isand ~~purchased~~the ~~from~~performance ~~four~~of ~~vendors~~our suppliers. ~~The~~Historically, ~~most~~we ~~critical~~have ~~components~~been ~~are~~successful ~~electronics and~~in ~~cameras~~obtaining the materials required in our manufacturing processes. ~~Teal's~~We seek to manage materials supply ~~chain~~risk isthrough ~~NDAA~~long-term non-binding agreements with certain key suppliers that help stabilize pricing, reduce lead times, enhance planning accuracy and, ~~Blue~~to ~~UAS~~some ~~compliant~~degree, mitigate risk. ~~All~~While ~~suppliers~~we believe that all such raw materials and components are ~~approved~~available ~~based~~to onmeet ~~Teal's~~our ~~strict~~needs ~~vendor~~from ~~qualification process.~~various suppliers, certain supply chain constraint

Competition

Teal's primary competitor is Shenzhen Da-Jiang Innovations Sciences and Technologies Company Limited (“DJI”), headquartered in Shenzhen, China. Though regulation is trending toward further restrictions against Chinese made drones, DJI remains a global industry leader and continues to serve markets on which Teal is focused. Teal’s primary domestic competitor is Skydio Inc. This company was selected alongside Teal out of 37 companies to compete in the Short Range Reconnaissance Tranche 2 program. Future competitors may include established defense contractors that are better capitalized and resourced to compete in Teal's markets. Teal competes with a combination of its unique product value propositions (i.e., nighttime capability, modular platform), and scalable, low-cost, domestic manufacturing.

The Drone Industry

The drone industry continues to expand to become a powerful business tool and recreational activity, with growth occurring broadly and across our targeted industries. According to Drone Industry Insights, the global drone market is expected to grow to $54.6 billion by 2030, with the commercial market growing at a 7.7% compound annual growth rate (“CAGR”). According to Vantage Market Research, the global military drone market is projected to reach a value of $34.9 billion by 2030 at a CAGR of 11.6%.

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trends, such as increased demand for domestic suppliers, could cause delays in production and development programs and negatively impact our operating results.

Competition

We believe the principal competitive factors in the markets for our uncrewed aerial and maritime systems include product performance; mission reliability; survivability; innovative features; acquisition cost; lifetime operating cost, including maintenance and logistics support; ease of deployment and operation; secure communications; rapid integration with existing command-and-control architectures; manufacturing scalability; customer support; and brand reputation. Several companies globally, primarily in the United States and allied nations, compete in these markets to varying degrees. While many competitors possess substantial financial, technical, and marketing resources, we believe our focus on tactical edge systems, rapid innovation cycles, and mission-driven design differentiates our offerings.

The market for small UAS platforms is highly competitive and continues to evolve rapidly in response to changing operational requirements, emerging autonomy capabilities, and government procurement programs emphasizing domestic manufacturing and cybersecurity compliance. We also face competition from international manufacturers offering comparable small tactical UAS platforms, particularly in allied markets.

The market for mid-sized tactical UAS platforms includes competitors with varying degrees of endurance, payload capacity, and vertical launch capability.

The market for tactical and mid-sized USVs is competitive and characterized by increasing demand for autonomous navigation, modular payload integration, maritime domain awareness, and fleet interoperability.

Across all divisions, we compete with established defense contractors, emerging venture-backed technology companies, and international manufacturers. In addition, evolving government procurement policies, regulatory requirements, and export controls may affect the competitive landscape. We believe our focus on secure, mission-ready systems, rapid innovation, and customer-driven development positions us competitively within our target markets.

Government Regulation and Federal Policy

The Federal Aviation Administration

The Federal Aviation Administration (the “FAA”) of, within the ~~United~~U.S. ~~States~~ Department of Transportation, isregulates ~~responsible for the regulation~~ and ~~oversight~~oversees of civil aviation ~~within~~in the UUnited States.S. Its ~~primary~~ mission is toaviation ~~ensure~~safety, ~~the~~and ~~safety~~reliability of ~~civil~~the ~~aviation.~~National Airspace System ("NAS") The FAA ~~has~~uses ~~adopted~~ the ~~name~~term “unmanned aircraft systems” (“"UAS”") to describe aircraft ~~systems~~operated without a flight crew ononboard, ~~board.~~commonly ~~More~~referred ~~common~~to ~~names~~as ~~include~~drones, ~~drone~~UAVs, ~~UAV~~or ~~and~~ remotely operated aircraft.

~~The~~Over ~~FAA began issuing conditional approvals allowing~~ the ~~operation~~last ~~of drones as early 2005 with their scope and frequency expanding in recent years with the significant increase in the number of drones sold. In December 2015~~decade, the FAA ~~announced~~has ~~that~~steadily ~~all~~moved ~~drones~~UAS ~~weighing~~from ~~more~~one-off ~~than~~approvals ~~250~~toward ~~grams,~~a orpredictable ~~0.55~~operating ~~pounds, must be registered with the FAA~~framework. InRegistration ~~June 2016~~requirements, the ~~FAA released a new section under title 14 of the Code of Federal Regulations (~~Part 107) ~~defining~~remote apilot ~~regulatory framework for the commercial~~regime, ~~industrial~~ and ~~public~~Remote ~~safety~~ID ~~use~~each ofcreated ~~drones,~~the ~~establishing~~scaffolding ~~a licensing program~~ for ~~drone~~lawful ~~pilots,~~commercial ~~and~~operations ~~issuing Remote~~at ~~Pilot certificates to qualified pilots~~scale. AsFor ofUAS ~~July 2023~~manufacturers, the ~~FAA~~value ~~reported~~is ~~the~~simple: ~~registration~~clearer ofrules ~~almost~~expand ~~870,000~~the ~~drones,~~addressable ~~of which approximately 350~~market,~~000~~ ~~were~~reduce ~~commercial~~friction ~~and~~for ~~approximately 520~~customers,~~000~~ ~~were~~and ~~recreational.~~reward Inplatforms ~~addition,~~built ~~more~~to ~~than~~operate ~~330,000 remote pilots were certified~~compliantly. ~~This data strongly suggests drones represent the largest share of commercial aviation in the United States by number of pilots, aircraft, and flights.~~

InPart ~~January~~108 2021, the FAA finalized rules requiring that drones be identifiable remotely. These rules became effective for drone manufacturers in September 2022 and for drone pilots in September 2023. The FAA believes that remote ID technologies enhance safety and security by allowing the FAA, law enforcement, and federal security agencies to identify drones flying in their jurisdiction. These efforts lay the foundation for more complex operations, such as those beyond visual line of sight at low altitudes, as the FAA and the drone industry move toward a unified air traffic management ecosystem as drone operations become a routine fixture in the National Airspace System (~~the~~proposed ~~“NAS”~~BVLOS rulemaking).

InThe ~~May~~FAA’s ofproposed ~~2023~~BVLOS rule would establish 14 CFR Part 108, ~~the FAA~~creating ~~began~~a ~~soliciting~~dedicated ~~recommendations~~pathway ~~from~~for ~~the~~routine, ~~industry~~scalable ~~regarding~~operations ~~rule~~beyond ~~making~~visual ~~supporting~~line ~~the~~of ~~implementation~~sight, instead of ~~Beyond~~relying ~~Visual~~on ~~Line~~waivers ofand ~~Sight (BVLOS)~~bespoke ~~operations~~approvals. ~~This~~The ~~rulemaking~~Notice ~~would~~of ~~support~~Proposed ~~standard~~Rulemaking ~~implementation~~("NPRM") ofis ~~routine~~structured ~~flights~~around ~~over~~two ~~the~~authorization ~~horizon~~tracks, ~~and~~operating ~~potentially~~permits ~~multiple miles~~for ~~from~~defined, alower-risk ~~drone’s~~missions ~~control~~and ~~station~~operating ~~and~~certificates ~~pilot.~~for ~~This~~more ~~rulemaking~~complex ~~would~~operations ~~free~~with ~~drone~~additional ~~pilots~~program ~~and~~requirements. ~~operators~~It ~~from~~also ~~restrictive~~ties ~~and~~BVLOS ~~labor-intensive~~scalability ~~conditional~~to ~~approval~~standardized ~~petitions~~operator obligations, maintenance expectations, and ~~would~~a ~~improve~~defined ~~the~~process ~~economies~~for ofUAS ~~scale~~airworthiness ~~for~~acceptance. ~~drones~~The topractical ~~tackle~~effect ~~larger~~is ~~mission~~to ~~sets,~~turn ~~such~~BVLOS ~~as surveying~~into ~~miles~~an ofoperational ~~power~~category ~~lines~~that orcan ~~railroad~~be ~~tracks~~productized by industry, orrather ~~securing~~than ~~miles~~a ofregulatory ~~rural~~exception ~~border~~that must be litigated flight-by-flight.

InFor ~~July 2023~~manufacturers, ~~the~~Part ~~FAA released~~108 ais ~~notice~~expected ~~of proposed rulemaking for another regulation that would ease the integration of UAS into the NAS. This rule, known as Modernization of Special Purpose Airworthiness Certificates, seeks~~ to ~~modernize~~be ~~the manner in which the FAA performs safety assessment of the design of certain aircraft, including UAS. As~~ a ~~result,~~direct ~~the~~value ~~testing~~driver ~~and~~because ~~evaluation burden on manufacturers is greatly decreased, and the cost of development of UAS may be dramatically reduced.~~ it:

~~American~~•normalizes ~~Security Drone~~BVLOS ~~Act~~as a repeatable use case across infrastructure, public safety, agriculture, surveying, and logistics, which expands demand for capable systems;

In February 2023, two Congressman introduced the American Security Drone Act (ASDA) which would prohibit the purchase and operation of drones from countries identified as national security threats such as China. The basis for the legislation is that purchases from these countries (i) pose a significant threat to national security, (ii) represent efforts to infiltrate and influence American society, and (iii) risk the theft of personal and business data. Specifically, the American Security Drone Act:

• Prohibits federal departments and agencies from procuring certain foreign commercial off-the-shelf drone or covered unmanned aircraft system manufactured or assembled in countries identified as national security threats and provides a timeline to end current use of these drones.

• Prohibits the use of federal funds awarded through certain contracts, grants, or cooperative agreements to state or local governments from being used to purchase foreign commercial off-the-shelf drones or covered unmanned aircraft systems manufactured or assembled in a country identified as a national security threat.

• Requires the Comptroller General of the United States to submit a report to Congress detailing the amount of foreign commercial off-the-shelf drones and covered unmanned aircraft systems procured by federal departments and agencies from countries identified as national security threats.

In December 2023, the ASDA was officially passed into law as part of the National Defense Authorization Act.

~~Other~~Table ~~Corporate Information~~of Contents

•rewards platforms engineered for design assurance, reliability, and compliance documentation, which becomes a differentiator as operators migrate off waivers; and

•reduces the commercial penalty of regulatory uncertainty, making customer procurement and long-cycle enterprise adoption more realistic.

Additionally, in January 2025, we received FAA authorization to operate UAS in U.S. airspace without broadcasting Remote ID, specifically for aeronautical research in controlled conditions. The approval remains valid through January 31, 2028, barring earlier rescission or extension.

FCC Covered List Action

Separate from FAA operational regulation, the FCC controls whether many wireless-enabled devices can be authorized for import and sale in the United States through its equipment authorization regime. In December 2025, the FCC updated its Covered List to add foreign-produced UAS and foreign-produced UAS critical components on a going-forward basis, based on a national security determination. This is a meaningful market-structure change: it constrains the pipeline of new foreign models entering U.S. commerce through normal authorization channels, while creating a clear incentive for trusted, compliant domestic supply chains.

In early January 2026, the FCC also recognized a defense-driven carve-out for vetted, trusted systems, including UAS and components on the Defense Contract Management Agency's Blue UAS list and certain domestic end products under Buy American standards, through January 1, 2027.

This is expected to benefit UAS manufacturers because:

•it shifts competitive advantage toward trusted platforms with resilient supply chains, rather than lowest-cost imports;

•it rewards manufacturers that can meet government and enterprise security requirements without redesigning the product around last-minute compliance surprises; and

•it reduces customer risk around procurement continuity, supportability, and policy whiplash.

American Security Drone Act

In February 2023, Members of Congress introduced the American Security Drone Act (ASDA) to limit procurement and use of covered foreign UAS, reflecting national security and data risk concerns. ASDA became law as part of the FY24 NDAA and is being implemented through federal acquisition rules that prohibit executive agencies (and, critically, contractors using federal funds) from procuring covered foreign UAS, with an operational prohibition tied to statutory timelines.

For UAS manufacturers, ASDA is expected to drive value because it:

•creates durable demand signals inside federal procurement and federally funded programs;

•accelerates state and local migration away from covered foreign platforms where federal money touches the purchase; and

•turns “trusted” from a marketing adjective into a procurement gate, which benefits manufacturers already aligned to U.S. security expectations.

Environmental Considerations

While the operations of many businesses have some form of negative impact on the environment, drones have a unique ability to provide a positive contribution. Many of these relate to a drone’s ability to reach places in a more efficient manner, and include such activities as:

• Aerial mapping and nature monitoring

• Maintenance of renewable energy sources and infrastructure

~~• Disaster relief monitoring~~9

•Table ~~Agriculture~~of ~~sustainability~~Contents

•Disaster ~~Wildlife~~relief ~~conservation~~monitoring

•Agriculture sustainability

•Wildlife conservation

Intellectual Property

The Company has consolidated its company-owned intellectual property (“IP”) into a subsidiary, UAVPatent Corp. The subsidiary holds 2234 issued patents and registered designs and 813 pending patents ~~and registered designs~~. The IP portfolio includes design and utility patents ranging from modular architectures to autonomous capabilities. None of the patents are currently licensed and IP is generated in the general course of engineering design.

UAVPatent Corp also has the trademarks on the Teal, FlightWave, Skypersonic, and Red Cat brands and logos.

Intellectual Property related to our drones is also acquired through supply purchasing in the form of technology rights and software licenses.

Employees

As of ~~June~~December 3031, ~~2024~~2025, the Company had 89244 full-time employees. Our employees are our greatest asset, and the ability to recruit, retain, fairly compensate, and develop our workforce is critical to our success.

We work diligently to attract the best talent from a diverse range of sources in order to meet the current and future demands of our business. We have established relationships with local job networks and educational institutions to proactively attract a diverse pool of talent. We also strive to provide a compensation and benefits package that will attract, retain, and motivate employees and reward their performance, including competitive market-based pay and comprehensive benefits. We are committed to providing fair and equitable pay for employees, utilizing both external and internal benchmarking tools to do so. Eligible employees have access to a wide range of benefits including medical, dental, and vision plans; life insurance, disability insurance and identity theft insurance; savings and retirement plans; an employee stock purchase plan; and other resources.

Guided by our values, we are committed to creating a company where everyone is included and respected, and where we support each other in reaching our full potential.

Research and Development

During the ~~years~~year ended ~~April~~ 30December 31, ~~2024 and 2023~~2025, we incurred research and development costs of $516.7 million,~~500~~ excluding $1.2 million of stock-based compensation. During the eight months ended December 31,~~932~~ 2024, we incurred research and development costs of $6.4~~,902,334,~~ ~~respectively~~million, excluding $~~395~~0.2 million of stock-based compensation. During the year ended April 30,~~105~~ 2024, we incurred research and development costs of $~~692~~5.9 million,~~947~~ excluding $0.4 million of stock-based compensation~~, respectively~~.

9Available Information

Our website is located at www.redcat.red. Information found on our website is not incorporated by reference into this report. We make our filings with the U.S. Securities and Exchange Commission, or SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments and exhibits to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, available free of charge on or through our website, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov.

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Item 1A. RISK FACTORS

Risk Factor Summary

Risks Related to our Financial Results and Condition

• 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 ~~products~~operating results may ~~experience~~be ~~declining~~adversely ~~unit~~impacted ~~prices~~by ~~and~~worldwide wepolitical, ~~may~~economic ~~not~~and bepublic ~~able~~health touncertainties ~~offset~~and ~~that~~specific ~~decline~~conditions ~~with~~in ~~production~~the ~~cost~~markets ~~decreases~~we ~~or higher unit sales~~address.

•Acquisitions ~~Our~~could ~~operating~~divert ~~results~~the ~~may~~attention beof ~~adversely~~key ~~impacted~~personnel, bybe ~~worldwide~~difficult ~~political~~to integrate, ~~economic~~dilute ~~and~~our ~~public~~existing ~~health~~stockholders ~~uncertainties~~ and ~~specific~~adversely ~~conditions~~impact inour ~~the~~financial ~~markets we address~~results.

•Our ~~Acquisitions~~failure ~~could divert the attention of key personnel, be difficult~~ to ~~integrate,~~effectively ~~dilute~~manage ~~our~~growth ~~existing~~could ~~shareholders~~harm ~~and adversely impact~~ our ~~financial results~~business.

• Our ~~failure~~products toare ~~effectively~~subject ~~manage~~to ~~growth~~lengthy ~~could~~development ~~harm our business~~cycles.

•We ~~Our~~expect ~~products~~to ~~are~~incur ~~subject~~substantial toresearch ~~lengthy~~and development ~~cycles~~costs related to identifying and commercializing new products and services which may never result in revenues.

• We expect to incur substantial research and development costs related to identifying and commercializing new products and services which may never result in revenues.

Risks Related to our Operations

• 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.

10•Our use of open-source software could negatively affect our ability to sell our products and could subject us to possible litigation.

•We ~~Our~~must ~~use~~recruit ofand ~~open-source~~retain ~~software~~highly ~~could~~trained ~~negatively~~and ~~affect~~experienced ~~our~~employees, ~~ability~~especially toengineers, ~~sell~~in ~~our~~order ~~products~~to ~~and~~succeed ~~could~~in ~~subject~~our ~~us to possible litigation~~business.

•Our Wefacilities ~~must~~and ~~recruit~~information systems and ~~retain~~those ~~highly~~of ~~trained~~our ~~and~~key ~~experienced~~suppliers ~~employees,~~could ~~especially~~be ~~engineers,~~damaged inas ~~order~~a toresult ~~succeed~~of indisasters or unpredictable events which could have an adverse effect on our business operations.

•We ~~Our~~rely ~~facilities~~on ~~and~~third-party ~~information~~suppliers, ~~systems~~some ~~and~~of ~~those~~which ofare sole-source suppliers, to provide components for our ~~key~~products ~~suppliers~~which ~~could~~has bein ~~damaged~~the aspast aand ~~result~~may ofcontinue ~~disasters~~to orlead ~~unpredictable~~to ~~events~~supply shortages, long lead times for components, and supply changes, any of which could ~~have~~disrupt anour ~~adverse~~supply ~~effect~~chain, onincrease our ~~business~~costs, ~~operations.~~and adversely impact our operating results

• We ~~rely~~depend on third~~-party~~ ~~suppliers,~~parties ~~some of which are sole-source suppliers,~~ to provide ~~components~~integrated ~~for~~circuit ~~our~~chip ~~products~~sets ~~which~~and ~~may~~other ~~lead~~critical tocomponents ~~supply shortages, long lead times~~ for ~~components,~~use ~~and~~in ~~supply changes, any of which could disrupt~~ our ~~supply chain, increase our costs, and adversely impact our operating results~~products.

• Several steps of our manufacturing processes are dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.

• We depend on third parties to provide integrated circuit chip sets and other critical components for use in our products.

Risks Related to our Industry

• 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 Webusiness ~~may~~is ~~not~~dependent beupon ~~able~~our ability to keep pace with ~~technological advances in~~ the ~~drone~~latest ~~industry~~technological changes.

• Cybersecurity risks could adversely affect our business and disrupt our operations.

Risks Related to Our Enterprise Segment

• 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.

• 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.

• 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.

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•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 Common Stock

• 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 WeBoard ~~have~~of ~~never~~Directors ~~paid~~may ~~dividends~~authorize and weissue doshares ~~not~~of ~~expect~~new toclasses ~~pay~~of ~~dividends~~stock ~~for~~that ~~the~~could ~~foreseeable~~adversely ~~future~~affect current holders of our common stock.

•Our ~~The~~shares ~~listing~~will be subordinate to all of our ~~securities~~debts onand ~~Nasdaq~~liabilities ~~subject~~which usincreases tothe ~~additional~~risk ~~regulations~~that ~~and~~investors ~~compliance~~could ~~requirements~~lose their entire investment.

•The ~~Our~~price ~~Board~~ of ~~Directors~~our ~~may~~common ~~authorize~~stock ~~and~~may ~~issue~~fluctuate ~~shares~~significantly, ofand ~~new~~this ~~classes~~may ofmake ~~stock~~it ~~that~~difficult ~~could~~for ~~adversely~~you ~~affect~~to ~~current~~resell ~~holders~~shares of our common stock owned by you at times or at prices you find attractive.

•Future ~~Our~~capital ~~shares~~raises ~~will~~may bedilute ~~subordinate~~our toexisting ~~all~~stockholders’ ofownership ~~our debts~~ and ~~liabilities~~adversely ~~which~~impact ~~increases~~ the ~~risk~~fair ~~that~~value ~~investors~~of ~~could lose~~ their ~~entire~~ investment.

• The market price of our shares of common stock is subject to fluctuation.

• Future capital raises may dilute our existing stockholders’ ownership and adversely impact the fair value of their investment.

Risks Related to Regulatory Matters

• 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 ~~results~~international of operations, ~~may~~including ~~suffer~~the ifuse weof ~~are~~foreign ~~not~~contract ~~able~~manufacturers, subjects us to ~~successfully~~international ~~manage~~operational, ~~our~~financial, ~~exposure~~legal, topolitical ~~foreign~~and ~~exchange~~public ~~rate~~health risks which could harm our operating results.

•We ~~Our~~could ~~international~~be ~~operations,~~adversely ~~including~~affected ~~the~~by ~~use~~violations of ~~foreign~~the ~~contract~~U.S. ~~manufacturers,~~Foreign ~~subjects~~Corrupt usPractices toAct ~~international~~or ~~operational,~~similar ~~financial,~~anti-bribery ~~legal,~~laws ~~political~~in ~~and~~other ~~public~~jurisdictions ~~health~~in ~~risks~~ which ~~could~~we ~~harm our operating results~~operate.

• We ~~could~~are besubject ~~adversely~~to ~~affected~~governmental byexport ~~violations~~and ofimport ~~the~~controls, ~~U.S.~~and ~~Foreign~~economic ~~Corrupt~~sanctions ~~Practices~~laws ~~Act~~that orcould ~~similar~~subject ~~anti-bribery~~us ~~laws~~to inliability ~~other~~and ~~jurisdictions~~impair inour ~~which~~ability weto ~~operate~~compete in international markets.

•Changes Wein ~~are~~trade ~~subject~~policy toin ~~governmental~~the ~~export~~United ~~and~~States ~~import controls,~~ and ~~economic~~other ~~sanctions~~countries ~~laws~~may ~~that~~have ~~could~~adverse ~~subject~~impacts uson ~~to liability and impair~~ our ~~ability~~business, toresults ~~compete~~of inoperations ~~international~~and ~~markets~~financial condition.

12•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.

• 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.

Risks Related to Intellectual Property

• Our products could infringe on the intellectual property rights of others.

• Our intellectual property rights and proprietary rights may not adequately protect our products.

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Risks Related to our Financial Results and Condition

We have incurred net losses since inception.

We have never been profitable and reported an accumulated deficit of ~~approximately~~ $~~81,100,000~~196.8 million at ~~April~~December 3031, ~~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.

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.

If additional equity and/or debt financing is not available, then we may not be able to continue to develop our business activities, and we will have to modify our business plan. These factors could have a material adverse effect on our future operating results and our financial condition. If we are unable to raise additional funds, we could be forced to cease our business activities and dissolve. In such an event, we may incur additional financial obligations, including the accelerated maturity of debt obligations, lease termination fees, employee severance payments, and other creditor and dissolution-related obligations.

Our ability to raise financing through sales of equity and/or debt securities depends on general market conditions and the demand for our common stock and/or debt securities. We may be unable to raise adequate capital through sales of equity and/or debt securities, and if our stock has a low market price at the time of such sales, our existing stockholders could experience substantial dilution. If adequate financing is not available or unavailable on acceptable terms, we may find we are unable to fund expansion, continue offering products and services, take advantage of acquisition opportunities, develop or enhance services or products, or to respond to competitive pressures in the industry which may jeopardize our ability to continue operations.

Lack of long-term purchase orders and commitments from customers may lead to a rapid decline in sales.

Our customers issue purchase orders solely at their own discretion. Customers are generally able to cancel orders (without penalty) or delay the delivery of products on relatively short notice. In addition, current customers may decide not to purchase products for any reason. If our customers do not continue to purchase our products, then our sales volume could decline rapidly with little or no warning.

We cannot rely on long-term purchase orders or commitments to protect us from the negative financial effects of a decline in demand for our products. The uncertainty of product orders makes it difficult to forecast sales and allocate resources in a manner consistent with actual sales. Moreover, expense levels and the amounts invested in capital equipment and new product development costs are based in part on expectations of future sales and, if expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. As a result of lack of long-term purchase orders and purchase commitments, we may experience 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.

Our research and development efforts remain subject to all the risks associated with the development of new products based on emerging and innovative technologies. This includes, for example, unexpected technical problems or the possible insufficiency of funds for completing development of these products. If technical problems or delays arise, further improvements in products and the introduction of future products could be adversely impacted, and we could incur significant additional expenses, an inability to increase revenues and increasing operating losses.

The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnity.

We develop and sell products where insurance or indemnification may not be available, including (i) those using advanced and unproven technologies and drones, and (ii) those that collect, distribute and analyze various types of information.

Failure of certain of our products could result in loss of life or property damage. Certain products may raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion and similar concepts. Indemnification to cover potential claims or liabilities resulting from a failure of technologies developed or deployed may be available in certain circumstances but not in others. We do not and are not able to maintain insurance to protect against our risks and uncertainties. Substantial claims resulting from an accident, failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

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potential claims or liabilities resulting from a failure of technologies developed or deployed may be available in certain circumstances but not in others. We do not and are not able to maintain insurance to protect against our risks and uncertainties. Substantial claims resulting from an accident, failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

Product quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.

The products that we sell ~~could~~have in the past and may in the future contain defects in design or manufacture. Defects ~~could~~have also ~~occur~~occurred 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.

We generally provide a one-year warranty on all of our products. The occurrence of any material defects in our products could expose us to liability for damages and warranty claims in excess of our current reserves, and we could incur significant costs to correct any defects, warranty claims or other problems. In addition, if any of our product designs are defective or are alleged to be defective, we may be required to participate in a recall campaign. In part due to the terms of our warranty policy, any failure rate of our products that exceeds our expectations may result in unanticipated losses. Any negative publicity related to the perceived quality of our products could affect our brand image and decrease retailer, distributor and consumer confidence and demand, which could adversely affect our operating results and financial condition. Further, accidental damage coverage and extended warranties are regulated in the United States at the state level and are treated differently within each state. Additionally, outside of the United States, regulations for extended warranties and accidental damage vary from country to country. Changes in interpretation of the regulations concerning extended warranties and accidental damage coverage on a federal, state, local or international level may cause us to incur costs or have additional regulatory requirements to meet in the future in order to continue to offer our support services. Our failure to comply with past, present and future similar laws could result in reduced sales of our products, reputational damage, penalties and other sanctions, which could harm our business and financial condition.

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.

Our operating results may be adversely impacted by worldwide political, economic and public health uncertainties and specific conditions in the markets we address.

A deterioration in global economic, financial, and/or public health conditions, including global pandemics, economic recessions and political turmoil could materially adversely affect (i) our ability to raise, or the terms of needed capital; (ii) demand for our current and future products; and (iii) the supply of components for our products. We cannot predict the timing, strength, or duration of any economic slowdown or subsequent economic recovery, worldwide, or in the drone industry.

Acquisitions could divert the attention of key personnel, be difficult to integrate, dilute our existing ~~shareholders~~stockholders and adversely impact our financial results.

Since January 2020, we have completed ~~four~~multiple 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;~~14

~~In addition,~~Table ~~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.Contents

•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.

Our failure to effectively manage growth could harm our business.

We intend to expand the number and types of products we sell. We will need to replace and regularly introduce on a timely basis new products and technologies, enhance existing products, and effectively stimulate customer demand for new products and upgraded or enhanced versions of our existing products.

The replacement and expansion of our products places a significant strain on our management, operations and engineering resources. Specifically, the areas that are strained most by these activities include the following:

• 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

• Forecasting, Planning and Supply Chain Logistics: With the changes in and growth of our product portfolio, we will experience increased complexity in forecasting customer demand, in planning for production, and in transportation and logistics management. If we are unable to scale and improve our forecasting, planning, production, and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory.

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Our products are subject to lengthy development cycles.

Our products are subject to lengthy product development cycles. The time elapsed between initial sampling of our products, the custom design of our products to meet specific product requirements, and the ultimate incorporation of our products into salable products is significant, often with a duration of more than one year. If our products fail to meet our customers’ cost, performance, or technical requirements or if unexpected technical challenges arise in the integration of our products into enterprise markets, then our operating results could be significantly and adversely affected. Long delays in achieving customer qualification and incorporation of our products also could adversely affect our business. Many head-mounted display companies are introducing digital head-mounted displays which could create shortages of components and provide an opportunity for companies with significantly greater resources than us to accelerate migration to digital products in a manner or timeline which we cannot meet, which could cause us to lose market share and harm our business and prospects. These same risks exist in our Enterprise sector where our competitors include some of the largest defense companies in the world.

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 future growth depends on expanding into new markets, adapting existing products to new applications, and introducing new products and services that achieve market acceptance. We plan to incur substantial research and development costs as part of these efforts. We ~~spent $5,896,037 million, or 33% of our revenue, in our fiscal year ended April 30, 2024, on internal research and development activities. We~~ believe that there are significant investment opportunities in a number of business areas. Because we account for internal research and development as an operating expense, these expenditures will adversely affect our earnings in the future. Further, our research and development programs may not produce successful results, and our new products and services may not achieve market acceptance, generate revenue or cash flow, which could adversely impact our financial results and liquidity.

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.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

In connection with the Company’s evaluation of internal control over financial reporting, we identified instances in which we needed to employ more resources to enable us to have an adequate level of supervision and segregation of all duties. While this material weakness has not resulted in a material misstatement in the consolidated financial statements, nor in any restatements of consolidated financial statements previously reported by us, it could in the future result in misstatements or restatements of our financial statements.

We are in the process of implementing measures designed to improve our internal control over financial reporting and remediate the deficiencies that led to the material weaknesses, including hiring additional personnel, training, designing and implementing new control activities, and enhancing existing control activities.

We are working to remediate the material weaknesses as efficiently and effectively as possible and expect full remediation. At this time, we cannot provide an estimate of costs expected to be incurred or precise timing in connection with implementing this remediation plan; however, these remediation measures will be time consuming, will result in the Company incurring additional costs, and will place additional demands on our financial and operational resources.

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.

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Risks Related to our Operations

Our operations may be adversely affected if we lose our rights under third-party technology licenses.

Our business relies on technology rights and software licensed from third parties. We could lose our exclusivity or other rights to use the technology if we fail to comply with the terms and performance requirements of the licenses. In addition, certain licensors may terminate a license upon our breach and have the right to consent to sublicense arrangements. If we were to lose our rights under any of these licenses, or if we were unable to obtain required consents to future sublicenses, we could lose a competitive advantage in the market, and may even lose the ability to commercialize certain products or technologies.

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 business relies on our customers’ satisfaction with the technical support, firmware, software and security updates we provide to support our products. If we fail to provide technical support services and necessary updates that are (i) responsive, (ii) satisfy our customers’ expectations and (iii) resolve issues that they encounter with our products, then customers may choose not to purchase additional products and we may face brand and reputational harm which could adversely affect our 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 incorporate open-source software into our products. Open-source software is generally licensed by its authors or other third parties under open-source licenses. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open-source software, and that we license such modifications or derivative works under the terms of a particular open-source license or other license granting third parties certain rights of further use. Additionally, if a third-party software provider has incorporated open-source software into software that we license from such provider, we could be required to disclose any of our source code that incorporates or is a modification of our licensed software. If an author or other third-party that distributes open-source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from offering or selling our products that contained the open-source software and be required to comply with the foregoing conditions. Any of the foregoing could disrupt and harm our business and financial condition.

We must recruit and retain highly trained and experienced employees, especially engineers, in order to succeed in our business.

We will need to hire and retain highly skilled technical personnel as employees and as independent contractors in order to develop our products and grow our business. The competition for highly skilled technical, managerial, and other personnel can be intense. Our recruiting and retention success is substantially dependent upon our ability to offer competitive salaries and benefits to our employees. We must compete with companies that possess greater financial and other resources than we do and that may be more attractive to potential employees and contractors. To be competitive, we may have to increase the compensation, bonuses, stock options and other fringe benefits we offer to employees in order to attract and retain such personnel. The costs of retaining or attracting new personnel may have a material adverse effect on our business and operating results. If we fail to attract and retain the technical and managerial personnel required to be successful, our business, operating results and financial condition could be materially adversely affected.

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.

Our manufacturing ~~facility~~facilities isare located in Salt Lake City, Utah, Torrance, California, and Valdosta, Georgia. We also rely on third-party manufacturing plants in the US, Asia and other parts of the world to provide key components for our products and services. If major disasters such as earthquakes, hurricanes, tropical storms pandemics, fires, floods, wars, terrorist attacks, computer viruses, transportation disasters or other events occur in any of these locations, or the effect of climate change on any of these factors or our locations, or our information systems or communications network or those of any of our key component suppliers breaks down or operates improperly as a result of such events, our facilities or those of our key suppliers may be seriously damaged, and we may have to stop or delay production and shipment of our products. We may also incur expenses relating to such damages. If production or shipment of our products or components is stopped ~~or delayed or if we incur any increased expenses as a result of damage to our facilities, our business, operating results and financial condition could be materially adversely affected.~~

~~We rely~~Table ~~on third-party suppliers, some~~ of which are sole-source suppliers, to provide components for our products which may 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 resultsContents

Our ability to meet customer demand depends on our ability to obtain timely and adequate delivery of components for our products. All of the components that go into our products are sourced from third-party suppliers. Some of the key components used to manufacture our products come from a limited or ~~single~~delayed ~~source of supply~~ or byif awe ~~supplier~~incur ~~that~~any ~~could~~increased ~~potentially~~expenses ~~become~~as a ~~competitor.~~result ~~Our~~of ~~contract~~damage ~~manufacturers generally purchase these components on our behalf from approved suppliers. We are subject~~ to ~~the risk of shortages and long lead times in the supply of these components and the risk that~~ our ~~suppliers~~facilities, ~~discontinue or modify components used in~~ our ~~products. In addition~~business, ~~the~~ ~~lead~~operating ~~times~~results ~~associated with certain components are lengthy~~ and ~~preclude~~financial ~~rapid~~condition ~~changes~~could ~~in quantities and delivery schedules. We have experienced component shortages and the availability of these components may~~ be ~~unpredictable~~materially inadversely ~~the future~~affected.

~~If we~~We ~~lose~~rely ~~access~~on tothird-party orsuppliers, ~~experience~~some ~~a significant disruption in the supply~~ of ~~products~~which ~~and~~are ~~components~~sole-source ~~from a supplier~~suppliers, ~~we may be unable~~ to ~~locate~~ ~~alternative~~provide ~~suppliers~~components ~~of comparable quality at an acceptable price, or at all, and our business could be materially and adversely affected. In addition, if we experience a significant increase in demand~~ for our products, ~~our~~which ~~suppliers~~has ~~might~~in ~~not have~~ the ~~capacity or~~past ~~elect~~and ~~not~~may continue to ~~meet~~lead ~~our needs as they allocate components~~ to ~~other~~supply ~~customers.~~shortages, ~~Developing~~long ~~suitable~~lead ~~alternate~~times ~~sources of supply~~ for ~~these~~ components ~~may be time-consuming~~, ~~difficult~~ and ~~costly,~~supply ~~and we may not be able to source these components on terms that are acceptable to us~~changes, orany atof ~~all,~~ which ~~may~~could ~~adversely~~disrupt ~~affect~~ our ~~ability~~supply tochain, ~~fulfill~~increase our ~~orders in a timely or cost-effective manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with the supplier’s quality control~~costs, ~~responsiveness~~ and ~~service, financial~~adversely ~~stability,~~impact ~~labor and other ethical practices. If we seek to source materials from new suppliers, there can be no assurance that we could do so in a manner that does not disrupt the manufacture and sale of~~ our ~~products.~~operating results

Our ~~reliance~~ ability to meet customer demand depends on our ability to obtain timely and adequate delivery of components for our products. All of the components that go into our products are sourced from third-party suppliers. Some of the key components used to manufacture our products come from a limited or single source, of supply or by a ~~small~~supplier ~~number~~that ofcould ~~suppliers~~potentially ~~involves~~become a ~~number~~competitor. ofOur ~~additional~~contract ~~risks,~~manufacturers ~~including~~generally ~~risks~~purchase ~~related~~these components on our behalf from approved suppliers. We are subject to ~~supplier capacity~~the ~~constraints~~risk of, ~~price~~and ~~increases~~have experienced, ~~timely~~shortages ~~delivery,~~and ~~component~~long ~~quality,~~lead ~~failure~~times in the supply of athese ~~key~~components ~~supplier~~and tothe ~~remain~~risk that our suppliers discontinue or modify components used in ~~business~~our products. In addition, the lead times associated with certain components are lengthy and ~~adjust to~~preclude ~~market~~rapid ~~conditions,~~changes asin ~~well~~quantities asand ~~natural~~delivery ~~disasters,~~schedules. ~~fire,~~We ~~acts~~have experienced component shortages and the availability of ~~terrorism~~these orcomponents ~~other~~may ~~catastrophic~~be ~~events,~~unpredictable ~~including~~in ~~global~~the ~~pandemics~~future.

~~Several steps~~If we lose access to or experience a significant disruption in the supply of products and components from a supplier, as has previously occurred and may continue to occur, we may be unable to locate alternative suppliers of comparable quality at an acceptable price, or at all, and our ~~manufacturing~~business ~~processes~~could ~~are~~be ~~dependent~~materially ~~upon~~and ~~certain~~adversely ~~critical~~affected. ~~machines~~In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity or elect not to meet our needs as they allocate components to other customers. Developing suitable alternate sources of supply for these components may be time-consuming, difficult and ~~tools~~costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may adversely affect our ability to fulfill our orders in a timely or cost-effective manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with the supplier’s quality control, responsiveness and service, financial stability, labor and other ethical practices. If we seek to source materials from new suppliers, there can be no assurance that we could ~~result~~do so in ~~delivery~~a ~~interruptions~~ manner that does not disrupt the manufacture and ~~foregone~~sale ~~revenues~~of our products.

~~We currently~~Our ~~have~~reliance ~~little~~on ~~equipment~~single ~~redundancy~~source, inor ~~manufacturing~~a ~~locales.~~small Ifnumber weof ~~experience~~suppliers ~~any~~involves ~~significant disruption in manufacturing or~~ a ~~serious~~number ~~failure~~ of aadditional ~~critical piece of equipment~~risks, weincluding ~~may~~risks berelated ~~unable~~ to ~~supply~~supplier ~~products~~capacity toconstraints ~~our~~as ~~customers~~has inpreviously aoccurred ~~timely~~and ~~manner.~~may ~~Interruptions in~~continue ~~our~~to ~~manufacturing~~occur, ~~could~~price ~~be caused by equipment problems~~increases, ~~the~~timely ~~introduction of new equipment into the manufacturing process or delays in the~~ delivery ~~of new manufacturing equipment. Lead-time for delivery~~, ~~installation,~~component ~~testing~~quality, ~~repair~~failure ~~and maintenance~~ of ~~manufacturing equipment~~a ~~can~~key besupplier ~~extensive.~~to Weremain ~~have experienced production interruptions~~ in ~~the~~business ~~past~~ and noadjust ~~assurance~~to ~~can~~market beconditions, ~~given~~as ~~that~~well weas ~~will~~natural ~~not~~disasters, ~~lose potential~~fire, ~~sales~~acts orof beterrorism ~~able~~or toother ~~meet~~catastrophic ~~production~~events, ~~orders~~including ~~due~~global ~~to future production interruptions in our manufacturing lines~~pandemics.

We depend on third parties to provide integrated circuit chip sets and other critical components for use in our products.

We do not manufacture the integrated circuit chip sets, optics, micro-displays, backlights, projection engines, printed circuit boards or other electronic components which are used in our products. Instead, we purchase them from third-party suppliers or rely on third-party independent contractors for these integrated circuit chip sets and other critical components, some of which are customized, or custom made for us. We also may use third parties to assemble all or portions of our products. Some of these third-party contractors and suppliers are small companies with limited financial resources. If any of these third-party contractors or suppliers were unable or unwilling to supply these components, our sales and operating results would be adversely impacted. As the availability of components decreases, the cost of acquiring those components ordinarily increases. High growth product categories have experienced chronic shortages of components during periods of exceptionally high demand. If we do not properly anticipate the need for or procure critical components, we may pay higher prices for those components, our gross profits may decrease and we may be unable to meet the demands of our customers and end-users which could reduce our competitiveness, cause a decline in our market share and have a material adverse effect on our results of operations.

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 have been, and may in the future be, subject to claims, legal proceedings, and class action lawsuits arising in the ordinary course of our business or otherwise. 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 class action 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

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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.

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.

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. Further, since AI Technologies are emerging technologies for which the legal and regulatory landscape is not fully developed, incorporating AI Technologies into our products, solutions and business functions could give rise to litigation or other legal claims, as well as risk of non-compliance and unknown cost of compliance, (including potential liability for breaching intellectual property, data privacy or security-related laws and regulations). While new AI Technology initiatives, laws, and regulations are emerging and evolving, what they ultimately will look like remains uncertain, and our obligation to comply with them could entail significant costs, negatively affect our business, or entirely limit our ability to incorporate certain AI Technology capabilities into our offerings. Additionally, leveraging AI Technology capabilities to potentially improve internal functions and operations presents further risks and challenges. The use of AI to support our business operations carries inherent risks related to data privacy and security, such as intended, unintended, or inadvertent transmission of proprietary, sensitive or export-controlled information, as well as challenges related to implementing and maintaining AI Technology tools. Our policies, procedures and controls relating to the development, deployment and use of AI capabilities may not be sufficient to adequately protect the information that we collect, process or use, or to ensure compliance with applicable or emerging laws, regulations and government guidance relating to AI Technologies. Any actual or perceived failure to maintain effective controls, or to timely enact or adapt our policies and procedures, could result in regulatory scrutiny, contractual liability, brand or reputational harm or adverse impact to our business and financial condition. Additionally, our competitors might move faster than us to gain efficiencies by incorporating AI Technologies into their design and development processes, and our products and/or cost structure could become less competitive as a result. The rapid evolution of AI Technologies will require the application of resources by us to develop, test and maintain our products, services and operations to help ensure that AI Technologies are implemented ethically in order to minimize unintended, harmful impact. Our competitors may be faster or more successful than we are in incorporating AI Technologies and other disruptive technology into their offerings, which would impair our ability to compete successfully.

Our financial success is dependent on contracts awarded through a lengthy, uncertain and competitive process.

Certain federal government, as well as commercial contracts, are awarded through a lengthy, uncertain and competitive process that could be a year or more from the initial solicitation to final contract award. We expect that certain business we seek in the foreseeable future will be awarded through lengthy and competitive procedures. Competitive contractual processes impose substantial upfront costs and present a number of risks and uncertainties, including:

•the substantial cost and managerial time and effort that we spend to prepare bids and proposals for contracts that may not be awarded to us;

•potential requirements to prove a performance guarantee as part of a bid submission;

•the expense and delay that we may face if our competitors protest or challenge contract awards made to us pursuant to competitive procedures;

•that any such process requires resubmission of offers, or termination, reduction, or modification of the awarded contract; and

•failure to obtain certain such contracts or awards upon which our business is dependent.

The risks we face in the process to secure contracts may be substantial and, to the extent we participate in such processes and are unable to win particular contracts, there may be a negative effect on our operating results and substantial impact on our realized revenues.

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Risks Related to our Industry

We operate in an emerging and rapidly growing industry which makes it difficult to evaluate our current business and prospects.

The drone industry is relatively new and is growing rapidly. As a result, it is difficult to evaluate our business and prospects. We cannot accurately predict whether, and even when, demand for our products will increase, if at all. The risks, uncertainties and challenges encountered by companies operating in emerging and rapidly growing industries include:

• Generating sufficient revenue to cover operating costs and sustain operations;

• Acquiring and maintaining market share;

• Attracting and retaining qualified personnel, especially engineers with the requisite technical skills;

• Successfully developing and commercially marketing new products:

• Accessing the capital markets to raise additional capital, on reasonable terms, if and when required to sustain operations or to grow the business.

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.

The drone industry is attracting a wide range of significantly larger companies which have substantially greater financial, management, research and marketing resources than us. Competitors in the Enterprise segment include transportation companies like United Parcel Service, Federal Express and Amazon, as well as defense companies such as Lockheed Martin Corporation, Northrop Grumman Corporation, and AeroVironment. Our competitors may be able to provide customers with different or greater capabilities than we can provide, including technical qualifications, pricing, and key technical support. Many of our competitors may utilize their greater resources to (i) develop competing products and technologies, (ii) leverage their financial strength to utilize economies of scale and offer lower pricing, and (iii) hire more qualified personnel by offering more generous compensation packages. In order to secure orders and contracts, we may have to offer comparable products and services at lower pricing which could adversely affect our operating margins. Our inability to compete effectively against these larger companies could have a material adverse effect on our business, financial condition, and operating results.

~~We may~~Our ~~not~~business beis ~~able~~dependent upon our ability to keep pace with ~~technological advances in~~ the ~~drone~~latest ~~industry~~technological changes.

The ~~drone~~ ~~industry~~market ~~continues~~for toour ~~undergo~~products ~~significant~~is ~~changes,~~characterized ~~primarily~~by ~~related~~rapid tochange and technological ~~developments~~improvements. ~~The~~Failure ~~rapid~~to ~~growth~~respond ofin ~~technology makes~~a ittimely ~~impossible~~and cost-effective way to ~~predict~~these ~~the~~technological ~~overall~~developments ~~effect~~could ~~these~~result ~~factors~~in ~~could~~serious ~~have~~harm onto ~~the~~our ~~drone~~business ~~industry.~~and Ifoperating weresults. ~~are~~As ~~not~~a ~~able~~result, toour ~~keep~~success ~~pace~~will ~~with these~~depend, ~~technological~~in ~~advances~~part, ~~then~~on our ~~revenues,~~ability ~~profitability~~to develop and ~~results~~market ~~from~~products ~~operations~~that ~~may~~respond bein ~~materially~~a ~~adversely~~timely ~~affected~~manner to the technological requirements and preferences of our customers, and evolving industry standards.

We believe that, in order to remain competitive in the future, we will need to continue to invest significant financial resources to develop new products and technologies or to adapt or modify our existing products and technologies, including through independent research and development, acquisitions and joint ventures or other arrangements. These expenditures could divert our attention and resources from other projects, and we cannot be sure that these expenditures will ultimately lead to the timely development of new products and technologies or identification of and expansion into new markets. Due to the design complexity of our products, we may, in the future, experience delays in completing the development and introduction of new products. Any delays could result in increased costs of development or deflect resources from other projects. In addition, there can be no assurance that the market for our products will develop or continue to expand or that we will be successful in newly identified markets as we currently anticipate. The failure of our products and technologies to gain market acceptance could significantly reduce our revenues and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing products and technologies that gain market acceptance in advance of our products. Additionally, the possibility exists that our competitors might develop new technology or products that might cause our existing technology and products to become obsolete. If we fail in our new product development efforts or if our products fail to achieve market acceptance more rapidly as compared to our competitors, our ability to procure new contracts could be negatively impacted, which could negatively impact our results of operations and financial condition.

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Cybersecurity risks could adversely affect our business and disrupt our operations.

The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks. These risks include cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations. The occurrence of any of these events could lead to interruptions, delays, loss of critical data, unauthorized access to user data, and loss of consumer confidence. In addition, we may be the target of email scams that attempt to acquire personal information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. Any cyber-attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition. A cyber attack would be expensive to remedy and could damage our reputation. In addition, any such breaches may result in negative publicity, adversely affect our brand, decrease demand for our products and services, and adversely affect our operating results and financial condition.

19We expect that an increasing percentage of our revenues will come from the U.S. government and its agencies. As a result, we may face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information and networks; insider threats; threats to the safety of our directors, officers and employees; threats to the security and viability of our facilities, infrastructure and supply chain; and threats from terrorist acts or other acts of aggression. Our customers and partners (including our supply chain and joint ventures) face similar threats and growing requirements. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. The occurrence of some of these risks may be increased to the extent remote working by our employees, suppliers, contractors and other third parties continues. Such an incident could lead to losses or unauthorized disclosure of sensitive information or capabilities; theft or exposure of data; harm to personnel, infrastructure or products; regulatory actions; and/or financial liabilities, as well as potential damage to our reputation as a government contractor and provider of cyber-related or cyber-protected goods and services.

~~Risks~~We ~~Related~~provide systems, products and services to various customers (both government and commercial) who also face cyber threats. Our ~~Enterprise~~systems, ~~Segment~~products and services may themselves be subject to cyber threats and/or they may not be able to detect or properly deter threats, or effectively to mitigate resulting losses. These losses could adversely affect our customers and our Company.

The impact of these various factors is difficult to predict, but one or more of them could result in the loss of information or capabilities, harm to individuals or property, damage to our reputation, loss of business, contractual or regulatory actions and potential liabilities, any one of which could have a material adverse effect on our financial position, results of operations and/or cash flows.

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.

USU.S. government contracts often have long lead times for design and development and can be subject to significant changes in delivery timelines. Congress normally appropriates funds on its fiscal year basis, and it may not fully fund a program in the same fiscal year. Depending upon the results of political elections, the actions of Congress can change from one fiscal year to the next. As a result, we may be required to expend funds to fulfill existing orders, but subsequently have the delivery timeline extended or the order cancelled. Such results would have an adverse impact on our financial position and results of operations.

AMany ~~decline in~~of ~~U.S.~~our ~~government~~contracts ~~budgets~~contain performance obligations that require innovative design capabilities, ~~changes~~are intechnologically ~~spending~~complex, ~~priorities~~require state-of-the-art manufacturing expertise, or ~~delays~~are independent ~~contract~~upon ~~awards~~factors ~~could~~not ~~adversely~~wholly ~~affect~~within ~~the~~our ~~revenues~~control. ofFailure to meet these obligations could adversely affect our ~~Teal subsidiary~~revenue.

We ~~presently expect that much of our future revenue growth will be generated by our wholly owned subsidiary~~design, ~~Teal Drones~~develop, and ~~that~~manufacture ~~their~~technologically ~~primary~~advanced ~~customer is likely to be the U.S. government~~ and ~~its~~innovative ~~agencies. As a result~~products, ~~our~~which ~~business~~are ~~may~~applied beby ~~adversely~~our ~~impacted~~customers ~~due to changes~~ in ~~the~~a ~~political environment,~~variety ~~including~~of ~~those~~environments. ~~related~~Problems toand ~~changes~~delays in ~~the~~development ~~leadership of the current and~~ or ~~future~~delivery ~~administrations.~~as Wea ~~cannot~~result ~~provide~~of ~~assurance that~~issues ~~the~~with ~~current~~respect ~~levels~~to ~~of congressional funding~~design, ~~for defense in general~~technology, licensing and ~~for~~intellectual ~~drones~~property ~~specifically~~rights, ~~will~~labor, ~~continue~~manufacturing atmaterials ~~their~~or ~~current levels~~components orcould ~~decrease~~prevent inus ~~the~~from ~~future~~meeting requirements. IfEither ~~annual~~we ~~budget~~or ~~appropriations~~the ~~are~~customer ~~not~~may ~~enacted~~generally onterminate a ~~timely~~contract ~~basis,~~as wea ~~could~~result ~~encounter~~of ~~government~~a ~~shutdowns which~~material ~~could~~uncured ~~adversely~~breach ~~impact~~by ~~any~~the ~~existing~~other. ~~programs~~If ~~including~~we ~~the~~breach ~~timely~~a ~~payment~~contract ofor ~~prior~~fail ~~shipments,~~to asperform ~~well~~in asaccordance ~~the~~with ~~receipt~~contractual ofservice ~~future orders.~~levels,

~~Our work for the U.S. government could expose us to security risks.~~21

~~We expect~~Table ~~that an increasing percentage~~ of our revenues will come from the U.S. government and its agencies. This may expose us to numerous security threats, including cyber security attacks on our information technology infrastructure as well as threats to the physical safety of our facilities and our employees. We utilize numerous controls and procedures to monitor and prevent these threats, however, we can provide no assurance that they will be effective. Any improper use of our data, information technology systems or facilities could adversely impact our operations and operating results.Contents

delivery schedules, performance specifications, or other contractual requirements set forth therein, the other party thereto may terminate such contract for default, and we may be required to refund money previously paid to us by the customer or to pay penalties or other damages. Even if we have not breached, we may deal with various situations from time to time that may result in the amendment or termination of a contract. These steps can result in significant current period charges and/or reductions in current or future revenue, and/or delays in collection of outstanding receivables and costs incurred on the contract. Other factors that may affect revenue and profitability include inaccurate cost estimates, design issues, unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, and loss of follow-on work.

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.

In fiscal year 2025, we generated approximately 73% of our total revenues from contracts with the U.S. Government. We expect to continue to derive most of our revenues from work performed under U.S. Government contracts.

Recent restrictions on the importation of drones and related components from China and other countries have contributed to our growth in the industry, as these restrictions have increased demand for domestically produced products and services. However, future changes to such policies, or the reversal of current restrictions, could adversely impact our competitive position and growth prospects. Additionally, pressures on and uncertainty surrounding the U.S. Government’s budget and potential changes in budgetary priorities could adversely affect our revenue, financial condition, and results of operations. It is possible restrictions on U.S. Government spending may continue to affect the payment of Government contracts. This could lead to reduced or delayed awards on some of our programs, with a related negative impact to our revenues, earnings and cash flows. Additionally, competitor bid protests also have become more prevalent in the current competitive environment, which has led to further contract award delays. In addition, any future changes to the fiscal policies of the U.S. Government and foreign governmental entities may decrease overall government funding for defense and homeland security, result in delays in the procurement of our products and services due to lack of funding, cause the U.S. Government and government agencies to reduce their purchases under existing contracts, or cause them to exercise their rights to terminate contracts at-will or to abstain from exercising options to renew contracts, any of which would have an adverse effect on our business, financial condition, results of operations and/or cash flows.

Government contracts differ materially from standard commercial contracts, involve competitive bidding and may be subject to cancellation or delay without penalty.

Government contracts frequently include provisions that are not standard in private commercial transactions and are subject to laws and regulations that give the U.S. Government rights and remedies not typically found in commercial contracts, including provisions permitting the U.S. Government to:

• terminate our existing contracts;

• reduce potential future income from our existing contracts;

• modify some of the terms and conditions in our existing contracts;

• suspend or permanently prohibit us from doing business with the U.S. Government or with any specific government agency;

• impose fines and penalties;

• subject us to criminal prosecution;

• suspend work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by Congress;

• decline to exercise an option to extend an existing multiple year contract; and

• claim rights in technologies and systems invented, developed or produced by us.

In addition, government contracts are frequently awarded only after formal competitive bidding processes, which have been and may continue to be protracted and typically impose provisions that permit cancellation in the event that necessary funds are unavailable to the government agency. Competitive procurements impose substantial costs and managerial time and effort in order to prepare bids and proposals for contracts that may not be awarded to us. In many cases, unsuccessful bidders for government contracts are provided the opportunity to formally protest certain contract awards through various agencies, administrative and judicial channels. We have experienced an increase in competitor bid protests on contracts on which we were the successful bidder due to the competitive environment resulting from decreased government spending. In addition, we have formally protested procurement awards in which we were not the initial successful bidder, but believed that the source selection process was flawed. The protest process may substantially delay a successful bidder’s contract

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performance, result in cancellation of the contract award entirely and distract management. Moreover, even when we are awarded a government contract, we may not realize anticipated revenues from that contract, if at all, due to delays, lack of funding, failure to receive task orders, unexercised options, reductions in scope or other factors limiting our ability to monetize the award. We may not be awarded contracts for which we bid, and substantial delays or cancellation of purchases may follow our successful bids as a result of such protests. We believe that this environment of protracted competitive bidding processes and competitor bid protests will continue.

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.

U.S. Government programs are subject to annual congressional budget authorization and appropriation processes. For many programs, Congress appropriates funds on a fiscal year basis even though the program performance period may extend over several years. Consequently, programs are often partially funded initially and additional funds are committed only as Congress makes further appropriations. If we incur costs in excess of funds obligated on a contract, we may be at risk for reimbursement of those costs unless and until additional funds are obligated to the contract. We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the annual budget process ultimately approved by Congress and the President or in separate supplemental appropriations or continuing resolutions, as applicable. Laws and plans adopted by the U.S. Government relating to, along with pressures on and uncertainty surrounding the federal budget, potential changes in priorities and defense spending levels, sequestration, the appropriations process, use of continuing resolutions (with restrictions, e.g., on new starts) and the permissible federal debt limit, could adversely affect the funding for individual programs and delay purchasing or payment decisions by our customers. In the event government funding for our significant programs becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S. Government or the prime contractor.

The federal budget and debt ceiling are expected to continue to be the subject of considerable debate, which could have a significant impact on defense spending broadly and our programs in particular.

The budget environment, including budget caps mandated by the Budget Control Act of 2011 (the “BCA”) for fiscal years 2022 and 2023, which was reinstituted with established budget caps for 2024 and 2025 under The Fiscal Responsibility Act of 2023, and uncertainty surrounding the debt ceiling and the appropriations process, remain significant short and long-term risks for the Company. Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the current administration and Congress, what challenges budget reductions (required by the BCA and otherwise) will present for the defense industry and whether annual appropriations bills for all agencies will be enacted in a timely manner. If annual appropriations bills are not timely enacted, the U.S. Government may again operate under a continuing resolution, restricting new contract or program starts, presenting resource allocation challenges and placing limitations on some planned program budgets, and we may face additional government shutdowns of unknown duration. If a prolonged government shutdown of the United States Department of Defense (the “DoD”) were to occur, it could result in program cancellations, disruptions and/or stop work orders and could limit the U.S. Government’s ability to effectively progress programs and to make timely payments, and our ability to perform on our U.S. Government contracts and successfully compete for new work. It is likely budget and program decisions made in this environment will have long-term implications for us and the entire defense industry. The government shutdown, between October 1, and November 12, 2025, was the longest in history and paused payment under government contracts for 43 days. We did not receive payment under our contracts with the DoD or other government agencies and were precluded from seeking new contracts or grants during this time. The consequences of the shutdown on our business were far reaching, and subsequent government shutdowns would likely have a similar material adverse effect.

Additionally, funding for certain programs in which we participate may be reduced, delayed or cancelled, and budget cuts globally could adversely affect the viability of our subcontractors and suppliers, and our employee base. While we believe that our business is well-positioned in areas that the DoD and other customers have indicated are areas of focus for future defense spending, the long-term impact of the BCA, other defense spending cuts, challenges in the appropriations process, the debt ceiling and the ongoing fiscal debates remain uncertain.

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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.

As a vendor to the U.S. government and other state and local agencies, we are subject to and must comply with numerous government regulations which impact how we operate our business. These regulations could adversely affect our revenues, operating costs and profit margins. Some of the regulations to which we are subject, and the federal agencies which administer these regulations, include:

• Federal Aviation Administration, which regulates the use of airspace for all aircraft, including UAS such as drones

• The Truthful Cost or Pricing Data (formerly Truth in Negotiations Act), which requires certification and disclosure of all factual pricing and cost data in contract negotiations

• The Federal Acquisition Regulations, which govern the formation and administration, as well as the performance, under government contracts

• The False Statements Act and The False Claims Act which imposes penalties on payments made on the basis of facts provided to the government

• The Federal Communications Commission which regulates the wireless spectrum upon which drones depend for data transmission

It is expensive and time consuming to comply with the regulations and requirements of these federal government agencies. The costs incurred to maintain compliance will adversely impact our operating costs and could delay our ability to operate profitably in the future, if at all.

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.

The Pentagon, on January 31, 2020, released the official version of its unified Cybersecurity standard that all contractors must meet by 2026. This standard, the CMMC, will apply to any company that does business with the DoD. CMMC will also apply to subcontractors as well as prime contractors. CMMC borrows heavily from the existing NIST Cybersecurity Framework and intends to rely heavily on a CMMC accrediting body up and running, companies will be able to apply for certification through a portal run by the accrediting body. The CMMC certification will be good for three years; with it, companies will be able to bid on contracts across the DoD and military services. In December 2020, the DoD disclosed the first seven contracts that are likely to be the initial test cases for the first “pathfinder” solicitations mandating CMMC. It is expected to take until 2026 to bring all contractors into compliance, since five years is the typical duration of a government contract. Contractors are required to flow the CMMC requirements down to all subcontracts except those for Commercial Off the Shelf (COTS) items. Additionally, a contractor may not award a subcontract unless the subcontractor has a current assessment in the Supplier Performance Risk System (SPRS). Because contractors only have access to their own information, contractors may need to rely on certifications from subcontractors for this requirement.

Under the CMMC 2.0 Model announced on July 17, 2021, there will be three levels of certification, Level 1 through Level 3, with contractors able to self-attest for Level 1. The new certification will not be required for existing contracts already signed, only on new contracts and potentially, to modification of existing contracts. CMMC 2.0 will allow for so-called plans of action and milestones, which will allow companies to document controls they are not fully implementing yet. The plans of action are required to state the means by which companies expect to reach full compliance, which are required to be completed within 180 days. Another change includes the requirement for senior company officials to self-certify and submit attestations of compliance. If there is a breach but a company certified its compliance with the security standards, a company could be open to False Claims Act lawsuits. The final change in the draft CMMC 2.0 requires cloud computing services used by the government contractor to be certified through the FedRAMP authorization process in accordance with DoD security requirements. Proposed final CMMC rules were issued by the DoD on December 26, 2023, with a public comment period that ended on February 26, 2024. The final rules were released October 15, 2024 and became effective on December 16, 2024. On November 10, 2025, the first phase of CMMC implementation began with an Organization Seeking Assessment conducted annually and results entered into the Supplier Performance Risk System. The next phase has been planned for November 10, 2026, which will require implementation of several additional Plans of Action and Milestones. We may be unable to bid on new contract awards or on follow-on awards for existing work, depending on the level of standard as required for each solicitation, which could adversely impact our revenues, operating margins and cash

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flows. The cost to comply with the new CMMC requirement has been significant and may increase. Further, we may be negatively impacted by our subcontractors if they are not compliant with these requirements.

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.

We cannot predict with certainty the future growth rate or size of the drone market. Demand for our products may not increase, or may decrease, either generally or in specific markets, for particular types of products or during particular time periods. There are only a limited number of programs under which the U.S. military, our primary customer, is currently funding the development or purchase of our products. Although we are seeking to expand our customer base to include foreign governments, domestic non-military agencies and commercial customers, we cannot assure that our efforts will be successful. The expansion of the drone market in general, and the market for our products in particular, depends on a number of factors, including the following:


			•			customer satisfaction with these types of systems as solutions;


			•			the cost, performance and reliability of our products and products offered by our competitors;


			•			customer perceptions regarding the effectiveness and value of these types of systems;


			•			limitations on our ability to market our products and services outside the U.S. due to U.S. government regulations or other restrictions; and;


			•			marketing efforts and publicity regarding these types of systems.

Even if the type of products we produce gain wide market acceptance in general, our specific products may not adequately address market requirements or may not gain market acceptance. If these types of systems generally, or our products specifically, do not gain wide market 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 and our revenue and results of operations may suffer.

Risks Related to Our Common Stock

Our management has voting control of the Company.

Jeffrey Thompson, our Chairman and Chief Executive Officer, owns approximately 1711% of our common stock, and our current officers and directors currently own approximately 2111% of our common stock. If they act together, they will be able to influence the outcome of ~~all~~most corporate actions requiring approval of our ~~shareholders~~stockholders, including the election of directors and approval of significant corporate transactions which may result in corporate actions that other stockholders do not agree with. This concentration of ownership may have the effect of delaying or preventing a change in control and may adversely affect the market price of our common stock.

Our failure to maintain effective internal controls over financial reporting could have an adverse impact on the Company.

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish and maintain those controls could adversely impact public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed which may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal controls over financial reporting, disclosure of management’s assessment of our internal controls, or disclosure of our public accounting firm’s attestation to our internal controls over financial reporting may have an adverse impact on the price of our common stock.

~~We have never paid dividends and we do not expect to pay dividends for the foreseeable future.~~25

WeTable ~~have reported net losses every year since inception. We intend to retain future earnings, if any, to finance the growth and development~~ of our business. If we ever become profitable, we do not expect to pay cash dividends on shares of our common stock in the foreseeable future. The payment of future cash dividends, if any, depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and other factors. As a result, capital appreciation, if any, of our common stock, will be the sole source of gain for investors for the foreseeable future. Contents

~~The~~Directors ~~listing~~may authorize and issue shares of ~~our securities~~ onnew ~~Nasdaq~~classes ~~subjects~~of usstock tothat ~~additional~~could ~~regulations~~adversely ~~and~~affect ~~compliance~~current ~~requirements~~holders of our common stock.

WeOur ~~are~~Board ~~required~~of Directors has the power to ~~maintain~~authorize ~~compliance~~and ~~with~~issue ~~the~~shares ~~continued listing~~of ~~standards~~classes of ~~Nasdaq.~~stock, ~~These~~including ~~include~~preferred ~~certain~~stock ~~financial~~that have voting powers, designations, preferences, limitations and ~~liquidity~~special ~~criteria~~rights, toincluding ~~maintain~~preferred ~~such~~distribution ~~listing~~rights, conversion rights, redemption rights and liquidation rights without further stockholder approval. IfThese wepowers ~~fail~~could toadversely ~~meet~~affect ~~any~~the rights of ~~Nasdaq’s~~ ~~listing~~the ~~standards,~~holders of our ~~securities~~common ~~may~~stock. beIn ~~delisted.~~addition, ~~Nasdaq~~our ~~requires~~board ~~that~~could authorize the ~~trading~~issuance ~~price~~of a series of ~~its~~preferred ~~listed~~stock ~~stocks~~that ~~remain~~has ~~above one~~greater ~~dollar~~voting ~~for~~power ~~the~~than our common stock toor ~~remain~~that ~~listed.~~is Ifconvertible ainto ~~listed~~our common stock, ~~trades~~which ~~below~~could ~~one~~decrease ~~dollar~~the ~~for~~relative ~~more~~voting ~~than~~power 30of ~~consecutive~~our ~~trading~~common ~~days,~~stock ~~then~~or ~~it is~~result ~~subject~~in dilution to ~~delisting~~our ~~from~~existing ~~Nasdaq~~common stockholders.

While our stock has been trading above $1 per share, the stock price may trade below $1 per share in the future. In addition, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director and committee independence requirements, minimum stockholders’ equity, and certain corporate governance requirements. If we are unable to satisfy these requirements or standards, we could be subject to delisting which would have a negative effect on the price of our common stock and would impair an investor’s ability to sell or purchase our common stock. In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action would allow our common stock to become listed again, stabilize the market price, improve the liquidity of our common stock, or prevent future non-compliance with the listing requirements. A delisting of our securities from Nasdaq may materially impair our stockholders’ ability to buy and sell our securities and could have an adverse effect on the market price of, and the efficiency of the trading market for, our securities.

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 Board of Directors has the power to authorize and issue shares of classes of stock, including preferred stock that have voting powers, designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights without further shareholder approval. These powers could adversely affect the rights of the holders of our common stock. In addition, our board could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing common stockholders.

Any of these actions could significantly adversely affect the investment made by holders of our common stock. In addition, holders of our common stock could receive less proceeds in connection with any future sale of the Company, in liquidation or on any other basis.

Our shares will be subordinate to all of our debts and liabilities which increases the risk that investors could lose their entire investment.

Our shares of common stock are equity interests that will be subordinate to all of our current and future indebtedness with respect to claims on our assets. In any liquidation, all of our debts and liabilities must be paid before any payment is made to our ~~shareholders~~stockholders.

The ~~market~~ price of our common stock may fluctuate significantly, and this may make it difficult for you to resell shares of our common stock isowned ~~subject~~by toyou ~~fluctuation~~at times or at prices you find attractive.

The ~~market~~trading ~~prices~~price of our ~~shares~~common stock may fluctuate ~~significantly~~widely inas ~~response~~a toresult of a ~~wide~~number ~~range~~ of factors, many of which are ~~beyond~~outside our control. In addition, ~~including~~the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common stock. Among the factors that could affect our stock price are:

•adverse ~~The~~economic ~~announcement~~conditions, ~~and~~trade ~~release~~policies, ofpolitical ~~new~~conditions, ~~products~~outbreaks byof ~~our~~war ~~competitors~~(including •the ~~Developments~~current conflicts in ~~our~~the ~~industry~~Middle orEast), ~~target~~disasters, ~~markets~~or •regulatory ~~General~~or ~~market~~other ~~conditions~~policy ~~including~~changes ~~factors~~in ~~unrelated~~states ~~to our operating performance • National~~ or ~~international~~countries ~~economic~~where orwe ~~political~~have ~~events which result in~~ a ~~material~~concentration ~~effect~~of onour ~~the stock market~~business;

~~The stock market has, from time to time, experienced extreme price and volume~~ •fluctuations. ~~Continued market fluctuations could result~~ in ~~extreme market volatility in the price of~~ our ~~shares~~financial ofresults, ~~common~~revenues ~~stock~~and ~~which~~expenses; ~~could cause a decline in the value of our shares.~~

•quarterly and annual variations in our operating results;

•changes in the market’s expectations about our operating results;

•loss of revenues;

•fluctuations in foreign currency exchange rates;

•our operating results failing to meet the expectation of securities analysts or investors in a particular period;

•changes in financial estimates and recommendations by securities analysts concerning us or the industries in which we operate in general;

•operating and stock price performance of other companies that investors deem comparable to us;

•news reports relating to trends in our markets;

•changes in laws and regulations affecting our business;

•material announcements by us or our competitors;

•the impact or perceived impact of developments relating to our acquisitions, including the possible perception by securities analysts or investors that such acquisitions divert management attention from our core operations;

•market volatility;

•changes in the U.S.-based credit markets;

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•changes in current U.S. or global economic conditions, including an extended slowdown in the markets in which we operate;

•a downgrade to our corporate credit rating, the credit ratings of our outstanding debt or other market speculation;

•general conditions in the industries in which we operate;

•our investments in geographic expansion and to increase our presence in existing markets;

•our ability to successfully execute our growth strategy;

•a cybersecurity attack or any other interruption in information technology and/or data security that may impact our operations or the operations of third parties that support us;

•legal proceedings;

•our ability to comply with non-U.S. laws, regulations and policies; and

•sales of substantial amounts of shares of our common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur.

In recent years, the stock market, and in particular, our industry sector, has experienced significant price and volume fluctuations. Such fluctuations, as well as general political conditions, the current economic conditions, or interest rate or currency rate fluctuations, could adversely affect the market price of our common stock. This volatility frequently has occurred without regard to the operating performance of the affected companies, and the price of our common stock could fluctuate based upon factors that have little or nothing to do with us, which could materially reduce our share price.

Future capital raises may dilute our existing stockholders’ ownership and adversely impact the fair value of their investment.

If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these stockholders may experience substantial dilution. If we raise additional funds by issuing debt instruments, these debt instruments could impose significant restrictions on our operations including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to us or could diminish the rights of our stockholders. Any of these developments could adversely impact our stock price.

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.

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems relevant. Therefore, any return to shareholders will be limited to the increase, if any, of our share price.

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.

Although our common stock is currently listed on The Nasdaq Capital Market, we may not be able to continue to meet the exchange’s minimum listing requirements or those of any other national exchange. The Listing Rules of Nasdaq require listing issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, we should fail to maintain compliance with these listing standards and Nasdaq should delist our securities from trading on its exchange and we are unable to obtain listing on another national securities exchange, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our shareholders:

•the liquidity of our common stock;

•the market price of our common stock;

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•our ability to obtain financing for the continuation of our operations;

•the number of investors that will consider investing in our common stock;

•the number of market makers in our common stock;

•the availability of information concerning the trading prices and volume of our common stock; and

•the number of broker-dealers willing to execute trades in shares of our common stock.

Risks Related to Regulatory Matters

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.

We operate in the drone industry which is a highly regulated environment in the US and international markets. Federal, state, and local governmental entities and foreign governments may regulate aspects of the industry, including the production or distribution of our products, software or services. These regulations may include accounting standards, taxation requirements, product safety, trade restrictions, environmental regulations, products directed toward children or hobbyists, and other administrative and regulatory restrictions. While we endeavor to take all the steps necessary to comply with these laws and regulations, there can be no assurance that we can maintain compliance on a continuing basis. Failure to comply could result in monetary liabilities and other sanctions which could increase our costs or decrease our revenue resulting in a negative impact on our business, 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.

We must comply with a wide variety of laws, regulations, standards and other requirements governing, among other things, electrical safety, wireless emissions, health and safety, e-commerce, consumer protection, export and import requirements, hazardous materials usage, product-related energy consumption, packaging, recycling and environmental matters. Compliance with these laws, regulations, standards, and other requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction (including from country to country), further increasing the cost of compliance and doing business. Our products may require regulatory approvals or satisfaction of other regulatory concerns in the various jurisdictions in which they are manufactured, sold or both. These requirements create procurement and design challenges that require us to incur additional costs identifying suppliers and manufacturers who can obtain and produce compliant materials, parts and products. Failure to comply with such requirements can subject us to liability, additional costs, and reputational harm and, in extreme cases, force us to recall products or prevent us from selling our products in certain jurisdictions. If there is a new regulation, or change to an existing regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this would have a material adverse effect on our business, financial condition and results of operations. Additionally, while we have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors, and agents will not violate such laws and regulations or our policies and procedures.

Our products must comply with certain requirements of the U.S. Federal Communications Commission (“FCC”) regulating electromagnetic radiation in order to be sold in the United States and with comparable requirements of the regulatory authorities of the European Union (“EU”), Japan, China and other jurisdictions. Our first-person view products include wireless radios and receivers which require additional emission testing. We are also subject to various environmental laws and governmental regulations related to toxic, volatile, and other hazardous chemicals used in the third-party components incorporated into our products, including the Restriction of Certain Hazardous Substances Directive (the “RoHS Directive”) and the EU Waste Electrical and Electronic Equipment Directive (the “WEEE Directive”), as well as the implementing legislation of the EU member states. This directive restricts the distribution of products within the EU that exceed very low maximum concentration amounts of certain substances, including lead. Similar laws and regulations have been passed or are pending in China, Japan, and numerous countries around the world and may be enacted in other regions, including in the United States. We are, or may in the future be, subject to these laws and regulations.

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Our products may be subject to new domestic and international requirements. Compliance with regulations enacted in the future could substantially increase our cost of doing business or otherwise have a material adverse effect on our results of operations and our business. Failure to comply with regulations in the future could result in the imposition of fines or in the suspension or cessation of our operations or sales in the applicable jurisdictions. Any such failure to comply with regulations may also result in our not being permitted, or limit our ability, to ship our products which would adversely affect our revenue and ability to achieve or maintain profitability.

Although we encourage our contract manufacturers and major component suppliers to comply with the supply chain transparency requirements, such as the RoHS Directive, we cannot provide assurance that our manufacturers and suppliers consistently comply with these requirements. In addition, if there are changes to these or other laws or if new related laws are passed in other jurisdictions, we may be required to re-engineer our products to use components compatible with these regulations. This re-engineering and component substitution could result in additional costs or disrupt our operations or logistics.

The WEEE Directive requires electronic goods producers to be responsible for the collection, recycling and treatment of such products. Changes in interpretation of the directive may cause us to incur costs or have additional regulatory requirements to meet in the future in order to comply with this directive, or with any similar laws adopted in other jurisdictions. Our failure to comply with past, present, and future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputational damage, penalties and other sanctions which could harm our business and financial condition. We also expect that our products will be affected by new environmental laws and regulations on an ongoing basis. To date, our expenditures for environmental compliance have not had a material impact on our results of operations or cash flows. Although we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may require us to change the content of our products or how they are manufactured. These developments could have a material adverse effect on our business and financial condition.

Our results of operations may suffer if we are not able to successfully manage our exposure to foreign exchange rate risks.

A substantial majority of our sales and cost of components are denominated in U.S. dollars. As our business grows, more of our sales and production costs may be denominated in other currencies. Where such sales or production costs are denominated in other currencies, they are converted to U.S. dollars for the purpose of calculating any sales or costs to us. Our sales may decrease as a result of any appreciation of the U.S. dollar against these other currencies.

Most of our current expenditures are incurred in U.S. dollars and many of our components come from countries that currently base their currency against the U.S. dollar. If the exchange rates change adversely or are allowed to increase, then additional U.S. dollars will be required to fund our purchases of these components.

Although we do not currently enter into currency option contracts or engage in other hedging activities, we may do so in the future. There is no assurance that we will undertake any such hedging activities or that, if we do so, they will be successful in reducing the risks associated with our exposure to foreign currency fluctuations.

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.

A substantial part of our operations, including manufacturing of certain components used in our products, are outside of the United States and many of our customers and suppliers have some or all of their operations in countries other than the United States. Risks associated with conducting business outside of the United States include:

• compliance burdens and costs associated with a wide variety of foreign laws and regulations, particularly labor and environmental, that govern our operations in those countries;

• legal uncertainties regarding foreign taxes, tariffs, border taxes, quotas, and export controls,

• export licenses, import controls and other trade barriers;

• economic instability and high levels of inflation in certain countries where our suppliers are located and

• customers, particularly in the Asia-Pacific region, causing delays or reductions in orders for their products and therefore our sales;

• political or public health instability, including global pandemics, in the countries in which our suppliers operate;

• changes or volatility in currency exchange rates;

• difficulties in collecting accounts receivable and longer accounts receivable payment cycles; and

• Any of these factors could harm our own, our suppliers’ and our customers’ international operations and businesses and impair our and/or their ability to continue expanding into international markets.

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.

The global nature of our business creates various domestic and local regulatory challenges and subject us to risks associated with our international operations. We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery and anticorruption laws may conflict with local customs and practices. Our global operations require us to import from several countries which geographically expands our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition, and results of operations.

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officials to some degree and, in certain circumstances, compliance with anti-bribery and anticorruption laws may conflict with local customs and practices. Our global operations require us to import from several countries which geographically expands our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition, and results of operations.

The U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-bribery and anticorruption laws in other jurisdictions prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business, directing business to another, or securing an advantage. In addition, U.S. public companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives. As a result, if we or our intermediaries fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation, operating results and financial condition.

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.

The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies. Our products are subject to U.S. export controls, including the Commerce Department’s Export Administration Regulations and various economic and trade sanction regulations established by the Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws. Furthermore, U.S. export control laws and economic sanctions prohibit the provision of products and services to countries, governments, and persons targeted by U.S. sanctions. Even though we take precautions to prevent our products from being provided to targets of U.S. sanctions, our products could be provided to those targets or provided by our customers despite such precautions. Any such provision could have negative consequences, including government investigations, penalties, and reputational harm. Our failure to obtain required import or export approval for our products could harm our international and domestic sales and adversely affect our revenue.

Changes in trade policy in the United States and other countries may have adverse impacts on our business, results of operations and financial condition.

The U.S. government has indicated its intent to alter its approach to international trade policy through the renegotiation, and potential termination, of certain trade agreements and treaties with China, countries in EMEA and other countries. These changes could include the imposition of additional tariffs on a wide range of products. Policy changes in the United States or other countries, such as the tariffs already proposed, implemented, and threatened, present risks for us. Tariffs already announced and implemented are having an adverse effect on certain of our products, tariffs announced but not yet implemented may have an adverse effect on many of our products, and threatened tariffs could adversely affect more or all of our products. There are also risks associated with retaliatory tariffs and resulting trade wars. We cannot predict future trade policy, the terms of any renegotiated trade agreements or treaties, or tariffs and their impact on our business. A trade war could have a significant adverse effect on world trade and the world economy. To the extent that trade tariffs and other restrictions imposed by the United States or other countries increase the price of, or limit the amount of, our products or components or materials used in our products imported into the United States or other countries, or create adverse tax consequences, the sales, cost or gross profit of our products may be adversely affected and the demand from our customers for products and services may be diminished. Uncertainty surrounding international trade policy and disputes and protectionist measures could also have an adverse effect on consumer confidence and spending. If we deem it necessary to alter all or a portion of our activities or operations in response to such policies, agreements or tariffs, our capital and operating costs may increase. Our ongoing efforts to address these risks may not be effective and may have long-term adverse effects on our operations and operating results that we may not be able to reverse. Such efforts may also take time to implement or to have an effect, and may result in adverse quarterly financial results or fluctuations in our quarterly financial results. As a result, changes in international trade policy, changes in trade agreements and tariffs could adversely affect our business, results of operations and financial condition.

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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.

We may collect, store, process and use the personally identifiable information of our customers and other data in our transactions with them. We also rely on third parties that are not directly under our control to do so as well. While we take reasonable measures to protect the security, integrity and confidentiality of the personal information and other sensitive information we collect, store or transmit, we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur, or that third parties will not gain unauthorized access to this information. ~~While~~We ~~our~~have ~~privacy~~in place and will adopt additional policies ~~currently~~to prohibit such activities; however, our third-party service providers or partners may engage in such activity without our knowledge or consent. If we or our third- party service providers were to experience a breach, disruption or failure of systems compromising our customers’ data, or if one of our third-party service providers or partners were to access our customers’ personal data without our authorization, our brand and reputation could be adversely affected, use of our products could decrease, and we could be exposed to a risk of loss, litigation and regulatory proceedings.

Regulatory scrutiny of privacy, data collection, use of data and data protection is intensifying globally, and the personal information and other data we collect, store, process and use is increasingly subject to legislation and regulations in numerous jurisdictions around the world, especially in Europe. These laws often develop in ways we cannot predict and may materially increase our cost of doing business, particularly as we expand the nature and types of products we offer.

Data protection legislation is becoming increasingly common in the United States at both the federal and state level. For example, in 2020, the State of California implemented the California Consumer Privacy Act of 2018 (the "“CCPA"”). The CCPA requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows consumers to opt out of certain data sharing with third parties and provides a new cause of action for data breaches. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The burdens of compliance imposed by the CCPA (and other similar laws that may be enacted at the federal and state level) may require us to modify our data processing practices and policies and/or to incur substantial expenditures.

Risks Related to Intellectual Property

Our products could infringe on the intellectual property rights of others.

Companies in the electronics, wireless communications, semiconductor, IT, and display industries steadfastly pursue and protect intellectual property rights, often resulting in considerable and costly litigation to determine the validity of patents and claims by third parties of infringement of patents or other intellectual property rights. Our products could be found to infringe on the intellectual property rights of others. Other companies may hold or obtain patents or inventions or other proprietary rights in technology necessary for our business. Periodically, other companies inquire about our products and technology in their attempts to assess whether we violate their intellectual property rights. If we are forced to defend against infringement claims, we may face costly litigation, diversion of technical and management personnel, and product shipment delays, even if the allegations of infringement are unwarranted. If there is a successful claim of infringement against us and we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, or if we are required to cease using one or more of our business or product names due to a successful trademark infringement claim against us, it could adversely affect our business.

Our intellectual property rights and proprietary rights may not adequately protect our products.

Our commercial success will depend substantially on the ability to obtain patents and other intellectual property rights and maintain adequate legal protection for products in the United States and other countries. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that these assets are covered by valid and enforceable patents, trademarks, copyrights or other intellectual property rights, or are effectively maintained as trade secrets. As of the date of this filing, we own 3634 granted United States and foreign patents and 1613 pending United States and foreign patent applications. The U.S. patents and patent applications include claims to, among other things, a drone, a printed circuit board, and head-mounted display technology. We apply for patents covering our products, services, technologies, and designs as we deem appropriate. We may fail to apply for patents on important products, services, technologies or designs in a timely fashion, or at all. We do not know whether any of our patent applications will result in the issuance of any patents. Even if patents are issued, they may not be sufficient to protect our products, services, technologies, or designs. Our existing and future patents may not be sufficiently broad to prevent others from developing competing products, services technologies, or designs. Intellectual property protection and patent rights outside of the United States are even less predictable. As a result, the validity and enforceability of patents cannot be predicted with certainty. Moreover, we cannot be certain whether:

~~• we were the first to conceive, reduce to practice, invent, or file the inventions covered by each of our issued patents and pending patent applications;~~31

•Table ~~others will independently develop similar or alternative products, technologies, services or designs or duplicate any~~ of ~~our products, technologies, services or designs;~~Contents

•technologies, ~~any~~or designs. Our existing and future patents ~~issued~~may not be sufficiently broad to usprevent ~~will~~others ~~provide~~from usdeveloping ~~with~~competing ~~any~~products, ~~competitive~~services ~~advantages~~technologies, or ~~will~~designs. Intellectual property protection and patent rights outside of the United States are even less predictable. As a result, the validity and enforceability of patents cannot be ~~challenged~~predicted bywith ~~third~~certainty. ~~parties;~~Moreover, we cannot be certain whether:

• we ~~will~~were ~~develop~~the ~~additional~~first ~~proprietary~~to ~~products~~conceive, ~~services~~reduce to practice, ~~technologies~~invent, or ~~designs~~file ~~that~~the ~~are~~inventions ~~patentable;~~covered orby each of our issued patents and pending patent applications;

•others ~~the~~will ~~patents~~independently ofdevelop ~~others~~similar ~~will~~or ~~have~~alternative anproducts, ~~adverse~~technologies, ~~effect~~services onor designs or duplicate any of our ~~business.~~products, technologies, services or designs;

26•any patents issued to us will provide us with any competitive advantages, or will be challenged by third parties;

•we will develop additional proprietary products, services, technologies or designs that are patentable; or

•the patents of others will have an adverse effect on our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

~~Not applicable~~None.

ITEM 1C. CYBERSECURITY

We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. These risks include, among other things: operational risks, intellectual property theft, fraud, extortion, harm to employees or customers and violation of data privacy or security laws. To mitigate the threat to our business, we take a comprehensive approach to cybersecurity risk management. The Company’s Board of Directors as well as its ~~Chief~~Director ~~Technology~~of ~~Officer~~Information Technology, ~~Chief~~its ~~Information Security~~General ~~Officer~~Counsel, and Chief Financial Officer are actively involved in the oversight of our risk management program, of which cybersecurity represents an important component. We have ~~established~~implemented, and are in the process of establishing policies, standards, processes, and practices for assessing, identifying, managing , and mitigating material risks from cybersecurity threats.

Risk Assessment and Management

We rely on a multidisciplinary team, including our information security function, management, and third-party service providers to identify, assess, remediate and manage cybersecurity threats and risks. We identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and our risk profile using various methods including, for example, manual and automated tools, subscribing to reports and services that identify cybersecurity threats, analyzing reports of threats and threat actors, conducting scans of the threat environment, utilizing internal and external audits, and conducting threat and vulnerability assessments.

At least annually, we review our security controls and address information security vulnerabilities, conduct security testing, and assess our external sources for their security risk (e.g., security incidents, data security, security controls, third parties, etc.). The results of the assessment are used to drive alignment and prioritization of initiatives to enhance our security posture, improve security processes, and to manage a broader enterprise-level risk program that is presented to the Board of Directors, the Audit Committee, and members of management.

The Company maintains, and is in the process of establishing, various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats against our information systems and data. These include:

• incident detection and response

• vulnerability management

• disaster recovery plans

• internal controls within our accounting and financial reporting functions

• encryption of data

~~• network security controls~~32

•Table ~~access~~of ~~controls~~Contents

•network ~~physical~~ security controls

•access ~~asset management~~controls

•physical ~~systems monitoring~~security

•asset ~~vendor risk~~ management ~~program~~

•systems ~~employee training.~~monitoring

•vendor risk management program

•employee training.

Notwithstanding the approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on the Company. Refer to Item 1A for a discussion of cybersecurity risks.

Governance

Our Board of Directors is responsible for overseeing our enterprise risk management activities, and each of our Board committees assists the Board in the role of risk oversight. The full Board receives an update on the Company’s risk management process and the risk trends related to cybersecurity at least annually. The Audit Committee specifically assists the Board of Directors in its oversight of risks related to cybersecurity.

ITEM 2. PROPERTIES

We lease all properties where our business is operated. We believe that these properties are adequate for the purposes for which they are used. All leases are with unaffiliated third parties. We believe that the loss of any lease would not have a material adverse effect on our operations, as we believe that we could identify and lease comparable facilities upon approximately equivalent terms. The Company has the following operating leases for real estate locations where it operates:

Location	~~Monthly Rent~~	Monthly Rent		Expiration
South Salt Lake, Utah	$	22,667			December 2030
West Palm Beach, Florida		$	18,050	February 2032
San Juan, Puerto Rico	$	5,647			June 2027
South Salt Lake, Utah		$	46,545	December 2030
Grantsville, Utah	$	1,000			December 2026
Valdosta, Georgia		$	48,550	November 2030
Torrance, California		$	66,330	October 2030
Carson, California		$	22,655	April 2028
San Juan, Puerto Rico		$	6,403	June 2027
Grantsville, Utah		$	1,250	December 2026
Spring Lake, North Carolina		$	3,000	August 2026

The West Palm Beach, Florida facility has approximately 11,400 square feet and is used for customer engagement and to support operations. The South Salt Lake, Utah facility has approximately 2237,000 square feet and is used for our manufacturing. The Valdosta, Georgia facility has approximately 155,000 square feet and is used for our manufacturing. The Torrance, California facility has approximately 51,000 square feet and is used for our manufacturing. The Carson, California facility has approximately 14,616 square feet and is used for our manufacturing. The San Juan, Puerto Rico facility has approximately 3,600 square feet and is used for administrative purposes. The Grantsville, Utah property is approximately one acre and is used for drone flight operations and testing. The Spring Lake, North Carolina facility has approximately 2,840 square feet and is used for administrative purposes.

These lease agreements have remaining terms up to 614.67 years, including options to extend certain leases for up to ~~six~~ten years.

The weighted average remaining lease term as of April 30, 2024 was 6.16 years. The Company used a discount rate of 12% to calculate its lease liability at April 30, 2024. Future lease payment obligations at April 30, 2024 were as follows:33

Fiscal Year Ended:
2025	$	366,853
2026		372,449
2027		372,880
2028		293,334
2029		280,080
Thereafter		443,460
Total	$	2,129,056

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28The weighted average remaining lease term as of December 31, 2025 was 9.04 years. The weighted average discount rate used to calculate the Company's lease liabilities at December 31, 2025 was 12%. Future undiscounted payment obligations at December 31, 2025 were as follows (in thousands):


Fiscal Year Ended:
2026	$	2,554
2027	2,743
2028	2,709
2029	2,695
2030	2,561
Thereafter	10,009
Total	$	23,271

ITEM 3. LEGAL PROCEEDINGS

~~On September~~From ~~29,~~time ~~2022~~to time, we, ~~and~~may ~~our~~become ~~wholly~~involved ~~owned subsidiary~~in ~~Teal~~various ~~Drones,~~lawsuits ~~Inc.,~~and ~~initiated a~~ legal ~~proceeding~~proceedings ~~(the~~that ~~“Lawsuit”)~~arise ~~against Autonodyne LLC (“Autonodyne”) and its principal equity owner Daniel Schwinn (“Schwinn”),~~ in ~~Delaware~~the ~~Chancery~~ordinary ~~Court.~~course ~~The~~of ~~case is captioned as Red Cat Holdings, Inc~~business., etWe ~~al.~~are v.not ~~Autonodyne~~currently ~~LLC,~~involved ~~et al., C.A. No. 2022-0878. The case arises from Autonodyne’s unilateral purported termination of a software licensing agreement entered between Teal Drones and Autonodyne~~ in ~~May~~any ~~2022.~~legal ~~Before~~proceeding ~~the~~or ~~defendants~~investigation ~~answered,~~by ~~we filed~~ a ~~First Amended~~governmental ~~Complaint~~agency ~~on December 5, 2022, which the defendants moved to dismiss. The court partially granted~~ that ~~motion,~~we ~~dismissing the~~believe ~~claims~~will ~~asserted~~have ~~against~~a ~~Autonodyne,~~material ~~but~~adverse ~~not~~effect ~~against~~on ~~Schwinn.~~our ~~For jurisdictional reasons~~business, ~~the~~financial case subsequently was transferred to Delaware Superior Court. The Lawsuit alleges a cause of action against Schwinn for Tortious Interference with Contractual Relations and Prospective Contractual Relationscondition, ~~concerning a Software Licensing Agreement between Teal Drones and Autonodyne. No discovery~~ or ~~other significant~~operating ~~developments in the Lawsuit have occurred~~results.

On May 9, 2024, Autonodyne LLC filed a complaint against wholly-owned Red Cat subsidiary Teal Drones, Inc. in the Superior Court of the State of Delaware. The Complaint alleges a single cause of action, asserting that Teal breached a Software Licensing Agreement between it and Autonodyne (the “SLA”) by disclosing confidential information contained in the SLA. Autonodyne alleges that it rightfully terminated the SLA, and at that point it became entitled to $8.25 million of accelerated payments, pursuant to section 14.4(e) of the SLA. Teal Drones has answered the Complaint, but no discovery has been served yet. As any litigation is subject to many uncertainties, it is not possible to predict the ultimate outcome of this claim or to estimate the loss, if any, which may result. Accordingly, the outcome of the claim is not yet determinable, and the extent to which an outflow of funds may be required to settle this possible obligation cannot be reliably determined. The Company plans to vigorously assert defenses to the complaint.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock ~~has been~~is listed on the Nasdaq Capital Market (“Nasdaq”) ~~since April 30, 2021~~ under the symbol “RCAT”.

The last reported sales price of our common stock on ~~August~~March 518, ~~2024~~2026 was $117.9800.

Holders

As of ~~August~~March 517, ~~2024~~2026, there were ~~127~~580 stockholders of record of our common stock.

Dividends

The Company has never paid dividends on its common stock and does not anticipate that it will pay dividends in the foreseeable future. It intends to use any future earnings for the expansion of its business. Any future determination of applicable dividends will be made at the discretion of the Board of Directors and will depend on the results of operations, financial condition, capital requirements and other factors deemed relevant.

Recent Sales of Unregistered Securities

There were no sales of equity securities during the period covered by this Annual Report that were not registered under the Securities Act and were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the CompanyNone.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

We did not repurchase any securities in the fourth quarter of the fiscal year covered by this Annual Report.

ITEM 6. RESERVED

~~ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~34

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial data included elsewhere in this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. For more information regarding forward-looking statements, please refer to the discussion above under the heading “Forward-Looking Statements.”

Recent Developments

~~Corporate~~Change ~~developments during~~in ~~the~~Fiscal ~~two years ended April 30, 2024 include:~~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.

Capital Transactions

~~During the~~In ~~first~~April ~~quarter~~2025, ofwe ~~fiscal~~entered ~~2022,~~into ~~the~~a ~~Company~~securities ~~completed~~purchase ~~two~~agreement ~~firm~~with ~~commitment~~certain ~~underwritten~~institutional ~~public~~investors ~~offerings~~pursuant ~~with~~to ~~ThinkEquity,~~which awe ~~division of~~issued ~~Fordham~~and ~~Financial~~sold, ~~Management.~~in ~~The~~a ~~first~~registered direct offering, inan ~~May~~aggregate ~~2021~~of 4,724,412 ~~generated~~shares ~~gross~~of ~~and~~our ~~net~~common ~~proceeds~~stock, ofpar value $160.001 ~~and~~per share, at a price of $~~14.~~6.35 ~~million,~~per ~~respectively~~share. The ~~second~~gross ~~offering,~~proceeds inwere ~~July~~approximately ~~2021~~$30 million, ~~generated~~before ~~gross~~deducting ~~and~~the ~~net~~placement ~~proceeds~~agents’ offees ~~$60~~ and ~~$55.5~~other ~~million,~~offering ~~respectively~~expenses.

~~On December~~In ~~11,~~June ~~2023~~2025, ~~the~~we ~~Company~~entered ~~completed~~into a ~~firm~~securities ~~commitment~~purchase ~~underwritten~~agreement ~~public~~with certain institutional investors pursuant to which we issued and sold, in a registered direct offering, ~~with~~an ~~ThinkEquity~~aggregate of 186,~~400~~448,~~000~~276 shares of our common stock, ~~which~~par ~~generated~~value ~~gross~~$0.001 ~~and~~per ~~net~~share, ~~proceeds~~at a price of $97.225 ~~and~~per $8share.4 The gross proceeds were approximately $46.8 million, ~~respectively~~before deducting the placement agents’ fees and other offering expenses.

~~Plan~~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 ~~Operations~~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.

~~Since~~Discussion ~~April~~and ~~2016,~~Analysis ~~the Company's~~of ~~primary~~Year ~~business~~Ended ~~has~~December ~~been to provide products~~31, ~~services,~~2025 ~~and~~compared ~~solutions~~ to ~~the~~Eight ~~drone~~Month ~~industry~~Transition ~~which~~Period itEnded ~~presently~~December ~~does through its four wholly owned subsidiaries. Beginning in January 2020~~31, ~~the~~2024 ~~Company expanded the scope of its drone products~~ and ~~services~~Year ~~through four~~Ended ~~acquisitions~~April 30, ~~including:~~2024

A. In January 2020, the Company acquired Rotor Riot, a provider of First Person View (FPV) drones and equipment, primarily to the consumer marketplace. The purchase price was $1,995,114.

B. In November 2020, the Company acquired Fat Shark Holdings, a provider of FPV video goggles to the drone industry. The purchase price was $8,354,076.

C. In May 2021, the Company acquired Skypersonic which provides hardware and software solutions that enable drones to complete inspection services in locations where GPS is not available, yet still record and transmit data even while being operated from thousands of miles away. The purchase price was $2,791,012.

D. In August 2021, the Company acquired Teal Drones, a leader in commercial and government UAV (Unmanned Aerial Vehicles) technology. The purchase price was $10,011,279.

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

Revenues

Consolidated revenues totaled $~~17,836,382~~40.7 million during the year ended ~~April~~December 3031, ~~2024~~2025 (or the ~~"2024~~“2025 ~~period"~~Period”) compared to $4~~,620,834~~.9 million during the ~~year~~ eight months ended ~~April~~December 3031, ~~2023~~2024 (or the "~~2023~~Transition ~~period~~Period") ~~representing~~and ancompared ~~increase~~to of $~~13,215,548, or 286%~~17.8 ~~The~~million ~~increase~~during ~~primarily~~the ~~related to~~year ~~higher~~ended ~~product~~April ~~revenue~~30, ~~related~~2024 to(or the ~~launch~~"2024 ofPeriod"). ~~the~~This ~~Teal~~represents 2an inincrease ~~April~~of ~~2023~~$35. ~~Product~~8 ~~revenue totaled $13~~million,~~588,372~~ ~~during~~or ~~the~~739% ~~year ended April 30, 2024~~ compared to ~~$3,012,470 during~~ the ~~year~~Transition ~~ended~~Period ~~April~~and ~~30, 2023 representing~~ an increase of $1022.9 million,~~575,902,~~ or ~~351~~ 128%~~. The~~ ~~increase~~compared ~~in revenue also partially related~~ to ~~increased contract revenues during~~ the 2024 ~~period~~Period. ~~Contract~~The ~~revenues~~increase ~~totaled $4,173,005 during the 2024 period~~ compared to ~~$1,312,427~~both ~~during~~periods ~~the~~is ~~2023~~attributable ~~period,~~primarily ~~representing an~~to ~~increase~~increased ofrevenue ~~$2,860,578,~~associated orwith ~~218%. Contract revenues~~the ~~are~~commencement ~~primarily sourced through government agencies~~ and ~~can~~scaling ~~fluctuate~~of ~~from~~drone ~~period~~deliveries to ~~period based on~~ the ~~timing~~U.S. ofArmy ~~award~~under ~~deliverables and~~the ~~amendments~~SRR program.

Gross Profit

Consolidated gross profit totaled $1.3~~,680,546~~ million during the ~~2024~~2025 ~~period~~Period compared to ~~negative~~gross ~~$834,311~~loss ~~during the 2023 period representing an increase~~ of $1.4~~,514,857,~~ ormillion ~~541%.~~during Onthe aTransition ~~percentage~~Period ~~basis,~~and gross profit ~~was~~of ~~21%~~$3.7 million during the 2024 ~~period compared to negative 18% during the 2023 period~~Period. ~~The~~ ~~percentage~~This ~~basis~~represents an increase inof ~~gross profit in the 2024 period primarily related to obsolete inventory write-offs that occurred during the 2023 period~~$2.7 ~~Additionally~~million, ~~lower~~or ~~manufacturing~~195% ~~levels in the 2023 period resulted in higher relative overhead costs~~ compared to the ~~2024~~ ~~period.~~Transition ~~Our~~Period ~~manufacturing~~and ~~facility is presently producing drones at~~ a ~~lower~~decrease ~~level~~of ~~than~~$2.4 ~~it is designed for~~million, ~~and~~or ~~these~~65% ~~lower~~compared ~~production levels, combined with higher overhead costs, continue~~ to ~~result~~the in2024 ~~lower than targeted gross profits~~Period. AsOn ~~production levels increase, our fixed overhead costs, including labor, are expected to be allocated to~~ a ~~greater number of drones which is expected to drive our per-drone production costs lower and increase gross profits.~~

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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. Our manufacturing facility is currently operating below its designed production capacity. These lower production levels, combined with higher fixed overhead costs, have resulted in lower gross margins during the 2025 Period. As production volumes increase, we expect fixed overhead costs, including labor, to be allocated across a greater number of units, which is expected to reduce per-unit production costs and improve gross margins.

Operating Expenses

Research and development expenses totaled $~~5,896,037~~17.9 million during the ~~2024~~2025 ~~period~~Period compared to $~~5,595,281~~6.6 million during the ~~2023~~Transition Period and $6.3 million during the 2024 period,. ~~representing~~This represents an increase of $~~300~~11.3 million,~~756,~~ or 5171%. ~~Supplies~~compared to the Transition Period and ~~materials~~an ~~expense~~increase ~~totaled~~of $211.6 million,~~017,979~~ inor 186% compared to the 2024 ~~period~~Period. The increase compared to ~~$1,444,051~~both inperiods ~~the~~was ~~2023~~attributable ~~period. This~~primarily ~~increase of~~to ~~$573,928,~~increased orinvestment ~~40%,~~in ~~primarily~~research ~~related~~and todevelopment ~~increased~~activities, ~~efforts~~including inengineering ~~developing~~personnel ~~new~~costs, ~~products~~prototype development, testing, and ~~represented~~other ~~substantially~~expenses ~~all~~associated ofwith the ~~total increase~~development inof ~~research~~new and ~~development~~enhanced ~~costs~~drone platforms and related technologies.

Sales and marketing costs totaled $~~4,568,617~~13.1 million during the ~~2024~~2025 ~~period~~Period compared to $6.3~~,731,776~~ million during the ~~2023~~Transition ~~period~~Period and $5.1 million during the 2024 Period. This represents an increase of $6.8 million, ~~representing~~or 107% compared to the Transition Period and an increase of $~~836~~8.0 million,~~841~~ or 22 158% compared to the 2024 Period. The increase compared to both periods was ~~driven~~attributable byprimarily to higher payroll ~~expenses~~and related personnel costs associated with expanding our sales and marketing team to support increased ~~sales~~business ~~efforts~~development ofand ~~the~~customer ~~Teal~~engagement 2activities.

31General 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.

~~General~~Other 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.Expense

~~During~~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, we~~Period. ~~incurred~~This ~~stock-based~~represents ~~compensation~~a ~~costs~~decrease of $~~3,609,267~~12.8 million or 72% compared to the Transition Period and an increase of $32.8 million,~~656,724~~ inor 126% compared to the ~~2023~~2024 ~~period~~Period. During the 2025 Period, ~~resulting~~other inexpense consisted primarily of a ~~decrease~~fair value adjustment on convertible notes payable of $4711.4 million,~~457 or~~ 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.

~~Other~~Net ~~Income~~Loss

~~Other~~Net ~~expense~~loss from continuing operations totaled $~~3,650,484~~72.1 million during the ~~2024~~2025 ~~period~~Period compared to $~~1,004,887~~43.6 million during the ~~2023~~Transition ~~period,~~Period ~~representing~~and ~~a decrease of~~ $~~2,645,597~~21.5 ormillion ~~263%.~~during ~~During~~ the 2024 period,. ~~the~~This ~~divestiture~~represents ~~of the Consumer segment resulted in~~ a ~~gain~~decrease of $~~9,642,427,~~28.5 ~~impairment of $11~~million,~~353,875,~~ ~~and~~or an65% ~~equity~~compared ~~method loss~~to ~~of $503,625. Additionally, during~~ the ~~2024~~Transition ~~period,~~Period ~~the~~and ~~Company was awarded~~ a ~~manufacturing~~decrease ~~modernization grant from the State~~ of ~~Utah for~~ $~~750,000~~50.6 ~~of which $675~~million,~~000~~ isor ~~attributable~~235% compared to the 2024 ~~period~~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%.

Cash Flows

Operating Activities

Net cash used in operating activities was $~~17,687,063~~89.1 million during the ~~2024~~2025 ~~period~~Period compared to ~~net~~$20.5 ~~cash~~million ~~used~~during inthe ~~operating~~Transition ~~activities~~Period ofand $~~24,313,674~~17.7 million during the ~~2023~~2024 ~~period, representing~~Period. aThis ~~decrease~~represents an increase of $68.6~~,626,611~~ ormillion ~~27%.~~compared ~~The~~to ~~decreased~~the ~~use~~Transition Period and an increase of ~~cash~~$71.4 ~~primarily~~million ~~related~~compared to ~~timing~~the of2024 ~~accounts~~Period. ~~receivable~~The ~~receipts~~increase ~~for government~~compared ~~customers.~~to ~~Net~~both ~~cash~~periods ~~used~~was inattributable ~~operations,~~primarily to the increase in net ofloss ~~non~~during the 2025 period. Non-cash expenses, totaled $~~8,512,449~~20.5 million during the ~~2024~~2025 period, compared to $~~7,784,364 during~~22.6 ~~the~~million ~~2023~~during ~~period,~~Transition ~~resulting~~Period inand an$8.5 ~~increase~~million ofduring ~~$728,085,~~the or2024 9%Period. Net cash used related to changes in operating assets and liabilities totaled $~~4,672,816~~37.6 ~~during~~million ~~the 2024 period, compared to $5,721,395~~ during the ~~2023~~2025 ~~period,~~Period. ~~representing~~Net acash ~~decrease~~provided ofby ~~$1,048,579~~related orto ~~18%. Changes~~changes in operating assets and liabilities ~~can~~totaled ~~fluctuate~~$0.4 ~~significantly~~million ~~from~~during ~~period to period depending upon~~ the ~~timing~~Transition ~~and~~Period. ~~level~~Net ~~of multiple~~cash ~~factors, including inventory purchases, vendor payments, and customer collections.~~

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used related to changes in operating assets and liabilities totaled $4.7 million during the 2024 Period. 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.

Investing Activities

Net cash ~~provided~~used byin investing activities was $~~13,567,078~~ 6.6 million during the ~~2024~~2025 ~~period~~Period compared to net cash provided by investing activities of $~~29,590,235~~4.2 million during the ~~2023~~Transition ~~period~~Period and $13.6 million during the 2024 Period. During the 2025 Period, ~~resulting~~net cash used in ainvesting ~~decrease~~ activities consisted entirely of purchases of property and equipment totaling $166.6 million,~~023,157~~ orcompared ~~54%.~~to ~~Proceeds~~purchases of property and equipment of $~~12,826,217~~0.2 million during the Transition Period and $320.3 million during the 2024 Period. During the Transition Period,~~290,448~~ net cash provided by investing activities was primarily attributable to proceeds of $4.4 million from the sale of ~~marketable~~equity ~~securities~~method ~~were~~investment ~~used~~and tonote ~~fund~~receivable. ~~operations~~During ~~during~~ the 2024 ~~period~~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 ~~2023~~divestiture ~~period,~~of ~~respectively~~the consumer segment.

Financing Activities

Net cash provided by ~~financing~~ investing activities ~~totaled~~was $~~7,802,076~~254.5 million during the ~~2024~~2025 ~~period~~Period compared to ~~net~~$19.4 ~~cash~~million ~~used~~during inthe ~~financing~~Transition ~~activities~~Period, ofand $~~1,215,325~~7.8 million during the ~~2023~~2024 ~~period~~Period. ~~Financing~~This ~~activities~~represents ~~can~~an ~~vary~~increase ~~from~~of ~~period~~$235.1 million compared to ~~period~~the ~~depending~~Transition ~~upon~~Period ~~market~~and ~~conditions,~~an ~~both~~increase atof a$246.7 ~~macro-level~~million ~~and~~compared ~~specific~~ to the ~~Company~~2024 Period. ~~During~~The ~~the~~increase ~~fiscal~~compared ~~2024~~to ~~period,~~both ~~the~~periods ~~company~~relates ~~received~~to ~~net~~the proceeds from issuance of common stock ofduring ~~$8,395,600~~the 2025 Period.

Liquidity and Capital Resources

At ~~April~~December 3031, ~~2024~~2025, the Company reported current assets totaling $22226.9 million,~~397,549,~~ 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 ~~April~~December 3031, ~~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.

Critical Accounting Policies and Estimates

~~Our~~We ~~financial~~regularly ~~statements and~~evaluate ~~accompanying~~the ~~notes~~accounting ~~have~~policies ~~been~~and ~~prepared~~estimates inthat ~~accordance~~we ~~with~~use ~~GAAP~~to ~~applied~~prepare onour ~~a consistent basis. The preparation of~~ financial statements in. ~~conformity~~A ~~with~~complete ~~GAAP~~summary ~~requires management to make estimates and assumptions that affect the reported amounts~~ of ~~assets~~these ~~and~~policies ~~liabilities, the~~is ~~disclosure~~included ofin ~~contingent assets and liabilities at~~ the ~~date~~notes ofto ~~the~~our financial statements ~~and the reported amounts of revenues and expenses during the reporting periods~~.

~~We regularly~~In ~~evaluate~~addition ~~the accounting policies and estimates that we use~~ to ~~prepare~~ our ~~financial~~critical ~~statements.~~accounting ~~A complete summary of these policies is included in the notes to our financial statements. In general, management's~~ estimates ~~are~~and ~~based~~polices ~~on historical experience~~below, ~~information~~ ~~from~~refer ~~third party professionals, and on various other assumptions that are believed~~ to be“Note ~~reasonable~~2 ~~under~~– ~~the~~Summary ~~facts~~of ~~and~~Significant ~~circumstances. Actual~~Accounting ~~results~~Policies” ~~could~~for ~~differ~~further ~~from those estimates made by management~~information.

~~Significant~~Revenue 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.Recognition

~~Goodwill and~~We ~~Long-lived~~recognize ~~Assets~~revenue –in ~~Goodwill~~accordance ~~represents~~with ~~the~~ASC ~~future~~Topic ~~economic~~606 ~~benefit~~- ~~arising~~Revenue from ~~other~~Contracts ~~assets~~with ~~acquired~~Customers, inissued anby ~~acquisition that are not individually identified and separately recognized. We test goodwill for impairment in accordance with~~ the ~~provisions~~Financial ~~of ASC 350,~~Accounting ~~Intangibles~~Standards –Board ~~Goodwill and Other,~~ (“~~ASC 350~~FASB”). ~~Goodwill~~This isstandard ~~tested~~includes ~~for~~a ~~impairment~~comprehensive atevaluation ~~least~~of ~~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~~be ~~whether~~considered ~~the~~regarding ~~existence~~revenue ofrecognition ~~events~~including or(i) ~~circumstances~~identifying ~~leads to a determination that it is more likely than not that~~ the ~~fair~~promised ~~value~~goods, of(ii) aevaluating ~~reporting~~performance ~~unit is less than its carrying amount. If~~obligations, ~~after~~(iii) ~~assessing~~ measuring the ~~totality~~transaction ~~of events or circumstances~~price, an(iv) ~~entity~~allocating ~~determines~~the ittransaction isprice ~~not~~to ~~more likely than not that~~ the ~~fair~~performance ~~value~~obligations ofif athere ~~reporting~~are ~~unit is~~multiple ~~less~~components, ~~than~~and ~~its~~(v) ~~carrying~~recognizing ~~amount,~~revenue ~~then~~as ~~additional~~each ~~impairment~~obligation ~~testing~~ is ~~not required~~satisfied. ~~However,~~We ifdetermined anthere ~~entity concludes otherwise, then it is required~~ to ~~perform~~be anjudgment ~~impairment~~in ~~test. The impairment test involves comparing~~ the ~~estimated~~determination ~~fair value~~ of aperformance ~~reporting~~obligations ~~unit~~identified ~~with its~~in ~~book~~certain ~~value, including goodwill~~contracts. IfOur ~~the~~revenue ~~estimated~~transactions ~~fair~~include ~~value~~the ~~exceeds~~shipment ~~book~~of ~~value,~~goods ~~goodwill~~to iscustomers ~~considered~~as ~~not~~orders toare ~~be impaired. If~~fulfilled, ~~however, the~~completion ~~fair value~~ of ~~the~~non-recurring ~~reporting~~engineering, ~~unit~~completion isof ~~less than book value~~training, ~~then~~and ancustomer ~~impairment~~support ~~loss~~services. isWe ~~recognized~~recognizes inrevenue anupon ~~amount~~shipment ~~equal to the amount that the book value~~ of ~~the~~product ~~reporting~~or ~~unit~~prototypes ~~exceeds~~unless ~~its~~otherwise ~~fair~~specified ~~value,~~in ~~not to exceed~~ the ~~total~~purchase ~~amount~~order ofor ~~goodwill allocated to the reporting unit~~contract.

33Recent Accounting Pronouncements

~~The estimate~~Recently ofadopted ~~fair~~accounting 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. pronouncements

~~Fair Values,~~In ~~Inputs~~December ~~and~~2023, ~~Valuation~~the ~~Techniques~~FASB ~~for~~issued ~~Financial~~ASU ~~Assets~~2023-09 ~~and~~requiring ~~Liabilities~~enhanced ~~and~~annual ~~Related~~disclosures ~~Disclosures~~regarding –the ~~The~~rate ~~fair~~reconciliation ~~value measurements~~ and ~~disclosure~~income ~~guidance~~taxes ~~defines~~paid, ~~fair~~disaggregated ~~value~~by ~~and establishes a framework for measuring fair value~~jurisdiction. ~~Fair~~This ~~value~~standard is ~~defined~~effective asfor ~~the~~annual ~~price~~periods ~~that would~~beginning beafter ~~received~~December to15, ~~sell~~2024, anwith ~~asset~~early oradoption ~~paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date~~permitted. InWe ~~accordance~~adopted ~~with~~ this ~~guidance,~~ASU ~~the~~on ~~Company~~a ~~has~~prospective ~~categorized its recurring~~ basis ~~financial~~effective ~~assets~~January ~~and~~1, ~~liabilities into~~2025. aRefer ~~three-level~~to ~~fair~~Note ~~value~~13, ~~hierarchy~~Income ~~based~~Taxes onfor ~~the~~inclusion ~~priority~~ of ~~the~~new ~~inputs~~disclosures ~~to the valuation technique~~required.

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.37

~~The guidance~~Table ~~establishes three levels~~ of ~~the fair value hierarchy as follows:~~Contents

~~Level 1:~~Recently ~~Inputs~~issued ~~are~~accounting ~~unadjusted,~~pronouncements ~~quoted~~not ~~prices~~yet ~~in active markets for identical assets or liabilities at the measurement date;~~adopted

~~Level 2:~~In ~~Inputs~~November ~~are observable~~2024, ~~unadjusted~~the ~~quoted~~FASB ~~prices~~issued inASU ~~active~~2024-03 ~~markets~~expanding ~~for~~disclosure ~~similar~~requirements ~~assets~~related orto ~~liabilities,~~certain ~~unadjusted~~income ~~quoted~~statement ~~prices for~~expenses. ~~identical~~The oramendments ~~similar~~require ~~assets~~tabular ordisclosure ~~liabilities~~of incertain ~~markets~~operating ~~that~~expenses ~~are~~disaggregated ~~not~~into ~~active~~categories, orsuch ~~other~~as ~~inputs~~purchases ~~that~~of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments are ~~observable~~effective orfor ~~can~~our fiscal year ending December 31, 2027 and may be ~~corroborated by~~applied ~~observable~~retrospectively. ~~market~~While ~~data~~we ~~for~~are ~~substantially~~still evaluating the ~~full~~specific ~~term~~impacts ofand ~~the~~adoption ~~related~~method, ~~assets~~we oranticipate ~~liabilities;~~this ~~and~~guidance will have a significant impact on our consolidated financial statement disclosures.

~~Level 3~~In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): ~~Unobservable~~Narrow-Scope ~~inputs~~Improvements. ~~that~~The ~~are~~ASU ~~significant~~clarifies tointerim disclosure requirements and the ~~measurement~~applicability of ~~the~~Topic ~~fair~~270. ~~value~~The objective of the ~~assets~~amendments is to provide further clarity about the current interim disclosure requirements. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Adoption of this ASU can be applied either a prospective or ~~liabilities~~a ~~that~~retrospective approach. Early adoption is permitted. We are ~~supported by~~currently ~~little~~evaluating orthe noprovisions ~~market~~of ~~data~~this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

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

We have no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

3438

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RED CAT HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	~~Page~~	Page
Report of Independent Registered Accounting Firm (PCAOB ID: 3501)	F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185)Report of Independent Registered Public Accounting Firm (PCAOB ID: 3501)		F-2
Consolidated Balance Sheets as of April 30, 2024 and 2023	F-3
Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024		F-6
Consolidated Statements of Operations for the years ended April 30, 2024 and 2023	F-4
Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2025, eight months ended December 31, 2024 and year ended April 30, 2024		F-7
Consolidated Statements of Shareholders’ Equity for the years ended April 30, 2024 and 2023	F-5
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2025, eight months ended December 31, 2024 and year ended April 30, 2024		F-8
Consolidated Statements of Cash Flows for the years ended April 30, 2024 and 2023	F-6
Consolidated Statements of Cash Flows for the year ended December 31, 2025, eight months ended December 31, 2024 and year ended April 30, 2024		F-9
Notes to the Consolidated Financial Statements	~~F-7~~	F-10

35F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and ~~Stockholders of Red Cat Holdings, Inc.~~

~~Opinion on~~ ~~the~~Stockholders ~~Financial~~of ~~Statements~~Red Cat Holdings, Inc.

~~We have~~Opinion ~~audited~~on the ~~accompanying~~Consolidated ~~consolidated~~Financial balance sheets of Red Cat Holdings, Inc. (the “Company”) as of April 30, 2024 and 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.Statements

We have audited the accompanying consolidated balance sheet of Red Cat Holdings, Inc. and subsidiaries (the Company) as of December 31, 2025, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for December 31, 2025, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Determination of performance obligations for certain revenue contracts

As discussed in Note 2, Revenue Recognition, to the consolidated financial statements, the Company recorded $40.7 million in revenue for the year ended December 31, 2025, a portion of which relates to certain revenue contracts that contain multiple performance obligations. At contract inception, the Company assesses the products promised within each contract to determine the performance obligations that should be accounted for separately.

We identified the evaluation of the Company’s determination of the performance obligations included in certain revenue contracts as a critical audit matter. Subjective auditor judgment was required to evaluate the application of relevant accounting guidance to determine the performance obligations because of the nature of the contracts.

The following is the primary procedure we performed to address this critical audit matter. For certain revenue contracts, we evaluated the Company’s determination of performance obligations by comparing them to the underlying terms of the

F-2

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contracts and evaluating whether the Company’s accounting for the contracts is in accordance with the relevant accounting guidance.

/s/ KPMG LLP

We have served as the Company’s auditor since 2025.

Salt Lake City, Utah

March 19, 2026

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Red Cat Holdings, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Red Cat Holdings, Inc. (the “Company”) as of December 31, 2024, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the eight months ended December 31, 2024, and for the year ended April 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the eight months ended December 31, 2024, and for the year ended April 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit ~~Matters~~Matter

The critical audit ~~matter~~matters communicated below isare amatters ~~matter~~ arising from the current period ~~audits~~audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit ~~matter~~ matters below, providing separate opinion on the critical audit ~~matter~~matters or on the accounts or disclosures to which they relate.

Purchase Price Allocation / Valuation of Goodwill and Intangibles

As discussed in Note 83 to the financial statements, the Company ~~acquired~~completed ~~various~~its ~~businesses~~acquisition ~~which~~of ~~resulted~~Flightwave Technologies, Inc. resulting in the recording of significant amounts of goodwill and intangible assets. The intangible assets management identified consisted of proprietary technology and tradenames. Management determined the fair value of the intangible assets using a discounted cash flow model. Key assumptions used the model to determine fair value were cash flow projections, the discount rate, long-term growth rates, effective tax rate and the estimated periods to be benefitted of the identifiable intangible assets with definite lives.

We identified the ~~valuation~~purchase ofprice ~~goodwill~~allocation ~~and~~related ~~intangible~~to ~~assets~~this ~~for~~acquisition ~~the businesses acquired~~ as a critical audit matter ~~because of~~ due to the significant estimates and assumptions management ~~makes~~used in determining the ~~estimates~~fair value of goodwill and intangible assets acquired. ~~Auditing~~The ~~management’s~~Company ~~assumptions~~used ~~involved~~the aincome ~~high degree~~approach ofto ~~auditor~~measure ~~judgment~~the ~~and~~customer ~~increased audit effort~~backlog, ~~including~~customer ~~the~~relationships, ~~use~~developed oftechnology, ~~valuation~~and ~~specialists~~trade name intangible assets, aswhich involved significant management’s ~~assumptions are~~judgment ~~subjective~~with respect to forecasted revenue growth rates, profit margins, royalty rates, discount rates, tax rates and ~~changes~~the indetermination ~~these~~of ~~assumptions~~useful ~~could~~lives. ~~have~~Performing aaudit ~~significant~~procedures ~~impact~~to onevaluate the ~~fair~~reasonableness ~~value~~of these estimates and assumptions required a high degree of ~~the~~auditor ~~businesses~~judgment ~~acquired~~and increased audit effort.

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Table of Contents

Our audit procedures related to the Company’s valuation of goodwill and intangible assets for the businesses acquired included the following, among others:

We evaluated the ~~reasonableness~~purchase ofprice ~~management’s~~allocation ~~cash~~performed ~~flow~~by ~~projections~~the bythird-party ~~comparing~~valuation specialist engaged by management’s. ~~prior~~Our ~~forecasts~~procedures toincluded ~~historical results~~evaluating ~~for~~the professional qualifications and objectivity of the ~~Company~~specialist, asassessing ~~well~~the asappropriateness ~~inquiry~~ of ~~management~~the valuation methodologies used, and testing the completeness and accuracy of the ~~reporting~~underlying ~~unit~~data ~~regarding~~provided to the ~~expected~~specialist. ~~future~~We ~~operations,~~evaluated ~~review~~the reasonableness of ~~publicly available~~key assumptions, including forecasted revenue growth rates, profit margins, customer attrition rates, and discount rates by comparing them to relevant industry ~~information~~benchmarks, market data, and ~~testing~~the Company's historical performance. Additionally, we assessed the ~~completeness~~consistency of these assumptions with the Company's strategic plans and ~~accuracy~~other information obtained during our audit. We also performed sensitivity analyses on significant assumptions to evaluate how changes would impact the fair value measurements of the ~~data~~acquired ~~used~~intangible inassets and resulting goodwill. In addition, we evaluated the ~~projections~~estimated useful life.

~~Additionally, we~~Recoverability ~~evaluated the reasonableness~~ of ~~management’s use of various rates and other assumptions by comparing them to comparable companies and market data.~~Inventory

~~Finally, we~~The ~~evaluated~~Company's ~~the~~inventories ~~estimated~~totaled ~~periods~~approximately to$13 bemillion ~~benefitted~~as of ~~the~~December ~~identifiable~~31, ~~intangible~~2024. ~~assets~~As ~~with~~discussed ~~definite~~in ~~lives~~Note by2 ~~comparing~~ to ~~comparable companies~~the ~~and~~financial ~~market data~~statements, asthe ~~well~~Company asrecords ~~recalculating~~an ~~the~~allowance ~~current~~for excess and ~~accumulated~~obsolete ~~amortization~~inventory based on historical experience and anticipated future demand.

/We identified the valuation of excess and obsolete inventory reserves as a critical audit matter because estimating the reserve involves significant management judgment about future product demand and market conditions. This required a high degree of auditor judgment, subjectivity and effort in evaluating the reasonableness of management's~~/ dbbmckennon~~ assumptions, including product life cycles, technological changes, and market acceptance of products.

Our audit procedures included evaluating management's methodology and key assumptions for inventory impairment assessment, testing underlying data for completeness and accuracy. We ~~have~~ ~~served~~examined ashistorical sales alongside forecasted demand, investigated alternative inventory uses, and assessed the ~~Company’~~impact of external market conditions. We obtained management's ~~auditor~~identification ~~since~~process ~~2024~~for slow-moving and obsolete items and performed our own analysis. Based on these procedures, we concluded that management's inventory valuation estimates were reasonable within the context of the financial statements as a whole.

/s/ dbbmckennon,

We served as the Company’s auditor from 2024 to 2025.

Newport Beach, California

~~August 8~~March 31, ~~2024~~ 2025

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Table of Contents

RED CAT HOLDINGS, INC.

Consolidated Balance Sheets

(In thousands except share data)

	April 30,			April 30,
		December 31,
	2024			2023
		2025					2024
ASSETS					~~(As restated)~~
Current assets
Cash	$	~~6,067,169~~$	167,865	$	~~3,173,649~~		$	9,154
Marketable securities		—			12,814,038
Accounts receivable, net		26,155					489
Accounts receivable, net		4,361,090			719,862
Inventory		23,452					12,951
Inventory		8,007,237			8,920,573
Prepaid inventory		6,942					642
Other		3,962,053			1,263,735
Prepaid expenses and other current assets		2,524					2,562
Current assets of discontinued operations		—			5,283,155
Total current assets		226,938					25,798
Total current assets		22,397,549			32,175,012
Goodwill		17,671					17,671
Goodwill		9,088,550			17,012,832
Intangible assets, net		6,919					8,453
Intangible assets, net		3,794,389			6,893,115
Property and equipment, net		7,797					1,881
Equity method investee		5,142,500			—
Other		1,227					310
Note receivable		4,000,000			—
Operating lease right-of-use assets		13,125					1,491
Property and equipment, net		2,340,684			2,650,358
Total long-term assets		46,739					29,806
Other		293,126			303,180
TOTAL ASSETS		$	273,677				$	55,604
Operating lease right-of-use assets		1,480,814			1,600,434
LIABILITIES AND STOCKHOLDERS’ EQUITY
Long-term assets of discontinued operations		—			108,397
Current liabilities
Total long-term assets		26,140,063			28,568,316
Accounts payable		$	3,619				$	2,050
TOTAL ASSETS	$	48,537,612		$	60,743,328
Accrued expenses		5,087					1,240
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt obligations - short term		350					350
Current liabilities
Contract liabilities and deposits		261					227
Accounts payable	$	1,580,422		$	1,392,550
Operating lease liabilities		1,011					312
Accrued expenses		1,069,561			409,439
Convertible notes payable		4,518					—
Debt obligations - short term		751,570			922,138
Total current liabilities		14,846					4,179
Customer deposits		53,939			155,986
Deferred income taxes		443					—
Operating lease liabilities		~~195~~12,~~638~~556			~~159,423~~		1,306
Current liabilities of discontinued operations		—			1,010,501
Total long-term liabilities		12,999					1,306
Total current liabilities		3,651,130			4,050,037
Total liabilities		27,845					5,485
Operating lease liabilities		1,321,952			1,481,967
Stockholders’ equity
Debt obligations - long term		—			401,569
Series B preferred stock, $0.001 par value - shares authorized 4,300,000; issued and outstanding 4,676 and 4,676		—					—
Long-term liabilities of discontinued operations		—			41,814
Common stock, $0.001 par value - shares authorized 500,000,000; issued and outstanding 120,070,000 and 85,215,136		120					85
Total long-term liabilities		1,321,952			1,925,350
Additional paid-in capital		442,532					174,779
Commitments and contingencies
Accumulated deficit		(196,820)					(124,745)
Stockholders' equity
Total stockholders’ equity		245,832					50,119
Series B preferred stock - shares authorized 4,300,000; issued and outstanding 4,676 and 986,676		47			9,867
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	273,677				$	55,604
Common stock - shares authorized 500,000,000; issued and outstanding 74,289,351 and 54,568,065		74,289			54,568
Additional paid-in capital		124,616,305			112,642,726
Accumulated deficit		(81,130,732	)		(57,078,103	)
Accumulated other comprehensive income (loss)		4,621			(861,117	)
Total stockholders' equity		43,564,530			54,767,941
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	48,537,612		$	60,743,328

See accompanying notes.

F-36

Table of Contents

RED CAT HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

	Year ended April 30,
	2024			2023
				(As restated)
Revenues	$	17,836,382		$	4,620,834
Cost of goods sold		14,155,836			5,455,145
Gross profit (loss)		3,680,546			(834,311	)
Operating Expenses
Research and development		5,896,037			5,595,281
Sales and marketing		4,568,617			3,731,776
General and administrative		10,679,105			12,383,470
Impairment loss		412,999			2,826,918
Total operating expenses		21,556,758			24,537,445
Operating loss		(17,876,212	)		(25,371,756	)
Other (income) expense
Gain on divestiture of consumer segment		(9,642,427	)		—
Impairment on equity method investment		11,353,875			—
Equity method loss		503,625			—
Investment loss (income), net		651,943			(82,798	)
Interest expense		68,609			122,004
Other, net		714,859			965,681
Other (income) expense		3,650,484			1,004,887
Net loss from continuing operations		(21,526,696	)		(26,376,643	)
Loss from discontinued operations		(2,525,933	)		(1,730,386	)
Net loss	$	(24,052,629	)	$	(28,107,029	)
Loss per share - basic and diluted
Continuing operations	$	(0.36	)	$	(0.49	)
Discontinued operations		(0.04	)		(0.03	)
Loss per share - basic and diluted	$	(0.40	)	$	(0.52	)
Weighted average shares outstanding - basic and diluted		60,118,675			53,860,199

(In thousands except per share data)


	For the Year Ended December 31, 2025		For the Eight Months Ended December 31, 2024		For the Year Ended April 30, 2024


Revenues	$	40,729	$	4,850	$	17,836
Cost of goods sold	39,455		6,206		14,155
Gross profit (loss)	1,274		(1,356)		3,681

Operating Expenses
Research and development	17,890		6,611		6,266
Sales and marketing	13,106		6,322		5,087
General and administrative	36,875		11,459		11,214
Impairment loss	—		93		413
Total operating expenses	67,871		24,485		22,980
Operating loss	(66,597)		(25,841)		(19,299)

Other expense (income)
Convertible note payable fair value adjustment	11,444		13,121		—
Gain on extinguishment of convertible notes payable	(3,211)		—		—
Interest (income) expense, net	(2,711)		(56)		69
Loss on sale of equity method investment	—		4,008		—
Gain on divestiture of consumer segment	—		—		(9,643)
Impairment on equity method investment	—		—		11,354
Equity method loss	—		734		504
Other income, net	(487)		(34)		(56)
Total other expense	5,035		17,773		2,228
Loss from continuing operations before provision for income taxes	(71,632)		(43,614)		(21,527)
Provision for income taxes	443		—		—
Net loss from continuing operations	(72,075)		(43,614)		(21,527)
Loss from discontinued operations	—		—		(2,526)
Net loss	$	(72,075)	$	(43,614)	$	(24,053)
Comprehensive loss:
Change in foreign currency translation adjustments	$	—	$	(5)	$	2
Unrealized gain on marketable securities	—		—		864
Comprehensive loss	$	(72,075)	$	(43,619)	$	(23,187)

Loss per share - basic and diluted
Continuing operations	$	(0.73)	$	(0.57)	$	(0.36)
Discontinued operations	—		—		(0.04)
Loss per share - basic and diluted	$	(0.73)	$	(0.57)	$	(0.40)

Weighted average shares outstanding - basic and diluted	98,957		77,040		60,119

See accompanying notes.

F-47

Table of Contents

RED CAT HOLDINGS, INC.

Consolidated Statements of ~~Shareholders~~Stockholders’ Equity

	Series B										Additional						Accumulated Other
	Preferred Stock						Common Stock				Paid-in			Accumulated			Comprehensive			Total
	Shares			Amount			Shares		Amount		Capital			Deficit			Income (Loss)			Equity
Balances, April 30, 2022, as restated		986,676		$	9,867			53,748,735	$	53,749	$	109,471,010		$	(28,971,074	)	$	(1,470,272	)	$	79,093,280
Stock based compensation		—			—			—		—		3,656,724			—			—			3,656,724
Vesting of restricted stock units		—			—			779,498		779		(523,606	)		—			—			(522,827	)
Shares issued for services		—			—			39,832		40		38,598			—			—			38,638
Unrealized gain on marketable securities		—			—			—		—		—			—			610,129			610,129
Currency translation adjustments		—			—			—		—		—			—			(974	)		(974	)
Net loss		—			—			—		—		—			(28,107,029	)		—			(28,107,029	)
Balances, April 30, 2023, as restated		986,676		$	9,867			54,568,065	$	54,568	$	112,642,726		$	(57,078,103	)		$ (861,117	)	$	54,767,941
Stock based compensation		—			—			—		—		3,609,267			—			—			3,609,267
Vesting of restricted stock units		—			—			446,717		447		(33,701	)		—			—			(33,254	)
Conversion of preferred stock		(982,000	)		(9,820	)		818,334		818		9,002			—			—			—
Issuance of common stock through ATM facility, net		—			—			53,235		53		9,159			—			—			9,212
Exercise of stock options		—			—			3,000		3		2,652			—			—			2,655
Public offering, net of $804,400 of issuance costs		—			—			18,400,000		18,400		8,377,200			—			—			8,395,600
Unrealized gain on marketable securities		—			—			—		—		—			—			864,165			864,165
Currency translation adjustments		—			—			—		—		—			—			1,573			1,573
Net loss		—			—			—		—		—			(24,052,629	)		—			(24,052,629	)
Balances, April 30, 2024		4,676		$	47			74,289,351	$	74,289	$	124,616,305		$	(81,130,732	)	$	4,621		$	43,564,530

(In thousands)


	Series B Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Equity
	Shares	Amount		Shares	Amount
Balances, April 30, 2023	987	$	10	54,568	$	55	$	112,643	$	(57,078)	$	(861)	$	54,769
Stock based compensation	—	—		—	—		3,609		—		—		3,609
Vesting of restricted stock units	—	—		447	—		(34)		—		—		(34)
Conversion of preferred stock	(982)	(10)		818	1		9		—		—		—
Issuance of common stock through ATM facility, net	—	—		53	—		9		—		—		9
Exercise of stock options	—	—		3	—		3		—		—		3
Public offering, net of $804 of issuance costs	—	—		18,400	18		8,377		—		—		8,395
Unrealized gain on marketable securities	—	—		—	—		—		—		864		864
Currency translation adjustments	—	—		—	—		—		—		2		2
Net loss	—	—		—	—		—		(24,053)		—		(24,053)
Balances, April 30, 2024	5	$	—	74,289	$	74	$	124,616	$	(81,131)	$	5	$	43,564
Stock based compensation	—	—		—	—		4,103		—		—		4,103
Vesting of restricted stock units	—	—		1,030	1		(864)		—		—		(863)
Exercise of warrants	—	—		1,796	2		4,973		—		—		4,975
Exercise of stock options	—	—		2,475	3		1,379		—		—		1,382
Acquisition of FlightWave	—	—		3,365	3		13,997		—		—		14,000
Conversion of convertible notes into common stock	—	—		2,260	2		26,575		—		—		26,577
Currency translation adjustments	—	—		—	—		—		—		(5)		(5)
Net loss	—	—		—	—		—		(43,614)		—		(43,614)
Balances, December 31, 2024	5	$	—	85,215	$	85	$	174,779	$	(124,745)	$	—	$	50,119
Stock based compensation	—	—		—	—		10,562		—		—		10,562
Vesting of restricted stock units	—	—		292	—		(941)		—		—		(941)
Exercise of warrants	—	—		1,262	1		5,684		—		—		5,685
Exercise of stock options	—	—		2,174	2		1,642		—		—		1,644
Retirement of common shares	—	—		(106)	—		—		—		—		—
Public offerings, net of $14,910 of issuance costs	—	—		29,142	29		234,310		—		—		234,339
Conversion of convertible notes into common stock	—	—		2,213	3		16,496		—		—		16,499
Acquisition adjustment	—	—		(122)	—		—		—		—		—
Net loss	—	—		—	—		—		(72,075)		—		(72,075)
Balances, December 31, 2025	5	$	—	120,070	$	120	$	442,532	$	(196,820)	$	—	$	245,832

See accompanying notes.

F-58

Table of Contents

RED CAT HOLDINGS, INC.

Consolidated Statements of Cash Flows

	Year ended April 30,
	2024			2023
Cash Flows from Operating Activities				(As restated)
Net loss	$	(24,052,629	)	$	(28,107,029	)
Net loss from discontinued operations		(2,525,933	)		(1,730,386	)
Net loss from continuing operations		(21,526,696	)		(26,376,643	)
Adjustments to reconcile net loss to net cash from operations:
Stock based compensation - options		2,619,501			1,617,982
Stock based compensation - restricted units		989,766			2,038,742
Common stock issued for services		—			38,638
Amortization of intangible assets		854,311			654,527
Realized loss from sale of marketable securities		851,986			296,012
Depreciation		568,813			311,545
Gain on divestiture of consumer segment		(9,642,427	)		—
Impairment on equity method investment		11,353,875			—
Equity method loss		503,625			—
Impairment on goodwill and intangible assets		412,999			2,826,918
Changes in operating assets and liabilities
Accounts receivable		(3,641,228	)		(288,986	)
Inventory		913,336			(5,707,525	)
Other		(2,688,264	)		559,660
Operating lease right-of-use assets and liabilities		(4,180	)		25,733
Customer deposits		(102,047	)		(136,628	)
Accounts payable		187,872			434,803
Accrued expenses		661,695			(608,452	)
Net cash used in operating activities of continuing operations		(17,687,063	)		(24,313,674	)
Cash Flows from Investing Activities
Proceeds from divestiture of consumer segment		1,000,000			—
Purchases of property and equipment		(259,139	)		(2,450,213	)
Proceeds from sale of marketable securities		12,826,217			32,290,448
Investment in SAFE agreement		—			(250,000	)
Net cash provided by investing activities of continuing operations		13,567,078			29,590,235
Cash Flows from Financing Activities
Proceeds from issuance of common stock:
Public offering, net		8,395,600			—
ATM facility, net		9,212			—
Payments under debt obligations		(572,137	)		(606,897	)
Payments of taxes related to equity transactions		(33,254	)		(581,775	)
Exercise of stock options		2,655			—
Proceeds from related party obligations		—			13,404
Payments under related party obligations		—			(40,057	)
Net cash provided by (used in) financing activities of continuing operations		7,802,076			(1,215,325	)
Discontinued operations
Operating activities		(875,227	)		(4,885,746	)
Investing activities		—			—
Financing activities		—			—
Net cash used in discontinued operations		(875,227	)		(4,885,746	)
Net increase (decrease) in Cash		2,806,864			(824,510	)
Cash, beginning of period		3,260,305			4,084,815
Cash, end of period		6,067,169			3,260,305
Less: Cash of discontinued operations		—			(86,656	)
Cash of continuing operations, end of period		6,067,169			3,173,649
Cash paid for interest		70,177			122,103
Cash paid for income taxes		—			—
Non-cash transactions
Equity method investment from divestiture of consumer segment	$	17,000,000		$	—
Note receivable from divestiture of consumer segment	$	4,000,000		$	—
Unrealized gain on marketable securities	$	864,165		$	610,129
Conversion of preferred stock into common stock	$	9,820		$	—
Shares withheld as payment of note receivable	$	—		$	18,449
Taxes related to net share settlement of equity awards	$	—		$	32,468

(In thousands)


	For the Year Ended December 31, 2025		For the Eight Months Ended December 31, 2024		For the Year Ended April 30, 2024

Cash Flows from Operating Activities
Net loss	$	(72,075)	$	(43,614)	$	(24,053)
Net loss from discontinued operations	—		—		(2,526)
Net loss from continuing operations	(72,075)		(43,614)		(21,527)
Adjustments to reconcile net loss to net cash from operations:
Stock based compensation	10,562		4,103		3,609
Realized loss from sale of marketable securities	—		—		852
Depreciation and amortization of intangible assets	2,265		1,413		1,423
Deferred income taxes	443		—		—
Payments of taxes related to equity transactions	(982)		(839)		(32)
Gain on divestiture of consumer segment	—		—		(9,643)
Loss on sale of equity method investment and note receivable	—		4,008		—
Impairment on equity method investment	—		—		11,354
Equity method loss	—		734		504
Impairment on goodwill and intangible assets	—		93		413
Convertible note payable fair value adjustment	11,444		13,121		—
Gain on extinguishment of convertible notes payable	(3,211)		—		—
Changes in operating assets and liabilities
Accounts receivable	(25,666)		3,872		(3,641)
Inventory	(10,501)		(4,646)		913
Prepaid inventory	(6,300)		(39)		(243)
Prepaid expenses and other	(879)		850		(2,445)
Operating lease right-of-use assets and liabilities	315		60		(4)
Contract liabilities and deposits	34		(23)		(102)
Accounts payable	1,569		468		188
Accrued expenses	3,848		(97)		661
Net cash used in operating activities of continuing operations	(89,134)		(20,536)		(17,720)

Cash Flows from Investing Activities
Proceeds from divestiture of consumer segment	—		—		1,000
Purchases of property and equipment	(6,647)		(164)		(259)
Proceeds from sale of marketable securities	—		—		12,826
Proceeds from sale of equity method investment and note receivable	—		4,400		—
Net cash (used in) provided by investing activities of continuing operations	(6,647)		4,236		13,567

Cash Flows from Financing Activities
Proceeds from issuance of common stock through public offerings	249,249		—		9,200
Payment of costs related to public offerings	(14,910)		—		(804)
Proceeds from issuance of common stock through ATM facility, net	—		—		9
Proceeds from issuance of convertible notes payable	15,000		14,000		—
Debt issuance costs	(567)		(544)		—
Redemption of convertible notes payable	(1,650)		—		—
Payments under debt obligations	—		(395)		(572)
Proceeds from exercise of stock options	1,685		1,351		2
Proceeds from exercise of warrants	5,685		4,975		—
Net cash provided by financing activities of continuing operations	254,492		19,387		7,835

Discontinued operations
Operating activities	—		—		(875)
Investing activities	—		—		—
Financing activities	—		—		—
Net cash used in discontinued operations	—		—		(875)

Net increase in cash	158,711		3,087		2,807
Cash, beginning of period	9,154		6,067		3,260
Cash, end of period	167,865		9,154		6,067

Cash paid for interest	—		15		70
Cash paid for income taxes	—		—		—

Non-cash transactions
Conversion of convertible notes into common stock	$	16,499	$	26,577	$	—
Fair value of shares issued in acquisition	$	—	$	14,000	$	—
Net assets assumed in acquisition	$	—	$	31	$	—
Equity method investment from divestiture of consumer segment	$	—	$	—	$	17,000
Note receivable from divestiture of consumer segment	$	—	$	—	$	4,000
Unrealized gain on marketable securities	$	—	$	—	$	864
Conversion of preferred stock into common stock	$	—	$	—	$	10

See accompanying notes.

F-69

Table of Contents

RED CAT HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2024 and 2023

Note 1 – The Business

The Company was originally incorporated in February 1984. The Company is a drone technology company integrating robotic hardware and software for military, government and commercial operation. 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 operating subsidiaries~~. ~~Beginning in January 2020, the Company expanded the scope of its drone products and services through four acquisitions, including:~~

A. In January 2020, the Company acquired Rotor Riot, a provider of First Person View (“FPV”) drones and equipment, primarily to consumers. The purchase price was $1,995,114.

B. In November 2020, the Company acquired Fat Shark Holdings (“Fat Shark”), a provider of FPV video goggles to the drone industry. The purchase price was $8,354,076.

C. In May 2021, the Company acquired Skypersonic which provided hardware and software solutions that enable drones to complete inspection services in locations where GPS is either denied or not available, yet still record and transmit data even while being operated from thousands of miles away. The purchase price was $2,791,012.

D. In August 2021, the Company acquired Teal Drones (“Teal”), a leader in commercial and government Unmanned Aerial Vehicles (“UAV”) technology. The purchase price was $10,011,279.

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.

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 proceeds of $9,200,000 and net proceeds of approximately $8,400,000.

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 the Company's decision to focus its efforts and capital on defense where it believes that there are more opportunities to create long term shareholder value. See Note 3 and Note 9.

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain prior period amounts have been restated to conform to the current year presentation.

~~Restatement of Previously Issued Consolidated Financial Statements –~~ The ~~Company’s~~financial ~~Consolidated~~statements ~~Balance Sheet as of April 30, 2023, Consolidated Statement of Operations, Stockholders’ Equity~~ and ~~Cash~~accompanying ~~Flows~~notes ~~for~~are ~~the~~prepared ~~year~~in ~~then~~accordance ~~ended, and its Notes to the Consolidated Financial Statements for the year ended April 30, 2023, which were originally filed~~ with ~~the~~generally ~~U.S.~~accepted ~~Securities~~accounting ~~and~~principles ~~Exchange~~in ~~Commission (~~the ~~“SEC”)~~United onStates ~~July 27, 2023~~ (~~the~~ “~~Original Form 10-K~~GAAP”)~~, have been restated~~. The Company revised its accounting estimate of the life of an operating lease that was previously reported in its Original Form 10-K. Upon further evaluation, the Company determined that prior year adjustments were necessary. These Consolidated Financial Statements were restated to reflect a change in accounting estimate of the life of the operating lease under FASB ASC Topic 842 from three to nine years. Additionally, the Company revised its financial statements to remove derivative liabilities due to erroneously reporting warrants from our convertible note financings, as described in Note 18, as having a derivative component.

~~F-7~~Principles of Consolidation

The ~~impacts~~consolidated financial statements include the accounts of ~~these~~our ~~restatements~~wholly ~~are~~owned ~~detailed in~~subsidiaries which include Teal, FlightWave (beginning on September 5, 2024), Skypersonic, and Blue Ops (beginning July 1, 2025). The consolidated financial statements also include the ~~tables~~accounts ~~below:~~of Rotor Riot and Fat Shark (collectively, the “Consumer segment”) through the sale date of February 16, 2024. Non-majority owned investments, including the formerly wholly owned subsidiaries Rotor Riot and Fat Shark, were accounted for using the equity method because the Company was able to significantly influence the operating policies of the investee. Intercompany transactions and balances have been eliminated.

	Consolidated Balance Sheet As of April 30, 2023
	Originally Reported			As Restated			Change
Operating lease right-of-use assets	$	620,307		$	1,600,434		$	980,127
Total long-term assets		28,018,078			28,568,316			550,238
Operating lease liabilities, current		281,797			159,423			(122,374	)
Warrant derivative liability		588,205			—			(588,205	)
Total current liabilities		4,760,616			4,050,037			(710,579	)
Operating lease liabilities, long-term		379,466			1,481,967			1,102,501
Total long-term liabilities		822,849			1,925,350			1,102,501
Additional paid-in capital		109,993,100			112,642,726			2,649,626
Accumulated deficit		(54,586,793	)		(57,078,103	)		(2,491,310	)
Total shareholders’ equity		54,609,625			54,767,941			158,316
Total liabilities and stockholders’ equity	$	60,193,090		$	60,743,328		$	550,238

The Consumer segment businesses are characterized as discontinued operations in these financial statements. The operating results and cash flows of discontinued operations are separately stated in those respective financial statements. See Note 4.

	Consolidated Statement of Operations For the year ended April 30, 2023
	Originally Reported			As Restated			Change
Change in fair value of derivative liability	$	(1,019,292	)	$	—		$	1,019,292
Net loss	$	(27,087,737	)	$	(28,107,029	)	$	(1,019,292	)

Segments

~~Amounts presented~~The Company operates as ~~originally~~one ~~reported~~operating segment. Operating segments are defined as components of ~~April~~an ~~30,~~enterprise ~~2023~~for ~~are~~which ~~exclusive~~separate offinancial ~~Discontinued~~information ~~Operations~~is ~~with~~evaluated regularly by the ~~exception~~chief ofoperating decision maker (i"CODM"), ~~change~~who inis ~~fair value~~the ofCompany's ~~derivative~~Chief ~~liability~~Executive Officer, ~~(ii)~~in ~~net~~deciding ~~loss~~how to allocate resources and assess performance. The Company's CODM evaluates the Company's financial information and resources, and assesses the performance of the resources, on a consolidated net income (~~iii~~loss) ~~Consolidated~~basis. ~~Balance~~The ~~Sheet~~CODM ~~totals~~does not evaluate profitability below the level of the consolidated company. The ~~Consolidated~~measure ~~Statement~~ of ~~Cash~~segment ~~Flows~~assets is ~~not~~ ~~presented~~reported ~~above~~on the consolidated balance sheets as ~~there~~total ~~was~~consolidated noassets. ~~change~~The inCompany's ~~net~~significant ~~cash~~segment ~~used~~expenses are included in ~~operating~~the ~~activities~~Company's ofconsolidated ~~continuing~~statements of operations. The Company's significant segment expenses that are reviewed by our CODM on a regular basis to manage performance and allocate resources include cost of goods sold, research and development and sales and marketing.

~~Principles~~Use of ~~Consolidation –~~Estimates Our consolidated financial statements include the accounts of our wholly owned subsidiaries which include Teal and Skypersonic as well as Rotor Riot and Fat Shark which were sold on February 16, 2024. Non-majority owned investments, including the formerly wholly owned subsidiaries Rotor Riot and Fat Shark, are accounted for using the equity method when the Company is able to significantly influence the operating policies of the investee. Intercompany transactions and balances have been eliminated.

The ~~Consumer~~ ~~segment~~preparation ~~businesses~~of ~~are~~consolidated ~~characterized~~financial asstatements ~~discontinued~~in ~~operations~~accordance inwith ~~these~~GAAP ~~financial~~requires ~~statements. The~~management ~~operating~~to ~~results~~make estimates and ~~cash~~ ~~flows~~assumptions that affect the reported amounts of ~~discontinued~~assets ~~operations~~and ~~are~~liabilities, ~~separately~~the ~~stated~~disclosure inof ~~those~~contingent ~~respective~~assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. ~~See~~Actual ~~Note~~results 3could differ from those estimates. Such estimates include, but are not limited to, revenue recognition, valuation of long-lived assets including identifiable intangibles and goodwill, inventory reserves, allowance for doubtful accounts, deferred tax assets and liabilities, warranty liabilities, convertible notes payable, and stock based-compensation.

Use of Estimates – The preparation of financial statements in accordance 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. 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.Cash

~~Cash~~At ~~and~~December ~~Cash~~31, ~~Equivalents~~2025 –and ~~At April 30,~~ 2024, we had cash of $6167.9 million and $9.2 million,~~067~~ respectively,~~169~~ in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk.

~~F-8~~Accounts Receivable, net

~~Marketable~~Accounts ~~Securities~~receivable –are ~~Our~~recorded ~~marketable securities~~at ~~were~~the ~~classified~~invoiced ~~and~~amount ~~accounted~~less ~~for~~allowances ~~as available-~~for~~-sale~~ ~~securities~~doubtful accounts. ~~These~~The ~~securities~~Company’s ~~were~~estimate ~~primarily~~of ~~invested~~the inallowance ~~corporate bonds and were readily saleable, and therefore, we have classified them as short term. Our available-~~for~~-sale~~ ~~securities~~doubtful ~~were~~accounts ~~carried~~is atbased ~~fair value~~on ~~with any unrealized gains and losses reported as~~ a ~~component~~multitude of ~~comprehensive income (loss). Once realized~~factors, ~~any~~including ~~gains~~historical orbad ~~losses were~~debt ~~recognized~~levels infor ~~the~~its ~~statement of operations.~~

We have elected to present accrued interest income separately from marketable securities on our consolidated balance sheets. Accrued interest income was $0 and $151,671 as of April 30, 2024 and April 30, 2023, respectively, and was included in other current assets. We did not write off any accrued interest income during the years ended April 30, 2024 and April 30, 2023.F-10

~~Accounts~~Table ~~Receivable, net – Accounts receivable are recorded at the invoiced amount less allowances for doubtful accounts. The Company's estimate~~ of the allowance for doubtful accounts is based on a multitude of factors, including historical bad debt levels for its customer base, experience with a specific customer, the economic environment, and other factors. Accounts receivable balances are written off against the allowance when it is probable that the receivable will not be collected.Contents

~~Concentration of~~customer ~~Credit Risk – Financial instruments~~base, ~~which~~experience ~~potentially~~with ~~subject~~a ~~the~~specific ~~Company to concentrations of credit risk~~customer, ~~include trade receivables. In~~ the ~~normal~~economic ~~course of business~~environment, ~~the~~and ~~Company~~other ~~provides credit terms to its customers~~factors. ~~Accordingly,~~Accounts ~~the~~receivable ~~Company performs~~balances ~~ongoing~~are ~~credit~~written ~~evaluations~~off ofagainst ~~its customers, generally does not require collateral and considers~~ the ~~credit~~allowance ~~risk~~when ~~profile~~it ~~of the~~is ~~customer~~probable ~~from~~that ~~which~~ the receivable iswill ~~due~~not inbe ~~further evaluating collection risk~~collected. ~~Customers~~The ~~that~~allowance ~~accounted~~ for ~~10%~~doubtful oraccounts ~~greater~~was ~~of accounts~~$0.5 ~~receivable,~~million ~~net~~and $— million as of ~~April 30~~December 31, ~~2024~~2025 and ~~2023~~2024, ~~were as follows:~~respectively.

	April 30,
	2024			2023
Customer A		53	%		20	%
Customer B		24	%		*
Customer C		*			24	%
Customer D		*			14	%
Customer E		*			10	%

Concentration of Credit Risk

*Financial ~~Accounts~~instruments, ~~Receivable~~which ~~was~~potentially ~~less~~subject ~~than~~the Company to concentrations of credit risk, include trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers, generally does not require collateral and considers the credit risk profile of the customer from which the receivable is due in further evaluating collection risk. Customers that accounted for 10% or greater of accounts receivable, net as of December 31, 2025 and December 31, 2024 were as follows:

As of April 30, 2024, three customers accounted for equal to or greater than 10% of total revenue, totaling 28%, 23% and 10%, respectively. As of April 30, 2023, two customers accounted for equal to or greater than 10% of total revenue, totaling 22% and 20%, respectively.


	December 31,
	2025		2024
Customer A	88	%	*
Customer B	*		36	%
Customer C	*		17	%
Customer D	*		15	%

~~Inventories – Inventories, which~~*Accounts ~~consist~~Receivable ofwas ~~raw~~less ~~materials,~~than work-in-process, and finished goods, are stated at the lower of cost or net realizable value, and are measured using the first-in, first-out method. Cost components include direct materials, direct labor, indirect overhead, as well as in-bound freight. At each balance sheet date, the Company evaluates the net realizable value of its inventory using various reference measures including current product selling prices and recent customer demand, as well as evaluating for excess quantities and obsolescence.10%

~~Goodwill~~For ~~and Long-lived Assets – Goodwill represents~~ the ~~future~~year ~~economic~~ended ~~benefit arising from other assets acquired in an acquisition~~December ~~that are not individually identified and separately recognized. We test goodwill for impairment in accordance with the provisions of ASC 350~~31, ~~Intangibles – Goodwill and Other~~2025, ~~(“ASC~~ ~~350”).~~one ~~Goodwill~~customer isaccounted ~~tested~~ for ~~impairment~~equal ~~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~~greater ~~leads to a determination that it is more likely~~ than ~~not~~10% ~~that the fair value~~ of atotal ~~reporting~~revenue, ~~unit~~totaling ~~is less than its carrying amount~~73%. ~~If,~~For ~~after assessing~~ the ~~totality~~eight ofmonths ~~events~~ended orDecember 31, ~~circumstances~~2024, anthree ~~entity~~customers ~~determines~~accounted itfor isequal ~~not~~to ~~more~~or ~~likely~~greater than ~~not~~10% ~~that the fair value~~ of atotal ~~reporting unit is less than its carrying amount~~revenue, ~~then~~totaling ~~additional impairment testing is not required. However~~19%, if19% anand ~~entity concludes otherwise~~11%, ~~then it is required to perform an impairment test~~respectively. ~~The~~For ~~impairment test involves comparing~~ the ~~estimated~~year ~~fair~~ended ~~value of a reporting unit with its book value~~April 30, ~~including goodwill. If the estimated fair value exceeds book value~~2024, ~~goodwill~~three iscustomers ~~considered~~accounted ~~not~~for ~~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~~or ~~amount that~~greater ~~the~~than ~~book~~10% ~~value~~ of ~~the~~total ~~reporting~~revenue, ~~unit~~totaling ~~exceeds~~28%, ~~its~~23% ~~fair~~and ~~value~~10%, ~~not to exceed the total amount of goodwill allocated to the reporting unit~~respectively.

~~F-9~~Inventories

~~The~~Inventories, ~~estimate~~which ofconsist ~~fair value~~ of araw ~~reporting unit is computed using either an income approach~~materials, ~~a market approach~~work-in-process, orand afinished ~~combination of both. Under the income approach~~goods, we ~~utilize~~are ~~the~~stated ~~discounted~~at ~~cash flow method to estimate~~ the ~~fair~~lower ~~value~~ of acost ~~reporting~~or ~~unit.~~net ~~Significant~~realizable ~~assumptions~~value, ~~inherent~~and inare ~~estimating the~~measured ~~fair~~using ~~values include~~ the ~~estimated future cash flows~~first-in, ~~growth~~first-out ~~assumptions~~method. ~~for~~Cost ~~future~~components ~~revenues~~include ~~(including~~direct ~~gross profit~~materials, ~~operating~~direct ~~expenses~~labor, ~~and~~ ~~capital~~indirect ~~expenditures)~~overhead, ~~and~~as awell ~~rate~~as ~~used~~in-bound tofreight. ~~discount~~At ~~estimated~~each ~~future~~balance ~~cash~~sheet ~~flow projections to their present value based on estimated weighted average cost of capital (i.e.~~date, the ~~selected~~Company ~~discount~~evaluates ~~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~~net ~~approach,~~realizable ~~fair~~ value ~~is derived from metrics~~ of ~~publicly~~its ~~traded~~inventory ~~companies~~using orvarious ~~historically~~reference ~~completed~~measures ~~transactions~~including ofcurrent ~~comparable~~product ~~businesses.~~selling ~~The~~prices ~~selection~~and ofrecent ~~comparable businesses~~customer isdemand, ~~based~~as onwell ~~the~~as ~~markets~~evaluating infor ~~which~~excess ~~the~~quantities ~~reporting units operate~~ and ~~consider risk profiles, size, geography, and diversity of products and services~~obsolescence.

Goodwill for Teal is ascribed to its existing relationship with several U.S. government agencies including its classification as an approved vendor. The Company expects that the Goodwill recognized in each transaction will be deductible for tax purposes. The Company has reported net losses since its inception and isLong-lived ~~presently~~Assets ~~unable to determine when and if the tax benefit of this deduction will be realized.~~

~~Property~~Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and ~~equipment~~separately recognized. The Company tests goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – ~~Property~~ Goodwill and ~~equipment~~Other, (“ASC 350”). Goodwill is ~~stated~~tested for impairment at ~~cost~~least ~~less~~annually ~~accumulated~~at ~~depreciation~~the ~~which~~reporting isunit ~~calculated~~level ~~using~~or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the ~~straight-line~~option ~~method~~to ~~over~~first assess qualitative factors to determine whether the ~~estimated~~existence ~~useful life~~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 ~~asset~~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 ~~useful~~fair ~~lives~~value of ~~our~~a ~~property~~reporting ~~and~~unit ~~equipment~~with ~~are~~its ~~generally:~~book ~~(i)~~value, ~~furniture~~including ~~and~~goodwill. ~~fixtures~~If -the ~~seven~~estimated ~~years~~fair value exceeds book value, ~~(ii)~~ ~~equipment~~goodwill ~~and~~is ~~related~~considered -not ~~two~~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 ~~five~~the ~~years~~amount that the book value of the reporting unit exceeds its fair value, ~~and~~not ~~(iii)~~to ~~leasehold~~exceed ~~improvements~~the –total ~~nine~~amount of goodwill allocated to ~~fifteen~~the ~~years~~reporting unit.

~~Equity~~The ~~Method~~estimate ~~Investment~~of –fair ~~The equity~~value ~~method~~ of ~~accounting~~a reporting unit is ~~applied~~computed tousing ~~investments~~either inan ~~which~~income ~~the~~approach, ~~Company~~a ~~has~~market anapproach, ~~ownership~~or ~~interest~~a combination of ~~between~~both. ~~20%~~Under ~~and~~the ~~50%.~~income ~~The~~approach, the Company ~~evaluates~~ ~~its~~utilizes ~~equity~~the ~~method~~discounted ~~investments~~cash ~~each~~flow ~~reporting~~method ~~period~~to ~~for~~estimate ~~evidence~~the fair value of a ~~loss~~reporting inunit. ~~value~~Significant ~~that~~assumptions isinherent ~~other~~in ~~than~~estimating athe ~~temporary~~fair ~~decline. Evidence~~values ofinclude athe ~~loss~~estimated infuture ~~value~~cash ~~might include~~flows, ~~but~~growth ~~would~~assumptions ~~not~~for ~~necessarily~~future berevenues ~~limited~~(including togross profit, ~~absence~~operating ofexpenses, anand ~~ability~~capital toexpenditures), ~~recover~~and ~~the~~a ~~carrying~~rate ~~amount of~~used ~~the~~to ~~investment~~discount orestimated ~~the~~future ~~inability~~cash offlow ~~the~~projections ~~investee~~ to ~~sustain~~their anpresent ~~earnings~~value ~~capacity~~based ~~that~~on ~~would~~estimated ~~justify~~weighted ~~the~~average ~~carrying~~cost ~~amount~~ of ~~the~~capital ~~investment~~(i. ~~The~~e., ~~Company~~the ~~performed~~selected ~~this~~discount ~~analysis~~rate). ~~and~~Our ~~concluded~~assumptions ~~that~~are ~~its~~based ~~investment~~on inhistorical ~~UMAC~~data, ~~was~~supplemented ~~other-than-temporarily~~by ~~impaired~~current and ~~recognized~~anticipated anmarket ~~impairment charge~~conditions, ofestimated ~~$11~~growth rates,~~353,875~~ ~~for~~and ~~the~~management’s ~~year~~plans. ~~ended~~Under ~~April 30~~the market approach, ~~2024.~~

Leases – Accounting Standards Codification (ASC) 842 requires the recognition of assets and liabilities associated with lease agreements. The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its last debt financing. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straightF-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.11

~~Fair~~Table 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.~~Contents

~~The~~ fair value ~~hierarchy~~is ~~gives~~derived ~~the~~from ~~highest~~metrics ~~priority to~~of ~~quoted~~publicly ~~prices~~traded incompanies ~~active~~or ~~markets~~historically ~~for~~completed ~~identical~~transactions ~~assets~~of orcomparable ~~liabilities~~businesses. ~~(Level~~The 1)selection ~~and~~of ~~the~~comparable ~~lowest~~businesses ~~priority~~is tobased ~~unobservable~~on ~~inputs~~the ~~(Level 3).~~markets ~~The~~in ~~inputs~~which ~~used~~the toreporting ~~measure~~units ~~fair~~operate ~~value~~and ~~may~~consider ~~fall~~risk ~~into~~profiles, ~~different~~size, ~~levels~~geography, ofand ~~the~~diversity ~~fair~~of ~~value~~products ~~hierarchy~~and services. InThe ~~such~~Company ~~cases,~~assesses ~~the~~goodwill ~~level~~for impairment annually in the ~~fair~~ ~~value~~fourth ~~hierarchy~~quarter, ~~within~~or ~~which~~more ~~the~~frequently ~~fair~~if ~~value~~events ~~measurement~~or changes in ~~its~~circumstances ~~entirety~~indicate ~~falls~~that ~~has~~it ~~been~~might ~~determined~~be ~~based~~impaired, onby ~~the~~comparing ~~lowest~~its ~~level~~carrying ~~input that~~value ~~is significant~~ to the reporting unit's fair value. ~~measurement~~For inthe ~~its~~year ~~entirety.~~ended ~~The~~December 31, ~~Company's~~2025, ~~assessment~~the ofeight ~~the~~months ~~significance~~ended ofDecember a31, ~~particular~~2024, ~~input to~~and year ended April 30, 2024, the ~~fair~~Company ~~value~~did ~~measurement~~not inrecognize ~~its~~any ~~entirety~~impairment ~~requires~~of ~~judgment~~goodwill. ~~and~~There ~~considers~~were ~~factors~~no ~~specific~~accumulated toimpairment ~~the~~losses ~~asset~~as orof ~~liability~~December 31, 2025 and 2024.

Goodwill for Teal and FlightWave is ascribed to existing relationships with several U.S. government agencies including classification as approved vendors. The Company expects that the Goodwill recognized in each transaction will be deductible for tax purposes.

Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability is measured by comparing the carrying amount to the future undiscounted cash flows that the asset is expected to generate. If the asset is not recoverable, its carrying amount would be adjusted down to its fair value.

Property and equipment

Property and equipment is stated at cost less accumulated depreciation which is calculated using the straight-line method over the estimated useful life of the asset. The estimated useful lives of our property and equipment are generally: (i) furniture and fixtures - seven years, (ii) equipment and related - two to five years, and (iii) leasehold improvements – nine to fifteen years.

Equity Method Investment

The equity method of accounting is applied to investments in which the Company has an ownership interest of between 20% and 50%. The Company evaluates its equity method investments each reporting period for evidence of a loss in value that is other than a temporary decline. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company performed this analysis and concluded that its investment in UMAC was other-than-temporarily impaired and recognized an impairment charge of $11.4 million for the year ended April 30, 2024. See Note 7 for additional information.

Leases

Accounting Standards Codification (ASC) 842 requires the recognition of assets and liabilities associated with lease agreements. The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company’s leases do not provide an implicit rate. Therefore, the Company calculates an incremental borrowing rate based on information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its credit risk, term of the lease, total lease payments when calculating its incremental borrowing rates. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.

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.

F-12

Table of Contents

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

F-10

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.

~~Disclosures~~The ~~for~~Company’s ~~Non~~financial instruments mainly consist of cash, accounts receivable, current assets, accounts payable, accrued expenses, short-~~Financial~~term ~~Assets~~debt ~~Measured~~obligations, 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~~fair value on a ~~Non-Recurring~~recurring ~~Basis~~basis in the consolidated balance sheets consisted 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.

~~The~~Convertible ~~Company's~~Notes financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of these instruments approximates fair value due to their short-term nature.Payable

~~Revenue Recognition –~~ The Company ~~recognizes~~ ~~revenue~~elected ~~in accordance with ASC Topic 606 - Revenue from Contracts with Customers, issued by~~ the ~~Financial~~fair ~~Accounting~~value ~~Standards Board~~option ~~(“FASB”).~~for ~~This~~its ~~standard~~convertible ~~includes~~notes apayable ~~comprehensive~~and ~~evaluation~~measures offair ~~factors~~value tobased beon ~~considered~~significant ~~regarding~~inputs ~~revenue~~not ~~recognition including~~observable ~~(i)~~in ~~identifying~~ the ~~promised goods~~market, ~~(ii)~~which ~~evaluating~~caused ~~performance~~them ~~obligations, (iii) measuring the transaction price, (iv) allocating the transaction price~~ to ~~the~~be ~~performance~~classified ~~obligations if there are multiple components, and (v) recognizing revenue~~ as ~~each~~Level ~~obligation is~~3 ~~satisfied. The~~measurements ~~Company’s~~within ~~revenue transactions include~~ the ~~shipment~~fair ofvalue ~~goods to customers as orders are fulfilled, completion of non-recurring engineering, completion of training, and customer support services~~hierarchy. ~~The~~Changes ~~Company~~in ~~recognizes~~the ~~revenue~~fair ~~upon~~value ~~shipment~~ of ~~product or prototypes unless otherwise specified in~~ the ~~purchase~~convertible ~~order~~notes orpayable ~~contract.~~related ~~Customer~~to ~~deposits~~updated ~~totaled~~assumptions ~~$53,939~~ and ~~$155,986~~estimates atwere ~~April~~recognized ~~30, 2024~~as ~~and~~a ~~April~~convertible ~~30,~~notes ~~2023,~~payable ~~respectively.~~fair ~~From~~value ~~time~~adjustment towithin ~~time, non-recurring engineering contracts may involve~~ the ~~capitalization~~consolidated statements of ~~engineering prototypes,~~operations ~~classified as contract assets. Contract assets totaled $1,477,859~~ and $0comprehensive ~~at April 30, 2024 and April 30, 2023, respectively~~loss.

~~The~~In ~~following~~determining ~~table~~the ~~presents~~fair value of the convertible notes payable for the year ended December 31, 2025, the Company~~’s revenue~~ ~~disaggregated~~used bya ~~revenue~~market-based ~~type:~~approach. The valuation method utilized a negotiated discount rate and a market yield rate which are unobservable inputs.

	Year Ended April 30,
	2024		2023
Contract related	$	4,173,005	$	1,312,427
Product related		13,663,377		3,308,407
Total	$	17,836,382	$	4,620,834

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 approach used, these or other inputs may have a more significant impact on the estimated fair value.

~~Research~~The ~~and~~Company ~~Development~~calculated –the ~~Research~~estimated ~~and development~~fair ~~expenses~~value ~~include~~of ~~payroll,~~the ~~employee~~convertible ~~benefits,~~notes ~~and~~payable ~~other~~using ~~headcount-related~~the ~~expenses~~following ~~associated with product development. Research and development expenses also include third-party development and programming costs, materials, and a proportionate share of overhead costs such as rent.~~assumptions:

Product Warranty - The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. Product warranty reserves are recorded in current liabilities under accrued expenses. Warranty liability was $372,000 and $90,000 as of April 30, 2024 and April 30, 2023 respectively.


	Year ended December 31, 2025	Eight months ended December 31, 2024
Issuance date	2/10/2025	10/1/2024 - 11/26/2024
Maturity date	5/10/2026	10/1/2026 - 11/26/2026
Stock price	7.42 – 10.47	3.06 – 11.03
Expected volatility factor	115.7 – 128.7%	92.8 – 103.2%
Risk-free interest rate	3.57 - 3.70%	4.21 - 5.21%

Income Taxes – Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

Foreign Currency – The functional currency of our former international subsidiary, Skyset, was the local Italian currency. For that subsidiary, we translated assets and liabilities to U.S. dollars using period-end exchange rates, and average monthly exchange rates for revenues, costs, and expenses. We recorded translation gains and losses in accumulated other comprehensive income.

Comprehensive Loss – Comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an element of stockholders' equity but are excluded from net loss. Our other comprehensive loss is comprised of foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. During the year ended April 30, 2024, comprehensive loss was $865,738 lower than net loss, related to unrealized gains on available-for-sale securities totaling $864,165 and foreign currency translation adjustments of $1,573. During the year ended April 30, 2023, comprehensive loss was $609,155 lower than net loss, related to unrealized gains on available-for-sale securities totaling $610,129, partially offset by foreign currency translation adjustments of $974.

F-11

Stock-Based Compensation – Stock options are valued using the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. The fair value of restricted stock is based on our stock price on the date of grant. Compensation cost is recognized on a straight-line basis over the service period which is the vesting term.

Basic and Diluted Net Loss per Share – Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The conversion or exercise of these common stock equivalents would dilute earnings per share if we become profitable in the future. Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive include:

	April 30, 2024		April 30, 2023
Series B Preferred Stock, as converted		3,896		822,230
Stock options		6,779,934		4,784,809
Warrants		2,275,999		1,539,999
Restricted stock		175,130		781,060
Total		9,234,959		7,928,098

Related Parties – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors or are direct relatives of key management personnel of members of the Board of Directors. Related Party transactions are disclosed in Note 20.

Liquidity and 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 as further described in Note 1 and Note 16. 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. Subsequent to year end, as further described in Note 22, the Company sold its equity method investment for $4,400,000. 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.

Note 3 – Divestiture of Consumer Segment

On February 16, 2024, the Company closed the sale of Rotor Riot and Fat Shark to Unusual Machines. The sale was conducted pursuant to a Share Purchase Agreement dated November 21, 2022, as amended on April 13, 2023, July 10, 2023, and December 11, 2023 (the “SPA”). The transaction closed concurrently with UMAC’s initial public offering and listing on the NYSE American exchange (“IPO”) under the symbol “UMAC.”

The total consideration received by the Company was valued at $20 million and consisted of i) $1 million in cash, ii) $2 million in a secured promissory note (“Promissory Note”), iii) $17 million in securities of Unusual Machines, and iv) a post-closing adjustment for excess working capital.

F-13

~~Secured~~Table ~~Promissory~~of ~~Note~~Contents

The ~~Promissory~~following ~~Note~~table ~~from Unusual~~presents ~~Machines~~changes ~~bears interest at a rate of 8% per year, is due 18 months from the date of issue, and requires monthly payments of interest due~~ in ~~arrears on~~ the ~~15th day~~Level of3 ~~each~~convertible ~~month.~~notes Inpayable ~~the~~measured ~~event of a Qualified Financing (defined as one or more related debt or equity financings by UMAC resulting in net proceeds of~~ at ~~least~~fair $5value million, other than UMAC’s completed IPO), the Company may require payment of this Promissory Note in whole or in part upon written notice given within 10 days of the Qualified Financing. During the occurrence and continuance of any event of default under the Note, The Company may, at its option, convert the amounts due under the Note to common stock of UMAC in whole or in part from time to time. The conversion price will be a 10% discount to the average daily volume weighted average price for ~~UMAC’s common stock over~~ the 10year ~~days~~ended ~~preceding the conversion price. Conversions under the Note will be limited such that no conversion may be made to the extent that~~December 31, ~~after~~2025 ~~giving effect to the conversion, the Company, together with its affiliates, would beneficially own~~ (in ~~excess of 4.99% of UMAC’s common stock. This limit may be increased by the Company upon 61 days written notice.~~thousands):

Unusual Machines Securities


Balance, January 1, 2025	$	—
Additions	14,434
Fair value measurement adjustments	11,444
Gain on extinguishment	(3,211)
Redemption	(1,650)
Conversion into common stock	(16,499)
Balance, December 31, 2025	$	4,518

The ~~$17~~following ~~million~~table ~~worth~~presents ofchanges ~~UMAC common stock was valued at the IPO price for UMAC’s common stock of $4.00 per share, resulting~~ in ~~4,250,000~~ ~~shares of UMAC common stock being issued to~~ the ~~Company~~Level ~~(representing~~3 ~~approximately~~convertible ~~49%~~notes ofpayable ~~UMAC’s~~measured ~~issued~~at ~~and~~fair ~~outstanding common~~value ~~stock~~for ~~after giving effect to~~ the ~~IPO~~eight ~~and~~months toended ~~the~~December ~~issuance~~31, of2024 ~~common~~(in ~~stock to the Company upon closing of the IPO~~thousands).:

Working Capital


Balance, May 1, 2024	$	—
Additions	13,456
Fair value measurement adjustments	13,121
Conversion into common stock	(26,577)
Balance, December 31, 2024	$	—

The purchase price was adjusted for working capital as of the closing date. Actual working capital excess amounts increased the principal amount of the Promissory Note dollar for dollar. Working capital as of closing was finalized at $2 million, as further described in Note 22.Warrants

The ~~Consumer segment~~fair ~~has~~value ~~been~~of ~~classified~~the aswarrants ~~Discontinued~~issued ~~Operations~~during the year ended December 31, 2025 and ~~reported~~during the eight months ended December 31, 2024 were 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 ~~accordance~~the ~~with~~unobservable inputs in isolation could result in a material increase or decrease in the ~~applicable~~estimated ~~accounting~~fair ~~standards~~value. ~~Set~~In ~~forth below~~the ~~are~~future, depending on the ~~results~~weight of ~~operations~~evidence ~~for~~and valuation approaches used, these or other inputs may have a more significant impact on the ~~Consumer~~estimated ~~segment~~fair value. Additionally, if certain provisions are triggered, reset adjustments may be required in the future. For the year ended December 31, 2025 and for: the eight months ended December 31, 2024, no value was assigned to the warrants due to the fair market value of the convertible note payable being in excess of the proceeds received. The warrants are equity classified.

	Year ended April 30,
	2024			2023
Revenues	$	4,213,653		$	5,290,946
Cost of goods sold		4,577,980			4,793,430
Gross (Loss) Profit		(364,327	)		497,516
Operating Expenses
Research and development		118,093			346,002
Sales and marketing		1,157,448			862,384
General and administrative		863,361			1,044,435
Total operating expenses		2,138,902			2,252,821
Operating loss		(2,503,229	)		(1,755,305	)
Other expense (income)
Interest expense		22,856			—
Other, net		(152	)		(24,919	)
Other expense (income)		22,704			(24,919	)
Net loss from discontinued operations	$	(2,525,933	)	$	(1,730,386	)

Revenue Recognition

The Company recognizes 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. The Company’s 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. The Company recognizes revenue upon shipment of product or prototypes unless otherwise specified in the purchase order or contract. Customer deposits totaled $0.3 million and $0.2 million at December 31, 2025 and December 31, 2024, respectively. The Company expects all customer deposits as of December 31, 2025 to be recognized as revenue during the year ending December 31, 2025.

F-14

~~Assets and~~Table ~~liabilities~~of ~~for the Consumer segment included:~~Contents

	April 30, 2024		April 30, 2023
Current assets
Cash	$	—	$	86,656
Accounts receivable, net		—		61,107
Inventory		—		3,065,954
Other		—		2,069,438
Total current assets		—		5,283,155
Intangible assets, net		—		20,000
Other		—		3,853
Operating lease right-of-use assets		—		84,544
Total long term assets		—		108,397
Current liabilities
Accounts payable	$	—	$	606,872
Accrued expenses		—		109,480
Customer deposits		—		244,688
Operating lease liabilities		—		49,461
Total current liabilities		—		1,010,501
Long term liabilities - Operating lease liabilities		—		41,814
Working capital	$	—	$	4,272,654

The following table presents the Company’s revenue disaggregated by revenue type (in thousands):

Note 4 – Marketable Securities


	For the Year Ended December 31, 2025		For the Eight Months Ended December 31, 2024		For the Year Ended April 30, 2024

Contract related	$	2,850	$	886	$	4,173
Product related	37,879		3,964		13,663
Total	$	40,729	$	4,850	$	17,836

~~There were~~Research noand ~~marketable~~Development ~~securities at April 30, 2024.~~

AtResearch ~~April~~and 30development expenses include payroll, ~~2023~~employee benefits, ~~marketable~~and ~~securities consisted~~other ~~solely~~headcount-related ofexpenses ~~corporate~~associated ~~bonds~~with ~~and~~product ~~were~~development. ~~classified~~Research atand ~~Level~~development 2expenses inalso ~~the~~include ~~Fair~~third-party ~~Value~~development ~~Hierarchy.~~and ~~Fair~~programming ~~value~~costs, ~~cost basis~~materials, and ~~unrealized~~ ~~losses~~a ~~totaled~~proportionate ~~$12,814,038, $13,678,203,~~share ~~and~~of ~~$864,165 at~~overhead ~~April~~costs ~~30,~~such ~~2023,~~as ~~respectively~~rent.

~~Note 5~~Product –Warranty ~~Inventories~~

~~Inventories consisted~~The Company accrues an estimate of ~~the~~its ~~following:~~exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. Product warranty reserves are recorded in current liabilities under accrued expenses. Warranty liability was approximately $0.5 million and $0.7 million as of December 31, 2025 and December 31, 2024, respectively.

	April 30, 2024		April 30, 2023
Raw materials	$	5,750,324	$	8,132,196
Work-in-process		1,289,997		509,381
Finished goods		966,916		278,996
Total	$	8,007,237	$	8,920,573

Income Taxes

Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Comprehensive Loss

Comprehensive loss consists of net loss and comprehensive loss. Comprehensive loss refers to gains and losses that are recorded as an element of stockholders’ equity but are excluded from net loss. Our comprehensive loss is comprised of foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. During the year ended December 31, 2025, there were no differences between net loss and comprehensive loss. During the eight months ended December 31, 2024, comprehensive loss was $5 thousand higher than net loss, related to foreign currency translation adjustments. During the year ended April 30, 2024, comprehensive loss was $0.9 million lower than net loss, related to unrealized gains on available-for-sale securities totaling $0.9 million, offset by foreign currency translation adjustments of $2 thousand.

Stock-Based Compensation

Stock options are valued using the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. The fair value of restricted stock is based on our stock price on the date of grant. Compensation cost is recognized on a straight-line basis over the service period which is the vesting term. For awards subject to performance vesting conditions, expense is recognized for the awards if it is probable the performance conditions will be met.

Basic and Diluted Net Loss per Share

Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The conversion or exercise of these common stock equivalents would dilute earnings per share if we become profitable in the future. The two-class method is not used because

F-15

~~Note 6~~Table –of ~~Other Current Assets~~Contents

~~Other current~~the ~~assets~~Series B Preferred Stock does not participate in losses. As such, the net loss was attributed entirely to common stockholders. Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive include (in thousands):

	April 30, 2024		April 30, 2023
		December 31, 2025			December 31, 2024	April 30, 2024
Contract asset	$	1,477,859	$	—
Series B Preferred Stock, as converted		4			4	4
Prepaid expenses		1,206,306		752,564
Stock options		4,701			5,242	6,780
Grant receivable		675,000		—
Warrants		583			914	2,276
Prepaid inventory		602,888		359,500
Restricted stock		2,124			1,544	175
Accrued interest income		—		151,671
Total		7,412			7,704	9,235
Total	$	3,962,053	$	1,263,735

~~Note 7 – Due From~~ Related ~~Party~~Parties

~~In January~~Parties ~~2022,~~are ~~the~~considered ~~Company determined that a senior executive had relocated in 2021 but their compensation had not been subject~~ to ~~the income~~be tax withholding required by the new jurisdiction. The amount subject to taxation included $155,624 of cash compensation and $1,413,332 of income associated with the vesting of restricted stock ("Stock Compensation"). In March 2022, the Company entered into a note agreement (the "Note") with the employee in the amount of $510,323, representing the estimated taxes owed by the employee related to ~~the~~us ~~Stock~~if ~~Compensation.~~they ~~Under~~have ~~the~~control ~~terms~~or ofsignificant ~~the Note~~influence, ~~104,166 shares~~directly ofor ~~common stock with a fair value of $280~~indirectly,~~832, which~~ ~~had~~over ~~vested during calendar 2021~~us, ~~were~~including ~~withheld~~key bymanagement ~~the~~personnel ~~Company~~ and ~~applied~~members ~~against~~of the ~~Note. The~~Board ~~employee~~of ~~agreed~~Directors ~~not~~or toare ~~sell or~~direct ~~transfer~~relatives ~~110,983 shares~~ of ~~common~~key ~~stock~~management ~~held~~personnel ~~at the Company's transfer agent until the Note was repaid. In addition, the employee has 20,833 shares~~ of ~~restricted~~members ~~stock vesting monthly in calendar 2022,~~ of ~~which 3,000 shares were withheld with~~ the ~~fair value~~Board of ~~those shares applied against the Note~~Directors. ~~Shares~~Related ~~issued~~Party totransactions ~~the~~are ~~employee~~disclosed in ~~2022 were held at the transfer agent until the~~ Note ~~was repaid~~18. The Note matured on December 31, 2022. The Company filed amended payroll tax returns on March 16, 2022. In March and April 2022, the Company made payments to the relevant tax authorities totaling $712,646 representing $510,323 owed by the employee, $31,604 owed by the Company, and $170,719 of penalties and interest. The Note was repaid in full in August 2022.

~~Note 8~~Liquidity –and ~~Intangible~~Going ~~Assets~~Concern

~~Intangible assets~~During ~~relate~~the toyear ~~acquisitions~~ended ~~completed~~December 31, by2025, the Company significantly strengthened its liquidity position through multiple equity financings. In April 2025, ~~including~~June ~~those~~2025, ~~described~~and inSeptember ~~Note~~2025, 1the Company completed financings with gross proceeds of approximately $30.0 million, $46.8 million, and ~~were~~$172.5 asmillion, ~~follows:~~respectively. As of December 31, 2025, working capital totaled $212.1 million.

	April 30, 2024							April 30, 2023
	Gross Value		Accumulated Amortization			Net Value		Gross Value		Accumulated Amortization			Net Value
Proprietary technology	$	4,282,001	$	(1,917,612	)	$	2,364,389	$	4,967,000	$	(1,271,112	)	$	3,695,888
Non-compete agreements		65,000		(65,000	)		—		81,000		(56,667	)		24,333
Customer relationships		—		—			—		39,000		(18,106	)		20,894
Total finite-lived assets		4,347,001		(1,982,612	)		2,364,389		5,087,000		(1,345,885	)		3,741,115
Brand name		1,430,000		—			1,430,000		3,152,000		—			3,152,000
Total indefinite-lived assets		1,430,000		—			1,430,000		3,152,000		—			3,152,000
Total intangible assets, net	$	5,777,001	$	(1,982,612	)	$	3,794,389	$	8,239,000	$	(1,345,885	)	$	6,893,115

As a result of these capital raises, the Company materially increased its working capital position and improved its capacity to meet expected operating and capital requirements. Management has concluded that the Company has sufficient financial resources for at least the next twelve months from the date the consolidated financial statements are issued.

~~Proprietary technology~~Recent ~~and~~Accounting ~~non-compete~~Pronouncements agreements are being amortized over six years and three years, respectively. Customer relationships are being amortized over seven years. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis.

Recently adopted accounting pronouncements

In December 2023, the FASB issued ASU 2023-09 requiring enhanced annual disclosures regarding the rate reconciliation and income taxes paid, disaggregated by jurisdiction. This standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this ASU on a prospective basis effective January 1, 2025. Refer to Note 13, Income Taxes for inclusion of new disclosures required.

Recently issued accounting pronouncements not yet adopted

In November 2024, the FASB issued ASU 2024-03 expanding disclosure requirements related to certain income statement expenses. The amendments require tabular disclosure of certain operating expenses disaggregated into categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments are effective for our fiscal year ending December 31, 2027 and may be applied retrospectively. While the Company is still evaluating the specific impacts and adoption method, the Company anticipates this guidance will have a significant impact on our consolidated financial statement disclosures.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The ASU clarifies interim disclosure requirements and the applicability of Topic 270. The objective of the amendments is to provide further clarity about the current interim disclosure requirements. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Adoption of this ASU can be applied either a prospective or a retrospective approach. Early adoption is permitted. The Company is currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

F-16

As Table of ~~April 30, 2024, expected amortization expense for finite-lived intangible assets for the next five years is as follows:~~Contents

Fiscal Year Ended:
2025	$	709,316
2026		709,316
2027		709,316
2028		236,441
2029		—
Thereafter		—
Total	$	2,364,389

Note 3 – Business Combination

~~Goodwill represents~~On September 4, 2024, the ~~future~~Company ~~economic~~entered ~~benefit~~into ~~arising~~an ~~from~~Asset ~~other~~Purchase ~~assets~~Agreement ~~acquired~~(the in“APA”) anwith ~~acquisition that~~FlightWave ~~are~~Aerospace ~~not~~Systems ~~individually~~Corporation ~~identified and~~(the ~~separately~~“Seller”) ~~recognized~~to broaden the Company’s range of drone products. The ~~composition~~seller ofsold certain assets used in designing, developing, manufacturing, and ~~changes~~selling inlong ~~goodwill~~range, ~~consist~~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 $14.0 million worth of shares of the Company’s common stock, and as such, the asset purchase will be treated as a business combination. The purchase price is payable as follows:

Date	Entity	Goodwill
January 2020	Rotor Riot	$	1,849,073
November 2020	Fat Shark		6,168,260
May 2021	Skypersonic		2,826,918
August 2021	Teal Drones		8,995,499
April 2023 - Impairment loss	Skypersonic		(2,826,918	)
Balance at April 30, 2023		$	17,012,832
February 2024 – Divestiture	Rotor Riot, Fat Shark		(7,924,282	)
Balance at April 30, 2024		$	9,088,550

•$7.0 million worth of the Company’s common stock issued on September 30, 2024, totaling 2,544,991 shares, equal to the VWAP on such date.

~~Included in the amounts presented above is goodwill related to other insignificant transactions~~•$7.0 ~~Following~~million ~~the~~worth ~~establishment~~ of the Enterprise and Consumer segments, management evaluated the long-term business strategy of each segment. This resulted in the Enterprise segment narrowing its focus on the military and other government agencies. It was determined that Skypersonic'Company’s ~~technology~~common ~~would~~stock beissued ~~re-focused for the near term~~ on ~~military applications and consolidated into the operations of Teal. The Company completes a formal evaluation of the carrying value of its intangible assets~~December 31, ~~including goodwill~~2024, attotaling ~~the end of each fiscal year. Based on (i) the operating results for Skypersonic since its acquisition in May 2021~~819,830 ~~(ii) its consolidation into Teal~~shares, ~~(iii)~~equal ~~our~~to ~~current expectations of its future business conditions and trends, including its projected revenues, expenses, and cash flows,~~ the ~~Company~~VWAP ~~recognized~~on ansuch ~~impairment charge of $2,826,918 in April 2023~~date. ~~During FY2024, an impairment change of $412,999 was recognized related to Skypersonic’s proprietary technology.~~

~~Note 9~~Goodwill –for ~~Equity~~FlightWave ~~Method~~is ~~Investment~~ascribed to existing relationships with several U.S. government agencies including classification as approved vendors. The Company has reported net losses since its inception and is presently unable to determine when and if the tax benefit of this deduction will be realized.

~~As of~~The ~~April~~summary ~~30,~~of ~~2024,~~ the ~~Company~~purchase ~~owned~~price ~~a 46% interest in Unusual Machines. The primary business operations include selling first-person-view video goggles for drone pilots, drones, parts~~ and its related ~~equipment~~allocation toat ~~the~~fair ~~consumer~~market ~~marketplace.~~value ~~UMAC’s~~is ~~financial~~as ~~statements~~follows ~~are prepared~~ (in ~~accordance with GAAP. See Note 3 and Note 22 for additional information.~~thousands):

Financial information for UMAC is derived from UMAC’s Form 10-Q for the quarter ending March 31, 2024 and was as follows:


Shares issued	$	14,000
Total Purchase Price	$	14,000

Current assets	$	6,128,890
Assets acquired
Long-term assets		18,099,802
Inventory		$	298
Current liabilities		691,978
Operating lease right-of-use assets		128
Long-term liabilities		2,313,896
Other assets		69
Revenues		618,915
Brand name		567
Gross profit		204,167
Backlog		276
Net loss	$	(1,106,001	)
Customer relationships		900
Proprietary technology		3,705
Goodwill		8,676
Total assets acquired		14,619
Liabilities assumed
Accounts payable and accrued expenses		265
Customer deposits		196
Operating lease liabilities		158
Total liabilities assumed		619
Total fair value of net assets acquired		$	14,000

Brand name, backlog, customer relationships and proprietary technology are included in intangible assets on the consolidated balance sheets. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end for impairment or more often if indicators exist. Backlog, customer relationships and proprietary technology are being amortized over seven years. The excess of the purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end or more often if indicators exist.

Consolidated Results of Operations

During the period from the FlightWave acquisition date through December 31, 2024, the Company’s consolidated results of operations included $1.0 million of operating losses associated with the results of operations of FlightWave.

F-17

~~The Company’s~~Table ~~investments~~of ~~in UMAC have been impacted by the following:~~Contents

Initial investment, February 16, 2024	$	17,000,000
Equity method loss		(503,625	)
Impairment		(11,353,875	)
Investment balance, April 30, 2024	$	5,142,500

Supplemental Unaudited Pro Forma Financial Information

The ~~computation~~ offollowing ~~both~~unaudited pro forma financial information summarizes the ~~initial~~results ~~investment~~of operations for the Company as ofthough ~~February~~the 16Business Combination had occurred on May 1, ~~2024~~2022. The unaudited pro forma financial information has been presented for illustrative purposes only and ~~investment~~is ~~balance~~not asnecessarily indicative of ~~April~~results ~~30,~~of ~~2024,~~operations isthat ~~based~~would have been achieved had the acquisition taken place on the ~~fair~~date ~~market value~~indicated, or the future consolidated results of ~~UMAC’s~~operations ~~common~~of ~~stock.~~the Company (in thousands).

Note 10 – Property and Equipment


	Eight months ended December 31, 2024
	Consolidated
Revenues	$	5,492

Net Loss	(45,289)

Loss per share – basic and diluted	(0.59)

Property and equipment consist of assets with an estimated useful life greater than one year and are reported net of accumulated depreciation. The reported values are periodically assessed for impairment, and were as follows:


	Year ended April 30, 2024
	Consolidated
Revenues	$	18,872

Net Loss	(26,127)

Loss per share – basic and diluted	(0.43)

	April 30, 2024			April 30, 2023
Equipment and related	$	1,540,888		$	1,386,373
Leasehold improvements		1,547,976			1,473,890
Furniture and fixtures		163,290			132,752
Accumulated depreciation		(911,470	)		(342,657	)
Net carrying value	$	2,340,684		$	2,650,358

Note 4 – Divestiture of Consumer Segment

~~Depreciation expense~~On ~~totaled~~February 16, ~~$568~~2024,~~813~~ the Company closed the sale of Rotor Riot and ~~$311~~Fat Shark to Unusual Machines. The sale was conducted pursuant to a Share Purchase Agreement dated November 21,~~545~~ ~~for~~2022, ~~the~~as ~~years~~amended ~~ended~~on April 3013, ~~2024~~2023, ~~and~~July 10, 2023, ~~respectively~~and December 11, 2023 (the “SPA”). The transaction closed concurrently with UMAC’s initial public offering and listing on the NYSE American exchange (“IPO”) under the symbol “UMAC.” The sale resulted in a gain that was recorded in the consolidated statement of operations.

The total consideration received by the Company was valued at $22.0 million and consisted of i) $1.0 million in cash, ii) $4.0 million in a secured promissory note (“Promissory Note 11”) –including ~~Other~~a ~~Long~~post-~~Term~~closing ~~Assets~~adjustment for excess working capital of $2.0 million, iii) $17.0 million in securities of UMAC.

~~Other long-term~~The ~~assets~~Promissory ~~included:~~Note from UMAC bore interest at a rate of 8% per year, was due 18 months from the date of issue, and required monthly payments of interest due in arrears on the 15th day of each month.

	April 30, 2024		April 30, 2023
SAFE agreement	$	250,000	$	250,000
Security deposits		43,126		53,180
Total	$	293,126	$	303,180

The $17.0 million worth of UMAC common stock was valued at the IPO price for UMAC’s common stock of $4.00 per share, resulting in 4,250,000 shares of UMAC common stock being issued to the Company.

~~In November~~The ~~2022,~~Consumer ~~the~~segment ~~Company~~has ~~entered~~been ~~into~~classified aas ~~SAFE~~Discontinued ~~(Simple~~Operations ~~Agreement~~and ~~for~~reported ~~Future~~in ~~Equity)~~accordance ~~agreement~~ with ~~Firestorm Labs, Inc. (“Firestorm”) under which it made a payment of $250,000 to Firestorm in exchange for~~ the ~~right~~applicable toaccounting ~~certain shares of Firestorm stock~~standards. The ~~SAFE~~Consumer ~~permits the~~segment ~~Company~~had tono ~~participate~~activity infor athe ~~future~~year ~~equity~~ended ~~financing of Firestorm by converting the $250~~December 31,~~000~~ ~~into~~2025 ~~shares of Preferred Stock of Firestorm. If there is a change in control of Firestorm~~ or afor ~~public offering of shares of its stock, then~~ the ~~Company~~eight ~~shall~~months ~~have~~ended ~~the~~December ~~right to receive cash payments~~31, ~~or shares of stock, whichever has greater value~~2024. ~~The~~Set ~~Company’s~~forth ~~investment~~below inare the ~~SAFE~~results ~~agreement has been recorded on the cost method~~ of ~~accounting.~~operations ~~The~~for ~~Company evaluates~~ the ~~investment~~Consumer segment for ~~any indications of impairment in value on a quarterly basis. No factors indicative of impairment were identified during~~ the year ended April 30, 2024 (in thousands).

F-18

~~Note 12~~Table ~~– Right~~ of ~~Use Assets and Liabilities~~Contents

As of April 30, 2024, the Company had operating type leases for real estate and no finance type leases. The Company’s leases have remaining lease terms of up to 6.67 years, including options to extend certain leases for up to six years. Operating lease expense totaled $351,369 for the year ended April 30, 2024, including period cost for short-term, cancellable, and variable leases, not included in lease liabilities, of $4,950 for the year ended April 30, 2024.


	Year ended April 30, 2024
Revenues	$	4,214
Cost of goods sold	4,578
Gross loss	(364)
Operating Expenses
Research and development	118
Sales and marketing	1,158
General and administrative	863
Total operating expenses	2,139
Operating loss	(2,503)
Other expense (income)
Interest expense	23
Other, net	—
Other expense (income)	23
Net loss from discontinued operations	$	(2,526)

~~Leases on~~Note ~~which~~5 ~~the~~– ~~Company~~Inventories, ~~made rent payments during the reporting period included:~~Net

Location	Monthly Rent		Expiration
South Salt Lake, Utah	$	22,667		December 2024
San Juan, Puerto Rico	$	5,647		June 2027
Grantsville, Utah	$	1,000		December 2026

Inventories consisted of the following (in thousands):

Supplemental information related to operating leases for the year ended April 30, 2024 was:


	December 31, 2025		December 31, 2024
Raw materials	$	19,794	$	8,421
Work-in-process	3,751		899
Finished goods	2,404		4,151
Inventories, gross	25,949		13,471
Reserve for inventory excess and obsolescence	(2,497)		(520)
Inventories, net	$	23,452	$	12,951

Operating cash paid to settle lease liabilities			$$350,162
Weighted average remaining lease term (in years)			2.16
Weighted average discount rate			12%

Note 6 – Intangible Assets, Net

~~Future lease~~Intangible ~~payments~~assets atrelate ~~April~~to 30acquisitions completed by the Company, ~~2024~~including those described in Note 3, and were as follows (in thousands):

Fiscal Year Ended:
		December 31, 2025								December 31, 2024
	2025		$	366,853
		Gross Value				AccumulatedAmortization		Net Value		GrossValue		AccumulatedAmortization		Net Value
	2026			372,449
Proprietary technology		$	7,987			$	(3,879)	$	4,108	$	7,987	$	(2,640)	$	5,347
	2027			372,880
Backlog		276				(184)		92		276		(17)		259
	2028			293,334
Customer relationships		900				(178)		722		900		(50)		850
	2029			280,080
Non-compete agreements		65				(65)		—		65		(65)		—
	Thereafter			443,460
Total finite-lived assets		9,228				(4,306)		4,922		9,228		(2,772)		6,456
	Total			2,129,056
Brand name		1,997				—		1,997		1,997		—		1,997
	Imputed interest			(611,466	)
Total indefinite-lived assets		1,997				—		1,997		1,997		—		1,997
	Total liability		$	1,517,590
Total intangible assets, net		$	11,225			$	(4,306)	$	6,919	$	11,225	$	(2,772)	$	8,453

Note 13 – Debt Obligations

A. Decathlon Capital

On August 31, 2021, Teal entered into an Amended and Restated Loan and Security Agreement with Decathlon Alpha IV, L.P. (“DA4”) in the amount of $1,670,294 (the “Loan”), representing the outstanding principal amount previously due and owing by Teal to DA4. Interest on the Loan accrues at a rate of ten (10%) percent per annum. Principal and interest is payable in monthly installments of $49,275 until maturity on December 31, 2024. The balance outstanding at April 30, 2024 and April 30, 2023 totaled $370,537 and $895,709, respectively.

B. Pelion Note

In May 2021, Teal entered into a note agreement totaling $350,000 which is payable upon demand. The Note bears interest at the applicable Federal Rate as of the date of the Note which was 0.13% on the date of issuance. Accrued interest at April 30, 2024 and April 30, 2023 totaled $1,334 and $878, respectively.

C. Vendor Agreement

In connection with the acquisition of Teal on August 31, 2021, the Company assumed an obligation with a contract manufacturing firm. The assumed balance of $387,500 was repaid in monthly installments of $37,500 and paid in full in July 2022.

F-19

D.Table ~~Corporate~~of ~~Equity~~Contents

~~Beginning in~~Proprietary ~~October~~technology ~~2021,~~is ~~and~~being ~~amended~~amortized inover ~~January~~six ~~2022,~~to ~~Teal~~seven ~~financed~~years. aBacklog ~~total~~is ofbeing ~~$120,000 of~~amortized ~~leasehold~~over ~~improvements~~two ~~with~~years. ~~Corporate~~Customer ~~Equity,~~relationships ~~LLC~~is being amortized over seven years. ~~The~~Non-compete ~~loan~~agreements ~~bears~~are ~~interest~~being atamortized 8over three years.~~25% annually~~ Brand name is not amortized but reviewed for impairment on a quarterly basis and ~~requires~~formally ~~monthly~~evaluated ~~payments~~at ofyear end. Amortization expense totaled $~~3,595 through~~1.5 million for the year ended December 31, ~~2024~~2025, $0.8 ~~The~~million ~~balance~~for ~~outstanding~~the ateight ~~April~~months 30ended December 31, 2024, and ~~April~~$0.9 ~~30,~~million ~~2023~~for ~~totaled~~the ~~$27,495~~year ~~and~~ended ~~$66~~April 30,~~586~~ 2024, respectively.

E.As ~~Ascentium~~of ~~Capital~~December 31, 2025, expected amortization expense for finite-lived intangible assets for the next five years is as follows (in thousands):

In September 2021, Teal entered into a financing agreement with Ascentium Capital to fund the purchase of a fixed asset totaling $24,383. Monthly payments of $656 are payable through October 2024. The balance outstanding at April 30, 2024 and April 30, 2023 totaled $3,538 and $11,412 respectively.


Fiscal Year Ended:
2026	$	1,459
2027	1,131
2028	658
2029	658
2030	658
Thereafter	358
Total	$	4,922

F.Note ~~Summary~~7 – Sale of Equity Method Investment

~~Future annual~~On ~~principal~~July 22, ~~payments~~2024, atthe ~~April~~Company 30sold all of its securities in UMAC to two unaffiliated third-party purchasers (the “Purchasers”). As part of the transaction, on July 22, 2024, ~~were~~the asCompany ~~follows:~~entered into an Exchange Agreement with UMAC pursuant to which the Company exchanged 4,250,000 shares of UMAC’s common stock, par value $0.001 per share, for 4,250 shares of UMAC’s newly designated Series A Convertible Preferred Stock (the “Series A”). The Company sold the Series A ownership interest ($4,408,357 at time of sale) and the Note Receivable of $4.0 million to the Purchasers for $4.4 million in cash pursuant to a Purchase Agreement in a transaction that closed on July 22, 2024.

Prior to the sale, the Company had owned a 46% interest in Unusual Machines. The primary business operations included selling first-person-view video goggles for drone pilots, drones, parts and related equipment to the consumer marketplace. UMAC’s financial statements were prepared in accordance with GAAP. See Note 4 for additional information.

~~Note 14~~Financial –information ~~Due~~for toUMAC ~~Related~~was ~~Party~~derived from UMAC’s Form 10-Q for the six months ended June 30, 2024 and was as follows (in thousands):

In January 2020, in connection with the acquisition of Rotor Riot, the Company assumed a line of credit obligation of the seller, BRIT, LLC, totaling $47,853 which bore interest at 6.67% annually. The remaining balance of $37,196 plus accrued interest totaling $292 was paid in October 2022.


Current assets	$	5,117
Long-term assets	20,083
Current liabilities	931
Long-term liabilities	4,297
Revenues	2,030
Gross profit	593
Net loss	$	(2,718)

~~Note 15~~The –Company’s ~~Income~~investments ~~Taxes~~in UMAC have been impacted by the following (in thousands):

Our operating subsidiary, Red Cat Propware, Inc., is incorporated and based in Puerto Rico which is a commonwealth of the United States. We are not subject to taxation by the United States as Puerto Rico has its own taxing authority. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods.


Initial investment, February 16, 2024	$	17,000
Equity method loss	(1,238)
Impairment	(11,354)
Investment balance, June 30, 2024	$	4,408
Sale of ownership interest	(4,408)
Investment balance, July 22, 2024	$	—

~~At April~~The ~~30,~~computation ~~2024~~of ~~and~~both ~~April~~the ~~30,~~initial ~~2023,~~investment weas ~~had accumulated deficits~~ of ~~approximately~~February ~~$81~~16,~~100,000~~ 2024 and ~~$54,600,000,~~investment ~~respectively.~~balance ~~Deferred~~prior ~~tax assets related~~ to the ~~future~~sale ~~benefit~~were ofbased ~~these~~on ~~net operating losses for tax purposes totaled approximately $15,004,000 and $10,101,000, respectively, calculated using~~ the ~~base~~fair ~~Puerto~~market ~~Rico~~value ~~corporate tax rate~~ of ~~18.5%. Currently,~~UMAC’s wecommon ~~focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized~~stock. ~~Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at April 30, 2024 and April 30, 2023.~~

F-20

~~Note 16~~Table –of ~~Common Stock~~Contents

~~Our common~~Note ~~stock~~8 ~~has~~– aProperty ~~par~~and ~~value of $0.001 per share. We are authorized to issue 500~~Equipment,~~000,000~~ ~~shares of common stock. Each share of common stock is entitled to one vote. A summary of shares of common stock issued by the Company since April 30, 2022 is as follows:~~Net

Description of Shares	Shares Issued
Shares outstanding as of April 30, 2022		53,748,735
Vesting of restricted stock to employees, net of shares withheld of 273,874 to pay taxes and 9,000 to repay a Note		653,308
Vesting of restricted stock to Board of Directors		116,507
Vesting of restricted stock to consultants		9,683
Shares issued for services		39,832
Shares outstanding as of April 30, 2023		54,568,065
Vesting of restricted stock to employees, net of shares withheld of 27,189 to pay taxes		192,742
Vesting of restricted stock to Board of Directors		252,214
Vesting of restricted stock to consultants		1,761
Conversion of preferred stock		818,334
Issuance of common stock through ATM facilities		53,235
Issuance of common stock through public offering		18,400,000
Exercise of stock options		3,000
Shares outstanding as of April 30, 2024		74,289,351

ATM Facility


	December 31, 2025		December 31, 2024
Equipment and related	$	2,118	$	1,633
Leasehold improvements	1,653		1,556
Furniture and fixtures	1,275		227
Construction in progress	4,241		—
Accumulated depreciation	(1,490)		(1,535)
Net carrying value	$	7,797	$	1,881

InConstruction ~~August 2023, we entered into a sales agreement (“the 2023 ATM Facility”) with ThinkEquity LLC (“ThinkEquity”), which provides for the sale,~~ in ~~our~~progress ~~sole~~is ~~discretion,~~primarily ofcomprised ~~shares~~ of ~~our~~ongoing ~~common~~construction ~~stock through ThinkEquity, as our sales agent. In accordance with the terms of the ATM Sales Agreement, the Company may offer~~ and ~~sell~~expansion ~~shares~~ of our ~~common stock~~facilities, ~~par~~equipment ~~value $0.001 per share, having an aggregate offering price of up to $4,375,000. The issuance~~ and ~~sale~~tooling ofrelated ~~these shares by us pursuant~~ to the ~~2023~~manufacturing ~~ATM~~of ~~Facility~~products ~~are~~which ~~deemed~~have ~~“at~~not ~~the~~yet ~~market”~~been ~~offerings~~placed ~~as defined~~ in ~~Rule~~service. ~~415~~Completed ~~under~~assets ~~the~~are ~~Securities Act~~transferred ofto ~~1933,~~their asrespective ~~amended~~asset ~~(the~~classes ~~“Securities Act”),~~ and ~~are~~depreciation ~~registered~~begins ~~under~~when ~~the~~an ~~Securities~~asset ~~Act.~~is Weready ~~pay~~for aits ~~commission~~intended ~~of up to 2~~use.~~5% of gross sales proceeds of any common stock sold under the 2023 ATM Facility.~~

~~During the~~Depreciation ~~year~~expense ~~ended~~totaled ~~April~~$0.7 ~~30,~~million ~~2024,~~for wethe ~~sold~~year anended ~~aggregate of 53~~December 31,~~235~~ ~~shares of common stock under the 2023 ATM Facility~~2025, ~~at an average price of~~ $10.076 ~~per~~million ~~share,~~ for ~~gross~~the ~~proceeds~~eight ofmonths ~~approximately~~ended ~~$57~~December 31,~~000~~ ~~and net proceeds of approximately $55~~2024,~~700,~~ ~~after deducting commissions~~ and ~~other offering expenses payable by us. Additionally, the Company incurred legal fees of approximately~~ $~~46,000 establishing the 2023 ATM Facility~~0.6 Inmillion ~~December~~for ~~2023,~~ the ~~Prospectus~~year ~~Supplement~~ended ~~dated August 8~~April 30, ~~2023 was amended to change the aggregate offering price under the ATM facility to up to $4~~2024,~~375,000~~ respectively.

~~As of~~Note ~~April~~9 ~~30,~~– ~~2024,~~Other ~~approximately~~Long-Term ~~$4,318,000 of common stock remained available to be sold under the 2023 ATM Facility, subject to certain conditions as specified in the sales agreement.~~ Assets

~~Public Offering~~Other long-term assets included (in thousands):

In December 2023, the Company entered into an underwriting agreement with ThinkEquity LLC, as representative of the underwriters, pursuant to which the Company agreed to sell to the underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 16,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a public offering price of $0.50 per share. The Company also granted the underwriters a 45-day option to purchase up to an additional 2,400,000 shares of Common Stock to cover over-allotments.


	December 31, 2025		December 31, 2024
Investment in equity securities	$	692	$	250
Security deposits	535		60
Total	$	1,227	$	310

~~The Offering~~In ~~closed~~November on2022, ~~December~~the ~~11,~~Company ~~2023,~~entered ~~resulting~~into ina ~~the~~SAFE ~~issuance~~(Simple ofAgreement ~~18,400,000~~for ~~shares~~Future ofEquity) ~~Common~~agreement ~~Stock~~with Firestorm Labs, Inc. (“Firestorm”) under which ~~generated~~it ~~gross~~made ~~proceeds~~ a payment of $~~9,200,000~~0.3 ~~Net~~million ~~proceeds~~to Firestorm in exchange for the right to certain shares of Firestorm stock. The SAFE provided that the Company's ~~from~~investment ~~the~~would ~~Offering,~~convert ~~after~~into ~~deducting~~shares of Firestorm's Preferred Stock upon the ~~underwriting~~occurrence ~~discount~~of a qualified equity financing. In July 2025, ~~the~~ ~~underwriters’~~Firestorm ~~fees~~completed ~~and~~a ~~expenses~~Series A Preferred Stock financing, and the Company’'s ~~estimated~~SAFE ~~Offering~~investment ~~expenses,~~converted ~~were~~into ~~approximately~~shares ~~$8,400,000~~of Firestorm's Series A Preferred Stock. The Company's investment has been recorded at fair value. Changes in the fair value of the investment are recognized in other income on the consolidated statements of operations.

Note 10 – Right of Use Assets and Liabilities

As of December 31, 2025, the Company had operating type leases for real estate and no finance type leases. The Company’s leases have remaining lease terms of up to 14.67 years, including options to extend certain leases for up to ten years. Operating lease expense totaled $1.3 million for the year ended December 31, 2025, $0.4 million for the eight months ended December 31, 2024, and $0.4 million for the year ended April 30, 2024, respectively.

During the year ended December 31, 2025, the Company entered into four new operating leases, which resulted in right-of-use assets and lease liabilities of $10.3 million. The Company also amended an existing lease to expand its office space, which increased right-of-use assets and lease liabilities by $2.0 million. These transactions represent non-cash additions to right-of-use assets and lease liabilities.

F-21

~~Note 17~~Table –of ~~Preferred Stock~~Contents

~~Our preferred~~Supplemental ~~stock~~information ~~has~~related ato ~~par~~operating ~~value~~leases ~~of $0.001 per share. Series B Preferred Stock (“Series B Stock”) is convertible into common stock at a ratio of 0.8334 shares of common stock~~ for ~~each share of Series B Stock held and votes together with~~ the ~~common~~year ~~stock~~ended ~~on an as-if-converted basis. 982~~December 31,~~000~~ ~~shares~~2025 ~~of Series B Stock were converted into 818,334 shares of common stock in June 2023. Shares outstanding at April 30, 2024 totaled 4,676 which are convertible into 3,896 shares of common stock.~~was:

Note 18 – Warrants


Operating cash paid to settle lease liabilities (in thousands)	$	985
Weighted average remaining lease term (in years)	9.04
Weighted average discount rate	12		%

~~The Company~~Future ~~issued~~lease 5payments ~~year~~at ~~warrants~~December 31, to2025 ~~investors in connection with two convertible note financings. The warrants have an exercise price of $1.50. The warrants~~ were ~~valued~~ ~~using~~as ~~the~~follows ~~multinominal lattice The value of the warrants was included~~ (in ~~the determination of the initial accounting for each financing.~~thousands):

A summary of the warrants issued and their fair values were:


Fiscal Year Ended:
2026	$	2,554
2027	2,743
2028	2,709
2029	2,695
2030	2,561
Thereafter	10,009
Total	23,271
Imputed interest	(9,704)
Total liability	$	13,567

		Upon Issuance				Outstanding at April 30, 2024
Date of Transaction		Number of Warrants		Initial Fair Value		Number of Warrants		Fair Value
	October 2020		399,998	$	267,999		266,666	$	209,938
	January 2021		675,000	$	2,870,666		540,000	$	443,242

Note 11 – Debt Obligations

~~To date, we have received $301,248 related to the exercise of 268,332 warrants~~A.Decathlon Capital

~~In May~~On August 31, 2021, ~~the~~Teal ~~Company~~entered ~~issued~~into ~~warrants~~an toAmended ~~purchase 200~~and Restated Loan and Security Agreement with Decathlon Alpha IV,~~000~~ ~~shares~~L.P. (“DA4”) in the amount of ~~common~~$1.7 ~~stock~~million to(the “Loan”), representing the ~~placement~~outstanding ~~agent~~principal ofamount ~~its~~previously ~~common~~due ~~stock~~and ~~offering~~owing by Teal to DA4. ~~The~~ ~~warrants~~Interest ~~have~~on the Loan accrued at a ~~five-year~~rate ~~term~~of ten (10%) percent per annum. Principal and aninterest ~~exercise~~were ~~price~~payable in monthly installments of $549.003 thousand. The balance was paid off in September 2024.

~~In July 2021, the Company issued warrants to purchase 533,333 shares of common stock to the placement agent of its common stock offering~~B. ~~The~~Pelion ~~warrants have a five-year term and an exercise price of $5.625.~~Note

In ~~December~~ ~~2023~~May 2021, ~~the~~Teal ~~Company~~entered ~~issued~~into ~~warrants~~a tonote ~~purchase~~agreement ~~736,000~~totaling ~~shares~~$0.4 ofmillion ~~common~~which ~~stock~~is topayable upon demand and classified as a current liability on the ~~placement~~consolidated ~~agent~~balance sheets. The Note bears interest at the applicable Federal Rate as of ~~its~~the ~~common~~date ~~stock offering~~of the Note which was 0.13% ~~The~~on ~~warrants~~the ~~have~~date aof ~~five-year~~issuance. ~~term~~Accrued interest at December 31, 2025 and anDecember 31, ~~exercise~~2024 ~~price~~totaled of$2.1 thousand and $01.~~625~~6 thousand, respectively.

~~The~~C.Corporate ~~following table presents the range of assumptions used to estimate the fair values of the stock warrants granted during the fiscal years ended April 30:~~Equity

	2024			2023
Risk-free interest rate		4.25	%		—
Expected dividend yield		—			—
Expected term (in years)		5.00			—
Expected volatility		205.50	%		—

Beginning in October 2021, and amended in January 2022, Teal financed a total of $0.1 million of leasehold improvements with Corporate Equity, LLC. The loan bore interest at 8.25% annually and required monthly payments of $3.6 thousand. The balance was paid off in December 2024.

D.Ascentium Capital

In September 2021, Teal entered into a financing agreement with Ascentium Capital to fund the purchase of a fixed asset totaling $24.4 thousand with monthly payments of $0.7 thousand. The balance was paid off in October 2024.

F-22

~~The~~Table ~~following~~of ~~table summarizes the changes in warrants outstanding since April 30, 2022.~~Contents

	Number of Shares	Weighted-average Exercise Price per Share		Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance as of April 30, 2022	1,539,999		3.38		3.89	$	427,533
Granted	—	$	—
Exercised	—		—
Outstanding as of April 30, 2023	1,539,999		3.38		2.89	$	—
Granted	736,000		0.63
Exercised	—		—
Outstanding at April 30, 2024	2,275,999	$	2.49		2.77	$	666,080

E.Summary

~~Note 19~~Future –annual ~~Share~~principal ~~Based~~payments ~~Awards~~at December 31, 2025 were as follows (in thousands):

The 2019 Equity Incentive Plan (the "Plan") allows us to incentivize key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the "Awards"). The number of shares issuable in connection with Awards under the Plan may not exceed 11,750,000.


Fiscal Year Ended:
2026	$	350
Thereafter	—
Total	$	350

A.Note ~~Options~~12 – Convertible Notes Payable

~~The range~~A.September of2024 ~~assumptions~~Securities ~~used~~Purchase ~~to calculate the fair value of options granted during the year ended April 30 was:~~Agreement

		2024		2025
Exercise Price	$	0.72 – 1.12	$	0.89 – 2.38
Stock price on date of grant		0.70 – 1.12		0.89 – 2.38
Risk-free interest rate		3.46 – 4.41%		3.34 – 4.18%
Dividend yield		—		—
Expected term (years)		5.28 – 8.25		6.25 – 8.25
Volatility		206.99 – 262.07%		245.57 – 260.06%

In September 2024, the Company entered into a Securities Purchase Agreement (the “September 2024 SPA”) with Lind Global Asset Management X LLC (“Lind X”). Under the September 2024 SPA, the Company received approximately $8.0 million in funding from Lind X in exchange for a Senior Secured Convertible Promissory Note in the amount of $9.6 million (the “September 2024 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 five years (the “September 2024 Warrant”). The September 2024 Note was secured by substantially all assets of the Company. As additional consideration to Lind X, the Company paid a commitment fee in the amount of $0.3 million. The September 2024 Note, which did not accrue interest, would have been repaid in eighteen consecutive monthly installments in the amount of $0.5 million beginning six months from the issuance date. At the Company’s option, monthly payments could have been increased up to $1.0 million so long as the Company’s market capitalization was at least $50.0 million. In addition, if the Repayment Share Price (as defined below) was equal to or greater than $2.00, Lind X could have at its option, increased the monthly payment amount up to $1.3 million for up to two months. The monthly payments due under the September 2024 Note could have been made by the issuance of common stock valued at the Repayment Share Price, cash in an amount equal to 1.025 times the required payment amount, or a combination thereof. The Repayment Share Price was defined in the September 2024 Note as ninety percent of the average of the five consecutive lowest daily VWAPs for our common stock during the twenty trading days prior to the payment date, subject to a floor price of $0.75 per share. The fair value of the convertible note and related warrants were estimated using a Monte Carlo simulation model. No value was assigned to the warrant due to the fair market value of the convertible note payable being in excess of the proceeds received. In December 2024, Lind X converted the entire $9.6 million note payable into 1,476,923 shares of the Company’s common stock at a conversion price of $6.50 per share.

~~A summary~~Amendment: In November 2024, the Company entered into a First Amendment (the “November 2024 SPA Amendment”) to the September 2024 SPA with Lind X. The November 2024 SPA Amendment amends the terms of ~~options~~the ~~activity~~September 2024 SPA with Lind X. Upon closing of the November 2024 SPA Amendment, the Company received approximately $6.0 million in funding from Lind X in exchange for issuance of a Senior Secured Convertible Promissory Note in the amount of $7.2 million (the “November 2024 Note”) and a Common Stock Purchase Warrant for the purchase of 326,000 shares of Common Stock at a price of $9.20 per share, exercisable for five years (the “November 2024 Warrant”). As additional consideration to Lind X, the Company paid a commitment fee in the amount of $0.2 million. The November 2024 Note, which did not accrue interest, would have been repaid in eighteen consecutive monthly installments in the amount of $0.4 million beginning six months from the issuance date. At the Company's option, monthly payments could have been increased up to $0.8 million so long as our market capitalization was at least $50.0 million. In addition, if the Repayment Share Price was equal to or greater than $2.00, Lind X could have at its option, increased the monthly payment amount up to $1.0 million for up to two months. The monthly payments due under the ~~Plan~~November ~~since~~2024 ~~April~~Note 30could have been made by the issuance of common stock valued at the Repayment Share Price, ~~2022~~cash in an amount equal to 1.025 times the required payment amount, or a combination thereof. The Repayment Share Price was: defined in the November 2024 Note as ninety percent of the average of the five consecutive lowest daily VWAPs for our common stock during the twenty trading days prior to the payment date, subject to a floor price of $0.75 per share. The fair value of the convertible note and related warrants were estimated using a Monte Carlo simulation model. No value was assigned to the warrant due to the fair market value of the convertible note payable being in excess of the proceeds received. In December 2024, Lind X converted the entire $7.2 million note payable into 782,607 shares of the Company’s common stock at a conversion price of $9.20 per share.

	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding as of April 30, 2022		3,694,142		$	2.17		8.56		1,407,545
Granted		1,503,500			1.40
Exercised		—			—
Forfeited or expired		(412,833	)		2.67
Outstanding as of April 30, 2023		4,784,809			1.88		8.72		74,586
Granted		2,903,542			1.02
Exercised		(3,000	)		0.89
Forfeited or expired		(905,417	)		2.27
Outstanding as of April 30, 2024		6,779,934			1.46		8.02		2,762,242
Exercisable as of April 30, 2024		3,578,756		$	1.78		6.77	$	1,246,497

F-23

~~The aggregate~~Table ~~intrinsic value~~ of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of April 30, 2024 and April 30, 2023, there was $943,648 and $2,940,239 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 1.95 and 1.94 years, respectively.Contents

B.February ~~Restricted~~2025 ~~Stock~~Securities Purchase Agreement

~~A summary~~In February 2025, the Company entered into another Securities Purchase Agreement (the “February 2025 SPA”) with Lind Global Asset Management XI LLC ("Lind XI," and together with Lind X, "Lind"). Under the February 2025 SPA, the Company received approximately $15.0 million in funding from Lind XI in exchange for a Senior Convertible Promissory Note in the amount of ~~restricted~~$16.5 million (the “February 2025 Note”) and a Common Stock Purchase Warrant for the purchase of 1,000,000 shares of our common stock ~~activity~~at ~~under~~a price of $15.00 per share, exercisable for five years (the ~~Plan~~“February ~~since~~2025 ~~April~~Warrant”). 30The February 2025 Note is secured by substantially all assets of the Company. As additional consideration to Lind XI, ~~2022~~the ~~was:~~Company paid a commitment fee in the amount of $0.5 million.

	Shares			Weighted Average Grant-Date Fair Value Per Share
Unvested and outstanding as of April 30, 2022		1,083,675		$	2.59
Granted		780,884			2.14
Vested		(1,062,372	)		2.42
Forfeited		(21,127	)		2.13
Unvested and outstanding as of April 30, 2023		781,060			2.44
Granted		298,643			1.06
Vested		(485,024	)		1.92
Forfeited		(419,549	)		2.09
Unvested and outstanding as of April 30, 2024		175,130		$	2.09

Terms: The February 2025 Note’s terms include, (i) the balance of the February 2025 Note was due and payable on February 10, 2026; (ii) the amount due under the February 2025 Note was convertible by Lind XI from time to time at a price equal to the lower of “Conversion Price” of $16.15 per share, or the “Repayment Share Price,” which is defined as ninety percent (90%) of the average of the five (5) lowest daily VWAPs for the Company’s common stock during the twenty (20) trading days prior to the conversion date, subject to a floor price; (iii) conversions under the February 2025 Note are limited to a maximum of $1.7 million in any calendar month, subject to increase upon our optional written consent; and (iv) upon receipt of a conversion notice under the February 2025 Note, the Company could, if the applicable Repayment Share Price is below the Conversion Price, elect to pay the conversion amount, plus a 2.50% premium, in cash and in lieu of issuing common stock. In the event the Company issues or sells additional shares of common stock at an effective price per share that is less than the conversion price of the February 2025 Note as amended, the conversion price upon each such issuance will be reduced to a price equal to the consideration per share paid for additional shares of common stock. Additionally, in the event the Company issues or sells additional shares of common stock at an effective price per share that is less than the exercise price of the February 2025 Warrant as amended, the exercise price upon each such issuance will be reduced to a price equal to the consideration per share paid for additional shares of common stock.

CAmendment 1: In April 2025, the Company entered into a First Amendment (the “April 9, 2025 Amendment”) to the terms of the February 2025 Note and February 2025 Warrant. ~~Stock~~The ~~Compensation~~February 2025 Note and the February 2025 SPA contained certain covenants, including: (i) in the event of new issuances of the Company’s common stock at a price less than the Conversion Price then in effect, the Conversion Price will be adjusted to the price paid for the newly issued shares of common stock (the “Price Reset Provision”); (ii) in the event the Company issues new securities in exchange for gross proceeds of greater than $15.0 million, the Company is required to pay the lower of 20% of the proceeds of such offering, or 20% of the balance of the February 2025 Note, toward repayment of the February 2025 Note (the “Offering Proceeds Provision”); and (iii) in the event the Company undertakes a new offering of securities, Lind XI has the right to purchase up to 20% of the securities issued in the new offering (the “Participation Rights”). The Warrant contained provisions that would adjust the exercise price of the Warrant in certain circumstances, including if the Company issued new securities at a price less than the then-current exercise price.

~~Stock compensation~~Under ~~expense~~the byApril 9, ~~functional~~2025 ~~operating~~Amendment, ~~expense~~and in exchange for a waiver of Price Reset Provision and certain other covenants in connection with the proposed April Registered Direct Offering (as defined below), the terms of the February 2025 Note, Warrant and the SPA were amended. The balance of the February 2025 Note was: increased to $18.2 million. The Conversion Price of the February 2025 Note was lowered to $9.52 per share. The exercise price for the Warrant was lowered to $7.62 per share. The maturity date of the February 2025 Note was extended to May 10, 2026. Upon receipt of a conversion notice under the February 2025 Note, we could, if the applicable Repayment Share Price was below the Conversion Price, elect to pay up to 50% of the conversion amount, plus a 2.5% premium, in cash and in lieu of issuing common stock. The Price Reset Provision, the Offering Proceeds Provision, and the Participation Rights were waived for a limited time, until April 17, 2025. The Company accounted for this amendment as an extinguishment of debt and recorded a loss of $4.6 million during the year ended December 31, 2025.

	2024		2023
Research and development	$	395,105	$	692,947
Sales and marketing		562,110		566,153
General and administrative		2,652,052		2,397,624
Total	$	3,609,267	$	3,656,724

Amendment 2: In April 2025, the Company entered into a (i) Second Amendment to the February 2025 Note and February 2025 Warrant; (ii) First Amendment to the November 2024 Warrant and (iii) First Amendment to the February 2025 SPA (collectively, the “Agreement”). Under the terms of the Agreement, the Company and Lind amended each of the February 2025 Note, the February 2025 Warrant and the November 2024 Warrant to include a cap on the amount of shares issuable upon conversion and/or exercise of each aforementioned security such that the shares issuable under each of them shall not exceed the maximum number of shares of the Company’s common stock which may be issued by the Company in the absence of stockholder approval as provided by Nasdaq Rule 5635(d). In addition, Section 5.13 of the February 2025 SPA was amended to extend the deadline to obtain Stockholder Approval (as defined in the February 2025 SPA) to June 30, 2025. In addition, certain stockholders of the Company entered into support agreements under which they agreed to vote in favor of the matter presented to the Company’s stockholders for the Stockholder Approval.

Stock compensation expense pertaining to options totaled $2,619,501 and $1,617,982 for the year ended April 30, 2024 and 2023, respectively. Stock compensation expense pertaining to restricted stock totaled $989,766 and $2,038,742 for the year ended April 30, 2024 and 2023, respectively.

Note 20 - Related-Party Transactions

In January 2022, the Company entered into a note agreement with an employee in the principal amount of $510,323, as further described in Note 7.

In February 2024, the Company sold Rotor Riot and Fat Shark to Unusual Machines, as further described in Note 3 and Note 9. UMAC’s Chief Executive Officer is a direct relative of a member of the Company’s management.

Additional related party transactions are disclosed in Note 14.

F-24

~~Note 21~~Table –of ~~Commitments and Contingencies~~ Contents

Drawdowns:

•On April 15, 2025, the Company redeemed $1.7 million of the February 2025 Note for a cash payment of $1.7 million.

•On May 1, 2025, Lind converted $1.7 million of the February 2025 Note into 372,460 shares of the Company’s common stock at a conversion price of $4.43 per share.

•On June 2, 2025, Lind converted $1.7 million of the February 2025 Note into 331,991 shares of the Company’s common stock at a conversion price of $4.97 per share.

•On July 1, 2025, Lind converted $1.7 million of the February 2025 Note into 265,273 shares of the Company’s common stock at a conversion price of $6.22 per share.

•On August 1, 2025, Lind converted $1.7 million of the February 2025 Note into 262,321 shares of the Company’s common stock at a conversion price of $6.29 per share.

•On September 8, 2025, Lind converted $1.7 million of the February 2025 Note into 214,564 shares of the Company's common stock at a conversion price of $7.69 per share.

•On October 1, 2025, Lind converted $1.7 million of the February 2025 Note into 213,178 shares of the Company’s common stock at a conversion price of $7.74 per share.

•On November 28, 2025, Lind converted $1.7 million of the February 2025 Note into 276,845 shares of the Company’s common stock at a conversion price of $5.96 per share.

•On December 8, 2025, Lind converted $1.7 million of the February 2025 Note into 276,845 shares of the Company’s common stock at a conversion price of $5.96 per share.

Each of the drawdowns listed above occurred at a variable conversion rate below the Conversion Price. Consequentially, the drawdown represented the exercise of a share settled redemption feature for accounting purposes. The Company applied extinguishment accounting which resulted in a $3.2 million gain on extinguishment of convertible notes payable for the year ended December 31, 2025.

Amendment 3: On June 17, 2025, the Company entered into a Third Amendment to Senior Secured Convertible Promissory Note and Warrant Issued February 10, 2025 with Lind XI and Second Amendment to Warrant Issued November 26, 2024 between the Company and Lind X (collectively, the “June 17, 2025 Amendment”). Under the terms of the June 17, 2025 Amendment, and in exchange for Lind waiving its right to purchase up to twenty percent of the securities issued in an equity financing, the Company and Lind amended the February 2025 Note, November 2024 Warrant, and the February 2025 Warrant to (1) exempt any adjustments from the offering contemplated at that time to the conversion price of the February 2025 Note and exercise price of the November 2024 Warrant and February 2025 Warrant; (2) remove the Company’s election to pay, in certain circumstances, up to fifty percent of the conversion amount under the February 2025 Note in cash; and (3) remove the Company’s right to prepay the February 2025 Note.

The fair value of the convertible note and related warrants were estimated using a Monte Carlo simulation model. No value was assigned to the warrant due to the fair market value of the convertible note payable being in excess of the proceeds received. See Note 2 for further information. The Company’s convertible notes payable balance at December 31, 2025 was $4.5 million.

Note 13 – Income Taxes

Consolidated income/(loss) before provision for income taxes consists of:

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	Year ended December 31, 2025		Eight months ended December 31, 2024
US	$	(71,632)	$	(43,614)
Foreign	—		—
Total income/(loss) before income taxes	$	(71,632)	$	(43,614)

The Company's provision for income taxes consists of the following (in thousands):


	Year ended December 31, 2025		Eight months ended December 31, 2024
Current:
Federal	$	—	$	—
State	—		—
Total current income tax expense	—		—
Deferred:
Federal	364		—
State	79		—
Total deferred income tax expense	443		—
Total income tax expense	$	443	$	—

The Company's provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income/(loss) before taxes after the adoption of ASU 2023-09 as follows:


	Year ended December 31, 2025
U.S. federal statuary rate	$	(15,043)	(21.00)	%
State income taxes, net of federal benefit1	(790)		(1.10)
Change in valuation allowance	14,128		19.72
Nontaxable or nondeductible items:
Stock compensation	304		0.42
Equity transactions	1,729		2.41
Other nondeductible items	63		0.09
Other	52		0.07
Total expense for income taxes	$	443	0.62	%

1Alabama, Pennsylvania, and Virginia contributed to the majority of the tax effect in the category.

The Company's provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income/(loss) before taxes prior to the adoption of ASU 2023-09 as follows:

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	Eight months ended December 31, 2024
U.S. federal statuary rate	(21.00)	%
State income taxes, net of federal benefit	(3.17)
Change in valuation allowance	17.12
Stock compensation	0.92
Equity transactions	6.10
Goodwill impairment	0.24
Change in tax rates	(0.35)
Other nondeductible items	0.14
Total expense for income taxes	—	%

The following schedule presents the tax effects of temporary differences that result in significant portions of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) (in thousands):


	As of December 31, 2025		As of December 31, 2024
Gross deferred tax assets
Allowance for bad debts	$	66	$	7
Accrued expenses	30		29
Inventory	611		77
Warranty expenses	107		144
Research and development	2,333		3,012
Net operating loss	34,632		19,786
Tax credits	144		144
Stock based compensation	4,412		3,178
Lease liabilities	3,303		237
Interest carryforwards	529		500
Total deferred tax assets before valuation allowance	46,167		27,114
Valuation allowance	(42,238)		(25,776)
Total deferred tax assets	3,929		1,338
Gross deferred tax liabilities
Intangibles	(627)		(770)
Property and equipment	(473)		(391)
Right-of-use assets	(3,207)		(223)
Investments	(65)		46
Total deferred tax liabilities	(4,372)		(1,338)
Net deferred tax liabilities	$	(443)	$	—

The Company has federal and state net operating loss carryforwards of approximately $138.7 million and $134.6 million, respectively, as of December 31, 2025. Approximately $7.6 million of the federal net operating losses begin to expire in 2035 and approximately $131.1 million of the federal net operating losses have an indefinite carryforward period subject to taxable income limitations. The federal and state net operating loss carryforwards have several limitations applied to their usage related to Internal Revenue Code Section ("IRC Sec.") 382 limitations and separate return limitations. The Company has not completed a formal Sec. 382 analysis or study. The Company has IRC Sec. 163(j) interest carryforwards of

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approximately $2.1 million as of December 31, 2025, which have an indefinite carryforward period. The Company has research and development tax credit carryforwards as of December 31, 2025 of approximately $0.1 million that begin to expire in 2037. The Company did not pay any federal or state income tax payments.

The Company evaluates all available evidence to determine if a valuation allowance is needed to reduce its deferred tax assets. Management has concluded that it is more likely than not that a portion of its existing tax benefits will not be realized in the near future. Accordingly, the Company has recorded a valuation allowance of approximately $42.2 million at December 31, 2025 to reduce its deferred tax assets.

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of December 31, 2025. The Company is currently not under audit in any jurisdictions. The 2021 through 2024 tax years are open to examination by the various federal and state jurisdictions in which the Company operates. The Company’s policy is to record uncertain tax positions as a component of income tax expense.

Note 14 – Common Stock

Our common stock has a par value of $0.001 per share. We are authorized to issue 500,000,000 shares of common stock. Each share of common stock is entitled to one vote. A summary of shares of common stock issued by the Company since April 30, 2023 is as follows (in thousands):


Description of Shares						Shares Issued
Shares outstanding as of April 30, 2024						74,289
Vesting of restricted stock units						1,030
Exercise of stock options						2,475
Exercise of warrants						1,796
Acquisition of FlightWave						3,365
Conversion of convertible notes into common stock						2,260
Shares outstanding as of December 31, 2024						85,215
Vesting of restricted stock units						292
Exercise of stock options						2,174
Exercise of warrants						1,262
Issuance of common stock through public offerings						29,142
Conversion of convertible notes into common stock						2,213
Acquisition adjustment						(122)
Retirement of common shares						(106)
Shares outstanding as of December 31, 2025						120,070

Public Offerings

In April 2025, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “April Registered Direct Offering”), an aggregate of 4,724,412 shares of the Company’s common stock, par value $0.001 per share, at a price of $6.35 per share. The gross proceeds to the Company from the April Registered Direct Offering were approximately $30.0 million, before deducting the placement agents’ fees and other offering expenses payable by the Company.

In June 2025, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “June Registered Direct Offering”), an aggregate of 6,448,276 shares of the Company’s common stock, par value $0.001 per share, at a price of $7.25 per share. The gross proceeds to the Company from the June Registered Direct Offering were approximately $46.8 million, before deducting the placement agents’ fees and other offering expenses payable by the Company.

In September 2025, the Company entered into an underwriting agreement with a certain institutional investor pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “September Registered Direct Offering”), an aggregate of 15,625,000 shares of the Company’s common stock, par value $0.001 per share, at a price of $9.60 per

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share. The Company 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 to the Company from the September Registered Direct Offering were approximately $172.5 million, before deducting the underwriters’ fees and other offering expenses payable by the Company.

Note 15 – Preferred Stock

Our preferred stock has a par value of $0.001 per share. Series B Preferred Stock (“Series B Stock”) is convertible into common stock at a ratio of 0.8334 shares of common stock for each share of Series B Stock held and votes together with the common stock on an as-if-converted basis. Shares outstanding at December 31, 2025 totaled 4,676 which are convertible into 3,896 shares of common stock.

Note 16 – Warrants

In September 2024, the Company issued warrants to purchase 750,000 shares of common stock to Lind, as further described in Note 12. The warrants have a five-year term and an exercise price of $6.50. No value was assigned to the warrants under the Monte Carlo simulation model due to the fair market value of the convertible note payable being in excess of the proceeds received.

In November 2024, the Company issued warrants to purchase 326,000 shares of common stock to Lind, as further described in Note 12. The warrants have a five-year term and an exercise price of $9.20. No value was assigned to the warrants under the Monte Carlo simulation model due to the fair market value of the convertible note payable being in excess of the proceeds received.

In February 2025, the Company issued warrants to purchase 1,000,000 shares of common stock to Lind, as further described in Note 12. The warrants have a five-year term and an exercise price of $15.00 which was amended to $7.62 on the First Amendment to the agreement on April 9, 2025. No value was assigned to the warrants under the Monte Carlo simulation model due to the fair market value of the convertible note payable being in excess of the proceeds received.

The following table summarizes the changes in warrants outstanding since April 30, 2024.


	Number of Shares (in thousands)	Weighted-average Exercise Price per Share		Weighted-average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of April 30, 2024	2,276	$	2.49	2.77	$	666
Granted	1,076	7.32		5.00
Exercised	(2,438)	3.77
Outstanding at December 31, 2024	914	$	4.76	2.40	$	666
Granted	1,000	7.62		4.12
Exercised	(1,331)	7.55
Outstanding at December 31, 2025	583	$	7.55	4.00	$	219

Note 17 – Share Based Awards

The 2019 Equity Incentive Plan (the “2019 Plan”) and the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”) (collectively, the “Plans”) allow us to incentivize key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the “Awards”). The number of shares issuable in connection with Awards under the 2019 Plan were not to exceed 11,750,000. However, no shares are issuable under the 2019 Plan after the 2024 Plan became effective on October 15, 2024. The number of shares issuable in connection with Awards under the 2024 Plan may not exceed 24,603,000 plus any underlying forfeited 2019 Plan awards.

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Options

The range of assumptions used to calculate the fair value of options granted was as follows:

Year ended
December 31, 2025

Eight months ended
December 31, 2024

Year ended
April 30, 2024

Exercise Price

$6.73 – $11.38

$1.15 – 4.02

$0.72 – 1.12

Stock price on date of grant

6.73 – 11.38

1.20 – 4.02

0.70 – 1.12

Risk-free interest rate

3.69% – 4.44%

3.54% – 4.44%

3.46% – 4.41%

Dividend yield

—

Expected term (years)

5.00 – 6.00

5.17 – 5.78

5.28 – 8.25

Volatility

135.54% – 191.15%

190.46% – 199.03%

206.99% – 262.07%

A summary of options activity under the Plan since April 30, 2023 was:


	Shares (in thousands)	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding as of April 30, 2023	4,785	$	1.88	8.72	75
Granted	2,903	1.02
Exercised	(3)	0.89
Forfeited or expired	(905)	2.27
Outstanding as of April 30, 2024	6,780	1.46		8.02	2,762
Granted	1,463	2.14
Exercised	(2,475)	1.69
Forfeited or expired	(123)	1.45
Outstanding as of December 31, 2024	5,645	1.54		7.90	59,780
Granted	2,051	7.58
Exercised	(2,723)	1.29
Forfeited or expired	(272)	2.41
Outstanding as of December 31, 2025	4,701	4.14		8.04

Fiscal Year Ended:

Thereafter

Filing Compare · Red Cat Holdings, Inc.