# Red Cat Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2025

- Company: [Red Cat Holdings, Inc.](/companies/rcat.md) (CIK 748268)
- Form: 10-Q
- Filed: 2025-08-14
- Accepted by EDGAR: Aug 14, 2025, 16:31 ET
- Period: 2025-06-30
- Accession: 0001641172-25-024075
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/748268/000164117225024075/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/748268/000164117225024075/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-04-01 to 2025-06-30 | $1.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2025-01-01 to 2025-06-30 | $1.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2025-04-01 to 2025-06-30 | $2.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2025-01-01 to 2025-06-30 | $5.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2025-04-01 to 2025-06-30 | $375.1k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2025-01-01 to 2025-06-30 | −$475.4k | us-gaap:GrossProfit |
| Research and development | 3 months, 2025-04-01 to 2025-06-30 | $3.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2025-01-01 to 2025-06-30 | $7.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2025-04-01 to 2025-06-30 | −$12.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2025-01-01 to 2025-06-30 | −$25.1m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2025-04-01 to 2025-06-30 | −$13.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2025-01-01 to 2025-06-30 | −$36.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-04-01 to 2025-06-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2025-01-01 to 2025-06-30 | −$0.41 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-04-01 to 2025-06-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2025-01-01 to 2025-06-30 | −$0.41 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-04-01 to 2025-06-30 | 91,295,342 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2025-01-01 to 2025-06-30 | 88,400,431 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 6 months, 2025-01-01 to 2025-06-30 | $579.6k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2025-06-30 | $65.9m | us-gaap:Cash |
| Current assets | at 2025-06-30 | $91.6m | us-gaap:AssetsCurrent |
| Total assets | at 2025-06-30 | $121.4m | us-gaap:Assets |
| Current liabilities | at 2025-06-30 | $24.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2025-06-30 | $25.8m | us-gaap:Liabilities |
| Short-term borrowings | at 2025-06-30 | $350.0k | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2025-06-30 | $95.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,629 characters.

*You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Transition Report on Form 10-KT for the Transition Period ended December 31, 2024 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.*

### Overview

We are a drone technology company integrating robotic hardware and software for military, government and commercial operations. We were originally incorporated under the laws of the State of Colorado in 1984 under the name “Oravest International, Inc.” In November 2016, we changed our name to “TimefireVR, Inc.” and re-incorporated in Nevada. In May 2019, we completed a share exchange agreement with Propware which resulted in the Propware shareholders acquiring an 83% ownership interest, and management control, of the Company. In connection with the share exchange agreement, we changed our name to “Red Cat Holdings, Inc.”, and our operating focus to the drone industry.

Prior to the share exchange agreement, Propware was focused on the research and development of software solutions that could provide secure cloud-based analytics, storage and services for the drone industry. Following the share exchange agreement and name change, we have completed a series of acquisitions and financings which have broadened the scope of our activities in the drone industry.

### Plan of Operations

Since April 2016, the Company’s primary business has been to provide products, services, and solutions to the drone industry which it presently does through its wholly owned consolidated subsidiaries.

### Discussion and Analysis of the Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

Revenues

Consolidated revenues totaled $3,218,577 during the three months ended June 30, 2025 (or the “2025 period”) compared to $6,419,669 during the three months ended June 30, 2024 (or the “2024 period”) representing a decrease of $3,201,092, or 50%. The decrease related to lower product revenue as the Company has begun shifting manufacturing focus from the Teal 2 to the Black Widow.

Gross Profit

Consolidated gross profit totaled $375,054 during the 2025 period compared to a gross profit of $267,804 during the 2024 period representing an increase of $107,250, or 40%. On a percentage basis, gross profit was 12% during the 2025 period compared to a gross profit of 4% during the 2024 period. The gross profit increase was primarily due to lower warranty expenses in the 2025 period compared to the 2024 period.

Operating Expenses

Research and development expenses totaled $3,598,267 during the 2025 period compared to $289,016 during the 2024 period, representing an increase of $3,309,251, or more than 11 times. The increase was primarily due to a higher headcount, including the addition of employees from the FlightWave acquisition.

Sales and marketing costs totaled $3,187,585 during the 2025 period compared to $2,203,522 during the 2024 period, representing an increase of $984,063 or 45%. The increase was driven by higher payroll expenses due to an increased headcount.

General and administrative expenses totaled $6,235,749 during the 2025 period compared to $2,738,285 during the 2024 period, representing an increase of $3,497,464 or 128%. The increase was mainly due to a higher headcount, including the addition of employees from the FlightWave acquisition. In anticipation of winning the production contract under the Army’s Short Range Reconnaissance program of record, the Company increased investment in personnel necessary to fulfill the contract as well as anticipated demands for future products.

During the 2025 period, we incurred stock-based compensation costs of $2,035,061 compared to $958,406 in the 2024 period, resulting in an increase of $1,076,655 or 112%.

Other Expense

Other expense totaled $632,413 during the 2025 period compared to $2,784,001 during the 2024 period, representing a decrease of $2,151,588 or 77%. This decrease is primarily related to a loss of $2,295,000 recognized in the 2024 period on the impairment of the investment in Unusual Machines, Inc.

Net Loss from Continuing Operations

Net loss from continuing operations totaled $13,278,960 for the 2025 period compared to $8,160,019 for the 2024 period, resulting in an increase of $5,118,941 or 63%.

### Discussion and Analysis of the Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

Revenues

Consolidated revenues totaled $4,848,239 during the six months ended June 30, 2025 (or the “2025 period”) compared to $13,033,698 during the six months ended June 30, 2024 (or the “2024 period”) representing a decrease of $8,185,459, or 63%. The decrease related to lower product revenue as the Company has begun shifting manufacturing focus from the Teal 2 to the Black Widow.

Gross Profit

Consolidated gross loss totaled $475,356 during the 2025 period compared to a gross profit of $1,389,008 during the 2024 period representing a decrease of $1,864,364, or 134%. On a percentage basis, gross loss was 10% during the 2025 period compared to a gross profit of 11% during the 2024 period. The gross loss in the 2025 period was due to inventory write-offs occurring as we transition sales and production from the Teal 2 to the Black Widow.

Operating Expenses

Research and development expenses totaled $7,030,860 during the 2025 period compared to $2,958,518 during the 2024 period, representing an increase of $4,072,342, or 138%. The increase was primarily due to a higher headcount, including the addition of employees from the FlightWave acquisition.

Sales and marketing costs totaled $6,502,333 during the 2025 period compared to $3,614,028 during the 2024 period, representing an increase of $2,888,305 or 80%. The increase was driven by higher payroll expenses due to an increased headcount and an increase in tradeshow attendance in efforts to spread awareness of new products and the Red Cat Futures Initiative.

General and administrative expenses totaled $11,116,197 during the 2025 period compared to $5,822,780 during the 2024 period, representing an increase of $5,293,417 or 91%. The increase was mainly due to a higher headcount, including the addition of employees from the FlightWave acquisition. In anticipation of winning the production contract under the Army’s Short Range Reconnaissance program of record, the Company increased investment in personnel necessary to fulfill the contract as well as anticipated demands for future products.

During the 2025 period, we incurred stock-based compensation costs of $3,634,033 compared to $1,764,042 in the 2024 period, resulting in an increase of $1,869,991 or 106%.

Other Expense

Other expense totaled $11,277,565 during the 2025 period compared to $2,148,325 during the 2024 period, representing an increase of $9,129,240 or more than 4 times. This increase is primarily related to a fair value adjustment loss of $6,864,056 recognized in the 2025 period on the February 2025 Note to Lind, based on its fair value and loss on extinguishment of convertible notes payable of $4,623,335.

Net Loss from Continuing Operations

Net loss from continuing operations totaled $36,402,311 for the 2025 period compared to $13,567,642 for the 2024 period, resulting in an increase of $22,834,669 or 168%.

### Cash Flows

### Operating Activities

Net cash used in operating activities was $28,804,656 during the six months ended June 30, 2025 (or the “2025 period”) compared to net cash used in operating activities of $6,569,510 during the six months ended June 30, 2024 (or the “2024 period”), representing an increase of $22,235,146 or 338%. The increased use of cash primarily related to lower gross profit and higher cash based operating expenses compared to the 2024 period. Net cash used in operations, net of non-cash expenses, totaled $16,232,815 during the 2025 period, compared to $5,813,615 during the 2024 period, resulting in an increase of $10,419,200, or 179%. Net cash used related to changes in operating assets and liabilities totaled $8,635,160 during the 2025 period, compared to net cash provided of $1,184,517 during the 2024 period, representing a decrease of $9,819,677. 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 used by investing activities was $579,626 during the 2025 period compared to net cash provided by investing activities of $912,937 during the 2024 period, resulting in a decrease of $1,492,563 or 163%. During the 2025 period, proceeds from the divestiture of the consumer segment was $0 compared to $1,000,000 during the 2024 period.

### Financing Activities

Net cash provided by financing activities totaled $86,160,460 during the 2025 period compared to net cash used in financing activities of $297,819 during the 2024 period. The increase relates to the proceeds from the issuance of common stock and convertible notes payable during the 2025 period.

### Liquidity and Capital Resources

At June 30, 2025, we reported current assets totaling $91,573,633, current liabilities totaling $24,129,516 and net working capital of $67,444,117. Cash totaled $65,930,475 at June 30, 2025. Inventory related balances, including pre-paid inventory, totaled $20,996,936.

### Critical Accounting Policies and Estimates

Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Significant estimates reflected in these financial statements include those used to (i) complete purchase price accounting for acquisitions, (ii) evaluate long-term assets, including goodwill, for impairment, (iii) evaluate inventory reserves for excess and obsolescence and (iv) determine valuations of convertible notes payable and warrants.

**Purchase Price Accounting –** We record our acquisitions under the acquisition method of accounting, under which most of the assets acquired and liabilities assumed are initially recorded at their respective fair values and any excess purchase price is reflected as goodwill. We utilize management estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration, if any. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.

The fair value of brand name, backlog, customer relationships and proprietary technology acquired in our acquisitions are determined using various valuation methods, based on a number of significant assumptions. We determine which assets have finite lives and then determine the estimated useful life of finite assets. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end for impairment. Backlog, customer relationships and proprietary technology are being amortized over seven years.

The estimated fair values are subject to change during the measurement period, which is limited to one year subsequent to the acquisition date.

**Goodwill and Long-lived Assets –** Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and separately recognized. We test goodwill for impairment in accordance with the provisions of *ASC 350, Intangibles – Goodwill and Other, (“*ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform an impairment test. The impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross profit, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of capital (i.e., the selected discount rate). Our assumptions are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services.

**Inventories –** We measure inventory at the lower of cost or net realizable value considering judgments and estimates related to future customer demand and other market conditions. Although we believe these estimates are reasonable, any significant changes in customer demand that are less favorable than our previous estimates may require additional inventory write-downs and would be reflected in cost of sales resulting in a negative impact to our gross margin in that period.

**Convertible Notes Payable –**We measure convertible notes payable at fair value based on significant inputs not observable in the market, which causes them to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of the convertible notes payable relate to updated assumptions and estimates are recognized as a convertible notes payable fair value adjustment within the consolidated statements of operations and comprehensive loss.

In determining the fair value of the convertible notes payable, we use a market-based approach. The valuation method utilizes a negotiated discount rate and a market yield rate which are unobservable inputs.

An increase or decrease in any of the unobservable inputs in isolation could result in a material increase or decrease in the estimated fair value. In the future, depending on the weight of evidence and valuation approaches used, these or other inputs may have a more significant impact on the estimated fair value.

**Warrants –** The fair value of the warrants issued is estimated using a Monte Carlo simulation model. The significant unobservable inputs for the Monte Carlo model include the stock price, exercise price, risk-free rate of return, time to expiration, and the volatility. An increase or decrease in the unobservable inputs in isolation could result in a material increase or decrease in the estimated fair value. In the future, depending on the weight of evidence and valuation approaches used, these or other inputs may have a more significant impact on the estimated fair value.

### Recently Issued Accounting Pronouncements

We have 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 we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations, except as follows:

In November 2024, the FASB issued guidance 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.

## Market risk

As filed, 155 characters.

We are not required to provide the information required by this Item as we are a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

## Controls and procedures

As filed, 6,198 characters.

### Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of June 30, 2025, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2025, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective, specifically pertaining to the disclosed and restated financials noted in our report on internal control over financial reporting below.

#### Management’s quarterly report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with GAAP. Our accounting policies and internal controls over financial reporting, established and maintained by management, are under the general oversight of the Board’s audit committee.

Our internal control over financial reporting includes those policies and procedures that:

- pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Management assessed our internal control over financial reporting as of June 30, 2025. The standard measures adopted by management in making its evaluation are the measures in the Internal-Control Integrated Framework published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission.

Based on management’s assessment using the COSO criteria, our CEO and CFO concluded that our internal control over financial reporting was not effective as of June 30, 2025, which was identified during the year ended April 30, 2023 and continues through June 30, 2025. Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, management concluded that we did not have a comprehensive and formalized accounting and financial reporting policies and procedures manual which details the information needed for our financial reporting process and that we did not have a robust review process by which management could monitor for potential errors or technical accounting requirements, which have resulted in material weaknesses in internal control over financial reporting as of June 30, 2025. Management is reviewing internal control procedures and will work to implement enhanced procedures to address the identified material weakness.

### Changes In Controls Over Financial Reporting

We are in the process of implementing controls to identify, assess and review the accounting and reporting of non-recurring and complex transactions. As the implementation of these controls occurs, certain changes will be made to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. Management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve. Except for the changes in connection with this implementation of controls around non-recurring and complex transactions, there have been no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 15,267 characters.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Transition Report on Form 10-KT for the transition period ended December 31, 2024, as filed with the SEC on March 31, 2025 (“Transition Report”). Except for those risks disclosed below, there have been no material changes in our risk factors from those previously disclosed in our Transition Report. You should carefully consider the risks described in our Transition Report which could materially affect our business, financial condition or future results. The risks described in our Transition Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

***Our obligations to certain of our creditors are secured by security interests in our assets, so if we default on those obligations, our creditors could foreclose on some or all of our assets.***

Our obligations to Lind under the Senior Secured Convertible Promissory Notes are secured by security interests in our assets. As of the date of this quarterly report, approximately $9.9 million was owed to Lind. Each of our subsidiaries has guaranteed such our obligations to Lind as well. If we default on our obligations to Lind such Senior Secured Convertible Promissory Note, Lind could foreclose on their security interests (including their interest in our subsidiaries) and liquidate some or all of these assets, which would harm our financial condition and results of operations and would require us to reduce or cease operations and possibly seek bankruptcy protection.

***Changes to United States tariff and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.***

The United States has recently enacted and proposed to enact significant new tariffs. Additionally, President Trump has directed various federal agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. There continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the U.S. Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations,

***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;
- 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.

***Our stock price may be negatively affected by fluctuations in our financial results.***

The market price of our common stock may be subject to fluctuations due not only to general economic and stock market conditions but also to a change in sentiment in the market regarding our operations, business prospects, liquidity or this offering. Our operating results, revenues and expenses may also fluctuate for many other reasons, many of which are outside of our control, such as: competition; our ability to control expenses; loss of revenues; changes or consolidation in the industries in which we operate; our investments in geographic expansion and to increase our presence in existing markets; interest rate fluctuations; successful execution of our strategic growth plans; managerial execution; employee retention; growing risks associated with international operations; foreign currency and exchange rate fluctuations; inflation; litigation; acquisitions of other companies or assets; or our investments in other corporate resources. In addition, changes in accounting policies or practices may affect our level of net income. Fluctuations in our financial results, revenues and expenses may cause the market price of our common stock to decline.

***If securities or industry press or analysts cease covering our common stock, publish negative research or reports about our business, or if they change their recommendations regarding our common stock adversely, the share price and trading volume of our common stock could decline.***

The trading market for shares of our common stock may be influenced by the articles, research and reports that industry or securities analysts and press publish about us or our business. If one or more of the analysts who cover us downgrade our common stock, or if industry press publishes negative articles about our Company, the share price of our common stock would likely decline. If one or more of these analysts ceased coverage of our Company or failed to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.

### 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.

31

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.

***We identified a material weaknesses 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 GAAP.

In connection with the Company’s evaluation of internal control over financial reporting, we identified instances in which we were unable to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, management concluded that we did not have a comprehensive and formalized accounting and financial reporting policies and procedures manual by which management could monitor potential errors or technical accounting requirements. While this material weakness did not result in a material misstatement to the consolidated financial statements presented in our Transition Report on Form 10-KT filed on March 31, 2025, our Quarterly Report on Form 10-Q filed on May 14, 2025, 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 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 control 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.

### Our Reliance on U.S. Government Contracts Exposes Us to Significant Risks

Revenues derived from the U.S. Government represent a significant percentage of our potential revenues. Therefore, any significant disruption or deterioration of our relationship with the U.S. Government could significantly reduce our revenue potential. U.S. Government business exposes us to various risks, including:

- changes in governmental procurement legislation and regulations and other policies, which may reflect military and political developments;
- unexpected contract or project terminations or suspensions, and unpredictable order placements, reductions or cancellations;
- reductions or delays in government funds available for our projects due to policy changes, budget cuts or delays, changes in available funding, reductions in defense expenditures and contract adjustments;
- the ability of competitors to protest contractual awards;
- penalties arising from post-award contract audits;
- the reduction in the value of our contracts as a result of the routine audit and investigation of our costs by U.S. Government agencies;
- higher-than-expected final costs, particularly relating to software and hardware development, for work performed under contracts where we commit to specified deliveries for a fixed price;
- limited profitability from cost-reimbursement contracts;
- unpredictable cash collections of unbilled receivables that may be subject to acceptance of deliverables by the customer and contract close-out procedures, including government approval of final indirect rates;
- competition with programs managed by other government contractors for limited resources and for uncertain levels of funding;
- significant changes in contract scheduling or program structure, which generally result in delays or reductions in deliveries; and
- intense competition for available U.S. Government business necessitating increases in time and investment for design and development.

We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business, including the establishment of compliance procedures. A violation of specific laws and regulations could result in the imposition of fines and penalties, the termination of our contracts or debarment from bidding on contracts.

Substantially all of our U.S. Government backlog scheduled for delivery can be terminated at the convenience of the U.S. Government because our contracts with the U.S. Government typically provide that orders may be terminated with limited or no penalties. If we are unable to address any of the risks described above, or if we were to lose all or a substantial portion of our sales to the U.S. Government, it could materially harm our business and impair the value of our common stock.

The funding of U.S. Government programs is subject to congressional appropriations. Congress generally appropriates funds on a fiscal year basis even though a program may extend over several fiscal years. Consequently, programs are often only partially funded initially and additional funds are committed only as Congress makes further appropriations. In the event that appropriations for one of our programs become unavailable, or are reduced or delayed, our contract or subcontract under such program may be terminated or adjusted by the government, which could have a negative impact on our future sales and results of operations. Budget cuts to defense spending can exacerbate these problems. From time to time, when a formal appropriation bill has not been signed into law before the end of the U.S. Government’s fiscal year, Congress may pass a continuing resolution that authorizes agencies of the U.S. Government to continue to operate, generally at the same funding levels from the prior year, but does not authorize new spending initiatives, during a certain period. During such period (or until the regular appropriation bills are passed), delays can occur in procurement of products and services due to lack of funding, and such delays can affect our results of operations during the period of delay.

Filed Aug 14, 2025.
Source: SEC EDGAR, the filing index for accession 0001641172-25-024075. Last ingested by Listed: Oct 30, 2026, 20:55 ET. No prices; not investment advice.