Red Cat Holdings Inc

ITEM 1A. RISK FACTORS

Risk factors that affect our business and financial results are discussed in Part I, Item 1A Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 19, 2026 (Annual Report), as supplemented by our Quarterly Reports on Form 10-Q. Except for the risk factors described below, there have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in such reports which could materially affect our business, financial condition or future results. The risks described in such reports 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.

We may be subject to litigation, legal proceedings, and class action claims that could adversely affecOur business has been significantly dependent our business and financial condition.

From time to time, we are subject to claims, legaln U.S. Department of War contracts and proceedinggrams, and class action lawsuits arising inwe face risks associated with the ordinary course otransition of our business or otherwise. For example, we and certain of our current and former executiverevenue base to a broader portfolio officers and directors are defendants government and in a federal class acternation securities lawsuit filed in May 2025 and two related federal shareholderal customers.

A significant portion of our recent historical revenue has been derivative lawsuits filed in August 2025 and January 2026. Each lawsuit alleges thated from contracts, among other items, the defendants made false and/or misleading statements related togreements, and programs with agencies of the production capacityU.S. Department of the Companys manufacWar ("DoW"). Our futuring facility in Salt Lake City and the potential value of the Companys contract for the U.S. Armys SRR Program of Record. Although we do not currently believe that any pending or threatened legal proceedings or claimse operating results are dependent, in part, on our ability to successfully execute, maintain and grow relationships will have a material adverse effect on our business, financial condition, or results of oth new and existing government customers, perations, we cannot provide assurance that pending legal matterform under current contracts, obtain follow-on awards, including the class action and derivative lawsuits, will not result in significant liabilities. The defense of litigand secure additional government and internation, regardlal business of its merit,. There can be costly and time-consuming, may divert management's attention and resources, and could result in settlements, judgments, or other outcomno assurance that we will successfully complete efforts on new revenue opportunities or that adversely affect our business, financial condition, and results of operations. Any adverse resolution of such mattnticipated replacement revenues from new programs and customers could also harm our reputation and negatively impact our relationships with customers, partners, and gwill be realized in the timeframes or at the levels we expect.

Government agencies.

Our pending acquisition of Quaze Technologies, Inc. (Quaze) is scontracts and programs are subject to customary closing conditions, including regulatory approval under the Investment Canada Act, which may delay,numerous risks and uncertainties beyond our control. These include changes in military prevent, or impose burdensome condiiorities, nations on the consummation of the al security stransactiontegy, potentially materially adversely affecting our businrocurement policies, budgetary constraints, congress, financial condiional appropriation, and stock price.

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The cs, completion of our proposed acquisition of Quaze (the "Acquisition") is subject to customary closntinuing resolutions, agency funding conditdecisions, including the receipt of required regulatory approvals. Specifically, the Acquisition is subject to review and clearance under the Investcompetitive procurements, bid protests, evolving operational requirement Canada Act (the "ICA"). There can be no assurance that the necessary clearances under the ICA will be obtained in a timely manner, or at all. The Canadian gs, and changes in applicable laws or regulations. Governmental authorities possess significant discretion in their review process.

If we fail to satisfy any of the closing conditions, including failing to obtain the required ICA clearance, or if  agencies generally have broad rights to modify, delay, reduce the governmental authorities seek to impose conditions that are unacceptable to us scope of, or that permit either party to terminate the definitive transactioncontracts and agreement, the Acquisition may not close. If the Acquisition is delayed or not consummated:

ts, including for convenience.

The market price of our common stock may decline to the extent that the current market price reflects a market assumploss of, or a material reduction that the transaction will be completed;

we will have incurredin, one or more significant transaction costs, including legal, accounting, and advisory feegovernment contracts or programs, and committed substantial management time and resources, which must be absorbed regardless of or our inability to secure new contracts whether the Acquisition is completed; and

we will not realize with other branches of the anticipatU.S. armed strategic and financial benefits of the Acquisition, which could adervices, allied foreign goversely affect our future business plans and growth strategy.

Any of nments, or othese outcr customesrs, could have a material adverse effect on our business, financial condition, and results of operations.

, cash flows, and prospects.