Red Cat Holdings, Inc.RCAT
Red Cat Holdings, Inc. Income Taxes Disclosure
Income Taxes
Consolidated income/(loss) before provision for income taxes consists of:
| 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:
| 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
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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 19, 2026 | Showing above |
| 2024 | Aug 8, 2024 | |
| 2023 | Jul 27, 2023 | |
| 2022 | Jul 27, 2022 | |
| 2021 | Aug 12, 2021 | |
| 2020 | Aug 13, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Apr 9, 2018 | |
| 2016 | Apr 7, 2017 | |
| 2015 | Apr 13, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.