Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

December 16, 2024

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended October 31, 2024

 

or

 

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:  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

(Address of principal executive offices)   (Zip Code)

 

(833) 373-3228

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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   The Nasdaq Stock Market LLC

 

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

 

As of December 13, 2024 , there were 80,160,782 shares of the registrant’s common stock outstanding.

  

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION Page 
ITEM 1. Financial Statements 3
  Condensed Consolidated Balance Sheets as of October 31, 2024 (Unaudited) and April 30, 2024 3
  Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended October 31, 2024 and 2023 (Unaudited) 4
  Condensed Consolidated Statements Stockholders' Equity for the Three and Six Months Ended October 31, 2024 and 2023 (Unaudited) 5
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2024 and 2023 (Unaudited) 6
  Notes to Unaudited Condensed Consolidated Financial Statements 7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 29
ITEM 4. Controls and Procedures 29
     
PART II - OTHER INFORMATION  
ITEM 1. Legal Proceedings 31
ITEM 1A. Risk Factors 31
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
ITEM 3. Defaults Upon Senior Securities 31
ITEM 4. Mine Safety Disclosures 31
ITEM 5. Other Information 31
ITEM 6. Exhibits 32
     
SIGNATURES 33

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements which are made pursuant to the safe harbor provisions 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”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “believes,” “will,” “expects,” “anticipates,” “estimates,” “predicts,” “potential,” “continues,” “intends,” “plans” and “would” or the negative of these terms or other comparable terminology. For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, and plans are all forward-looking statements. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

  the market and sales success of our existing and any new products;

 

  our ability to raise capital when needed and on acceptable terms;

 

  our ability to make acquisitions and integrate acquired businesses into our company;

 

  our ability to attract and retain management;

 

  the intensity of competition;

 

  1  

 

  changes in the political and regulatory environment and in business and economic conditions in the United States and globally; and

 

  geopolitical conflicts throughout the world, including those in Ukraine and Israel.

 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources. Given these uncertainties, readers of this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to the “Company”, “we”, “us”, or “our”, are to Red Cat Holdings, Inc., a Nevada corporation, including its wholly owned consolidated subsidiaries, Teal Drones, Inc. (“Teal”), Red Cat Propware, Inc. (“Propware”), Skypersonic, Inc. (“Skypersonic”), and FW Acquisition, Inc. (“FlightWave”), as well as Rotor Riot LLC (“Rotor Riot”), Fat Shark Holdings, Ltd. (“Fat Shark”), which were wholly owned subsidiaries until February 16, 2024.

 

 

 

  2  

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS 

 

 RED CAT HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

                 
    October 31,   April 30,
    2024   2024
ASSETS                
Current assets                
Cash   $ 4,611,092     $ 6,067,169  
Accounts receivable, net     1,121,398       4,361,090  
Inventory     12,165,260       8,007,237  
Other     3,015,413       3,962,053  
Total current assets     20,913,163       22,397,549  
                 
Goodwill (Note 3)     22,964,065       9,088,550  
Intangible assets, net (Note 3)     3,439,731       3,794,389  
Equity method investee              5,142,500  
Note receivable              4,000,000  
Property and equipment, net     1,972,859       2,340,684  
Other     309,823       293,126  
Operating lease right-of-use assets     1,492,747       1,480,814  
Total long-term assets     30,179,225       26,140,063  
                 
TOTAL ASSETS   $ 51,092,388     $ 48,537,612  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities                
Accounts payable   $ 1,591,488     $ 1,580,422  
Accrued expenses     1,431,908       1,069,561  
Debt obligations - short term     356,964       751,570  
Customer deposits     221,380       53,939  
Operating lease liabilities     337,628       195,638  
Convertible notes payable - short term     3,733,338           
Acquisition consideration payable     7,000,000           
Total current liabilities     14,672,706       3,651,130  
                 
Operating lease liabilities     1,213,688       1,321,952  
Convertible notes payable - long term     8,177,969           
Total long-term liabilities     9,391,657       1,321,952  
                 
Total liabilities     24,064,363       4,973,082  
Commitments and contingencies (Note 19)                
                 
Stockholders' equity                
Series B preferred stock - shares authorized 4,300,000; issued and outstanding 4,676 and 4,676     47       47  
Common stock - shares authorized 500,000,000; issued and outstanding 78,025,403 and 74,289,351     78,025       74,289  
Additional paid-in capital     133,831,679       124,616,305  
Accumulated deficit     (106,881,726 )     (81,130,732 )
Accumulated other comprehensive income     —         4,621  
Total stockholders' equity     27,028,025       43,564,530  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 51,092,388     $ 48,537,612  

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  3  

 

 

 RED CAT HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income 

(Unaudited)

                                 
    Three months ended October 31,   Six months ended October 31,
    2024   2023   2024   2023
      (As Restated)     (As Restated)
Revenues   $ 1,534,727     $ 3,930,868     $ 4,311,262     $ 5,678,997  
                                 
Cost of goods sold     1,558,202       2,730,286       4,818,128       4,303,750  
                                 
Gross (loss) profit     (23,475 )     1,200,582       (506,866 )     1,375,247  
                                 
Operating Expenses                                
Research and development     2,231,470       2,222,137       3,857,910       3,575,688  
Sales and marketing     2,343,779       1,032,645       4,385,290       2,321,405  
General and administrative     4,517,695       2,838,080       8,000,790       5,701,838  
Impairment loss                       93,050           
Total operating expenses     9,092,944       6,092,862       16,337,040       11,598,931  
Operating loss     (9,116,419 )     (4,892,280 )     (16,843,906 )     (10,223,684 )
                                 
Other (income) expense                                
Convertible notes payable fair value adjustment     4,230,307                4,230,307           
Loss on sale of equity method investment                       4,008,357           
Equity method loss                       734,143           
Investment loss, net              333,867                573,357  
Interest (income) expense, net     (14,634 )     19,696       (39,188 )     41,553  
Other, net     2,526       (1,544 )     (26,531 )         
Other expense     4,218,199       352,019       8,907,088       614,910  
                                 
Net loss from continuing operations     (13,334,618 )     (5,244,299 )     (25,750,994 )     (10,838,594 )
                                 
Loss from discontinued operations              (599,511 )              (842,084 )
Net loss   $ (13,334,618 )     (5,843,810 )   $ (25,750,994 )   $ (11,680,678 )
Other comprehensive income (loss)                                
Change in foreign currency translation adjustments              1,376       (4,621 )     3,022  
Unrealized gain on marketable securities              363,663                653,052  
Other comprehensive loss   $ (13,334,618 )     (5,478,771 )   $ (25,755,615 )   $ (11,024,604 )
                                 
Loss per share - basic and diluted                                
Continuing operations   $ (0.18 )     (0.10 )   $ (0.34 )   $ (0.19 )
Discontinued operations              (0.01 )              (0.02 )
Loss per share - basic and diluted   $ (0.18 )     (0.11 )   $ (0.34 )   $ (0.21 )
                                 
Weighted average shares outstanding - basic and diluted     76,184,777       55,606,336       75,342,629       55,270,838  

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

  4  

 

RED CAT HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

                                                                 
    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, 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     —                  —                  911,606                         911,606  
                                                                 
Vesting of restricted stock units     —                  155,476       155       (8,675 )                       (8,520 )
                                                                 
Conversion of preferred stock     (982,000 )     (9,820 )     818,334       818       9,002                             
                                                                 
Unrealized gain on marketable securities     —                  —                                    289,389       289,389  
                                                                 
Currency translation adjustments     —                  —                                    1,646       1,646  
                                                                 
Net loss     —                  —                           (5,836,868 )              (5,836,868 )
                                                                 
Balances, July 31, 2023     4,676     $ 47       55,541,875     $ 55,541     $ 113,554,659     $ (62,914,971 )   $ (570,082 )   $ 50,125,194  
                                                                 
Stock based compensation     —                  —                  1,196,325                         1,196,325  
                                                                 
Vesting of restricted stock units     —                  54,786       55       (7,826 )                       (7,771 )
                                                                 
Issuance of common stock through ATM facility, net     —                  53,235       53       9,159                         9,212  
                                                                 
Unrealized gain on marketable securities     —                  —                                    363,663       363,663  
                                                                 
Currency translation adjustments     —                  —                                    1,376       1,376  
                                                                 
Net loss     —                  —                           (5,843,810 )              (5,843,810 )
                                                                 
Balances, October 31, 2023     4,676     $ 47       55,649,896     $ 55,649     $ 114,752,317     $ (68,758,781 )   $ (205,043 )   $ 45,844,189  
                                                                 
Balances, April 30, 2024     4,676     $ 47       74,289,351     $ 74,289     $ 124,616,305     $ (81,130,732 )   $ 4,621     $ 43,564,530  
                                                                 
Stock based compensation     —                  —                  1,446,038                         1,446,038  
                                                                 
Vesting of restricted stock units     —                  293,302       293       (134,330 )                       (134,037 )
                                                                 
Exercise of warrants     —                  307,595       308       (308 )                           
                                                                 
Currency translation adjustments     —                  —                                    (4,621 )     (4,621 )
                                                                 
Net loss     —                  —                           (12,416,376 )              (12,416,376 )
                                                                 
Balances, July 31, 2024     4,676     $ 47       74,890,248     $ 74,890     $ 125,927,705     $ (93,547,108 )   $        $ 32,455,534  
                                                                 
Stock based compensation     —                  —                  1,304,037                         1,304,037  
                                                                 
Vesting of restricted stock units     —                  308,735       309       (412,203 )                       (411,894 )
                                                                 
Exercise of warrants     —                  222,983       223       (223 )                           
                                                                 
Exercise of options     —                  58,446       58       14,908                         14,966  
                                                                 
Acquisition of FlightWave     —                  2,544,991       2,545       6,997,455                         7,000,000  
                                                                 
Net loss     —                  —                           (13,334,618 )              (13,334,618 )
                                                                 
Balances, October 31, 2024     4,676     $ 47       78,025,403     $ 78,025     $ 133,831,679     $ (106,881,726 )   $        $ 27,028,025  

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  

  

  5  

 

RED CAT HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

                 
    Six months ended October 31,
    2024   2023
      (As Restated)
Cash Flows from Operating Activities                
Net loss   $ (25,750,994 )   $ (11,680,678 )
Net loss from discontinued operations              (842,084 )
Net loss from continuing operations     (25,750,994 )     (10,838,594 )
Adjustments to reconcile net loss to net cash used in operations:                
Stock based compensation - options     815,632       1,606,305  
Stock based compensation - restricted units     1,934,443       501,626  
Amortization of intangible assets     354,658       434,735  
Realized loss from sale of marketable securities              646,300  
Depreciation     491,618       222,431  
Loss on sale of equity method investment and note receivable     4,008,357           
Equity method loss     734,143           
Impairment on goodwill and intangible assets     93,050           
Convertible note payable fair value adjustment     4,230,307           
Changes in operating assets and liabilities                
Accounts receivable     3,394,692       (2,269,192 )
Inventory     (3,860,393 )     (335,125 )
Other     999,423       (1,576,157 )
Operating lease right-of-use assets and liabilities     (7,913 )     (1,115 )
Customer deposits     (29,035 )     (94,181 )
Accounts payable     9,887       225,801  
Accrued expenses     94,412       236,807  
Net cash used in operating activities of continuing operations     (12,487,713 )     (11,240,359 )
                 
Cash Flows from Investing Activities                
Purchases of property and equipment     (123,793 )     (139,860 )
Proceeds from sale of marketable securities              10,205,501  
Proceeds from sale of equity method investment and note receivable     4,400,000           
Net cash provided by investing activities of continuing operations     4,276,207       10,065,641  
                 
Cash Flows from Financing Activities                
Proceeds from issuance of convertible notes payable, net of issuance costs     7,681,000           
Payments under debt obligations     (394,606 )     (279,126 )
Payments of taxes related to equity transactions     (530,965 )     (16,292 )
Proceeds from issuance of common stock through ATM facility, net              9,212  
Net cash provided by (used in) financing activities of continuing operations     6,755,429       (286,206 )
                 
Discontinued operations                
Operating activities              (550,120 )
Investing activities                  
Financing activities              166,026  
Net cash used in discontinued operations              (384,094 )
                 
Net decrease in Cash     (1,456,077 )     (1,845,018 )
Cash, beginning of period     6,067,169       3,260,305  
Cash, end of period     4,611,092       1,415,287  
Less: Cash of discontinued operations              (6,310 )
Cash of continuing operations, end of period   $ 4,611,092     $ 1,408,977  
                 
Cash paid for interest   $ 14,564     $ 42,031  
Cash paid for income taxes   $        $     
                 
Non-cash transactions                
Fair value of shares issued in acquisition   $ 7,000,000     $     
Acquisition consideration payable   $ 7,000,000     $     
Net assets assumed in acquisition   $ 31,435     $     
Unrealized gain on marketable securities   $        $ 653,052  
Conversion of preferred stock into common stock   $        $ 9,820  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  6  

 

 

RED CAT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited) 

 

 

Note 1 – The Business  

 

The Company was originally incorporated in February 1984. 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 five 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, Ltd. (“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, Inc. (“Teal”), a leader in commercial and government Unmanned Aerial Vehicles (“UAV”) technology. The purchase price was $10,011,279.
     
  E. In September 2024, the Company acquired FlightWave Aerospace Systems Corporation, an industry-leading provider of VTOL drone, sensor and software solutions, under an Asset Purchase Agreement (the “APA”). As part of the acquisition, the Company created a new subsidiary, FW Acquisition Inc. (“FlightWave”) for ongoing operations. The purchase price was $14,000,000. See Note 3 for additional information.

 

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 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 4 and Note 8.

  

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the six months ended October 31, 2024 are not necessarily indicative of the results for the full year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2024, included in the Company’s Annual Report on Form 10-K. In September 2024, the Company’s Board of Directors approved a change in fiscal year end from April 30 to December 31. 

 

  7  

 

Restatement of Previously Issued Consolidated Financial Statements – The Company’s Condensed Consolidated Statement of Operations and Stockholders’ Equity for the six months ended October 31, 2023, which were originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 15, 2023, have been restated. The Company revised its financial statements to remove derivative liabilities due to erroneously reporting warrants from our convertible note financings, as described in Note 16, as having a derivative component.

 

The impacts of these restatements are detailed in the tables below:

             
   

Condensed Consolidated Statement of Operations

For the three months ended October 31, 2023

   
   

Originally

Reported

 

As

Restated

  Change
Change in fair value of derivative liability   $ (162,482 )   $        $ (162,482 )
Net loss   $ (5,681,328 )   $ (5,843,810 )   $ (162,482 )

 

             
   

Condensed Consolidated Statement of Operations

For the six months ended October 31, 2023

   
   

Originally

Reported

 

As

Restated

  Change
Change in fair value of derivative liability   $ (189,002 )   $        $ (189,002 )
Net loss   $ (11,491,676 )   $ (11,680,678 )   $ (189,002 )

 

             
   

Condensed Consolidated Statement of Stockholders’ Equity

For the six months ended October 31, 2023

   
   

Originally

Reported

 

As

Restated

  Change
Additional paid-in capital   $ 112,102,691     $ 114,752,317     $ 2,649,626  
Accumulated deficit   $ (66,078,469 )   $ (68,758,781 )   $ (2,680,312 )
Total equity   $ 45,874,875     $ 45,844,189     $ (30,686 )

  

 

Principles of ConsolidationOur condensed consolidated financial statements include the accounts of our wholly owned subsidiaries which include Teal, FlightWave (beginning on September 5, 2024), Skypersonic, as well as Rotor Riot and Fat Shark through the sale date of 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 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.

 

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, (iii) the evaluation of other-than-temporary-impairment of equity method investments, and (iv) valuations of convertible notes payable.

 

Concentration of Credit Risk – Financial instruments, which potentially subject 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 October 31, 2024 and April 30, 2024 were as follows:

 

  8  

 

 

    October 31, 2024   April 30, 2024
Customer A     38 %     *
Customer B     25 %     *
Customer C     *     53 %
Customer D     *     24 %

   

* Accounts Receivable was less than 10%

 

During the six months ended October 31, 2024, two customers accounted for equal to or greater than 10% of total revenue, totaling 21% and 19%, respectively. During the six months ended October 31, 2023, three customers accounted for equal to or greater than 10% of total revenue, totaling 13%, 12% and 10%, respectively. The Company does not believe the loss of one or more of these customers would be significant to operations.

 

Equity Method InvestmentThe 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 $11,353,875 for the year ended April 30, 2024. See Note 8 for additional information.

 

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.

 

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.

 

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 

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. 

   

The Company’s financial instruments mainly consist of cash, accounts receivable, current assets, accounts payable, accrued expenses, notes payable, and convertible notes payable. The recorded carrying amounts of cash, accounts receivable, current assets, accounts payable, accrued expenses, and notes payable are considered to approximate their estimated fair values due to their short-term nature. Liabilities recognized at fair value on a recurring basis in the consolidated balance sheets consist of convertible notes payable. These items are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

The following table summarizes the Company’s financial instruments at fair value based on the fair value hierarchy for each class of instrument:

 

  9  

 

    Level 1   Level 2   Level 3   Total
Convertible notes payable   $        $        $ 11,911,307     $ 11,911,307  

 

Convertible Notes Payable

 

The Company measures its convertible notes payable at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of the convertible notes payable related to updated assumptions and estimates were 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 as of October 31, 2024, the Company used a market-based approach. The valuation method utilized 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.

 

The Company calculated the estimated fair value of the convertible notes payable as of October 31, 2024 using the following assumptions:

 

    October 31, 2024
Issuance date     10/1/2024  
Maturity date     10/1/2026  
Stock price     3.06  
Expected volatility factor     92.8 %
Risk-free interest rate     5.21 %

 

The following table presents changes in the Level 3 convertible notes payable measured at fair value for the six months ended October 31, 2024:

     
Balance, May 1, 2024   $     
Additions     7,681,000  
Fair value measurement adjustments     4,230,307  
Balance, October 31, 2024   $ 11,911,307  

 

Warrants

 

The fair value of the warrants as of October 31, 2024 was 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. Additionally, if certain provisions are triggered, reset adjustments may be required in the future.  For the quarter ended October 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.

 

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 $221,380 and $53,939 at October 31, 2024 and April 30, 2024, respectively. From time to time, non-recurring engineering contracts may involve the capitalization of engineering prototypes, classified as contract assets. Contract assets totaled $0 and $1,477,859 at October 31, 2024 and April 30, 2024, respectively.

 

  10  

 

The following table presents the Company’s revenue disaggregated by revenue type: 

                 
   

Three months ended

October 31,

 

Six months ended

October 31,

    2024   2023   2024   2023
Contract related   $        $ 529,437     $ 886,440     $ 840,318  
Product related     1,534,727       3,401,431       3,424,822       4,838,679  
Total   $ 1,534,727     $ 3,930,868     $ 4,311,262     $ 5,678,997  

  

 

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 approximately $587,000 and $372,000 as of October 31, 2024 and April 30, 2024 respectively.

 

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.

 

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 six months ended October 31, 2024 and October 31, 2023, comprehensive loss was $4,621 higher and $656,074 lower than net loss, respectively, related to unrealized gains on available-for-sale securities totaling $0 and $653,052, respectively, and foreign currency translation adjustments of $4,621 and $3,022, respectively.

 

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:

 

    October 31, 2024   October 31, 2023
Series B Preferred Stock, as converted     3,896       3,896  
Stock options     7,896,903       6,861,517  
Warrants     2,292,207       1,539,999  
Restricted stock     1,758,313       779,850  
Total     11,951,319       9,185,262  

 

 

 

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 18.

 

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 six months ended October 31, 2024, the Company incurred a net loss of approximately $25,750,000 and used cash in operating activities of approximately $12,500,000. As of October 31, 2024, working capital totaled approximately $6,240,000. These financial results and our financial position at October 31, 2024 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity. In November 2024, the Company was selected as the winner of the U.S.  Army’s Short Range Reconnaissance (SRR) Program of Record. The Company’s manufacturing facility is scaling production of its most recent products and gross profits are projected to increase. As described in Note 13 and Note 20, the Company closed financings with proceeds of approximately $8,000,000 and $6,000,000 in September 2024 and November 2024, respectively. Additionally, the Company’s Form S-3 became effective on December 11, 2024. If necessary, the Company will seek additional equity financing for which there can be no guarantee. Management has concluded that these recent positive developments alleviate any substantial doubt about the Company’s ability to continue its operations, and meet its financial obligations, for twelve months from the date these consolidated financial statements are issued.

 

 

  11  

 

Note 3 – Business Combination

 

On September 4, 2024, the Company entered into an Asset Purchase Agreement (the “APA”) with FlightWave Aerospace Systems Corporation (the “Seller”) to broaden the Company’s range of drone products. The seller sold certain assets used in designing, developing, manufacturing, and selling long range, AI-powered UAVs for commercial use. Pursuant to the APA, the Company has acquired substantially all of the assets owned, controlled or used by the Seller for an aggregate purchase price of $14,000,000 worth of shares of the Company’s common stock, and as such, the asset purchase will be treated as a business combination. The purchase price is payable as follows:

 

  $7 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.
  $7 million worth of the Company’s common stock to be issued on December 31, 2024, at a price per share equal to the VWAP on such date, of which (i) $2 million will be payable to preferred shareholders of the Seller, and (ii) $5 million will be payable to common shareholders and option-holders of the Seller as set forth the APA.

 

The Company expects that the Goodwill recognized will be deductible for tax purposes.  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.

 

The preliminary summary of the purchase price and its related allocation is as follows:

   
Shares issued   $ 7,000,000  
Acquisition consideration payable     7,000,000  
Total Purchase Price   $ 14,000,000  

  

Assets acquired    
Accounts receivable   $ 155,000  
Inventory     297,630  
Operating lease right-of-use assets     128,433  
Other assets     69,480  
Goodwill     13,968,565  
Total assets acquired     14,619,108  
Liabilities assumed        
Accounts payable and accrued expenses     264,493  
Customer deposits     196,476  
Operating lease liabilities     158,139  
Total liabilities assumed     619,108  
Total fair value of net assets acquired   $ 14,000,000  

 

The foregoing amounts reflect our current estimates of fair value as of the September 4, 2024 acquisition date. The Company expects to recognize fair values associated with the customer relationships acquired, as well as the FlightWave proprietary technology and brand name, but has not yet accumulated sufficient information to assign such values. As additional information becomes known regarding the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is a one-year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and intangible assets) requires significant judgment.

 

Supplemental Unaudited Pro Forma Financial Information

 

The following unaudited pro forma financial information summarizes the results of operations for the Company as though the Business Combination had occurred on May 1, 2023. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company. The information below does not include the effects of finite-lived intangible assets to be evaluated.

  12  

 

     
   

Six months ended

October 31, 2024

      Consolidated  
Revenues   $ 5,107,661  
         
Net Loss     (26,882,328 )
         
Loss per share – basic and diluted     (0.36 )

  

   

Six months ended

October 31, 2023

      Consolidated  
Revenues   $ 6,461,394  
         
Net Loss     (12,499,977 )
         
Loss per share – basic and diluted     (0.23 )

 

 

Note 4 – 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.

 

Secured Promissory Note

 

The Promissory Note from Unusual Machines 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.

 

Unusual Machines Securities

 

The $17 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 (representing approximately 49% of UMAC’s issued and outstanding common stock after giving effect to the IPO and to the issuance of common stock to the Company upon closing of the IPO).

 

Working Capital

 

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 in July 2024. As a result, UMAC issued the Company $4,000,000 of its 8% Promissory Notes due November 30, 2025 (the “New Notes”) reflecting (i) satisfaction and settlement of working capital adjustments and (ii) a maturity date extension to November 30, 2025.

 

  13  

 

The Consumer segment has been classified as Discontinued Operations and reported in accordance with the applicable accounting standards. Set forth below are the results of operations for the Consumer segment for:

                 
   

Three months ended

October 31,

 

Six months ended

October 31,

    2024   2023   2024   2023
Revenues   $        $ 1,056,932     $        $ 2,926,151  
                                 
Cost of goods sold              1,154,200                2,539,316  
                                 
Gross Margin              (97,268 )              386,835  
                                 
Operating Expenses                                
Research and development              31,054                77,303  
Sales and marketing              287,413                691,517  
General and administrative              183,807                437,393  
Total operating expenses              502,274                1,206,213  
Operating loss              (599,542 )              (819,378 )
                                 
Other (income) expense                                
Interest expense                                22,856  
Other, net              (31 )              (150 )
Other (income) expense              (31 )              22,706  
                                 
Net loss from discontinued operations   $        $ (599,511 )   $        $ (842,084 )

 

 

Note 5 – Inventories

 

Inventories consisted of the following:

 

    October 31, 2024   April 30, 2024
Raw materials   $ 6,110,038     $ 5,750,324  
Work-in-process     1,214,769       1,289,997  
Finished goods     4,840,453       966,916  
Total   $ 12,165,260     $ 8,007,237  

 

 

Note 6 – Other Current Assets

 

Other current assets included:

 

    October 31, 2024   April 30, 2024
Prepaid expenses   $ 2,626,343     $ 1,206,306  
Prepaid inventory     389,070       602,888  
Contract asset              1,477,859  
Grant receivable              675,000  
Total   $ 3,015,413     $ 3,962,053  

 

 

  14  

 

 

Note 7 – Intangible Assets

 

Intangible assets relate to acquisitions completed by the Company, including those described in Note 1, and were as follows:

                               
    October 31, 2024   April 30, 2024
    Gross Value   Accumulated Amortization   Net Value  

Gross

Value

  Accumulated Amortization   Net Value
Proprietary technology   $ 4,282,001     $ (2,272,270 )   $ 2,009,731     $ 4,282,001     $ (1,917,612 )   $ 2,364,389  
Non-compete agreements     65,000       (65,000 )              65,000       (65,000 )         
Total finite-lived assets     4,347,001       (2,337,270 )     2,009,731       4,347,001       (1,982,612 )     2,364,389  
Brand name     1,430,000                1,430,000       1,430,000                1,430,000  
Total indefinite-lived assets     1,430,000                1,430,000       1,430,000                1,430,000  
Total intangible assets, net   $ 5,777,001     $ (2,337,270 )   $ 3,439,731     $ 5,777,001     $ (1,982,612 )   $ 3,794,389  

 

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

 

 

Note 8 – Equity Method Investment

 

On July 22, 2024, the Company sold all of its securities in UMAC to two unaffiliated third-party purchasers (the “Purchasers”). As part of the transaction, on July 22, 2024, the Company 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 $4,000,000 to the Purchasers for $4.4 million in cash pursuant to a Purchase Agreement in a transaction that closed on July 22, 2024.  

 

As of April 30, 2024, the Company had owned approximately 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 are prepared in accordance with GAAP. See Note 4 for additional information.

 

Financial information for UMAC prior to the sale of the Company’s equity interest was derived from UMAC’s Form 10-Q for the six months ended June 30, 2024 and was as follows:

     
Current assets   $ 5,116,963  
Long-term assets     20,083,390  
Current liabilities     931,200  
Long-term liabilities     4,297,332  
Revenues     2,030,039  
Gross profit     592,607  
Net loss   $ (2,718,240 )

  

The Company’s investments in UMAC have been impacted by the following:

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  
Equity method loss     (734,143 )
Sale of ownership interest     (4,408,357 )
Investment balance, October 31, 2024   $     

 

The computation of both the initial investment as of February 16, 2024 and investment balance as of April 30, 2024, was based on the fair market value of UMAC’s common stock.

 

 

  15  

 

Note 9 – Property and Equipment

 

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:

 

    October 31, 2024   April 30, 2024
Equipment and related   $ 1,633,105     $ 1,540,888  
Leasehold improvements     1,556,139       1,547,976  
Furniture and fixtures     186,703       163,290  
Accumulated depreciation     (1,403,088 )     (911,470 )
Net carrying value   $ 1,972,859     $ 2,340,684  

 

Depreciation expense totaled $491,618 and $222,431 for the six months ended October 31, 2024 and 2023, respectively.

 

 

Note 10 – Other Long-Term Assets

 

Other long-term assets included:

 

    October 31, 2024   April 30, 2024
SAFE agreement   $ 250,000     $ 250,000  
Security deposits     43,126       43,126  
Total   $ 293,126     $ 293,126  

  

In November 2022, the Company entered into a SAFE (Simple Agreement for Future Equity) agreement with Firestorm Labs, Inc. (“Firestorm”) under which it made a payment of $250,000 to Firestorm in exchange for the right to certain shares of Firestorm stock. The SAFE permits the Company to participate in a future equity financing of Firestorm by converting the $250,000 into shares of Preferred Stock of Firestorm. If there is a change in control of Firestorm or a public offering of shares of its stock, then the Company shall have the right to receive cash payments, or shares of stock, whichever has greater value. The Company’s investment in the SAFE agreement has been recorded on the cost method of accounting. The Company evaluates the investment for any indications of impairment in value on a quarterly basis. No factors indicative of impairment were identified during the six months ended October 31, 2024.

 

 

Note 11 – Right of Use Assets and Liabilities

 

As of October 31, 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 6.17 years, including options to extend certain leases for up to six years. Operating lease expense totaled $262,912 and $170,505 for the six months ended October 31, 2024 and 2023, respectively.

 

Leases on which the Company made rent payments during the reporting period included:

 

Location   Monthly Rent   Expiration
South Salt Lake, Utah   $ 23,340       December 2030  
Santa Monica, California   $ 16,697       June 2025  
San Juan, Puerto Rico   $ 6,186       June 2027  
Grantsville, Utah   $ 1,000       December 2026  

        

Supplemental information related to operating leases for the six months ended October 31, 2024 was:

 

     
Operating cash paid to settle lease liabilities   $215,922  
Weighted average remaining lease term (in years)     2.50  
Weighted average discount rate     12%

 

 

 

  16  

 

Note 12 – 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. The balance outstanding at April 30, 2024 totaled $370,537. The balance was paid off in September 2024.

  

  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 October 31, 2024 and April 30, 2024 totaled $1,563 and $1,334, respectively.

 

  C.  Corporate Equity

Beginning in October 2021, and amended in January 2022, Teal financed a total of $120,000 of leasehold improvements with Corporate Equity, LLC. The loan bears interest at 8.25% annually and requires monthly payments of $3,595 through December 2024. The balance outstanding at October 31, 2024 and April 30, 2024 totaled $6,706 and $27,495 respectively.

  

  D.  Ascentium Capital

In September 2021, Teal entered into a financing agreement with Ascentium Capital to fund the purchase of a fixed asset totaling $24,383. Monthly payments are $656. The balance outstanding at October 31, 2024 and April 30, 2024 totaled $259 and $3,538, respectively.

 

  E.  Summary

 

Future annual principal payments at October 31, 2024 were as follows:

 

  Fiscal Year Ended:    
  2025       356,964  
  Thereafter           
  Total     $ 356,964  

 

 

Note 13 – Convertible Notes Payable

 

In September 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with Lind Global Asset Management X LLC (“Lind”). Under the SPA, the Company received approximately $8 million in funding from Lind in exchange for a Senior Secured Convertible Promissory Note in the amount of $9,600,000 (the “Note”) and a Common Stock Purchase Warrant for the purchase of 750,000 shares of our common stock at a price of $6.50 per share, exercisable for five years (the “Warrant”). The Note is secured by substantially all assets of the Company. As additional consideration to Lind, the Company paid a commitment fee in the amount of $280,000.

 

The Note, which does not accrue interest, will be repaid in eighteen consecutive monthly installments in the amount of $533,334 beginning six months from the issuance date. At the Company’s option, monthly payments can be increased up to $1,000,000 so long as the Company’s market capitalization is at least $50 million. In addition, if the Repayment Share Price (as defined below) is equal to or greater than $2.00, Lind can, at its option, increase the monthly payment amount up to $1,300,000 for up to two months. The monthly payments due under the Note may be 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 is defined in the Note as ninety percent (90%) of the average of the five (5) consecutive lowest daily VWAPs for our common stock during the twenty (20) trading days prior to the payment date, subject to a floor price of $0.75 per share.

 

  17  

 

The Note may be converted by Lind upon issuance a price of $6.50 per share (the “Conversion Price”). The dollar amount of any conversions by Lind will be applied toward upcoming Note payments in chronological order. The Note may be prepaid in whole upon 5 days’ notice, but in the event of a prepayment notice, Lind may convert up to 25% of principal amount due at the lesser of the Repayment Share Price (but only if the Repayment Share Price is equal to or greater than $2.00) or the Conversion Price.

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 liability due to the fair market value of the convertible note payable being in excess of the proceeds received. The Company’s convertible notes payable balance at October 31, 2024 was $11,911,307.

Subsequent to quarter end, on November 26, 2024, we entered into a First Amendment to our SPA with Lind. Additionally, on December 13, 2024, Lind provided notice to the Company to convert $1,300,000 of the note payable into 200,000 shares of Common Stock which will be issued on December 16, 2024. On December 16, 2024, Lind provided notices to the Company to convert an additional $2,600,000 and $3,250,000 of the note payable into 400,000 and 500,000 shares of Common Stock, respectively. See Note 20 for further information.

 

 

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:

 

Description of Shares   Shares Issued
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  
Vesting of restricted stock to employees, net of shares withheld of 138,744 to pay taxes     540,590  
Vesting of restricted stock to Board of Directors     61,447  
Exercise of stock options     58,446  
Exercise of warrants     530,578  
FlightWave acquisition     2,544,991  
Shares outstanding as of October 31, 2024     78,025,403  

    

See note 20 for subsequent events. 

 

Public Offering

 

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, 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. 

  

The Offering closed on December 11, 2023, resulting in the issuance of 18,400,000 shares of Common Stock which generated gross proceeds of $9,200,000. Net proceeds to the Company from the Offering, after deducting the underwriting discount, the underwriters’ fees and expenses and the Company’s estimated Offering expenses, were approximately $8,400,000

 

 

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. 982,000 shares of Series B Stock were converted into 818,334 shares of common stock in June 2023. Shares outstanding at October 31, 2024 totaled 4,676 which are convertible into 3,896 shares of common stock.

  18  

 

  

 

Note 16 – Warrants

 

The Company issued 5 year warrants to investors in connection with two convertible note financings. The warrants have an exercise price of $1.50. The warrants were valued using the multinominal lattice The value of the warrants was included in the determination of the initial accounting for each financing.

 

A summary of the warrants issued were: 

 

                     
    Upon Issuance
Date of Transaction   Number of Warrants   Initial Fair Value
  October 2020        399,998     $ 267,999  
  January 2021       675,000     $ 2,870,666  

   

As of October 31, 2024, we have received $301,248 related to the exercise of 268,332 warrants.

 

In May 2021, the Company issued warrants to purchase 200,000 shares of common stock to the placement agent of its common stock offering. The warrants have a five-year term and an exercise price of $5.00.

   

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

 

In December 2023, the Company issued warrants to purchase 736,000 shares of common stock to the placement agent of its common stock offering. The warrants have a five-year term and an exercise price of $0.625.

 

In September 2024, the Company issued warrants to purchase 750,000 shares of common stock to Lind, as further described in Note 13. 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.

 

The following table summarizes the changes in warrants outstanding since April 30, 2023.

 

   

 

Number of Shares 

 

 

Weighted-average Exercise Price per Share

 

 Weighted-average Remaining Contractual Term

(in years) 

 

 

Aggregate Intrinsic Value 

  Balance as of April 30, 2023 1,539,999     3.38        2.89     $  
  Granted     736,000      $ 0.63                  
  Exercised                          
  Outstanding as of April 30, 2024 2,275,999     2.49       2.77     $  
  Granted  750,000       6.50        5.00          
  Exercised (733,792     0.63                  
  Outstanding at October 31, 2024 2,292,207    $ 4.40       2.51     $ 1,263,775  

 

 

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 11,250,000 plus any underlying forfeited 2019 Plan awards.

  

  19  

 

  A. Options 

 

The range of assumptions used to calculate the fair value of options granted during the six months ended October 31 was:

 

      2024       2023  
Exercise Price   $ 1.152.45     $ 0.951.12  
Stock price on date of grant     1.202.56       0.951.12  
Risk-free interest rate     3.544.44%     3.474.34%  
Dividend yield                  
Expected term (years)     5.175.73       6.00 8.25  
Volatility     191.43199.03%     242.38260.22%  

        

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

 

  Shares   Weighted-Average Exercise Price   Weighted-Average Remaining Contractual Term   Aggregate Intrinsic Value
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   
Granted     1,333,500       1.94                  
Exercised     (97,414 )     1.60                  
Forfeited or expired     (119,117     1.47                  
Outstanding as of October 31, 2024     7,896,903     1.54       7.55     12,438,946  
Exercisable as of October 31, 2024