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 periodendedOctober 31, 2022, ~~2021~~

☐

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: 000-31587

Red Cat Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Nevada		86-0490034
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification ~~Number)~~No.)
~~incorporation or organization)~~

15 Ave. Munoz Rivera, Ste 2200

San Juan

~~370 Harbour Drive~~

~~Humacao~~, Puerto Rico

~~00791~~00901

(Address of principal executive offices)

(Zip Code)

(833) 373-3228

(Registrant's telephone number, including area code)

__________________________________

(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

RCAT

Nasdaq Capital Market

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, smaller reporting company, or an emerging growth company. See definition of "large accelerated filer", "accelerated filer" and "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 15, ~~2021,~~2022, there were ~~53,835,579~~54,317,718 shares of the registrant's common stock outstanding.

INDEX TO FORM 10-Q

PART I.	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements:	3

	Unaudited Balance Sheet as of October 31, ~~2021~~2022 and ~~Balance Sheet as of~~ April 30, ~~2021~~2022	3

	Unaudited Statements of Operations for the Three and Six Months Ended October 31, ~~2021~~2022 and ~~2020~~2021	4

	~~Unaudited Statements of Cash Flows for the Six Months Ended October 31, 2021 and 2020~~	5

	Unaudited Statement of Changes in Shareholders' Equity for the Three and Six Months Ended October 31, ~~2021~~2022 and ~~2020~~2021	5

	Unaudited Statements of Cash Flows for the Six Months Ended October 31, 2022 and 2021	6

	Notes to Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2426

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3032

Item 4.	Controls and Procedures	3032

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3133

Item 1A.	Risk Factors	3133

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3133

Item 3.	Defaults Upon Senior Securities	3133

Item 4.	Mine Safety Disclosures	3133

Item 5.	Other Information	3133

Item 6.	Exhibits	3134

SIGNATURES		3234

RED CAT HOLDINGS

Consolidated Balance Sheets

(Unaudited)

October 31, April 30,
2022 2022
ASSETS
Current assets
Cash $ 1,582,751 $ 4,084,815
Marketable securities 31,302,888 44,790,369
Accounts receivable, net 917,802 495,506
Inventory 6,560,092 3,895,870
Other 4,453,439 2,354,884
Due from related party —   31,853
Total current assets 44,816,972 55,653,297

Goodwill 19,839,750 25,138,750
Intangible assets, net 7,777,741 2,698,531
Property and equipment, net 1,700,821 511,690
Other 57,033 57,033
Operating lease right-of-use assets 852,065 1,019,324
Total long term assets 30,227,410 29,425,328

TOTAL ASSETS $ 75,044,382 $ 85,078,625

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,649,341 $ 1,018,747
Accrued expenses 541,097 1,084,494
Debt obligations - short term 895,257 956,897
Due to related party —   40,057
Customer deposits 123,308 437,930
Operating lease liabilities 298,609 293,799
Warrant derivative liability 1,013,675 1,607,497
Total current liabilities 4,521,287 5,439,421

Operating lease liabilities 601,243 749,825
Debt obligations - long term 694,581 973,707
Total long term liabilities 1,295,824 1,723,532
Commitments and contingencies

Stockholders' equity
Series B preferred stock - shares authorized 4,300,000; outstanding 986,676 and 986,676 9,867 9,867
Common stock - shares authorized 500,000,000; outstanding 54,229,539 and 53,748,735 54,229 53,749
Additional paid-in capital 108,406,712 106,821,384
Accumulated deficit (37,555,132 ) (27,499,056 )
Accumulated other comprehensive income (1,688,405 ) (1,470,272 )
Total stockholders' equity 69,227,271 77,915,672
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,044,382 $ 85,078,625

See accompanying notes.

RED CAT HOLDINGS
Consolidated Balance Sheets
(Unaudited)

October 31 April 30,
2021 2021
ASSETS
Current Assets
Cash $ 11,559,758 $ 277,347
Investments 48,122,657 —
Accounts receivable, net 393,738 321,693
Inventory 1,985,507 362,072
Other 2,567,539 678,898
Total Current Assets 64,629,199 1,640,010

Goodwill 26,029,750 8,017,333
Intangible assets, net 1,999,518 2,032,169
Property and equipment, net 142,126 —
Operating lease right-of-use assets 548,641 —
Other 24,907 3,853
Total Long Term Assets 28,744,942 10,053,355
TOTAL ASSETS $ 93,374,141 $ 11,693,365

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,218,005 $ 541,903
Accrued expenses 653,233 614,050
Debt obligations - short term 1,338,030 269,045
Due to related party 144,628 390,209
Customer deposits 117,842 46,096
Warrant derivative liability 2,376,565 2,812,767
Total Current Liabilities 5,848,303 4,674,070

Operating lease liabilities 559,528 —
Debt obligations - long term 1,431,739 —
Note payable to related party —   1,753,000
Total Long Term Liabilities 1,991,267 1,753,000
Commitments and contingencies

Stockholders' Equity
Series A Preferred Stock - shares authorized 2,200,000; outstanding 0 and 158,704 —   1,587
Series B Preferred Stock - shares authorized 4,300,000; outstanding 986,676 and 1,968,676 9,867 19,687
Common stock - shares authorized 500,000,000; outstanding 53,684,910 and 29,431,264 53,685 29,431
Additional paid-in capital 105,577,729 21,025,518
Accumulated deficit (20,108,301 ) (15,809,928 )
Accumulated other comprehensive income 1,591 —
Total Stockholders' Equity 85,534,571 5,266,295
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 93,374,141 $ 11,693,365

See accompanying notes.

3

RED CAT HOLDINGS
Consolidated Statements Of Operations
(Unaudited)

RED CAT HOLDINGS
Consolidated Statements Of Operations
(Unaudited)

Three months ended October 31, Six months ended October 31, Three months ended October 31, Six months ended October 31,
2021 2020 2021 2020 2022 2021 2022 2021
Revenues $ 1,863,239 $ 427,807 $ 3,259,990 $ 976,089 $ 1,530,462 $ 1,863,239 $ 4,599,733 $ 3,259,990

Cost of goods sold 1,710,657 328,756 3,005,004 774,888 1,296,807 1,710,657 4,008,451 3,005,004

Gross Margin 152,582 99,051 254,986 201,201 233,655 152,582 591,282 254,986

Operating Expenses
Operations 283,249 120,210 460,112 206,756 1,752,873 283,249 2,800,959 460,112
Research and development 493,441 86,614 737,695 173,924 1,354,914 493,441 1,887,684 737,695
Sales and marketing 185,385 24,679 286,018 48,815 731,769 185,385 1,334,000 286,018
General and administrative 1,050,708 250,378 1,926,888 430,719 1,919,637 1,050,708 3,037,202 1,926,888
Stock based compensation 899,937 107,061 1,284,023 214,122 1,246,796 899,937 2,002,267 1,284,023
Total operating expenses 2,912,720 588,942 4,694,736 1,074,336 7,005,989 2,912,720 11,062,112 4,694,736
Operating loss (2,760,138 ) (489,891 ) (4,439,750 ) (873,135 ) (6,772,334 ) (2,760,138 ) (10,470,830 ) (4,439,750 )

Other Expense (Income)
Derivative expense —   148,587 —   148,587
Change in fair value of derivative liability (118,813 ) 83,803 (273,061 ) 83,803 (686,744 ) (118,813 ) (593,822 ) (273,061 )
Investment income, net 38,447 —   38,447 —   (103,817 ) 38,447 (234,113 ) 38,447
Interest expense 46,017 —   63,116 —   32,485 46,017 �� 68,172 63,116
Other, net 14,812 —   30,121 —   230,219 14,812 345,009 30,121
Other Expense (Income) $ (19,537 ) $ 232,390 $ (141,377 ) $ 232,390 $ (527,857 ) $ (19,537 ) $ (414,754 ) $ (141,377 )

Net loss $ (2,740,601 ) $ (722,281 ) $ (4,298,373 ) $ (1,105,525 ) $ (6,244,477 ) $ (2,740,601 ) $ (10,056,076 ) $ (4,298,373 )

Loss per share - basic and diluted $ (0.05 ) $ (0.04 ) $ (0.10 ) $ (0.05 ) $ (0.12 ) $ (0.05 ) $ (0.19 ) $ (0.10 )

Weighted average shares outstanding - basic and diluted 52,147,541 20,241,390 43,110,884 20,126,241 54,078,111 52,147,541 53,928,133 43,110,884

See accompanying notes.
4

RED CAT HOLDINGS
Condensed Consolidated Cash Flows Statements
(Unaudited)

Six months ended October 31,
2021 2020
Cash Flows from Operating Activities
Net loss $ (4,298,373 ) $ (1,105,525 )
Stock based compensation 1,284,023 214,122
Common stock issued for services 250,400 —
Amortization of intangible assets 32,651 —
Depreciation 5,455 —
Change in fair value of derivative liability (273,061 ) 83,803
Amortization of debt discount —   18,401
Derivative expense —   148,587
Adjustments to reconcile net loss to net cash from operations:
Changes in operating assets and liabilities
Accounts receivable 27,002 —
Inventory (319,124 ) (91,836 )
Other (3,814,101 ) 3,020
Operating lease right-of-use assets and liabilities 10,887 —
Customer deposits 8,753 27,786
Accounts payable (976,679 ) 106,042
Accrued expenses (506,931 ) 27,148
Net cash used in operating activities (8,569,098 ) (568,452 )

Cash Flows from Investing Activities
Cash acquired through acquisitions 24,866 —
Net cash provided by investing activities 24,866 —

Cash Flows from Financing Activities
Proceeds from sale of investments 1,855,788 —
Purchases of investments (49,978,445 ) —
Purchases of property and equipment (30,147 ) —
Proceeds from exercise of warrants 99,999 —
Payments under related party obligations (1,866,381 ) (3,907 )
Proceeds from debt obligations —   419,050
Payments under debt obligations (320,965 ) (183,294 )
Proceeds from convertible debentures —   580,000
Proceeds from issuance of common stock, net 70,065,203 —
Net cash provided by financing activities 19,825,052 811,849

Effect of foreign exchange rate changes on cash 1,591 —

Net increase in Cash 11,282,411 243,397
Cash, beginning of period 277,347 236,668
Cash, end of period 11,559,758 480,065

Cash paid for interest 26,175 —
Cash paid for taxes —   —

Non-cash transactions
Common stock issued for services $ 250,400 $ —
Fair value of shares issued in acquisitions $ 12,727,292 $ —
Indirect payment to related party $ 132,200 $ —
Conversion of derivative liability $ 163,141 $ —
Conversion of preferred stock into common stock $ 11,407 $ —
Conversion of Notes into common stock $ —   $ 450,000
Conversion of accrued interest into common stock $ —   $ 45,024

See accompanying notes.
RED CAT HOLDINGS
Consolidated Statements of Stockholders’ Equity
(Unaudited)

Series A Series B Additional Accumulated Other
Preferred Stock Preferred Stock Common Stock Paid-in Accumulated Comprehensive Total
Shares Amount Shares Amount Shares Amount Capital Deficit Income (Loss) Equity
Balances, April 30, 2021 158,704 $ 1,587 1,968,676 $ 19,687 29,431,264 $ 29,431 $ 21,025,518 $ (15,809,928 ) $ —   $ 5,266,295

Acquisition of Skypersonic —   —   —   —   685,321 685 2,630,955 —   —   2,631,640

Public offerings, net of $5,959,800 of issuance costs —   —   —   —   17,333,334 17,333 70,022,871 —   —   70,040,204

Exercise of warrants —   —   —   —   66,666 67 263,073 —   —   263,140

Conversion of preferred stock —   —   (982,000 ) (9,820 ) 818,333 818 9,002 —   —   —

Stock based compensation —   —   —   —   —   —   384,023 —   —   384,023

Vesting of restricted stock —   —   —   —   62,500 63 —   —   —   63

Shares issued for services —   —   —   —   91,667 92 191,908 —   —   192,000

Currency translation adjustments —   —   —   —   —   —   —   —   922 922

Net loss —   —   —   —   —   —   —   (1,557,772 ) —   (1,557,772 )

Balances, July 31, 2021 158,704 $ 1,587 986,676 $ 9,867 48,489,085 $ 48,489 $ 94,527,350 $ (17,367,700 ) $ 922 $ 77,220,515

Acquisition of Skypersonic —   —   —   —   21,972 22 84,350 —   —   84,372

Acquisition of Teal Drones —   —   —   —   3,588,272 3,588 10,007,691 —   —   10,011,279

Conversion of preferred stock (158,704 ) (1,587 ) —   —   1,321,996 1,322 265 —   —   —

Stock based compensation —   —   —   —   243,585 244 899,693 —   —   899,937

Shares issued for services —   —   —   —   20,000 20 59,380 —   —   58,400

Currency translation adjustments —   —   —   —   —   —   —   —   669 669

Net loss —   —   —   —   —   —   —   (2,740,601 ) —   (2,740,601 )

Balances, October 31, 2021 —   $ —   986,676 $ 9,867 53,684,910 $ 53,685 $ 105,577,729 $ (20,108,301 ) $ 1,591 $ 85,534,571

Balances, April 30, 2022 —   $ —   986,676 $ 9,867 53,748,735 $ 53,749 $ 106,821,384 $ (27,499,056 ) $ (1,470,272 ) $ 77,915,672

Stock based compensation —   —   —   —   —   —   755,471 —   —   755,471

Vesting of restricted stock units —   —   —   —   69,707 69 (84,145 ) —   —   (84,076 )

Unrealized gain on marketable securities —   —   —   —   —   —   —   —   133,582 133,582

Currency translation adjustments —   —   —   —   —   —   —   —   352 352

Net loss —   —   —   —   —   —   —   (3,811,599 ) —   (3,811,599 )

Balances, July 31, 2022 —   $ —   986,676 $ 9,867 53,818,442 $ 53,818 $ 107,492,710 $ (31,310,655 ) $ (1,336,338 ) $ 74,909,402

Stock based compensation —   —   —   —   —   —   1,246,796 —   —   1,246,796

Vesting of restricted stock units —   —   —   —   411,097 411 (332,794 ) —   —   (332,383 )

Unrealized loss on marketable securities —   —   —   —   —   —   —   —   (350,811 ) (350,811 )

Currency translation adjustments —   —   —   —   —   —   —   —   (1,256 ) (1,256 )

Net loss —   —   —   —   —   —   —   (6,244,477 ) —   (6,244,477 )

Balances, October 31, 2022 —   $ —   986,676 $ 9,867 54,229,539 $ 54,229 $ 108,406,712 $ (37,555,132 ) $ (1,688,405 ) $ 69,227,271

See accompanying notes.
5

RED CAT HOLDINGS

RED CAT HOLDINGS
Consolidated Stockholders' Equity Statements
(Unaudited)

Series A Series B Common Stock Additional Accumulated Other
Preferred Stock Preferred Stock Paid-in Accumulated Comprehensive Total
Shares Amount Shares Amount Shares Amount Capital Deficit Income (Loss) Equity
Balances, April 30, 2020 208,704 $ 2,087 3,681,623 $ 36,816 20,011,091 $ 20,011 $ 4,043,837 $ (2,573,753 ) $ —    $ 1,528,998

Stock based compensation 107,061 107,061

Net Loss —    —    —    —    —    —    —    (383,244 ) —    (383,244 )

Balances, July 31, 2020 208,704 $ 2,087 3,681,623 $ 36,816 20,011,091 $ 20,011 $ 4,150,898 $ (2,956,997 ) $ —   $ 1,252,815

Conversion of Debt 710,444 711 494,314 495,025

Stock based compensation 107,061 107,061

Net Loss —    —    —    —    —    —    —    (722,281 ) —    (722,281 )

Balances, October 31, 2020 208,704 $ 2,087 3,681,623 $ 36,816 20,721,535 $ 20,722 $ 4,752,273 $ (3,679,278 ) $ —   $ 1,132,620

Balances, April 30, 2021 158,704 $ 1,587 1,968,676 $ 19,687 29,431,264 $ 29,431 $ 21,025,518 $ (15,809,928 ) $ —   $ 5,266,295

Acquisition of Skypersonic 685,321 685 2,630,955 2,631,640

Public offerings, net of $5,959,800 of issuance costs 17,333,334 17,333 70,022,871 70,040,204

Exercise of warrants 66,666 67 263,073 263,140

Conversion of preferred stock (982,000 ) (9,820 ) 818,333 818 9,002 —

Stock based compensation 62,500 63 384,023 384,086

Shares issued for services 91,667 92 191,908 192,000

Currency translation adjustments 922 922

Net Loss —    —    —    —    —    —    —    (1,557,772 ) —    (1,557,772 )

Balances, July 31, 2021 158,704 $ 1,587 986,676 $ 9,867 48,489,085 $ 48,489 $ 94,527,350 $ (17,367,700 ) $ 922 $ 77,220,515

Acquisition of Skypersonic 21,972 22 84,350 84,372

Acquisition of Teal 3,588,272 3,588 10,007,691 10,011,279

Conversion of preferred stock (158,704 ) (1,587 ) 1,321,966 1,322 265 —

Stock based compensation 243,615 244 899,693 899,937

Shares issued for services 20,000 20 58,380 58,400

Currency translation adjustments 669 669

Net Loss —    —    —    —    —    —    —    (2,740,601 ) —    (2,740,601 )

Balances, October 31, 2021 —   $ —   986,676 $ 9,867 53,684,910 $ 53,685 $ 105,577,729 $ (20,108,301 ) $ 1,591 $ 85,534,571
Consolidated Statements of Cash Flows
(Unaudited)

Six months ended  October 31,
2022 2021
Cash Flows from Operating Activities
Net loss $ (10,056,076 ) $ (4,298,373 )
Stock based compensation - options 890,711 505,821
Stock based compensation - restricted units 1,111,556 778,202
Common stock issued for services —   250,400
Amortization of intangible assets 219,790 32,651
Realized loss from sale of marketable securities 28,416 —
Depreciation 91,804 5,455
Change in fair value of derivative (593,822 ) (273,061 )
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable (422,296 ) 27,002
Inventory (2,664,222 ) (319,124 )
Other (2,098,555 ) (3,814,101 )
Operating lease right-of-use assets and liabilities 23,487 10,887
Customer deposits (314,622 ) 8,753
Accounts payable 630,594 (976,679 )
Accrued expenses (380,904 ) (505,340 )
Net cash used in operating activities (13,534,139 ) (8,567,507 )

Cash Flows from Investing Activities
Cash acquired through acquisitions —   24,866
Purchases of property and equipment (1,280,935 ) (30,147 )
Proceeds from maturities of marketable securities 13,241,836 1,855,788
Purchases of marketable securities —   (49,978,445 )
Net cash provided by (used in) investing activities 11,960,901 (48,127,938 )

Cash Flows from Financing Activities
Proceeds from exercise of warrants —   99,999
Proceeds from related party obligations 13,404 —
Payments under related party obligations (40,057 ) (1,866,381 )
Payments under debt obligations (340,766 ) (320,965 )
Payments of taxes related to equity transactions (561,407 ) —
Proceeds from issuance of common stock, net —   70,065,203
Net cash (used in) provided by financing activities (928,826 ) 67,977,856

Net (decrease) increase in Cash (2,502,064 ) 11,282,411
Cash, beginning of period 4,084,815 277,347
Cash, end of period 1,582,751 11,559,758

Cash paid for interest 62,862 26,175
Cash paid for income taxes —   —

Non-cash transactions
Fair value of shares issued in acquisitions $ —   $ 12,727,292
Unrealized loss on marketable securities $ 217,229 $ —
Elimination of derivative liability $ —   $ 163,141
Indirect payment to related party $ —   $ 132,200
Shares withheld as payment of note receivable $ 18,449 $ —
Conversion of preferred stock into common stock $ —   $ 11,407
Taxes related to net share settlement of equity awards $ 9,448 $ —
See accompanying notes.
6

RED CAT HOLDINGS, INC.
NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS
October 31, ~~2021~~2022 and ~~2020~~2021
(unaudited)

Our unaudited interim ~~condensed~~ consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the unaudited interim ~~condensed~~ consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the financial information included in the Annual Report on Form 10-K for the fiscal year ended April 30, ~~2021~~2022 of Red Cat Holdings, Inc. (the "Company"), filed with the Securities and Exchange Commission ("SEC") on ~~August 12, 2021.~~July 27, 2022.

Note 1 -– The Business

Red Cat Holdings ("(“Red ~~Cat"~~Cat” or the ~~"Company"~~“Company”) was originally incorporated in February 1984. Since April 2016, the ~~Company's~~Company’s primary business has been to provide products, services and solutions to the drone industry which it presently does through its ~~five~~four wholly owned subsidiaries. Teal Drones is a leader in commercial and government ~~UAV~~Unmanned Aerial Vehicles (UAV) technology. Fat Shark ~~Holdings~~ is a provider of First Person View (FPV) video ~~goggles.~~goggles to the drone industry. Rotor Riot sells FPV drones and equipment ~~primarily~~ to the consumer ~~marketplace.~~marketplace through its digital storefront located at www.rotorriot.com. Skypersonic provides software and hardware solutions that enable drones to complete inspection services in locations where GPS (global positioning systems) ~~are~~is not available, yet still record and transmit data even while being operated from thousands of miles away. ~~Red Cat Propware is developing drone flight data analytics and storage solutions, as well as diagnostic products and services.~~

Corporate developments ~~since January 1, 2020~~during the two years ended October 31, 2022 include:

A. ~~Rotor Riot Acquisition~~
In January 2020, the Company consummated a Merger Agreement under which Rotor Riot Acquisition Corp, a wholly owned subsidiary of the Company, merged with and into Rotor Riot, with Rotor Riot continuing as the surviving entity and a wholly owned subsidiary of the Company. Under the Merger Agreement, each member of Rotor Riot received its pro rata portion of the total number of shares of the Company's common stock issued based on (A)(i) $3,700,000 minus (ii) $915,563 (which included certain debt and other obligations of Rotor Riot and its Chief Executive Officer that the Company agreed to assume (the "Assumed Obligations") divided by (B) the volume weighted average price ("VWAP") of the Company's common stock for the twenty trading days prior to the closing of the Merger. Based on a share issuance value of $~~2,784,437~~ ~~and a VWAP of $1.25445, the Company issued an aggregate of~~ ~~2,219,650~~ ~~shares of common stock to the members of Rotor Riot.~~
Following the closing, the Company's management controlled the operating decisions of the combined company. Accordingly, we accounted for the transaction as an acquisition of Rotor Riot by the Company. Based on purchase price accounting, we recognized the assets and liabilities of Rotor Riot at fair value with the excess of the purchase price over the net assets acquired recognized as goodwill. The table below reflects the acquisition date values of the purchase consideration, assets acquired, and liabilities assumed. The shares issued were valued at $~~1,820,114~~ (~~2,219,650~~ ~~shares issued times $0.82~~ ~~per share which equaled the closing price of the Company's common stock on the date that the merger agreement was consummated).~~ ~~A summary of the purchase price and its related allocation is as follows:~~
7
Shares issued $ 1,820,114
Promissory note issued 175,000
Total Purchase Price $ 1,995,114
Assets acquired
Cash 21,623
Accounts receivable 28,500
Other assets 3,853
Inventory 127,411
Trademark 20,000
Brand name 578,000
Customer relationships 39,000
Total assets acquired 818,387
Liabilities assumed
Accounts payable and accrued expenses 171,651
Notes payable 209,799
Due to related party 197,846
Total liabilities assumed 579,296
Total fair value of net assets acquired 239,091
Goodwill $ 1,756,023
~~The final purchase price allocation was determined by an independent valuation services firm. Customer Relationships with a value of $39,000~~ ~~are being amortized over 7 years. The carrying value of Brand Name is not being amortized but will be reviewed quarterly and formally evaluated at the end of each fiscal year.~~
B. Fat Shark Acquisition

~~In November~~On September 30, 2020, the Company ~~closed~~entered into a share purchase agreement ("(“Share Purchase ~~Agreement"~~Agreement”) with Greg French (“French”), the founder and sole shareholder of Fat Shark Holdings ("(“Fat ~~Shark"~~Shark”), to acquire all of the issued and outstanding shares of Fat Shark and its subsidiaries. The transaction closed on November 2, 2020 and was valued at $8,354,076 based on (i) the issuance of 5,227,273 shares of common stock with a value of $6,351,076 on the date of closing (ii) a senior secured promissory note in the original principal amount of $1,753,000, and (iii) a cash payment of $250,000. The Share Purchase Agreement ~~includes~~included indemnification provisions, a two year non-compete agreement, and registration rights for the shares issued in the transaction.
A summary of the purchase price and its related allocation iswas as follows:
Shares issued $ 6,351,076
Promissory note issued 1,753,000
Cash 250,000
Total Purchase Price $ 8,354,076
Assets acquired
Cash 201,632
Accounts receivable 249,159
Other assets 384,232
Inventory 223,380
Brand name 1,144,000
Proprietary technology 272,000
Non-compete agreement 16,000
Total assets acquired 2,490,403
Liabilities assumed
Accounts payable and accrued expenses 279,393
Customer deposits 25,194
Total liabilities assumed 304,587
Total fair value of net assets acquired 2,185,816
Goodwill $ 6,168,260

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Shares issued $ 6,351,076
Promissory note issued 1,753,000
Cash 250,000
Total Purchase Price $ 8,354,076
Assets acquired
Cash 201,632
Accounts receivable 249,159
Other assets 384,232
Inventory 223,380
Brand name 1,144,000
Proprietary technology 272,000
Non-compete agreement 16,000
Total assets acquired 2,490,403
Liabilities assumed
Accounts payable and accrued expenses 279,393
Customer deposits 25,194
Total liabilities assumed 304,587
Total fair value of net assets acquired 2,185,816
Goodwill $ 6,168,260
The ~~final~~Company engaged a valuation services firm to value the intangible assets acquired and the purchase price allocation ~~was determined by an independent valuation services firm.~~is now complete. Intangible assets included proprietary technology and a non-compete agreement which are being amortized over 5 and 3 years, respectively. The carrying value of ~~Brand Name~~brand name is not being amortized but ~~will be~~is reviewed quarterly and formally evaluated at year end. The excess of the ~~end of each fiscal year.~~purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end.

C.B. Skypersonic Acquisition

In ~~February~~May 2021, the Company ~~entered into Share Purchase and Liquidity Event Agreements (the "Skypersonic Agreements") with~~acquired all of the ~~founder and majority shareholder~~outstanding stock of Skypersonic, Inc., (“Skypersonic”) in exchange for $3,000,000 of our common stock. The number of shares issuable was based on the volume weighted average price ("~~Skypersonic"~~VWAP") ~~and~~of our common stock for the ~~holders~~20 trading days ending May 7, 2021. Based on a VWAP of $4.0154, the Company issued 747,124 shares. In addition, the Company also agreed to issue 110,000 shares of common stock ~~and equity~~to a shareholder. For accounting purposes, the 857,124 shares were valued at $3,291,356 based ~~agreements representing 97.46%~~on the closing price of Skypersonic (the "Sellers"), pursuant to which, subject to the satisfaction of certain closing conditions, the Company would acquire all of the issued and outstanding share capital of Skypersonic for an aggregateour common stock of $~~3,000,000~~ 3.84~~in shares (the "Share Consideration") of the Company's common stock, based upon the VWAP of the Company's common stock at closing of the transaction (the "Skypersonic Transaction").~~ on May 7, 2021. Prior to the closing, the Company provided $75,000 to Skypersonic to fund its operating ~~costs of Skypersonic.~~costs. This amount was capitalized as part of the purchase price. ~~The transaction closed on May 7, 2021 and was paid through the issuance of~~ ~~857,124~~ ~~shares of common stock which had a fair market value of $3,291,356~~. Fifty (50%) percent of the Share Consideration (the "Escrow Shares") was deposited in an escrow account as security for indemnification obligations and any purchase price adjustments due to working capital deficiencies and any other claims or expenses. Under the Skypersonic Agreements, closing date working capital deficits in excess of $~~300,000~~ ~~shall result in a reduction of the Share Consideration on a dollar of dollar basis.~~In October 2021, the Company and Skypersonic agreed to a reduction in the purchase price of $601,622 which resulted in the cancellation of 149,829 shares held in escrow. ~~A revised~~
The final summary of the purchase price and its related allocation is as follows:
Shares issued $ 2,716,012
Cash 75,000
Total Purchase Price $ 2,791,012

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Shares issued $ 2,716,013
Cash 75,000
Total Purchase Price $ 2,791,013
Assets acquired
Cash 13,502
Accounts receivable 51,083
Other assets 12,950
Inventory 50,556
Total assets acquired 128,091
Liabilities assumed
Accounts payable and accrued expenses 1,054,997
Total liabilities assumed 1,054,997
Total fair value of net assets acquired (926,906 )
Goodwill $ 3,717,919
Assets acquired
Cash 13,502
Accounts receivable 51,083
Other assets 12,950
Inventory 50,556
Proprietary technology 826,000
Non-compete agreement 65,000
Total assets acquired 1,019,091
Liabilities assumed
Accounts payable and accrued expenses 1,054,997
Total liabilities assumed 1,054,997
Total fair value of net assets acquired (35,906 )
Goodwill $ 2,826,918

The ~~foregoing amounts reflect our current estimates of fair~~Company engaged a valuation services firm to value asthe intangible assets acquired and the purchase price allocation is now complete. Intangible assets included proprietary technology and a non-compete agreement which are being amortized over 5 and 3 years, respectively. The excess of the ~~May 7, 2021 acquisition date. The Company expects to recognize fair values associated with~~purchase price above the ~~customer relationships~~net assets acquired was recorded as well as the Skypersonic 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,goodwill which is ~~a one-year period following the acquisition date. The determination of the fair values of the acquired assets~~reviewed quarterly and ~~liabilities assumed (and the related determination of estimated lives of depreciable tangible and intangible assets) requires significant judgment.~~formally evaluated at year end.

D.C. Teal Drones Acquisition

On August 31, 2021, the Company closed the acquisition of Teal Drones Inc., (“Teal”). ~~The acquisition~~Under the terms of ~~Teal~~the agreement, the base purchase price of $14,000,000 was ~~made pursuant to an Agreement~~reduced by $1,670,294 of debt assumed by the Company, as well as a working capital deficit adjustment of $1,456,953. Based on the net amount payable of $10,872,753, and ~~Plan~~a VWAP of ~~Merger by and among Red Cat Holdings, Inc., a Nevada corporation (the “Company”), Teal Acquisition I Corp., a Delaware corporation (“Acquisition”) and wholly-owned subsidiary~~$2.908 for the twenty trading days ending August 31, 2022, the Company issued 3,738,911 of common stock. For accounting purposes, the shares were valued at $10,431,562 based on the closing price of our common stock of $2.79 on August 31, 2021. In December 2021, the Company and Teal ~~as amended~~agreed to a reduction in the purchase price of $438,058 which resulted in the cancellation of 150,639 shares held in escrow. The Stock Consideration may be increased if Teal attains certain revenue levels in the 24-month period following the closing. The additional consideration begins at $4 million if sales total at least $18 million and ~~restated August 31, 2021 (the “Merger Agreement” or “Merger”).~~ends at $16 million if sales total $36 million.
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The final summary of the purchase price and its related allocation is as follows:
Total Purchase Price – shares issued $ 10,011,279
Assets acquired
Cash 11,364
Accounts receivable 47,964
Other current assets 15,085
Other assets 48,595
Inventory 1,253,755
Brand name 1,430,000
Proprietary technology 3,869,000
Total assets acquired 6,675,763
Liabilities assumed
Accounts payable and accrued expenses 1,143,899
Customer deposits 1,766,993
Notes payable 2,749,091
Total liabilities assumed 5,659,983
Total fair value of net assets acquired 1,015,780
Goodwill $ 8,995,499
The Company engaged a valuation services firm to value the intangible assets acquired and the purchase price allocation is now complete. Intangible assets included proprietary technology which is being amortized over 6 years. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end. The excess of the purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end.
On August 31, 2021, Teal entered into an Amended and Restated Loan and Security Agreement with Decathlon Alpha IV, L.P. (“DA4”) (the “Loan Agreement”) in the amount of ~~$1,670,294~~$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%~~(10%) percent per annum. Principal and interest ~~under the term Loan~~ is payable in monthly ~~in an amount equal~~installments to ~~$49,275~~$49,275 until maturity on December 31, 2024. The Company assumed the Loan Agreement in connection with the acquisition.
~~Pursuant~~Supplemental Unaudited Pro Forma Financial and Other Information
There is no pro forma financial information for the six months ended October 31, 2022 because all acquisitions had closed prior to the ~~Merger Agreement, we acquired all~~beginning of the ~~issued and outstanding share capital~~reporting period. The following table presents pro forma results as if our acquisition of Teal had occurred on May 1, 2021:

Three months ended October 31, 2021

Six months ended October 31, 2021
Red Cat Teal Consolidated Red Cat Teal Consolidated
Revenues $ 1,863,239 $ 104,016 $ 1,967,255 $ 3,259,990 $ 416,063 $ 3,676,053

Net Loss $ (2,740,601 ) $ (301,783 ) $ (3,042,384 ) $ (4,298,373 ) $ (1,467,770 ) $ (5,766,143 )

The acquisition of Skypersonic was completed on May 7, 2021 and its activities during the period from May 1, 2021 to May 7, 2021 were immaterial to the consolidated pro forma results.
The unaudited pro forma financial information has been compiled in ~~exchange for $14,000,000 of our common stock, par value $0.001 per share (“Common Stock”) at~~a manner consistent with the Volume Weighted Average Price (VWAP) of our Common Stock for the 20 trading days ended August 31, 2021 of $2.908 per share, reduced by the amount of Teal debt assumed consisting of approximately $1.67 million payable to DA4,Company's accounting policies, and approximately $1,457,000 in working capital deficit, for a net closing date payment of $10,872,753. At closing, we issued 3,738,911 shares of our Common Stock (the “Stock Consideration”) which had a fair market value of $10,431,562. Fifteen (15%)includes transaction costs, amortization of the ~~Share Consideration (the “Escrow Shares”) was deposited in an escrow account for a period of eighteen (18) months as security for indemnification obligations, any purchase price adjustments due~~acquired intangible assets, and other expenses directly related to ~~working capital deficiencies~~each respective acquisition. The unaudited pro forma financial information is based on estimates and ~~any other claims or expenses. In December 2021,~~assumptions which the Company believes are reasonable and ~~Teal agreed to a reduction~~are not necessarily indicative of the results that would have been realized had the acquisitions closed on the dates indicated in the ~~purchase price~~tables, nor are they indicative of ~~$438,058 which resulted~~results of operations that may occur in the ~~cancellation of 150,639 shares held in escrow. The fair market value of the cancelled shares was $420,283. A revised summary of the purchase price and its related allocation is set forth below.~~
The Stock Consideration payable under the Merger Agreement may be increased upon the achievement of certain milestones set forth in the Merger Agreement (the “Earn-Out Consideration”). Additional shares of Common Stock may become issuable by the Company in the event that within twenty-four (24) months following closing of the Merger, Teal realizes certain revenue targets. A total of Sixteen Million Dollars ($16,000,000) in additional shares of Common Stock will be issued if sales and services of Teal's Golden Eagle drones equal at least Thirty-six Million Dollars ($36,000,000). A total of Ten Million Dollars ($10,000,000) in additional shares of Common Stock will be issued if sales and services of Teal's Golden Eagle drones equal at least $24 million ($24,000,000) but less than $36 million ($36,000,000). A total of Four Million Dollars ($4,000,000) in additional shares of Common Stock will be issued if sales and services of Teal's Golden Eagle drones equal at least Eighteen Million Dollars ($18,000,000) but less than Twenty-Four Million Dollars ($24,000,000). Additional Share Consideration, if earned, is issuable at the VWAP of the Company within thirty (30) days of the determination that Earn-Out Consideration is payable.future.
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Other information related to the Company’s acquisitions include:

Shares issued $ 10,011,279
Total Purchase Price $ 10,011,279
Assets acquired
Cash 11,364
Accounts receivable 47,964
Other current assets 15,085
Other assets 48,595
Inventory 1,253,755
Total assets acquired 1,376,763
Liabilities assumed
Accounts payable and accrued expenses 1,143,899
Customer deposits 1,766,993
Notes payable 2,749,091
Total liabilities assumed 5,659,983
Total fair value of net assets acquired (4,283,220 )
Goodwill $ 14,294,499
• The purchase price allocation has been finalized for each acquisition based on the report from the valuation services firm engaged to assist in the identification and valuation of intangible assets acquired.

• The fair value of shares issued by the Company as part of the consideration paid is normally based on the volume weighted average price of the Company’s common stock for the twenty days prior to the closing of the transaction. For accounting purposes, the shares issued are valued based on the closing stock price on the date that the transaction closes.
The foregoing amounts reflect our current estimates of fair value as of the August 31, 2021 acquisition date. The Company expects to recognize fair values associated with the customer relationships acquired, as well as the Teal 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.
• Goodwill for Rotor Riot relates to its strong social media presence including more than 200,000 YouTube subscribers. Goodwill for Fat Shark is attributable to its relationship with manufacturing sources in China and the potential to integrate its goggle technologies with the Teal drone. Goodwill for Skypersonic relates to the future customers expected to leverage its “Fly Anywhere” technologies in a wide range of commercial environments. Goodwill for Teal is ascribed to its existing relationship with several U.S. government agencies including its classification as an approved vendor.
• The Company expects that the Goodwill recognized in each transaction will be deductible for tax purposes. The Company has reported net losses since its inception and is presently unable to determine when and if the tax benefit of this deduction will be realized.

Note 2 -– Summary of Significant Accounting Policies

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

Principles of Consolidation -– Our ~~condensed~~ consolidated financial statements include the accounts of our wholly owned operating subsidiaries, ~~Red Cat Propware, Inc.,~~which consist of Teal Drones, Fat Shark, Rotor Riot, ~~Fat Sharking Holdings, Skypersonic,~~ and ~~Teal Drones.~~Skypersonic. Intercompany transactions and balances have been eliminated.

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) determine ~~stock based~~stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) ~~the~~ accounting for derivatives.

Cash and Cash Equivalents- – At October 31, ~~2021,~~2022, we had cash of $~~11,559,758~~$1,582,751 in multiple commercial banks and financial services companies. We have not experienced any loss on these ~~accounts~~cash balances and believe they are not exposed to any significant credit risk.

~~Investments~~Marketable Securities – Our ~~investments~~marketable securities have been classified and accounted for as available-for-sale securities. ~~Our investment manager can sell any of our investment holdings at any time,~~These securities are primarily invested in corporate bonds and are readily saleable, and therefore, we have classified ~~our investments~~them as short term. Our available-for-sale securities are carried at fair value with any unrealized gains and losses reported ~~within investment~~as a component of comprehensive income (loss). Once realized, any gains or losses are recognized in ~~our consolidated statements~~the statement of operations.

We have elected to present ~~accrued~~ interest income receivable separately from ~~investments~~marketable securities on our consolidated balance sheets. Accrued interest receivable was $~~371,095~~$312,931 and $385,730 as of October 31, ~~2021~~2022 and April 30, 2022, respectively, and was ~~recorded as~~included in other current assets. We did not write off any accrued interest receivable during the ~~three~~six months ended October 31, 2022 and 2021.

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

10
Inventories – Inventories, which consist of raw materials, work-in-process, and finished goods, are stated at the lower of cost or net realizable value, ~~with cost being determined by the average-cost method, which approximates~~and are measured using the first-in, first-out method. Cost components include direct materials and direct labor, as well as in-bound freight. At each balance sheet date, the Company evaluates ending inventories for excess quantities and obsolescence.
Goodwill -– Goodwill represents the excess of the purchase price of an acquisition over the estimated fair value of identifiable net assets acquired. The measurement ~~periods~~period for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes known, not to exceed 12 months. Adjustments in a purchase price allocation may require a change in the amounts allocated to goodwill during the periods in which ~~the adjustments are~~an adjustment is determined.

We perform an impairment test at the end of each fiscal year, or more frequently if indications of impairment arise. We have ~~a single reporting unit,~~two business segments and ~~consequently,~~ evaluate goodwill for impairment based on an evaluation of the fair value of ~~the Company as a whole.~~
each business segment individually.

~~Leases~~Property and equipment – Property and equipment is stated at cost less accumulated depreciation and depreciated using the straight-line method over the estimated useful life of the asset. The estimated useful lives of our property and equipment are generally: (i) furniture and fixtures - seven years, (ii) equipment and related - two to five years, and (iii) leasehold improvements - 15 years.
- Leases – Effective August 1, 2021, the Company adopted Accounting Standards Codification (ASC) 842 titled “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company adopted ASC 842 on a modified retrospective transition basis which means that it ~~will~~did not restate financial information for any periods prior to August 1, 2021. Upon adoption, the Company recognized a lease liability obligation of $796,976 and a right-of-use asset for the same amount.
The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its ~~recent~~last debt ~~financings.~~financing. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a ~~straight line~~straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.
Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures
– The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

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.
12
~~The levels of the fair value hierarchy are described below:~~
• ~~Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.~~
• Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs other than quoted prices that are observable in the marketplace for the asset. The observable inputs are used in valuation models to calculate the fair value for the asset.
• Level 3 inputs are unobservable but are significant to the fair value measurement for the asset, and include situations where there is little, if any, market activity for the asset. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset.
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
~~Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis~~
The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable and accrued expenses and debt. The carrying amounts of its cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments.
~~Convertible Securities and Derivatives~~
When the Company issues convertible debt or equity instruments that contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds from the convertible host instruments are first allocated to the bifurcated derivative instruments.  The remaining proceeds, if any, are then allocated to the convertible instruments themselves, resulting in those instruments being recorded at a discount from their face value but no lower than zero. Any excess amount is recognized as a derivative expense.
~~Derivative Liabilities~~
The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company's balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change.
In October 2020 and January 2021, the Company entered into convertible note agreements which included provisions under which the conversion price was equal to the lesser of an initial stated amount or the conversion price of a future offering. This variable conversion feature was recognized as a derivative. Both financings included the issuance of warrants which contained similar variable conversion features. The Company values these convertible notes and warrants using the multinomial lattice method that values the derivative liability within the notes based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.
~~Revenue Recognition~~- The Company recognizes revenue in accordance with ASC 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 a single component, specifically, the shipment of goods to customers as orders are fulfilled. Customers pay at the time they order and the Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $117,842 and $46,096 at October 31, 2021 and April 30, 2021, respectively.
~~Research and Development~~- Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.
~~Income Taxes~~ - Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
13
~~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 condensed consolidated financial statements.
~~Foreign Currency~~ - The functional currency of our international subsidiary is the local currency. For that subsidiary, we translate assets and liabilities to U.S. dollars using period-end exchange rates, and average monthly exchange rates for revenues, costs, and expenses. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders' equity. Net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency are recorded in other income, net in the consolidated statements of operations.
~~Comprehensive Loss~~~~- During the three and six months ended October 31, 2021, differences between net loss and comprehensive loss totaled $922~~ ~~and $1,591, respectively, relating to foreign currency translation adjustments. During the three and six months ended October 31, 2020, there were no differences between net loss and comprehensive loss.~~
~~Stock-Based Compensation~~- We use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation - Stock Compensation. Fair value is determined using the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. We recognize compensation costs on a straight line basis over the service period which is generally the vesting term.
~~Basic and Diluted Net Loss per Share~~ - Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The exercise of these common stock equivalents would dilute earnings per share if we become profitable in the future.
~~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. Related Party transactions are disclosed in Note 17.
~~Note 3 – Fair Value Measurements~~
We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure 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. 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.
11

~~Our~~Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
The Company's financial instruments mainly consist of cash, ~~and cash equivalents, short-term and long-term investments,~~receivables, current assets, accounts payable, accrued expenses and ~~accrued liabilities. At October 31, 2021, and April 30, 2021, the~~debt. The carrying ~~values~~amounts of cash, ~~and cash equivalents,~~receivables, current assets, accounts payable, accrued expenses and ~~accrued liabilities approximated~~current debt approximates fair value due to ~~their~~the short-term ~~maturities.~~nature of these instruments.

Convertible Securities and Derivatives
When the Company issues convertible debt or equity instruments that contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds from the convertible host instruments are first allocated to the bifurcated derivative instruments.  The remaining proceeds, if any, are then allocated to the convertible instruments themselves, resulting in those instruments being recorded at a discount from their face value but no lower than zero. Any excess amount is recognized as a derivative expense.
Derivative Liabilities
The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as liabilities on the Company's balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change.
In October 2020 and January 2021, the Company entered into convertible note agreements which included provisions under which the conversion price was equal to the lesser of an initial stated amount or the conversion price of a future offering. This variable conversion feature was recognized as a derivative. Both financings included the issuance of warrants which contained similar variable conversion features. The Company values these convertible notes and warrants using the multinomial lattice method that values the derivative liability based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.
Revenue Recognition – The Company recognizes revenue in accordance with ASC 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 a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $123,308 and $437,930 at October 31, 2022 and April 30, 2022, respectively.
Research and Development – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.
Income Taxes – Deferred taxes are provided on the liability method; whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
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Foreign Currency – The functional currency of our international subsidiary is the local currency. For that subsidiary, we translate assets and liabilities to U.S. dollars using period-end exchange rates, and average monthly exchange rates for revenues, costs, and expenses. We record translation gains and losses in accumulated other comprehensive income.
Comprehensive Loss – Comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an element of stockholders' equity and 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, 2022 and October 31, 2021, comprehensive loss was $218,133 higher and $1,591 lower than net loss, respectively, related to unrealized losses on available-for-sale securities totaling $217,229 and $0, respectively, as well as by foreign currency translation adjustments of negative $904 and positive $1,591.
Stock-Based Compensation – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term.
Basic and Diluted Net Loss per Share – Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The conversion or exercise of these common stock equivalents would dilute earnings per share if we become profitable in the future.
Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive included the following:
October 31, 2022 April 30, 2022
Series B Preferred Stock, as converted 822,230 822,230
Stock options 3,994,558 3,694,142
Warrants 1,539,999 1,539,999
Restricted stock 1,106,514 1,083,675
Total 7,463,301 7,140,046
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. Related Party transactions are disclosed in Note 19.
Segment Reporting
Since January 2020, we have acquired four separate businesses operating in various aspects of the drone industry. Following the most recent acquisition, the Company focused on integrating and organizing its acquired businesses. These efforts included refining the establishment of Enterprise and Consumer segments to sharpen the Company’s focus on the unique opportunities in each sector of the drone industry. The Enterprise segment, which includes Teal Drones and Skypersonic, is focused on opportunities in the commercial sector, including military. Enterprise is building the infrastructure to manage drone fleets, fly and provide services remotely, and navigate confined industrial interior spaces and dangerous military environments. The Consumer segment, which includes Rotor Riot and Fat Shark, is focused on enthusiasts and hobbyists which are expected to increase as drones become more visible in our daily lives. Effective May 1, 2022, we began to manage our business operations through these business segments. The reportable segments were identified based on how our chief operating decision maker (“CODM”), which is a committee comprised of our Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”) and our Chief Financial Officer (“CFO”), manages our business, makes resource allocation and operating decisions, and evaluates operating performance. See “Note 20 - Segment Reporting”.
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Note 3 – Marketable Securities
The following tables set forth information related to our ~~available-for-sales investment~~marketable securities as of October 31, ~~2021:~~ 2022:

I. ~~Amortized cost, net~~Cost, unrealized gains or losses, and fair values
Cost Unrealized Gains (Losses) Fair Value
Asset-backed securities $ 1,663,414 $ (27,702 ) $ 1,635,712
Corporate bonds 31,330,997 (1,663,821 ) 29,667,176
Total $ 32,994,411 $ (1,691,523 ) $ 31,302,888

Amortized Cost Net Unrealized Gains (Losses) Fair Value
Money market funds $ 1,598,428 $ 732 $ 1,599,160
Asset-backed securities 3,444,037 (9,081 ) 3,434,956
Corporate bonds 43,219,180 (130,639 ) 43,088,541
Total $ 48,261,645 $ (138,988 ) $ 48,122,657
II. Contractual Maturities
One Year or Less One to
Five Years Over Five Years Total
Asset-backed securities $ —   $ 1,635,712 $ —   $ 1,635,712
Corporate bonds 14,785,077 14,577,260 304,839 29,667,176
Total $ 14,785,077 $ 16,212,972 $ 304,839 $ 31,302,888
III. Fair Value Hierarchy

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~~II.~~ ~~Contractual Maturities~~
Level 1 Level 2 Level 3 Total
Asset-backed securities $ —   $ 1,635,712 $ —   $ 1,635,712
Corporate bonds —   29,667,176 —   29,667,176
Total $ —   $ 31,302,888 $ —   $ 31,302,888
One Year or Less Over One Year Over Five Years Total
Money market funds $ 1,599,160 $ —   $ —   $ 1,599,160
Asset-backed securities —   3,434,956 —   3,434,956
Corporate bonds 14,575,236 27,911,550 601,755 43,088,541
Total $ 16,174,396 $ 31,346,506 $ 601,755 $ 48,122,657
~~III.~~ ~~Fair Value Hierarchy~~
Level 1 Level 2 Level 3 Total
Money market funds $ 1,599,160 $ —   $ —   $ 1,599,160
Asset-backed securities —   3,434,956 —   3,434,956
Corporate bonds —   43,088,541 —   43,088,541
Total $ 1,599,160 $ 46,523,497 $ —   $ 48,122,657
Note 4 – Inventories

Inventories consisted of the following:

October
2021

April
2021
Raw materials $ 1,033,801 $ —
Work-in-process 176,522 —
Finished goods 775,184 362,072
Total $ 1,985,507 $ 362,072
October 31, 2022 April 30, 2022
Raw materials $ 3,221,442 $ 2,831,713
Work-in-process 291,870 173,112
Finished goods 3,046,780 891,045
Total $ 6,560,092 $ 3,895,870

Inventory purchase orders outstanding totaled approximately $29.3 million. The global supply chain for materials required to produce our drones continues to experience significant disruptions and delays. While we have increased our order lead times and quantities, we retain the right to cancel or modify these orders prior to their shipment.
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Note 5 -– Other Current Assets

Other current assets included:

October
2021

April
2021
Prepaid inventory $ 1,832,406 $ 478,939
Accrued interest held in investments 371,095 —
Prepaid insurance 280,364 —
Prepaid expenses 74,302 115,587
Security deposits 9,372 9,372
Due from related party —   75,000
Total $ 2,567,539 $ 678,898
October 31, 2022 April 30, 2022
Prepaid inventory $ 3,705,853 $ 1,707,085
Accrued interest income 312,931 385,730
Prepaid expenses 434,655 262,069
Total $ 4,453,439 $ 2,354,884
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Note 6 – Due From Related Party
In January 2022, the Company determined that an employee had relocated in 2021 but their compensation had not been subject to the income tax withholding required by the new jurisdiction. The amount subject to taxation included $155,624 of cash compensation and $1,413,332 of income associated with the vesting of restricted stock ("Stock Compensation"). In March 2022, the Company entered into a note agreement (the "Note") with the employee in the amount of $510,323, representing the estimated taxes owed by the employee related to the Stock Compensation. Under the terms of the Note, 104,166 shares of common stock with a fair value of $280,832, which had vested during calendar 2021, were withheld by the Company and applied against the Note. The employee agreed not to sell or transfer 110,983 shares of common stock held at the Company's transfer agent until the Note was repaid. In addition, the employee has 20,833 shares of restricted stock vesting monthly in calendar 2022, of which 3,000 shares will be withheld with the fair value of those shares applied against the Note. Any shares issued to the employee in 2022 will be held at the transfer agent until the Note is repaid in full. The Note matures on December 31, 2022. The Company filed amended payroll tax returns on March 16, 2022. In March and April 2022, the Company made payments to the relevant tax authorities totaling $712,646 representing $510,323 owed by the employee, $31,604 owed by the Company, and $170,719 of penalties and interest. The Note was repaid in full in August 2022.
Note 7 – Intangible Assets
Intangible assets relate to acquisitions completed by the Company, including those described in Note 1. Intangible assets were as follows:

October 31, 2022 April 30, 2022
Gross Value Accumulated Amortization Net Value
Gross
Value
Accumulated Amortization Net Value
Proprietary technology $ 4,967,000 (422,773 ) $ 4,544,227 $ 1,098,000 $ (219,267 ) $ 878,733
Non-compete agreements 81,000 (43,166 ) 37,834 81,000 (29,667 ) 51,333
Customer relationships 39,000 (15,320 ) 23,680 39,000 (12,535 ) 26,465
Total finite-lived assets 5,087,000 (481,259 ) 4,605,741 1,218,000 (261,469 ) 956,531
Brand name 3,152,000 —   3,152,000 1,722,000 —   1,722,000
Trademark 20,000 —   20,000 20,000 —   20,000
Total indefinite-lived assets 3,172,000 —   3,172,000 1,742,000 —   1,742,000
Total intangible assets, net $ 8,259,000 $ (481,259 ) $ 7,777,741 $ 2,960,000 $ (261,469 ) $ 2,698,531
Proprietary technology and non-compete agreements are being amortized over five to six years and three years, respectively. Customer relationships is being amortized over seven years. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis.
As of October 31, 2022, expected amortization expense for finite-lived intangible assets for the next five years is as follows:
Fiscal Year Ended:
2023 $ 434,738
2024 866,805
2025 842,471
2026 815,271
2027 786,679
Thereafter 859,777
Total $ 4,605,741
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Goodwill is a separately stated intangible asset and represents the excess of the purchase price of acquisitions above the net assets acquired. The composition of, and changes in goodwill, consist of:
Date Acquisition Goodwill
January 2020 Rotor Riot $ 1,849,073
November 2020 Fat Shark 6,168,260
Balance at April 30, 2021 8,017,333
May 2021 Skypersonic 2,826,918
August 2021 Teal Drones 8,995,499
Balance at April 30, 2022 and October 31, 2022 $ 19,839,750

Note 68 – Property and Equipment

Property and equipment consist of assets with an estimated useful life greater than one ~~year. Property~~year and ~~equipment~~ are reported net of accumulated ~~depreciation and the~~depreciation. The reported values are periodically assessed for ~~impairment.~~ ~~Property~~impairment, and ~~equipment~~ ~~as of October 31, 2021 was~~were as follows:

Original cost $ 289,369
Accumulated depreciation 147,243
Net carrying value $ 142,126
October 31, 2022 April 30, 2022
Equipment and related $ 1,003,488 $ 509,376
Leasehold improvements 930,986 149,330
Furniture and fixtures 54,254 42,746
Accumulated depreciation (287,907 ) (189,762 )
Net carrying value $ 1,700,821 $ 511,690
Depreciation expense totaled $91,804 and $5,455 for the six months ended October 31, 2022 and 2021, respectively.

Note 79 – ~~Lease Agreements~~Operating Leases

~~The~~As of October 31, 2022, the Company ~~has the following~~ had operating type leases for real estate ~~locations~~ ~~where it operates:~~
Location Monthly Rent Expiration
South Salt Lake, Utah $ 11,000 August 2024
Orlando, Florida $ 4,600 May 2024
Cayman Islands $ 3,438 Month to Month
Troy, Michigan $ 2,667 May 2022
Orlando, Florida $ 1,690 September 2022
Torino, Italy $ 1,445 January 2024
~~These lease agreements~~and no finance type leases. The Company’s leases have remaining lease terms of up to ~~2.84~~4.58 years, ~~excluding~~some of which may include options to extend ~~certain leases~~ for up to 5 years. ~~The weighted average remaining~~Operating lease ~~term as of~~expense totaled $201,004 for the six months ended October 31, ~~2021 was 2.52 years. The Company used a discount rate~~2022, including period cost for short-term, cancellable, and variable leases, not included in lease liabilities, of ~~12% to calculate its lease liability at~~$19,725 for the six months ended October 31, ~~2021.~~ ~~Future lease payment obligations~~ ~~at October 31, 2021 were as follows:~~
2022.

Fiscal Year Ended:
2022 $ 140,014
2023 251,254
2024 207,727
2025 90,613
Total $ 689,608
Leases on which the Company made rent payments during the reporting period included:
Location Monthly Rent Expiration
South Salt Lake, Utah $ 22,000 December 2024
Orlando, Florida $ 4,692 January 2025
San Juan, Puerto Rico $ 2,226 June 2027
Troy, Michigan $ 2,667 May 2022
Orlando, Florida $ 1,690 September 2022
Supplemental information related to operating leases for the six months ended October 31, 2022 was:
Operating cash paid to settle lease liabilities $176,887
Weighted average remaining lease term (in years) 2.83
Weighted average discount rate 12%
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Future lease payments at October 31, 2022 were as follows:
Fiscal Year Ended:
2023 $ 197,723
2024 403,878
2025 304,676
2026 76,619
2027 79,300
Thereafter 6,627
Total $ 1,068,823
Note 810 – Debt Obligations

A. Decathlon Capital
In ~~connection with the acquisition of~~August 2021, Teal ~~by the Company, Decathlon Capital agreed to restructure the terms of an existing~~restructured its loan agreement with ~~Teal. Effective August 31, 2021, the~~Decathlon Capital. The principal amount ~~outstanding~~ of $1,670,294 bears interest at 10% ~~annually~~ and is ~~repayable~~payable in monthly ~~payments~~installments of $49,275 through its December 31, 2024 maturity date. The balance outstanding at October 31, ~~2021~~2022 totaled $~~1,591,988~~1,139,516.

B. ~~Convertible~~Pelion Note
In May 2021, Teal entered into a ~~convertible~~ note agreement totaling $350,000 ~~with one of its equity investors.~~which is payable upon demand. The ~~note~~Note bears interest at the applicable Federal Rate as of the date of the Note which was ~~approximately~~ 0.13% on the date of issuance. ~~The Company has assumed this obligation which is payable upon demand.~~Accrued interest totaled $652 at October 31, 2022.

C. Vendor Settlement
In May 2020, Teal entered into a settlement agreement with a vendor that had been providing contract manufacturing services. At August 31, 2021, the Company assumed the outstanding balance of $387,500 which iswas payable in monthly installments of $37,500 with a final payment of $12,500 ~~due~~that was made in July 2022. ~~The balance outstanding at October 31, 2021 totaled $350,000~~.

D. SBA Loan
OnIn February 2, 2021, Teal received a ~~second~~ Small Business Administration Paycheck Protection Program (“SBA PPP”) loan in the amount of $300,910. The loan iswas unsecured, non-recourse, and ~~accrues~~accrued interest at one percent annually. ~~All or a portion of the~~The loan ~~is forgivable if~~was used to fund qualifying payroll, rent and utilities. ~~If not forgiven,~~In February 2022, the ~~loan is payable over five years. Teal used the proceeds for the purposes required~~principal balance of $300,910 and ~~the Company is currently working with the SBA regarding the loan forgiveness process.~~accrued interest of $3,001 were forgiven.

E. Shopify Capital
Shopify Capital is an affiliate of Shopify, Inc. which provides sales software and services to the Company. The Company processes customer transactions ordered on the e-commerce site for Rotor Riot through Shopify. Shopify Capital has entered into multiple agreements with the Company in which it has "purchased receivables" at a discount. Shopify retains a portion of the Company's daily receipts until the purchased receivables have been paid. The Company recognizes the discount as a transaction fee, in full, in the month in which the agreement is executed. ~~The Company assumed an existing agreement when it acquired Rotor Riot in January 2020. This agreement was repaid in May 2020. Since then,~~Agreements with activity during the ~~Company has entered into the following agreements with Shopify:~~two years ended October 31, 2022 included:

Date of Transaction Purchased Receivables Payment to Company Transaction Fees Withholding Rate Balance at October 31, 2021 Purchased Receivables Payment to Company Transaction Fees Withholding Rate Fully Repaid In
May 2020 $158,200 $140,000 $18,200 17% Completed in October 2020
September 2020 $209,050 $185,000 $24,050 17% Completed in May 2021 $209,050 $185,000 $24,050 17% May 2021
April 2021 $236,500 $215,000 $21,500 17% $77,722 $236,500 $215,000 $21,500 17% January 2022

F. Corporate Equity
InBeginning in October 2021, and amended in January 2022, Teal ~~entered into an agreement with Corporate Equity to fund~~financed a total of $~~60,000~~120,000 of leasehold ~~improvements.~~improvements with Corporate Equity. The loan bears interest at 8.25% annually and ~~is repayable in~~requires monthly payments of $~~2,005~~3,595 through ~~its July 2024 maturity date.~~December 2024. The balance outstanding at October 31, ~~2021~~2022 and April 30, 2022 totaled $~~48,671~~84,971. and $102,599 respectively.
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G. Revenue Financing Arrangement
In April 2021, Teal entered into an agreement under which it sold future customer payments, at a discount, to Forward Financing. At August 31, 2021, the Company assumed the outstanding balance of $38,758. ~~The balance outstanding totaled $25,210~~ ~~at October 31, 2021. Weekly payments~~Repayment of $~~2,280~~ ~~are being remitted to Forward Financing and the Company expects that~~ the remaining balance ~~will be repaid~~was completed in January 2022.

H. 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 of $656 are ~~being remitted to Ascentium Capital and the Company expects that the remaining balance will be repaid in September~~payable through October 2024. The balance outstanding at October 31, ~~2021~~2022 totaled $~~15,379~~15,351.

I. PayPal
PayPal is an electronic commerce company that facilitates payments between parties through online funds transfers. The Company processes certain customer payments ordered on its e-commerce site through PayPal. The Company has entered into multiple agreements under which PayPal provides an advance on customer payments, and then retains a portion of customer payments until the advance is repaid. PayPal charges a fee which the Company recognizes in full upon entering an agreement. A November 2019 agreement under which PayPal advanced $100,000 and charged a transaction fee of $6,900 was completed in January 2021. A January 2021 agreement under which PayPal advanced $75,444 and charged a transaction fee of $2,444 was completed in August 2021.

J. Summary
~~Short and long term debt obligations totaled $1,338,030~~ ~~and $1,431,739~~ ~~at October 31, 2021, respectively.~~ Outstanding principal payments on debt obligations are due as follows:

Balance of calendar 2021 $ 608,894
2022 825,535
2023 609,099
2024 641,729
2025 72,377
2026 12,135
Total $ 2,769,769
Fiscal 2023 $ 616,131
Fiscal 2024 572,139
Fiscal 2025 401,568
Total $ 1,589,838
Short term – through October 31, 2023 $ 895,257
Long term – thereafter $ 694,581
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Note ~~9 -~~11 – Due to Related Party

A. Founder of Fat Shark

In connection with the acquisition of Fat Shark in November 2020, the Company issued a secured promissory note ~~in the amount of~~for $1,753,000 to the ~~seller who is now an employee.~~seller. The note ~~bears~~accrued interest at 3% annually and ~~matures~~matured in full in November 2023. In May 2021, the Company ~~directed a refund~~made an initial payment of $132,200 ~~related to prepaid inventory~~by directing a refund from a vendor based in China to the ~~seller~~noteholder who is also based in China. The ~~entire outstanding~~remaining balance of $1,620,800 plus accrued interest totaling $45,129 was paid in September 2021.
B. BRIT, LLC

In January 2020, in connection with the acquisition of Rotor Riot, the Company issued a promissory note ~~in the amount of~~for $175,000 to the seller, BRIT, LLC. The note ~~bears~~accrued interest at 4.75% annually. ~~The entire~~In October 2021, the outstanding balance of $85,172 plus accrued interest totaling $12,942 was ~~paid in October 2021.~~
BRIT incurred certain financial obligations in support of the operations of Rotor Riot which the Company assumed responsibility to pay at the effective time of the Merger. These obligations bear interest at annual rates ranging from ~~5.5~~paid.~~% to~~ ~~6.42%. The outstanding balance totaled $138,771~~ ~~and $166,529~~ ~~at October 31, 2021 and April 30, 2021, respectively.~~

The Company also assumed a line of credit obligation totaling $47,853 which bears interest at 6.67% annually. The remaining balance of $37,196 plus accrued interest totaling $292 was paid in October 2022.
C. Aerocarve

In 2020, the Company received advances totaling $79,000from Aerocarve, which is controlled by the Company's Chief Executive Officer. The parties agreed that the funds would bear interest at 5% annually until repaid. ~~The balance owed at April 30, 2021 was $74,000~~. The balance was repaid in full in May 2021.
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Note ~~10 -~~12 – Convertible Notes
~~In November 2019, the Company issued a convertible note in the principal amount of $300,000~~ ~~to one accredited investor and in December 2019, the Company issued a convertible note in the principal amount of $125,000~~ ~~to a director and a convertible note in the principal amount of $25,000~~ ~~to our chief executive officer (collectively, the "2019 Notes"). The Notes had a term of~~ ~~2 yearsand accrued interest at an annual rate of~~ 12~~% through the date of conversion. In September and October 2020, the entire $450,000~~ ~~of 2019 Notes, plus accrued interest totaling $45,204, was converted into~~ ~~710,444~~ ~~shares of common stock.~~

October 2020 Financing

In October 2020, the Company closed a private offering of convertible promissory notes (the "2020 Notes") in the aggregate principal amount of $600,000. The 2020 Notes accrued interest at 12% annually, had a ~~two year~~two-year term, and were convertible into common stock at the lower of $1.00 or a 25% discount of the price per share of Common Stock offered in a future, qualified offering. The financing also included the issuance of warrants to purchase 399,998shares of common stock. The Warrants are exercisable for a period of five years at a price equal to the lower of (1) $1.50 per share, or (2) at a price equal to 75% of the price per share of the common stock offered in a future, qualified offering.

The Company determined that the provision associated with a potential reduction in the conversion price of the notes and the exercise price of the warrant represented an embedded derivative financial liability. The derivative liability was initially valued at $728,587~~, of which $580,000~~ ~~was applied as a debt discount to reduce the initial carrying value of the notes to zero with the remaining $20,000~~ ~~applied against transaction fees. The derivative liability was valued~~ using a multinomial lattice model with $460,588 and $267,999 related to the ~~derivate~~derivative features of the notes and warrants, respectively. In addition, $580,000 of the proceeds were applied as a debt discount to reduce the initial carrying value of the 2020 Notes to zero with the remaining $20,000 applied against transaction fees. The excess of the liability over the net proceeds totaled $148,587 which was recognized as a derivative expense in the fiscal year ended April 30, 2021.
As of October 31, ~~2021,~~2022, (a) the ~~entire $600,000~~ of 2020 Notes ~~have been~~were fully converted into common stock and the related derivative liability eliminated, and (b) 266,666of the warrants were outstanding with a derivative liability of $~~783,613~~330,493.

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January 2021 Financing

In January 2021, the Company closed a private offering of convertible promissory notes (the "2021 Notes") in the aggregate principal amount of $500,000. The 2021 Notes accrued interest at 12% annually, had a ~~two year~~two-year term, and were convertible into shares of the Company's common stock at the lower of $1.00 or a 25% discount of the price per share of Common Stock offered in a future, qualified offering. The financing also included the issuance of warrants to purchase 675,000 shares of common stock. The Warrants are exercisable for a period of five years at a price equal to the lower of (i) $1.50 per share, or (ii) a 25% discount to the price per share of common stock offered in a future qualified offering.
The Company determined that the provision associated with a potential reduction in the conversion price of the notes and the exercise price of the warrant represented an embedded derivative financial liability. The derivative liability was initially valued at $4,981,701~~, of which $500,000~~ ~~was applied as a debt discount to reduce the initial carrying value of the notes to zero. The derivative liability was valued~~ using a multinomial lattice model with $2,111,035 and $2,870,666 related to the derivative features of the notes and warrants, respectively. In addition, $500,000 was applied as a debt discount to reduce the initial carrying value of the 2021 notes to zero. The excess of the liability over the net proceeds totaled $4,481,701 which was recognized as a derivative expense in the fiscal year ended April 30, 2021.
As of October 31, ~~2021,~~2022, (a) the ~~entire $500,000~~ of 2021 Notes ~~have been~~were fully converted into common stock and the related derivative liability eliminated, and (b) 540,000 of the warrants were outstanding with a derivative liability of $~~1,592,952~~683,182.

Note ~~11 -~~13 – Income Taxes

Our operating subsidiary, Red Cat Propware, Inc., is incorporated and based in Puerto Rico which is a commonwealth of the United States. We are not subject to taxation by the United States as Puerto Rico has its own taxing ~~authority which passed the Export Services Act, also known as Act 20, in 2012. Under Act 20, eligible businesses are subject to a special corporate tax rate of 4%.~~authority. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods.

At October 31, ~~2021~~2022 and April 30, ~~2021,~~2022, we had accumulated deficits of approximately $~~20,100,000~~37,500,000 and $~~15,800,000~~27,500,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $~~804,000~~6,937,500 and $~~632,000~~5,087,500, respectively, ~~based on~~calculated using the ~~Act 20~~base Puerto Rico corporate tax rate of 4%18.5%. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at October 31, ~~2021~~2022 and April 30, ~~2021.~~2022.
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Note ~~12 -~~14 – Common Stock

Our common stock has a par value of $0.001per share. We are authorized to issue 500,000,000shares of common stock. Each share of common stock is entitled to one vote.
~~On May 4, 2021, the Company closed an offering~~A summary of ~~4 million~~ shares of common stock ~~which generated gross proceeds of $16 million~~ ~~and net proceeds of approximately $14.6 million~~.issued by the Company since April 30, 2021 is as follows:

~~On May 4, 2021, the Company issued~~ ~~50,000~~ ~~shares of common stock for investor relations services rendered.~~
~~On May 7, 2021, the Company issued~~ ~~685,321~~ ~~shares of common stock in connection with the acquisition of Skypersonic, as further described in Note 1.~~
~~On July 21, 2021, the Company closed an offering of~~ ~~13,333,334~~ ~~shares of common stock which generated gross proceeds of $60 million~~ ~~and net proceeds of approximately $55.5~~ ~~million.~~
~~During the three months ended July 31, 2021,~~ ~~62,500~~ ~~shares of common stock were issued under the terms of a restricted stock agreement with an officer.~~
~~On August 10, 2021, the Company issued~~ ~~1,321,966~~ ~~shares of common stock in connection with the conversion of~~ ~~158,704~~ ~~shares of Series A Preferred Stock.~~
~~On August 15, 2021, the Company issued~~ ~~20,000~~ ~~shares of common stock for investor relations services rendered.~~
~~On August 31, 2021, the Company issued~~ ~~3,588,272~~ ~~shares of common stock in connection with the acquisition of Teal Drones, as further described in Note 1.~~
~~During the three months ended October 31, 2021, the Company issued~~ ~~21,972~~ ~~shares of common stock in connection with working capital adjustments related to the acquisition of Skypersonic, as further described in Note 1.~~
~~During the three months ended October 31, 2021,~~ ~~243,615~~ ~~shares of common stock were issued as stock based compensation.~~
Description of Shares Shares Issued
Shares outstanding as of April 30, 2021 29,431,264
Conversion of Series A preferred stock 1,321,996
Conversion of Series B preferred stock 818,333
Exercise of warrants 66,666
Acquisition of Skypersonic on May 7, 2021, see Note 1 707,293
Acquisition of Teal Drones on August 31, 2021, see Note 1 3,588,272
Public offerings which generated gross proceeds of $76 million and net proceeds of approximately $70.1 million 17,333,334
Exercise of stock options 89,107
Vesting of restricted stock units to employees, net of shares withheld of 225,869 to pay taxes and 92,812 to repay a Note 225,637
Vesting of restricted stock units to Board of Directors 48,124
Vesting of restricted stock units to consultants 7,042
Shares issued for services 111,667
Shares outstanding as of April 30, 2022 53,748,735
Vesting of restricted stock units to employees, net of shares withheld of 512,643 to pay taxes and 9,000 to repay a Note 446,325
Vesting of restricted stock units to Board of Directors 30,078
Vesting of restricted stock units to consultants 4,401
Share outstanding as of October 31, 2022 54,229,539

Note ~~13 -~~15 – Preferred Stock
Series A Preferred Stock ("Series A Stock") is convertible to common stock at a ratio of 8.33 shares of common stock for each share of Series A Stock, and votes together with the common stock on an as-if-converted basis. The Series A Stock was automatically converted into shares of common stock upon the effectiveness of our reverse stock split in August 2019, except for ~~208,704~~ ~~shares which were subject to a limitation on the number of shares of common stock that can be held by the holder of those shares of Series A Stock. Shares~~ outstanding totaled 158,704 at ~~July 31,~~April 30, 2021, and were converted into 1,321,996 shares of common stock on August 10, 2021.

Series B Preferred Stock ("(“Series B ~~Stock"~~Stock”) is convertible into common stock at a ratio of 0.8334 shares of common stock for each share of Series B Stock held and votes together with the common stock on an as-if-converted basis. Shares outstanding at October 31, ~~2021~~2022 totaled 986,676 which are convertible into 822,230 shares of common stock.

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Note ~~14 -~~16 – Warrants

~~In October 2020, the Company~~The company issued five-year warrants ~~to purchase a total of~~ ~~399,998~~ ~~shares~~ in connection with ~~the issuance of $600,000~~oftwo convertible ~~notes.~~note financings. The warrants have an initial exercise price of $1.50which may be reduced to a 25% discount of the price per share of Common Stock offered in a future qualified offering. The warrants were valued ~~at $267,999~~ using the multinominal lattice model and are considered derivative liabilities under ASC 815-40. The value of the warrants was included in the determination of the initial accounting for ~~the~~each financing including the calculation of the derivative liability and related expense.

~~In January 2021, the Company issued five-year warrants to purchase a total of~~ ~~675,000~~ ~~shares in connection with the issuance of $500,000of convertible notes.~~ ~~The warrants have an initial exercise price of $1.50~~ which may be reduced to a 25% discount of the price per share of Common Stock offered in a future qualified offering. The warrants were valued at $2,870,666 using the multinominal lattice model and are considered derivative liabilities under ASC 815-40. The valueA summary of the warrants ~~was included in the determination of the initial accounting for the financing including the calculation of the derivative liability~~issued and ~~related expense.~~their fair values were:

Upon Issuance Outstanding at October 31, 2022
Date of Transaction Number of Warrants Initial Fair Value Number of Warrants Fair Value
October 2020 399,998 $ 267,999 266,666 $ 330,493
January 2021 675,000 $ 2,870,666 540,000 $ 683,182
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In March and April 2021, we received $201,249 ~~in connection with~~related to the exercise of 201,666~~warrants which had been issued in October 2020 and January 2021 as part~~ of the ~~convertible note financings described in note 10.~~warrants. Since these exercises resulted in the elimination of the derivative liability in the warrants, the derivative liability was reduced by $694,305with a corresponding increase in additional paid in capital. In June 2021, we received $99,999 in connection with the exercise of 66,666 warrants which resulted in the elimination of $163,141 of the derivative liability in the 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~~five-year term and an exercise price of $5.00.

In ~~June 2021, we received $99,999in connection with the exercise of~~ ~~66,666~~ warrants which had been issued in October 2020 as part of the convertible note financings described in Note 6. Since these exercises resulted in the elimination of the derivative liability in the warrants, the derivative liability was reduced by $~~163,141~~ ~~with a corresponding increase in additional paid in capital.~~
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~~five-year term and an exercise price of $5.625.
The following table presents the range of assumptions used to estimate the fair values of warrants granted during the six months ended October 31:
2022 2021
Risk-free interest rate —   0.79 – 0.85%
Expected dividend yield —   —
Expected term (in years) —   5.00
Expected volatility —   222.45 – 223.17%
The following table summarizes the changes in warrants outstanding since April 30, ~~2020.~~2021.

Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
Balance as of April 30, 2020 —   —   —   —
Granted 1,074,998 $ 1.50
Exercised (201,666 ) 1.50
Outstanding as of April 30, 2021 873,332 1.50 4.62 $ 2,218,263
Granted 733,333 5.45
Exercised (66,666 ) 1.50
Outstanding at October 31, 2021 1,539,999 $ 3.38 4.38 $ 2,387,731
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Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
Balance as of April 30, 2021 873,332 1.50 4.62 2,218,263
Granted 733,333 $ 5.45
Exercised (66,666 ) 1.50
Outstanding as of April 30, 2022 1,539,999 3.38 3.89 $ 427,533
Granted —
Exercised —
Outstanding at October 31, 2022 1,539,999 $ 3.38 3.38 $ —
Note ~~15 -~~17 – Share Based Awards

The 2019 Equity Incentive Plan (the "Plan") allows us to incentivize key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the "Awards"). The number of shares issuable in connection with Awards under the Plan may not exceed 8,750,000.

A. Options
The range of assumptions used to calculate the fair value of options granted during the six months ended October 31 was:
2022 2021
Exercise Price $ 2.38 $ 2.41 – 2.60
Stock price on date of grant 2.38 2.41 – 2.60
Risk-free interest rate 3.34 % 0.47 – 1.57%
Dividend yield —   —
Expected term (years) 8.25 3.75 – 10.00
Volatility 260.06 % 210.68 – 214.17%
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A summary of options activity under the Plan since April 30, 2021 was:
Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value
Outstanding as of April 30, 2021 2,197,475 $ 1.79 8.68 4,943,870
Granted 1,681,000 2.58
Exercised (150,000 ) 2.49
Forfeited or expired (34,333 ) 2.11
Outstanding as of April 30, 2022 3,694,142 2.17 8.56 1,407,545
Granted 397,000 2.38
Exercised —
Forfeited or expired (96,584 ) 2.48
Outstanding as of October 31, 2022 3,994,558 2.18 8.22 608,162
Exercisable as of October 31, 2022 2,569,306 $ 2.06 7.48 $ 559,578
The aggregate intrinsic value of outstanding options represents the excess of the stock price at ~~October 31, 2021 of $2.96~~the indicated date over the exercise price of each option. As of October 31, ~~2021~~2022 and ~~April 30,~~October 31, 2021, there was $~~2,636,693~~3,277,073 and $~~914,915~~4,429,626 of unrecognized stock-based compensation expense related to unvested stock options ~~net of estimated forfeitures,~~ which is expected to be recognized over the weighted average ~~period~~periods of 1.24 and 1.31 ~~years.~~
~~The table below sets forth the~~ ~~assumptions used to calculate the fair value of options granted~~ ~~during the three months ended October 31, 2021:~~years, respectively.

~~Exercise price~~B. ~~2.61~~ - ~~2.82~~
Restricted Stock ~~price on date of grant~~ ~~2.61~~ - ~~2.82~~
~~Volatility~~ ~~271.7% -~~ ~~273.4~~%
~~Risk-free interest rate~~ ~~0.93% -~~ ~~1.10~~%
~~Expected term (years)~~ ~~6.56 – 8.25~~
~~Dividend yield~~ —

A summary of restricted stock activity under the Plan since April 30, ~~2020 is as follows:~~2021 was:

Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value

Outstanding as of April 30, 2020 1,597,475 $ 1.10
Granted 600,000 3.63
Exercised —   —
Forfeited or expired —   —
Outstanding as of April 30, 2021 2,197,475 1.79
Granted 919,000 2.68
Exercised (112,500 ) 0.96
Forfeited or expired —   —
Outstanding as of October 31, 2021 3,003,975 2.09 8.70 $ 3,096,487
Exercisable as of October 31, 2021 1,694,892 $ 2.18 8.35 $ 1,811,400
Restricted Stock Shares Weighted Average Grant-Date Fair Value Per Share
Unvested and outstanding as of April 30, 2021 687,500 $ 2.69
Granted 995,659 2.55
Vested (599,484 ) 2.64
Forfeited —   —
Unvested and outstanding as of April 30, 2022 1,083,675 2.59
Granted 696,000 2.27
Vested (673,161 ) 2.45
Forfeited —   —
Unvested and outstanding as of October 31, 2022 1,106,514 $ 2.48
Stock Compensation
Stock compensation expense by functional operating expense was:

Three months ended
October 31,

Six months ended
October 31,
2022 2021 2022 2021
Operations $ 225,879 $ 311,346 $ 384,310 $ 374,607
Research and development 209,497 84,751 354,295 141,231
Sales and marketing 162,269 114,088 269,343 158,832
General and administrative 649,151 389,752 994,319 609,353
Total $ 1,246,796 $ 899,937 $ 2,002,267 $ 1,284,023

~~Stock compensation expense~~ ~~was as follows:~~

Three months ended
October 31,

Six months ended
October 31,
2021 2020 2021 2020
General and administrative $ 389,749 $ 94,629 $ 609,350 $ 189,258
Research and development 84,752 9,945 141,232 19,890
Operations 311,347 2,487 374,608 4,974
Sales and marketing 114,089 —   158,833 —
Total $ 899,937 $ 107,061 $ 1,284,023 $ 214,122
22

Stock compensation expense pertaining to options totaled $890,711 and $505,821 for the six months ended October 31, 2022 and 2021, respectively. Stock compensation expense pertaining to restricted stock units totaled $1,111,556 and $778,202 for the six months ended October 31, 2022 and 2021, respectively.

Note ~~16 -~~18 – Derivatives

The Company completed financings in October 2020 and January 2021 which included notes and warrants containing embedded features subject to derivative accounting. See Note 1012 for a full description of these financings. Both the notes and the warrants included provisions which provided for a reduction in the conversion and exercise prices, respectively, if the Company completed a future qualified offering at a lower price. These provisions represent embedded derivatives which are valued separately from the host instrument (meaning the notes and warrants) and recognized as derivative liabilities on the Company's balance sheet. The Company initially measures these financial instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company also measures these financial instruments on the date of settlement (meaning when the note is converted, or the warrant is exercised) at their estimated fair value and recognizes changes in their estimated fair value in results of operations. Any discount in the carrying value of the note is fully amortized on the date of settlement and recognized as interest expense. The Company estimated the fair value of these embedded derivatives using a multinomial lattice ~~mode1.~~model. The range of underlying assumptions used in the binomial model to determine the fair value of the derivative warrant liability upon settlement of the derivative liability and as of October 31, ~~2021~~2022 and April 30, 2022 are set forth below. In addition, the Company's stock price on each measurement date was used in the model.

October 31, 2022 April 30, 2022
Risk-free interest rate ~~0.75~~2.83 – 4.51 - ~~0.97~~% 0.52 – 2.87%
Expected dividend yield —   —
Expected term (in years) 2.92 – 3.50 3.42 – 4.50
Expected volatility 190.09 – 235.23% ~~3.92 - 4.24~~
~~Expected volatility~~ ~~272.54~~211.02 – 292.28%

As of October 31, ~~2021,~~2022 all of the notes had been converted into common stock and 806,666 of the warrants were outstanding. Changes in the derivative liability during the ~~three and~~ six months ended October 31, ~~2021~~2022 and the year ended April 30, 2022 were as follows:

Derivative liability at April 30, 2021 $ 2,812,767
Eliminated upon exercise of warrants (163,141 )
Changes in fair value, primarily related to decrease in Company's stock price (154,248 )
Derivative liability at July 31, 2021 $ 2,495,378
Eliminated upon exercise of warrants —
Changes in fair value, primarily related to decrease in Company's stock price (118,813 )
Derivative liability at October 31, 2021 $ 2,376,565
October 31, 2022 April 30, 2022
Balance, beginning of period $ 1,607,497 $ 2,812,767
Additions —   —
Eliminated upon conversion of notes/exercise of warrants —   (163,141 )
Changes in fair value (593,822 ) (1,042,129 )
Balance, end of period $ 1,013,675 $ 1,607,497
Changes in fair value primarily relate to changes in the Company’s stock price during the period with increases in the stock price increasing the liability and decreases in the stock price reducing the liability.

Note 1719 - Related-Party Transactions
~~In November 2019, the Company issued a convertible note in the principal amount of $300,000~~ ~~to one accredited investor and in December 2019, the Company issued a convertible note in the principal amount of $125,000~~ ~~to a director and a convertible note in the principal amount of $25,000~~ ~~to our chief executive officer (collectively, the "2019 Notes"). The Notes had a term of~~ ~~2 yearsand accrued interest at an annual rate of~~ 12~~% through the date of conversion. In September and October 2020, the entire $450,000~~ ~~of 2019 Notes, plus accrued interest totaling $45,204, was converted into~~ ~~710,444~~ ~~shares of common stock.~~
In July 2021, the Company entered into a consulting agreement with a director resulting in monthly payments of $6,000. In addition, the Company issued 150,000options to purchase common stock at $2.51which ~~vest~~vested quarterly over the one-year term of the agreement. In January 2022, the agreement was amended to increase the monthly payments to $10,000. The agreement expired in June 2022.
In January 2022, the Company entered into a note agreement with an employee in the principal amount of $510,323, as further described in Note 6.

Additional related party transactions are disclosed in Note 9.11.

Note 1820 - Segment Reporting
We define our segments as those operations whose results are regularly reviewed by our CODM to analyze performance and allocate resources. Therefore, segment information is prepared on the same basis that management reviews financial information for operational decision-making purposes. Our CODM is a committee comprised of our CEO, COO, and CFO.
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The Enterprise segment is focused on opportunities in the commercial sector, including military. Enterprise is building the infrastructure to manage drone fleets, fly and provide services remotely, and navigate confined industrial interior spaces and dangerous military environments.
The Consumer segment is focused on enthusiasts and hobbyists which are expected to increase as drones become more visible in our daily lives.
Our CODM allocates resources to and assesses the performance of our two operating segments based on the operating segments’ net sales and gross profit. The following table sets forth information by reportable segment for the three and six months ended October 31, 2022, respectively.

For the three months ended October 31, 2022
Enterprise Consumer Corporate Total
Revenues $ 747,612 $ 782,850 $ —   $ 1,530,462
Cost of goods sold 623,761 673,046 —   1,296,807
Gross margin 123,851 109,804 —   233,655

Operating expenses 3,615,614 531,349 2,859,026 7,005,989
Operating loss (3,491,763 ) (421,545 ) (2,859,026 ) (6,772,334 )

Other expenses, net 96,015 (8,050 ) (615,822 ) (527,857 )
Net loss $ (3,587,778 ) $ (413,495 ) $ (2,243,204 ) $ (6,244,477 )

For the six months ended October 31, 2022
Enterprise Consumer Corporate Total
Revenues $ 1,874,163 $ 2,725,570 $ —   $ 4,599,733
Cost of goods sold 1,668,192 2,340,259 —   4,008,451
Gross margin 205,971 385,311 —   591,282

Operating expenses 5,276,977 1,026,377 4,758,758 11,062,112
Operating loss (5,071,006 ) (641,066 ) (4,758,758 ) (10,470,830 )

Other expenses, net 159,244 (8,174 ) (565,824 ) (414,754 )
Net loss $ (5,230,250 ) $ (632,892 ) $ (4,192,934 ) $ (10,056,076 )
The following table sets forth specific asset categories which are reviewed by our CODM in the evaluation of operating segments:

As of October 31, 2022
Enterprise Consumer Corporate Total
Accounts receivable, net $ 874,439 $ 43,363 $ —   $ 917,802
Inventory, net 4,332,532 2,227,560 —   6,560,092
Inventory deposits $ 1,164,884 $ 2,540,969 $ —   $ 3,705,853
Note 21 – Subsequent Events

Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require ~~disclosure.~~disclosure except as set forth below:
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Sale of Consumer Segment
On November 21, 2022, the Company entered into a Stock Purchase Agreement (the "SPA") with Unusual Machines, Inc. (“UM”) and Jeffrey Thompson, the founder and Chief Executive Officer of the Company (the “Principal Stockholder”), related to the sale of the Company’s consumer business consisting of Rotor Riot, (“RR”), and Fat Shark Holdings (“FS”), for $18 million in cash and securities of UM.
The purchase price consists of (i) $5 million in cash (as increased for positive working capital and decreased for negative working capital at closing) plus (ii) $2.5 million in a convertible senior note of UM (the “Senior Note”) plus (iii) $10.5 million in Series A convertible preferred stock of UM (the “Series A Stock”). The Senior Note and Series A Stock will be convertible into Common Stock at the lesser of $4.00 per share or the IPO price of UM. The Senior Note and Series A Stock shall contain beneficial ownership blockers under which conversion shall be limited to 4.99% and/or 9.99% of the total voting power of UM, and may be further subject to limitations on voting and conversion required in order to conform with requirements of NASDAQ related to the issuance of more than 19.99% of the outstanding Common Stock in accordance with NASDAQ Rule 5635(d). The Senior Note and Series A Stock will include anti-dilution protection in the case of issuances by UM at a price lower than the then applicable conversion price for so long as the Senior Note or Series A Stock remains outstanding under which the conversion price will be reduced to such lower price as UM shall issue or agree to issue any of its securities.
Under the terms of the SPA the Principal Stockholder and UM have agreed to indemnification obligations, which shall survive for a period of 9 months, subject to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of the escrow shares, other than in cases involving fraud. The Principal Stockholder agreed to deposit 450,000 shares of UM common stock owned to secure any indemnification obligations.
As a condition to closing, UM shall enter into an employment agreement with its Chief Executive Officer including non-compete provisions, which cannot be amended or waived without the prior written consent of the Company. UM, RR and FS will also be subject to non-competition agreements restricting activities involving Class I ISR drones, and for military, government, and enterprise customers.
The closing of the SPA is subject to customary closing conditions which include shareholder approval by the Company’s shareholders following filing with the SEC and mailing of the Company’s Proxy Statement on Schedule 14A and the approval of the transactions by a majority of the disinterested shareholders of the Company. The Principal Stockholder, who holds approximately 24% of the voting power of the Company, shall abstain from the vote on approval of the SPA. On November 21, 2022, the Board of Directors of the Company approved the SPA and its submission to shareholders for approval. In addition, closing of the SPA is subject to successful completion of an initial public offering (the “IPO”) by UM in the minimum amount of $15 million, and the listing of UM’s common stock on NASDAQ. The SPA requires the Company to cooperate with UM in connection with the IPO and to deliver audited financial statements of RR and FS. UM has agreed to register all of the common stock for which the Senior Note is convertible in the IPO for resale by the Company, or to pay the note in full with proceeds of the offering at closing, at UM’s election. In addition, UM has agreed to enter into a registration rights agreement for 100% of the common stock for which the Series A Stock may be converted and to use its best efforts to file and have declared effective such registration statement, on demand and on a piggy-back basis in connection with any other registration statements filed by UM.

2325

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial data included elsewhere in this Quarterly Report on Form 10-Q.
~~The~~ Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements relating to our liquidity, and our plans for our business focusing on ~~(i) selling drones~~providing products, services and ~~related components, and (ii) cloud-based analytics, storage, and services for drones.~~solutions to the drone industry. Any statements that are not historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect," and the like, and/or future-tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Quarterly Report on Form 10-Q. The Company's actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of many factors. Investors should also review the risk factors in the Company's Annual Report on Form 10-K filed with the SEC on ~~August 12, 2021.~~July 27, 2022.
All forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update such forward-looking statements to reflect events that occur or circumstances that exist after the date of this Quarterly Report on Form 10-Q except as required by federal securities law.
~~Recent Developments~~

Recent Developments
Corporate developments during the two years ended October 31, 2022 include:
~~Underwritten Firm Commitment Underwritten Public Offering~~Capital Transactions.
S-1 Offering
On May 4, 2021, the Company closed a firm commitment underwritten public offering (the "S-1 Offering") ~~in which it sold~~for the sale of 4,000,000 shares of common stock, at a public offering price of $4.00 per share, to ThinkEquity, a division of Fordham Financial Management, Inc., as representative of the underwriters ("ThinkEquity"), pursuant to an underwriting agreement ~~dated April 29, 2021. These~~with Think Equity. The shares ~~of common stock in the S-1 Offering~~ were ~~offered and~~ sold ~~by the Company~~ pursuant to a registration statement on Form S-1, as amended (File No. 333-253491), filed with the SEC, which was declared effective by the Commission on April 29, 2021 (the "S-1 Registration Statement").  The 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 $14.6 million.
S-3 Offering

On July 21, 2021 the Company closed on a firm commitment underwritten public offering (the "S-3 Offering") ~~in which it sold an aggregate~~for the sale of 13,333,334 shares of ~~Common Stock~~common stock at a purchase price of $4.50 per share to ~~ThinkEquity, pursuant to an underwriting agreement dated July 18, 2021. These~~ThinkEquity. The shares ~~of common stock in the S-3 Offering~~ were ~~offered and~~ sold ~~by the Company~~ pursuant to a registration statement on Form S-3, as amended (File No. 333-256216), filed with the SEC, which was declared effective by the SEC on June 14, 2021 and a Supplement to the Prospectus contained in ~~this~~a registration statement filed with the SEC on July 19, 2021.  The net proceeds to the Company from the S-3 Offering, after deducting the underwriting discount, the underwriters’ fees and expenses, and the Company’s estimated expenses related to the S-3 Offering, were approximately $55.5 million.

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~~Acquisition of Teal Drones~~
On August 31, 2021, we closed the acquisition of Teal Drones Inc., ("Teal"). Teal is a leader in commercial and government unmanned aerial vehicle ("UAV") technology and manufactures the Golden Eagle drone, approved by the US Department of Defense for reconnaissance, public safety, and inspection applications.
Pursuant to the Merger Agreement, we acquired all of the issued and outstanding share capital of Teal in exchange for $14,000,000 of our common stock, par value $0.001 per share ("Common Stock") at the Volume Weighted Average Price (VWAP) of our Common Stock on August 31, 2021 of $2.908 per share, reduced by the amount of Teal debt assumed consisting of approximately $1.67 million payable to Decathlon Alpha IV, L.P., ("DA4"), approximately $771,000 payable to other creditors and approximately $686,000 in working capital deficit, for a net closing date payment of $10,872,753. At closing, we issued 3,738,911 shares of our Common Stock (the "Merger Consideration"). On August 31, 2021, the Company, Acquisition, Teal and George Matus, as Shareholder Representative, entered into an Escrow Agreement with Equity Stock Transfer, LLC. Fifteen (15%) percent of the Merger Consideration (the "Escrow Shares") was deposited in an escrow account as security for working capital adjustments and indemnification obligations for a period of eighteen (18) months under the Merger Agreement. The indemnification obligations feature a basket amount of fifty-thousand dollars ($50,000) before any claim can be asserted and is subject to a cap equal to the value of the Escrow Shares. George Matus, founder of Teal, will continue in the role of Chief Executive Officer of Teal pursuant to an employment agreement entered August 31, 2021.
The consideration payable under the Merger Agreement may be increased upon the achievement of certain milestones set forth in the Merger Agreement (the "Earn-Out Consideration"). Additional shares of Common Stock may become issuable by the Company in the event that within twenty-four (24) months following closing of the Merger, Teal realizes certain revenue targets. A total of Sixteen Million Dollars ($16,000,000) in additional shares of Common Stock may become issuable in the event that sales and services of Teal's Golden Eagle drones shall have equaled at least Thirty-six Million Dollars ($36,000,000). A total of Ten Million Dollars ($10,000,000) in additional shares of Common Stock may become issuable in the event that sales and services of Teal's Golden Eagle drones shall have equaled at least $24 million ($24,000,000) but less than $36 million ($36,000,000). A total of Four Million Dollars ($4,000,000) in additional shares of Common Stock may become issuable in the event that sales and services of Teal's Golden Eagle drones shall have equaled at least Eighteen Million Dollars ($18,000,000) but less than Twenty-Four Million Dollars ($24,000,000). Additional Share Consideration, if earned, is issuable at the VWAP of the Company within thirty (30) days of the determination that Earn-Out Consideration is payable.
On August 31, 2021, Teal entered into an Amended and Restated Loan and Security Agreement with DA4 (the "Loan Agreement") 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 under the term Loan is payable monthly in an amount equal to $49,275 until maturity on December 31, 2024. Teal may prepay the loan at any time, subject to a prepayment premium of $300,705, less the amount of any prior payments of interest. Under the Loan Agreement, Teal granted DA4 a continuing security interest in substantially all of the assets of Teal. In the event of a default under the loan DA4 may declare the full amount of the Loan immediately due and payable as a secured lender and take additional actions as a secured lender including seeking to foreclose on collateral pledged under the Loan Agreement. The Company agreed to guaranty the obligations of Teal under the Loan pursuant to a Joinder Agreement dated August 31, 2021.
Plan of Operations
~~Red Cat Holdings ("Red Cat" or 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 ~~five~~four wholly owned subsidiaries. Beginning in January 2020, the Company ~~has~~ expanded the scope of its drone products and services through a number of acquisitions. Fat Shark Holdings is a provider of First Person View (FPV) video goggles. Rotor Riot sells FPV drones and equipment, primarily to the consumer marketplace. Skypersonic provides software and hardware solutions that enable drones to complete inspection services in locations where GPS (global positioning systems) are not available, yet still record and transmit data even while being operated from thousands of miles away. Red Cat Propware is developing drone flight data analytics and storage solutions, as well as diagnostic products and services. On August 31, 2021, the Company acquired Teal Drones, a leader in commercial and government UAV technology.four acquisitions, including:
A. In January 2020, the Company acquired Rotor Riot, a provider of First Person View (FPV) drones and equipment, primarily to the consumer marketplace. The purchase price was $1,995,114.
B. In November 2020, the Company acquired Fat Shark Holdings, a provider of FPV video goggles to the drone industry. The purchase price was $8,354,076.
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C. In May 2021, the Company acquired Skypersonic which provides hardware and software solutions that enable drones to complete inspection services in locations where GPS is not available, yet still record and transmit data even while being operated from thousands of miles away. The purchase price was $2,791,012.
D. In August 2021, the Company acquired Teal Drones, a leader in commercial and government UAV (Unmanned Aerial Vehicles) technology. The purchase price was $10,011,279.
Following the Teal acquisition, we focused on integrating and organizing these businesses. Effective May 1, 2022, we established the Enterprise and Consumer segments in order to sharpen our focus on the unique opportunities in each sector. The Enterprise segment, which includes Teal Drones and Skypersonic, is focused on opportunities in the commercial sector, including military. Enterprise is building the infrastructure to manage drone fleets, fly and provide services remotely, and navigate confined industrial interior spaces and dangerous military environments. The Consumer segment, which includes Fat Shark and Rotor Riot, is focused on hobbyists and enthusiasts which are expected to increase as drones become more visible in our daily lives.
In November 2021, we entered into an agreement to sell our Consumer segment to Unusual Machines for total consideration of $18 million, including $ 5 million in cash, at closing, and $13 million in securities of Unusual Machines. The Company has determined to focus its efforts and capital on military and defense where it believes that there are more opportunities to create. long term shareholder value. The transaction is expected to close in the first half of calendar 2023 but is contingent upon Unusual Machines completing (i) an initial public offering that raises sufficient capital to close the transaction, and (ii) a listing of its common stock on Nasdaq. There can be no assurances that the transaction will successfully close.
Results of Operations
The analysis of the Company's results of operations for the three and six months ended October 31, 2022 compared to the three and six months ended October 31, 2021 is significantly impacted by the acquisition of Teal Drones on August 31, 2021. Teal is the Company’s largest operating subsidiary. Since acquiring Teal, the Company has more than tripled the number of employees and significantly expanded its facilities. As a result, the comparison of the three and six months ended October 31, 2022 to the three and six months ended October 31, 2021 yields more significant changes than might normally occur.
Three Months Ended October 31, ~~2021~~2022 and October 31, ~~2020~~2021
~~Revenue~~Revenues
~~During~~Revenues totaled $1,530,462 during the three months ended October 31, 2022 (or the "2022 period") compared to $1,863,239 for the three months ended October 31, 2021 (or the "2021 period"), ~~we generated~~representing a decrease of $332,777, or 18%. Consumer revenues ~~totaling $1,863,239~~totaled $782,850 during the 2022 period compared to ~~$427,807~~$1,354,807 during the 2021 period, resulting in a decrease of $571,957, or 42%. Fat Shark launched its newest product, the Dominator, in the prior fiscal quarter during which the Consumer segment generated record quarterly revenues. During the three months ended October 31, 2022, sales decreased sharply for Fat Shark which often happens in the quarter after the launch of new consumer products. Fat Shark revenues totaled $46,322 during the 2022 period compared to $847,606 during the 2021 period, resulting in a decrease of $801,284, or 95%.  Enterprise revenues totaled $747,612 during the 2022 period compared to $508,432 during the 2021 period, resulting in an increase of $239,180, or 47%. This increase primarily related to Teal, which contributed a full three months of revenue in the 2022 period compared to only two months during the 2021 period. Teal accounted for 81% of Enterprise revenues during the 2022 period.
Cost of Goods Sold
Cost of Goods totaled $1,296,807 in the 2022 period compared to $1,710,657 in the 2021 period, representing a decrease of $413,850, or 24%. The decrease directly related to lower revenues which decreased by 18% in the 2022 period compared to the 2021 period.
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Gross Margin
Gross margin totaled $233,655 during the three months ended October 31, ~~2020 (or the "2020 period"), representing an increase of $1,435,432, or greater than 100%. The increase in revenues related~~2022 compared to acquisitions completed after the end of the 2020 period. In November 2020, we acquired Fat Shark which contributed $898,929, or 48%, of our revenues in the 2021 period. In August 2021, we acquired Teal which contributed $402,227, or 22%, of our revenues in the 2021 period.
~~Cost of Goods Sold~~
~~During~~$152,582 during the three months ended October 31, 2021, ~~we incurred cost~~representing an increase of ~~goods sold of $1,710,657~~$81,073, or approximately 53%. On a percentage basis, gross margin was 15% during the 2022 period compared to ~~$328,756~~8% during the 2021 period. The percentage basis increase primarily related to Fat Shark which realized higher margins in the 2022 period related to the launch of its Dominator goggles compared to the 2021 period when it lowered prices to expedite the sale of products near the end of their life cycle. These changes in product offerings increased gross margin for Fat Shark from negative 13% in the 2021 period to positive 6% in the 2022 period.
Operating Expenses
Operations expense totaled $1,752,873 during the 2022 period compared to $283,249 during the 2021 period, resulting in an increase of $1,469,624, or almost 5 times. Approximately 95% of the increase, or $1,398,669, related to Teal which was acquired on August 31, 2021. Since acquiring Teal, we have more than tripled its headcount and expanded its facilities. Approximately 38% of Teal's costs related to payroll, 31% to employee-related office expenses, 16% to overhead with the balance spread ratably across numerous categories including facilities, travel, and information technology.
Research and development expenses totaled $1,354,914 during the three months ended October 31, ~~2020, representing an increase of $1,381,901 or greater than 100%. The increase related~~2022 compared to ~~higher revenues associated with the acquisitions of Fat Shark, Skypersonic, and Teal which were completed after the end of the 2020 period.~~
~~Gross Margin~~
~~During~~$493,441 during the three months ended October 31, 2021, ~~gross margin~~representing an increase of $861,473, or greater than 100%. Substantially all of the increase related to Teal which was ~~$152,582~~acquired on August 31, 2021. Since acquiring Teal, we have more than tripled its headcount and expanded its facilities. Approximately 51% of Teal's expenses related to payroll with 27% related to office, and 21% related to professional fees.
Sales and marketing costs totaled $731,769 during the 2022 period compared to ~~$99,051~~$185,385 during the 2021 period, resulting in an increase of $546,384, or almost three times. Payroll costs totaled $385,938 in the 2022 period compared to $108,297 resulting in an increase of $277,641 which represented 51% of the total increase in sales and marketing costs. Meals, travel, and training costs totaled $139,746 in the 2022 period compared to $2,356 resulting in an increase of $137,390 which represented 25% of the total increase. In addition, higher advertising costs represented 12% of the increase.
General and administrative expenses totaled $1,919,637 during the three months ended October 31, ~~2020, representing an increase of $53,531 or 54%. Gross margin, as a percentage of revenue, decreased from 23%~~2022 compared to $1,050,708 during ~~the 2020 period to 8% during the 2021 period. The lower gross margin during the 2021 period reflects higher product and shipping costs resulting from the impact of COVID-19 on business operations.~~
~~Operating Expenses~~
~~During~~ the three months ended October 31, 2021, ~~we incurred operations expense~~representing an increase of ~~$283,249~~$868,929, or 83%. Payroll costs totaled $712,338 in the 2022 period compared to ~~$120,210 during~~$211,954 in the ~~2020~~2021 period resulting in an increase of ~~$163,039~~$500,384, or ~~136%. This~~58% of the total increase ~~is directly related to our expanded operations following~~in general and administrative expenses. Legal and lobbying services costs increased by $241,294 representing 28% of the acquisitions of Fat Shark in November 2020, Skypersonic in May 2021, and Teal in August 2021. Operations expense for Fat Shark, Skypersonic, and Teal in the 2021 period collectively represented 86% of thetotal increase.

During the three months ended October 31, ~~2021,~~2022, we incurred ~~research and development expenses totaling $493,441~~stock-based compensation costs of $1,246,796 compared to ~~$86,614 for~~$899,937 in the ~~three months ended October 31, 2020~~2021 period, resulting in an increase of ~~$406,827,~~$346,859 or ~~greater~~39%. Since the 2021 period, the Company has issued 1,159,000 additional options which resulted in incremental stock based compensation costs of $213,351 in the 2022 period. In addition, costs related to restricted stock awards totaled $814,108 during the 2022 period compared to $581,610 during the 2021 period, representing an increase of $232,498, or 67% of the total increase.
Other Income
Other Income totaled $527,857 during the 2022 period compared to $19,537 during the 2021 period, representing an increase of $508,320. The largest component change was the recognition of income of $686,744 during the 2022 period related to the change in the fair value of derivative liability compared to income of $118,813 during the 2021 period, representing an increase of $567,931. Changes in the fair value of the derivative liability are most significantly impacted by changes in the Company's stock price. A decrease in the stock price during the 2022 period resulted in a decrease in the carrying value of the liability, and therefore, the recognition of income. In addition, the Company recognized net investment income of $103,817 in the 2022 period compared to net expense of 38,447 during the 2021 period. Early in fiscal 2022, the Company completed two offerings of common stock which generated net proceeds of approximately $70 million. These funds were primarily invested in high quality, corporate debt which generated investment income during the 2022 period. Depreciation and amortization expense, included in other, totaled $227,162 in the 2022 period compared to $21,780 in the 2021 period, resulting in an increase of $205,382, or more than 100%. ~~This increase is directly related to our expanded operations following~~Since the ~~acquisitions of Fat Shark and Teal. Research and development expense for Fat Shark and Teal collectively represented 90%~~end of the ~~increase.~~2021 period, we have incurred capital expenditures totaling $735,993 through the end of the 2022 period which has resulted in higher depreciation expense.
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~~During the three months ended October 31, 2021, we incurred sales and marketing expenses of $185,385 compared to $24,679~~Net Loss
Net Loss totaled $6,244,477 during the three months ended October 31, 2020, resulting in an increase of $160,706 or greater than 100%. This increase is primarily related to higher payroll and branding costs of $63,455 and $36,000, respectively, in the 2021 period. In addition, we incurred $14,649 and $24,255 of separate expenses related to Fat Shark and Teal, respectively, which were not included in the 2020 period.
~~During the three months ended October 31, 2021, we reported general and administrative expenses of $1,050,708~~2022 compared to $250,378 for the three months ended October 31, 2020, representing an increase of $800,330, or more than 100%. Much of the increase related to "public company" expenses associated with the Company's listing on the Nasdaq Capital Market in April 2021. This resulted in increased costs associated with Directors' and Officers' insurance, investor relations and other public company expenses which collectively increased by $229,495 in the 2021 period compared to the 2020 period. In addition, auditing fees increased by $67,200 and payroll costs increased by $75,245. In addition, we incurred general and administrative expenses for Fat Shark, Skypersonic, and Teal of $49,296, $111,380, and $133,076, respectively, which were not included in the 2020 period.
During the three months ended October 31, 2021, we incurred stock based compensation costs of $899,937 compared to $107,061 in the 2020 period, resulting in an increase of $792,876 or greater than 100%. This increase related to expense associated with the issuance of 400,000 restricted stock units and 470,000 options in the 2021 period which were not applicable to the 2020 period.
~~Other Expense (Income)~~
~~Other income, net totaled $19,537~~$2,740,601 during the three months ended October 31, 2021, compared to Other Expense of $232,390 during the three months ended October 31, 2020 representing a change of $251,927. Changes in the values of the Company's derivative liabilities accounted for most of the change between periods. During the 2020 period, the Company recorded derivative related expenses totaling $232,390 whereas the Company recorded a net benefit related to its derivatives of $118,813 during the 2021 period. The net benefit in the 2021 period was partially offset by interest expense of $46,017. The derivative liability is valued using a multinomial lattice model which utilizes the Company's stock price in its calculation. A decrease in the stock price during the 2021 period resulted in the net benefit.
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~~Net Loss~~
~~Net Loss during the three months ended October 31, 2021 totaled $2,740,601 compared to a net loss of $722,281 during the three months ended October 31, 2020,~~ representing an increase of ~~$2,018,320,~~$3,503,876, or greater than 100%. ~~This increase is primarily related to higher operating expenses which increased to $2,912,720 in~~The acquisition of Teal Drones on August 31, 2021 accounted for the ~~2021~~majority of the increase. Since acquiring Teal, we have more than tripled its headcount and significantly expanded its facilities. Net loss for Teal during the 2022 period astotaled $3,098,709 compared to ~~$588,942 in~~$441,118 for the ~~2020~~2021 period, representing an increase of ~~$2,323,778. Approximately $902,412~~$2,657,597, or more than 6 times. The higher net loss for Teal represented 76% of the increase ~~or 39%, related to Fat Shark, Skypersonic, and Teal whose acquisitions were completed after~~in the ~~2020 period. Higher general and administrative and stock based compensation expense of $1,050,708 and $899,937, respectively, primarily accounted for the balance of the increase.~~consolidated net loss.
~~Results of Operations~~
Six Months Ended October 31, ~~2021~~2022 and October 31, ~~2020~~2021
~~Revenue~~Revenues
~~During~~Revenues during the six months ended October 31, 2022 (or the "2022 period") totaled $4,599,733 compared to $3,259,990 for the six months ended October 31, 2021 (or the "2021 period"), ~~we generated revenues totaling $3,259,990 compared to $976,089 during the six months ended October 31, 2020 (or the "2020 period"),~~ representing an increase of ~~$2,283,901,~~$1,339,743, or ~~greater than 100%~~41%. ~~The increase in~~Consumer revenues ~~related~~totaled $2,725,570 during the 2022 period compared to ~~acquisitions completed after the end of the 2020 period. In November 2020, we acquired Fat Shark which contributed $1,894,496, or 58%, of our revenues in~~$2,710,482 during the 2021 period, ~~and represented 83% of the increase.~~
~~Costs of Goods Sold~~
~~During the six months ended October 31, 2021, we incurred cost of goods sold of $3,005,004 compared to $774,888 during the six months ended October 31, 2020, representing~~resulting in an increase of ~~$2,230,116~~$15,088, or 1%. Enterprise revenues totaled $1,874,163 during the 2022 period compared to $549,508 during the 2021 period, resulting in an increase of $1,324,655, or greater than 100%. The increase related to Teal, which we acquired on August 31, 2021, and which accounted for 91% of Enterprise revenues during the 2022 period.
Cost of Goods Sold
Cost of Goods totaled $4,008,451 in the 2022 period compared to $3,005,004 in the 2021 period, representing an increase of $1,003,447, or 33%. The increase directly related to higher revenues ~~associated with~~which increased by 41% in the ~~acquisitions of Fat Shark, Skypersonic, and Teal which were completed after~~2022 period compared to the ~~end of~~2021 period.
Gross Margin
Gross margin totaled $591,282 during the ~~2020 period.~~
~~Gross Margin~~
~~During~~six months ended October 31, 2022 compared to $254,986 during the six months ended October 31, 2021, representing an increase of $336,296, or greater than 100%. On a percentage basis, gross margin was ~~$254,986~~13% during the 2022 period compared to ~~$201,201~~8% during the 2021 period. The percentage basis increase primarily related to Fat Shark which realized higher margins in the 2022 period related to the launch of its Dominator goggles compared to the 2021 period when it lowered prices to expedite the sale of products near the end of their life cycle. These changes in product offerings increased gross margin for Fat Shark from 0% in the 2021 period to 13% in the 2022 period.
Operating Expenses
Operations expense totaled $2,800,959 during the 2022 period compared to $460,112 during the 2021 period, resulting in an increase of $2,340,847, or more than four times. Approximately 93% of the increase, or $2,176,219, related to Teal which was acquired on August 31, 2021, and therefore, only operated for 2 months in the 2021 period compared to a full six months in the 2022 period. In addition, we have more than tripled Teal's headcount and doubled the size of its facilities. Approximately 48% of Teal's costs related to payroll, 24% to employee-related office expenses, and 12% to overhead expenses with the balance spread ratably across numerous categories including information technology, facilities, and travel.
Research and development expenses totaled $1,887,684 during the six months ended October 31, ~~2020, representing an increase of $53,785 or 27%. Gross margin, as a percentage of revenue, decreased from 21%~~2022 compared to $737,695 during ~~the 2020 period to 8% during the 2021 period. The lower gross margin during the 2021 period reflects higher product and shipping costs resulting from the impact of COVID-19 on business operations.~~
~~Operating Expenses~~
~~During~~ the six months ended October 31, 2021, ~~we incurred operations expense~~representing an increase of ~~$460,112~~$1,149,989, or greater than 100%. The entire increase can be attributed to Teal, with approximately 54% its expenses related to payroll, 26% related to office, and 17% related to professional fees.
Sales and marketing costs totaled $1,334,000 during the 2022 period compared to ~~$206,756~~$286,018 during the ~~2020~~2021 period, resulting in an increase of ~~$253,356~~$1,047,982, or ~~greater than 100%. This increase is directly~~almost four times. Payroll costs, related to ~~our expanded operations following~~hiring at Teal, totaled $676,641 in the ~~acquisitions~~2022 period compared to $158,376 resulting in an increase of ~~Fat Shark~~$518,265 which represented 49% of the total increase in ~~November 2020, Skypersonic~~sales and marketing costs. Travel and related costs totaled $232,239 in ~~May~~the 2022 period compared to $2,356 resulting in an increase of $229,883 which represented 22% of the total increase. In addition, higher advertising and show production costs represented 15% of the increase while professional fees accounted for 10%.
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General and administrative expenses totaled $3,037,202 during the six months ended October 31, 2022 compared to $1,926,888 during the six months ended October 31, 2021, ~~and Teal~~representing an increase of $1,110,314, or 58%. Payroll costs totaled $1,122,882 in ~~August 2021. Operations expense for Fat Shark, Skypersonic, and Teal collectively represented 94%~~the 2022 period compared to $409,387 in the 2021 period resulting in an increase of $713,495, or 64% of the total increase in general and administrative expenses. Legal and lobbying services costs increased by $269,938 representing 24% of the total increase.

During the six months ended October 31, ~~2021,~~2022, we incurred ~~research and development expenses totaling $737,695~~stock-based compensation costs of $2,002,267 compared to ~~$173,924 for~~$1,284,023 in the ~~six months ended October 31, 2020~~2021 period, resulting in an increase of ~~$563,771~~$718,244 or ~~greater~~56%. Since the 2021 period, the Company has issued 1,159,000 additional options which resulted in incremental stock based compensation costs of $354,343 in the 2022 period. In addition, costs related to restricted stock awards totaled $1,111,556 during the 2022 period compared to $778,202 during the 2021 period.
Other Income
Other income totaled $414,754 during the 2022 period compared to $141,377 during the 2021 period, representing an increase of $273,377. The largest component change was the recognition of income of $593,822 during the 2022 period related to the change in the fair value of derivative liability compared to income of $273,061 during the 2021 period, representing an increase of $320,761. Changes in the fair value of the derivative liability are most significantly impacted by changes in the Company's stock price. A decrease in the stock price during the 2022 period resulted in a decrease in the carrying value of the liability, and therefore, the recognition of income. In addition, the Company recognized net investment income of $234,113 in the 2022 period compared to expense of 38,447 during the 2021 period. Early in fiscal 2022, the Company completed two offerings of common stock which generated net proceeds of approximately $70 million. These funds were primarily invested in high quality, corporate debt which generated investment income during the 2022 period. Depreciation and amortization expense, included in other, totaled $311,594 in the 2022 period compared to $38,106 in the 2021 period, resulting in an increase of $273,488, or more than 100%. ~~This increase is directly related to our expanded operations following~~Since the ~~acquisitions of Fat Shark, Skypersonic, and Teal. Research and development expense for Fat Shark, Skypersonic, and Teal collectively represented 100%~~end of the ~~increase.~~2021 period, we have incurred capital expenditures totaling $1,280,935 through the end of the 2022 period which has resulted in higher depreciation expense.
~~During the six months ended October 31, 2021, we incurred sales and marketing expenses of $286,018 compared to $48,815~~Net Loss
Net Loss totaled $10,056,076 during the six months ended October 31, 2020, resulting in an increase of $237,203 or greater than 100%. This increase is primarily related to higher payroll and marketing event costs of $85,818 and $30,799, respectively, in the 2021 period. In addition, we incurred $62,893 of expenses collectively related to Fat Shark, Skypersonic, and Teal which was included in the 2021 period.
~~During the six months ended October 31, 2021, we reported general and administrative expenses of $1,926,888~~2022 compared to $430,719 for the six months ended October 31, 2020, representing an increase of $1,496,169, or more than 100%. Much of the increase related to "public company" expenses associated with the Company's listing on the Nasdaq Capital Market in April 2021. This resulted in increased costs associated with Directors' and Officers' insurance, investor relations and other public company expenses which collectively increased by $643,324 in the 2021 period compared to the 2020 period. In addition, auditing fees increased by $87,200 and payroll costs increased by $130,545. In addition, we incurred general and administrative expenses for Fat Shark, Skypersonic, and Teal of $100,149, $239,595, and $133,076, respectively, which was included in the 2021 period.
During the six months ended October 31, 2021, we incurred stock based compensation costs of $1,284,023 compared to $214,122 in the 2020 period, resulting in an increase of $1,069,901 or greater than 100%. This increase related to expense associated with the issuance of 775,000 restricted stock units and 919,000 options in the 2021 period which were not applicable to the 2020 period.
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~~Other Expense (Income)~~
~~Other income, net totaled $141,377~~$4,298,373 during the six months ended October 31, 2021, compared to other expense of $232,390 during the six months ended October 31, 2020 representing a change of $373,767. Changes in the values of the Company's derivative liabilities accounted for most of the change between periods. During the 2020 period, the Company recorded derivative related expenses totaling $232,390 whereas the Company recorded a net benefit related to its derivatives of $273,061 during the 2021 period. The net benefit in the 2021 period was partially offset by interest expense of $63,116. The derivative liability is valued using a multinomial lattice model which utilizes the Company's stock price in its calculation. A decrease in the stock price during the 2021 period resulted in the net benefit.
~~Net Loss~~
~~Net Loss during the six months ended October 31, 2021 totaled $4,298,373 compared to a Net Loss of $1,105,525 during the six months ended October 31, 2020,~~ representing an increase of ~~$3,192,848,~~$5,757,703, or greater than 100%. ~~This increase is primarily related to higher operating expenses which increased to $4,694,736~~The acquisition of Teal Drones in August 2021 accounted for the ~~2021~~majority of the increase. Since acquiring Teal, we have more than tripled its headcount and significantly expanded its facilities. Net loss for Teal during the 2022 period astotaled $4,805,548 compared to ~~$1,074,336 in~~$441,118 for the ~~2020~~2021 period, representing an increase of ~~$3,620,400. Approximately $1,338,413~~$4,364,430, or almost ten times. The higher net loss for Teal represented 76% of the increase ~~or 37%, related to Fat Shark, Skypersonic, and Teal whose acquisitions were completed after~~in the ~~2020 period. Higher general and administrative and stock based compensation expense totaling $1,926,888 and $1,284,023, respectively, primarily accounted for the balance of the increase.~~consolidated net loss.
Cash Flows
Operating Activities

Net cash used in operating activities was ~~$8,569,098~~$13,534,139 during the six months ended October 31, ~~2021~~2022, compared to net cash used in operating activities of ~~$568,452~~$8,567,507 during the six months ended October 31, ~~2020~~2021, representing an increase of ~~$8,000,646,~~$4,966,632, or ~~greater than 100%~~58%. Net cash used in operations, net of non-cash expenses totaling ~~$1,299,468,~~$1,748,455, equaled ~~$2,998,905~~$8,307,621 in the ~~2021~~2022 period compared to ~~$640,612~~$2,998,905, net of non-cash expenses totaling $1,299,468 in the ~~2020~~2021 period, resulting in an increase of ~~$2,358,293,~~$5,308,716, or greater than 100%. The higher ~~operating~~ use of cash primarily related to the acquisition of Teal Drones in August 2021 which resulted in a full six months of operations in the 2022 period compared to two months of operations in the 2021 ~~period reflected the acquisitions of Fat Shark, Skypersonic, and Teal.~~period. Net cash used related to changes in operating assets and liabilities totaled ~~$5,570,193~~$5,226,518 during the six months ended October 31, 2022, compared to $5,568,602 during the six months ended October 31, 2021, ~~compared to net cash provided through changes in operating assets and liabilities~~representing a decrease of ~~$72,160 during the six months ended October 31, 2020, representing an increase of $5,642,353,~~$342,084, or ~~greater than 100%~~6%. ~~Approximately $3,017,267, or 53%, of the increase related to inventory, both higher balances on hand as well as prepaid purchases not yet delivered.~~ 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 and vendor payments.
30
Investing Activities

Net cash provided by investing activities was ~~$24,866~~$11,960,901 during the six months ended October 31, 2022, compared to net cash used in investing activities of $48,127,938 during the six months ended October 31, 2021 ~~compared~~resulting in an increase of $60,088,839, or greater than 100%. During the 2022 period, net proceeds of $13,241,836 from the maturities of marketable securities were used to ~~zero~~fund operations, and $1,280,935 was used to purchase property and equipment, primarily related to the expansion of the manufacturing facilities for Teal. During the 2021 period, almost $50 million of proceeds from stock offerings were invested in marketable securities.
Financing Activities
Net cash used in financing activities totaled $928,826 during the six months ended October 31, ~~2020. The Company acquired $24,866 of~~2022, compared to net cash ~~in connection with acquisitions completed in the 2021 period.~~
~~Financing Activities~~
~~Net cash used~~ provided by financing activities ~~totaled $19,825,052~~of $67,977,856 during the six months ended October 31, ~~2021 compared to $811,849 during the six months ended October 31, 2020.~~2021. Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific to the Company. During the 2021 period, the Company received net proceeds of approximately $70 million in connection with two offerings of common ~~stock, approximately $50 million of which was used to purchase investments.~~stock.
Liquidity and Capital Resources
~~As of~~At October 31, ~~2021, we had~~2022, the Company reported current assets totaling ~~$64,629,199, including cash of $11,559,758, investments of $48,122,657,~~$44,816,972, current liabilities totaling $4,521,287 and inventory of $1,985,507. Current liabilities as of October 31, 2021 totaled $5,848,303, including accounts payable of $1,218,005, accrued expenses of $653,233, short term debt obligations of $1,338,030, and derivative liability of $2,376,565. Our net working capital as of $40,295,685. Cash and marketable securities totaled $32,885,639 at October 31, ~~2021~~2022. Inventory related balances, including pre-paid inventory, totaled $10,265,945. We continue to maintain higher-than-normal inventory balances related to the global supply chain issues, including chip shortages, which have been ongoing for more than a year. At October 31, 2022, the Company was ~~$58,780,896.~~in a strong liquidity and capital position relative to its operating results for the quarter ended October 31, 2022 and its expected cash requirements for the next twelve months.
Capital Transactions
We have reported net losses since inception and only began generating revenues in January 2020. To date, we have primarily funded our operations through offerings of common stock. In May 2021, we completed an offering of common stock which raised gross proceeds of $16 million. In July 2021, we completed an offering of common stock which raised gross proceeds of $60 million.
~~2021 Underwritten Public Offerings~~
S-1 Offering
On May 4, 2021, the Company closed a firm commitment underwritten public offering (the "S-1 Offering") ~~in which it sold~~for the sale of 4,000,000 shares of common stock, at a public offering price of $4.00 per share, to ThinkEquity, a division of Fordham Financial Management, Inc., as representative of the underwriters ("ThinkEquity"), pursuant to an underwriting agreement ~~dated April 29, 2021. These~~with Think Equity. The shares ~~of common stock in the S-1 Offering~~ were ~~offered and~~ sold ~~by the Company~~ pursuant to a registration statement on Form S-1, as amended (File No. 333-253491), filed with the SEC, which was declared effective by the Commission on April 29, 2021 (the "S-1 Registration Statement").  The 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 $14.6 million.
28

S-3 Offering
On July 21, 2021 the Company closed on a firm commitment underwritten public offering (the "S-3 Offering") ~~in which it sold an aggregate~~for the sale of 13,333,334 shares of ~~Common Stock~~common stock at a purchase price of $4.50 per share to ~~ThinkEquity, pursuant to an underwriting agreement dated July 18, 2021. These~~ThinkEquity. The shares ~~of common stock in the S-3 Offering~~ were ~~offered and~~ sold ~~by the Company~~ pursuant to a registration statement on Form S-3, as amended (File No. 333-256216), filed with the SEC, which was declared effective by the SEC on June 14, 2021 and a Supplement to the Prospectus contained in ~~this~~a registration statement filed with the SEC on July 19, 2021.  ~~The~~
Going Concern
We only began generating revenues in January 2020 and have reported net ~~proceeds~~losses since inception. We expect to report net losses for at least the Company from the S-3 Offering, after deducting the underwriting discount, the underwriters' fees and expenses and the Company's estimated expenses related to this S-3 Offering, were approximately $55.5 million.
~~Until~~next twelve months. To date, we ~~are able to sustain~~have funded our operations through ~~the sale~~debt and equity transactions. In May and July 2021, we completed common stock offerings which generated gross proceeds of ~~products~~approximately $70 million. At October 31, 2022, we reported cash and ~~services, we will continue~~investment balances of approximately $33 million. We expect these financial resources to be sufficient to fund our operations ~~through equity and/or debt transactions. We~~for at least the next twelve months. However, we can provide no assurance that ~~the financing described above~~these financial resources will be sufficient to fund our operations until we reach profitability. If we are ~~able~~unable to ~~sustain operations~~become profitable before expending our current financial resources, we will need to raise additional capital through ~~the sale of products and services. In addition, there~~equity or debt transactions. We can beprovide no assurance that such additional financing, if required, will be available to us on acceptable terms, or at all. If we are unable to become profitable or obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may be unable to continue as a going concern.
31
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, on 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) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of October 31, ~~2021, except that our disclosure controls and procedures are not effective for the following reasons:~~2022.
● We did not maintain effective controls regarding the timely financial reporting of accounting transactions. Specifically, certain individuals did not provide reporting on a timely basis regarding certain corporate banking accounts which they managed. The failure to comply with the Company's internal reporting deadlines increases the risk that (i) transactions are not properly accounted for, and (ii) adequate documentation is not obtained. Both risks can adversely impact the accuracy of our financial reporting. The Company is presently evaluating how to remedy this internal control weakness.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3032

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~There are no pending legal proceedings~~On March 15, 2022, Robert Stang filed an action against Teal Drones, Inc. and George Matus in the United States District Court for the Northern District of California, Robert Stang v. Teal Drones, Inc. and George Matus (No. 22-cv-01586-JSC) and on September 15, 2022 filed a First Amended Complaint naming our former director Benjamin Lambert as an additional defendant. The complaint asserts claims for breach of contract and unlawful conversion and sale of shares of common stock that plaintiff alleges to ~~which~~have purchased. The Complaint also alleges breach of fiduciary duty and seeks in excess of $1 million in damages. The Company has filed an Answer and on November 4, 2022 a Motion to Dismiss on behalf of Mr. Lambert. In connection with the action the Company ishas notified the sellers of Teal of its intention to pursue indemnification claims under the Teal acquisition agreement and escrow.
On December 5, 2022 the Company and Teal filed a ~~party or~~First Amended Complaint in ~~which any director, officer or affiliate~~an action brought against Autonodyne LLC and its founder Daniel Schwinn in the Court of Chancery of the ~~Company, any owner~~State of ~~record or beneficially~~Delaware alleging, among other things, breach of ~~more than 5% of any class of voting securities of~~an exclusive license agreement by Autonodyne, LLC dated May 23, 2022 and tortious interference by Mr. Schwinn, Red Cat Holdings, Inc. and Teal Drones, Inc. v. Autonodyne LLC and Daniel Schwinn (No. 2022-0878-NAC). On October 21, 2022, Autonodyne and Schwinn filed a Motion to Dismiss the ~~Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company's property is not the subject of any pending legal proceedings.~~Complaint and Motion for Confidential Treatment.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act") and are not required to provide the information. Our most recent risk factor disclosures may be review in our Annual Report on Form 10-K for the year ended April 30, 2022, as filed with the SEC on July 27, 2022.

ITEM 2. RECENT UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None.
33
ITEM 6. EXHIBITS

Exhibit Description
31.1 Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial and accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
-------

31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: December ~~20, 2021~~15, 2022
Red Cat Holdings, Inc.

By: /s/ Jeffrey Thompson
Jeffrey Thompson
Chief Executive Officer
(Principal Executive Officer)
~~Date: December 20, 2021~~

Date: December 15, 2022
By: /s/ Joseph P. Hernon

Joseph Hernon
Chief Financial Officer
(Principal Financial and Accounting Officer)

3234


		October 31,			April 30,
		2022			2022
ASSETS
Current assets
Cash	$	1,582,751		$	4,084,815
Marketable securities		31,302,888			44,790,369
Accounts receivable, net		917,802			495,506
Inventory		6,560,092			3,895,870
Other		4,453,439			2,354,884
Due from related party		—			31,853
Total current assets		44,816,972			55,653,297

Goodwill		19,839,750			25,138,750
Intangible assets, net		7,777,741			2,698,531
Property and equipment, net		1,700,821			511,690
Other		57,033			57,033
Operating lease right-of-use assets		852,065			1,019,324
Total long term assets		30,227,410			29,425,328

TOTAL ASSETS	$	75,044,382		$	85,078,625

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,649,341		$	1,018,747
Accrued expenses		541,097			1,084,494
Debt obligations - short term		895,257			956,897
Due to related party		—			40,057
Customer deposits		123,308			437,930
Operating lease liabilities		298,609			293,799
Warrant derivative liability		1,013,675			1,607,497
Total current liabilities		4,521,287			5,439,421

Operating lease liabilities		601,243			749,825
Debt obligations - long term		694,581			973,707
Total long term liabilities		1,295,824			1,723,532
Commitments and contingencies

Stockholders' equity
Series B preferred stock - shares authorized 4,300,000; outstanding 986,676 and 986,676		9,867			9,867
Common stock - shares authorized 500,000,000; outstanding 54,229,539 and 53,748,735		54,229			53,749
Additional paid-in capital		108,406,712			106,821,384
Accumulated deficit		(37,555,132	)		(27,499,056	)
Accumulated other comprehensive income		(1,688,405	)		(1,470,272	)
Total stockholders' equity		69,227,271			77,915,672
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	75,044,382		$	85,078,625


RED CAT HOLDINGS
Consolidated Balance Sheets
(Unaudited)

		October 31			April 30,
		2021			2021
ASSETS
Current Assets
Cash	$	11,559,758		$	277,347
Investments		48,122,657			—
Accounts receivable, net		393,738			321,693
Inventory		1,985,507			362,072
Other		2,567,539			678,898
Total Current Assets		64,629,199			1,640,010

Goodwill		26,029,750			8,017,333
Intangible assets, net		1,999,518			2,032,169
Property and equipment, net		142,126			—
Operating lease right-of-use assets		548,641			—
Other		24,907			3,853
Total Long Term Assets		28,744,942			10,053,355
TOTAL ASSETS	$	93,374,141		$	11,693,365

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	1,218,005		$	541,903
Accrued expenses		653,233			614,050
Debt obligations - short term		1,338,030			269,045
Due to related party		144,628			390,209
Customer deposits		117,842			46,096
Warrant derivative liability		2,376,565			2,812,767
Total Current Liabilities		5,848,303			4,674,070

Operating lease liabilities		559,528			—
Debt obligations - long term		1,431,739			—
Note payable to related party		—			1,753,000
Total Long Term Liabilities		1,991,267			1,753,000
Commitments and contingencies

Stockholders' Equity
Series A Preferred Stock - shares authorized 2,200,000; outstanding 0 and 158,704		—			1,587
Series B Preferred Stock - shares authorized 4,300,000; outstanding 986,676 and 1,968,676		9,867			19,687
Common stock - shares authorized 500,000,000; outstanding 53,684,910 and 29,431,264		53,685			29,431
Additional paid-in capital		105,577,729			21,025,518
Accumulated deficit		(20,108,301	)		(15,809,928	)
Accumulated other comprehensive income		1,591			—
Total Stockholders' Equity		85,534,571			5,266,295
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	93,374,141		$	11,693,365


See accompanying notes.


RED CAT HOLDINGS
Consolidated Statements Of Operations
(Unaudited)


	Three months ended October 31,						Six months ended October 31,						Three months ended October 31,						Six months ended October 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenues	$	1,863,239		$	427,807		$	3,259,990		$	976,089		$	1,530,462		$	1,863,239		$	4,599,733		$	3,259,990

Cost of goods sold		1,710,657			328,756			3,005,004			774,888			1,296,807			1,710,657			4,008,451			3,005,004

Gross Margin		152,582			99,051			254,986			201,201			233,655			152,582			591,282			254,986

Operating Expenses
Operations		283,249			120,210			460,112			206,756			1,752,873			283,249			2,800,959			460,112
Research and development		493,441			86,614			737,695			173,924			1,354,914			493,441			1,887,684			737,695
Sales and marketing		185,385			24,679			286,018			48,815			731,769			185,385			1,334,000			286,018
General and administrative		1,050,708			250,378			1,926,888			430,719			1,919,637			1,050,708			3,037,202			1,926,888
Stock based compensation		899,937			107,061			1,284,023			214,122			1,246,796			899,937			2,002,267			1,284,023
Total operating expenses		2,912,720			588,942			4,694,736			1,074,336			7,005,989			2,912,720			11,062,112			4,694,736
Operating loss		(2,760,138	)		(489,891	)		(4,439,750	)		(873,135	)		(6,772,334	)		(2,760,138	)		(10,470,830	)		(4,439,750	)

Other Expense (Income)
Derivative expense		—			148,587			—			148,587
Change in fair value of derivative liability		(118,813	)		83,803			(273,061	)		83,803			(686,744	)		(118,813	)		(593,822	)		(273,061	)
Investment income, net		38,447			—			38,447			—			(103,817	)		38,447			(234,113	)		38,447
Interest expense		46,017			—			63,116			—			32,485			46,017		��	68,172			63,116
Other, net		14,812			—			30,121			—			230,219			14,812			345,009			30,121
Other Expense (Income)	$	(19,537	)	$	232,390		$	(141,377	)	$	232,390		$	(527,857	)	$	(19,537	)	$	(414,754	)	$	(141,377	)

Net loss	$	(2,740,601	)	$	(722,281	)	$	(4,298,373	)	$	(1,105,525	)	$	(6,244,477	)	$	(2,740,601	)	$	(10,056,076	)	$	(4,298,373	)

Loss per share - basic and diluted	$	(0.05	)	$	(0.04	)	$	(0.10	)	$	(0.05	)	$	(0.12	)	$	(0.05	)	$	(0.19	)	$	(0.10	)

Weighted average shares outstanding - basic and diluted		52,147,541			20,241,390			43,110,884			20,126,241			54,078,111			52,147,541			53,928,133			43,110,884


RED CAT HOLDINGS
Condensed Consolidated Cash Flows Statements
(Unaudited)


	Six months ended October 31,
	2021			2020
Cash Flows from Operating Activities
Net loss	$	(4,298,373	)	$	(1,105,525	)
Stock based compensation		1,284,023			214,122
Common stock issued for services		250,400			—
Amortization of intangible assets		32,651			—
Depreciation		5,455			—
Change in fair value of derivative liability		(273,061	)		83,803
Amortization of debt discount		—			18,401
Derivative expense		—			148,587
Adjustments to reconcile net loss to net cash from operations:
Changes in operating assets and liabilities
Accounts receivable		27,002			—
Inventory		(319,124	)		(91,836	)
Other		(3,814,101	)		3,020
Operating lease right-of-use assets and liabilities		10,887			—
Customer deposits		8,753			27,786
Accounts payable		(976,679	)		106,042
Accrued expenses		(506,931	)		27,148
Net cash used in operating activities		(8,569,098	)		(568,452	)

Cash Flows from Investing Activities
Cash acquired through acquisitions		24,866			—
Net cash provided by investing activities		24,866			—

Cash Flows from Financing Activities
Proceeds from sale of investments		1,855,788			—
Purchases of investments		(49,978,445	)		—
Purchases of property and equipment		(30,147	)		—
Proceeds from exercise of warrants		99,999			—
Payments under related party obligations		(1,866,381	)		(3,907	)
Proceeds from debt obligations		—			419,050
Payments under debt obligations		(320,965	)		(183,294	)
Proceeds from convertible debentures		—			580,000
Proceeds from issuance of common stock, net		70,065,203			—
Net cash provided by financing activities		19,825,052			811,849

Effect of foreign exchange rate changes on cash		1,591			—

Net increase in Cash		11,282,411			243,397
Cash, beginning of period		277,347			236,668
Cash, end of period		11,559,758			480,065

Cash paid for interest		26,175			—
Cash paid for taxes		—			—

Non-cash transactions
Common stock issued for services	$	250,400		$	—
Fair value of shares issued in acquisitions	$	12,727,292		$	—
Indirect payment to related party	$	132,200		$	—
Conversion of derivative liability	$	163,141		$	—
Conversion of preferred stock into common stock	$	11,407		$	—
Conversion of Notes into common stock	$	—		$	450,000
Conversion of accrued interest into common stock	$	—		$	45,024


See accompanying notes.


	Series A						Series B										Additional						Accumulated Other
	Preferred Stock						Preferred Stock						Common Stock				Paid-in			Accumulated			Comprehensive			Total
	Shares			Amount			Shares			Amount			Shares		Amount		Capital			Deficit			Income (Loss)			Equity
Balances, April 30, 2021		158,704		$	1,587			1,968,676		$	19,687			29,431,264	$	29,431	$	21,025,518		$	(15,809,928	)	$	—		$	5,266,295

Acquisition of Skypersonic		—			—			—			—			685,321		685		2,630,955			—			—			2,631,640

Public offerings, net of $5,959,800 of issuance costs		—			—			—			—			17,333,334		17,333		70,022,871			—			—			70,040,204

Exercise of warrants		—			—			—			—			66,666		67		263,073			—			—			263,140

Conversion of preferred stock		—			—			(982,000	)		(9,820	)		818,333		818		9,002			—			—			—

Stock based compensation		—			—			—			—			—		—		384,023			—			—			384,023

Vesting of restricted stock		—			—			—			—			62,500		63		—			—			—			63

Shares issued for services		—			—			—			—			91,667		92		191,908			—			—			192,000

Currency translation adjustments		—			—			—			—			—		—		—			—			922			922

Net loss		—			—			—			—			—		—		—			(1,557,772	)		—			(1,557,772	)

Balances, July 31, 2021		158,704		$	1,587			986,676		$	9,867			48,489,085	$	48,489	$	94,527,350		$	(17,367,700	)	$	922		$	77,220,515

Acquisition of Skypersonic		—			—			—			—			21,972		22		84,350			—			—			84,372

Acquisition of Teal Drones		—			—			—			—			3,588,272		3,588		10,007,691			—			—			10,011,279

Conversion of preferred stock		(158,704	)		(1,587	)		—			—			1,321,996		1,322		265			—			—			—

Stock based compensation		—			—			—			—			243,585		244		899,693			—			—			899,937

Shares issued for services		—			—			—			—			20,000		20		59,380			—			—			58,400

Currency translation adjustments		—			—			—			—			—		—		—			—			669			669

Net loss		—			—			—			—			—		—		—			(2,740,601	)		—			(2,740,601	)

Balances, October 31, 2021		—		$	—			986,676		$	9,867			53,684,910	$	53,685	$	105,577,729		$	(20,108,301	)	$	1,591		$	85,534,571

Balances, April 30, 2022		—		$	—			986,676		$	9,867			53,748,735	$	53,749	$	106,821,384		$	(27,499,056	)	$	(1,470,272	)	$	77,915,672

Stock based compensation		—			—			—			—			—		—		755,471			—			—			755,471

Vesting of restricted stock units		—			—			—			—			69,707		69		(84,145	)		—			—			(84,076	)

Unrealized gain on marketable securities		—			—			—			—			—		—		—			—			133,582			133,582

Currency translation adjustments		—			—			—			—			—		—		—			—			352			352

Net loss		—			—			—			—			—		—		—			(3,811,599	)		—			(3,811,599	)

Balances, July 31, 2022		—		$	—			986,676		$	9,867			53,818,442	$	53,818	$	107,492,710		$	(31,310,655	)	$	(1,336,338	)	$	74,909,402

Stock based compensation		—			—			—			—			—		—		1,246,796			—			—			1,246,796

Vesting of restricted stock units		—			—			—			—			411,097		411		(332,794	)		—			—			(332,383	)

Unrealized loss on marketable securities		—			—			—			—			—		—		—			—			(350,811	)		(350,811	)

Currency translation adjustments		—			—			—			—			—		—		—			—			(1,256	)		(1,256	)

Net loss		—			—			—			—			—		—		—			(6,244,477	)		—			(6,244,477	)

Balances, October 31, 2022		—		$	—			986,676		$	9,867			54,229,539	$	54,229	$	108,406,712		$	(37,555,132	)	$	(1,688,405	)	$	69,227,271


RED CAT HOLDINGS
Consolidated Stockholders' Equity Statements
(Unaudited)

	Series A						Series B						Common Stock				Additional					Accumulated Other
	Preferred Stock						Preferred Stock										Paid-in		Accumulated			Comprehensive		Total
	Shares			Amount			Shares			Amount			Shares		Amount		Capital		Deficit			Income (Loss)		Equity
Balances, April 30, 2020		208,704		$	2,087			3,681,623		$	36,816			20,011,091	$	20,011	$	4,043,837	$	(2,573,753	)	$	—	$	1,528,998

Stock based compensation																		107,061							107,061

Net Loss		—			—			—			—			—		—		—		(383,244	)		—		(383,244	)

Balances, July 31, 2020		208,704		$	2,087			3,681,623		$	36,816			20,011,091	$	20,011	$	4,150,898	$	(2,956,997	)	$	—	$	1,252,815

Conversion of Debt														710,444		711		494,314							495,025

Stock based compensation																		107,061							107,061

Net Loss		—			—			—			—			—		—		—		(722,281	)		—		(722,281	)

Balances, October 31, 2020		208,704		$	2,087			3,681,623		$	36,816			20,721,535	$	20,722	$	4,752,273	$	(3,679,278	)	$	—	$	1,132,620

Balances, April 30, 2021		158,704		$	1,587			1,968,676		$	19,687			29,431,264	$	29,431	$	21,025,518	$	(15,809,928	)	$	—	$	5,266,295

Acquisition of Skypersonic														685,321		685		2,630,955							2,631,640

Public offerings, net of $5,959,800 of issuance costs														17,333,334		17,333		70,022,871							70,040,204

Exercise of warrants														66,666		67		263,073							263,140

Conversion of preferred stock								(982,000	)		(9,820	)		818,333		818		9,002							—

Stock based compensation														62,500		63		384,023							384,086

Shares issued for services														91,667		92		191,908							192,000

Currency translation adjustments																							922		922

Net Loss		—			—			—			—			—		—		—		(1,557,772	)		—		(1,557,772	)

Balances, July 31, 2021		158,704		$	1,587			986,676		$	9,867			48,489,085	$	48,489	$	94,527,350	$	(17,367,700	)	$	922	$	77,220,515

Acquisition of Skypersonic														21,972		22		84,350							84,372

Acquisition of Teal														3,588,272		3,588		10,007,691							10,011,279

Conversion of preferred stock		(158,704	)		(1,587	)								1,321,966		1,322		265							—

Stock based compensation														243,615		244		899,693							899,937

Shares issued for services														20,000		20		58,380							58,400

Currency translation adjustments																							669		669

Net Loss		—			—			—			—			—		—		—		(2,740,601	)		—		(2,740,601	)

Balances, October 31, 2021		—		$	—			986,676		$	9,867			53,684,910	$	53,685	$	105,577,729	$	(20,108,301	)	$	1,591	$	85,534,571

Shares issued	$	1,820,114
Promissory note issued		175,000
Total Purchase Price	$	1,995,114

Assets acquired
Cash		21,623
Accounts receivable		28,500
Other assets		3,853
Inventory		127,411
Trademark		20,000
Brand name		578,000
Customer relationships		39,000
Total assets acquired		818,387
Liabilities assumed
Accounts payable and accrued expenses		171,651
Notes payable		209,799
Due to related party		197,846
Total liabilities assumed		579,296
Total fair value of net assets acquired		239,091
Goodwill	$	1,756,023

Shares issued	$	6,351,076
Promissory note issued		1,753,000
Cash		250,000
Total Purchase Price	$	8,354,076

Assets acquired
Cash		201,632
Accounts receivable		249,159
Other assets		384,232
Inventory		223,380
Brand name		1,144,000
Proprietary technology		272,000
Non-compete agreement		16,000
Total assets acquired		2,490,403
Liabilities assumed
Accounts payable and accrued expenses		279,393
Customer deposits		25,194
Total liabilities assumed		304,587
Total fair value of net assets acquired		2,185,816
Goodwill	$	6,168,260

Shares issued	$	2,716,012
Cash		75,000
Total Purchase Price	$	2,791,012

Shares issued	$	2,716,013
Cash		75,000
Total Purchase Price	$	2,791,013

Assets acquired
Cash		13,502
Accounts receivable		51,083
Other assets		12,950
Inventory		50,556
Total assets acquired		128,091
Liabilities assumed
Accounts payable and accrued expenses		1,054,997
Total liabilities assumed		1,054,997
Total fair value of net assets acquired		(926,906	)
Goodwill	$	3,717,919

Assets acquired
Cash		11,364
Accounts receivable		47,964
Other current assets		15,085
Other assets		48,595
Inventory		1,253,755
Brand name		1,430,000
Proprietary technology		3,869,000
Total assets acquired		6,675,763
Liabilities assumed
Accounts payable and accrued expenses		1,143,899
Customer deposits		1,766,993
Notes payable		2,749,091
Total liabilities assumed		5,659,983
Total fair value of net assets acquired		1,015,780
Goodwill	$	8,995,499


	Three months ended October 31, 2021									Six months ended October 31, 2021
	Red Cat			Teal			Consolidated			Red Cat			Teal			Consolidated
Revenues	$	1,863,239		$	104,016		$	1,967,255		$	3,259,990		$	416,063		$	3,676,053

Net Loss	$	(2,740,601	)	$	(301,783	)	$	(3,042,384	)	$	(4,298,373	)	$	(1,467,770	)	$	(5,766,143	)

	October 31, 2022		April 30, 2022
Series B Preferred Stock, as converted		822,230		822,230
Stock options		3,994,558		3,694,142
Warrants		1,539,999		1,539,999
Restricted stock		1,106,514		1,083,675
Total		7,463,301		7,140,046

	Cost		Unrealized Gains (Losses)			Fair Value
Asset-backed securities	$	1,663,414	$	(27,702	)	$	1,635,712
Corporate bonds		31,330,997		(1,663,821	)		29,667,176
Total	$	32,994,411	$	(1,691,523	)	$	31,302,888

	Amortized Cost		Net Unrealized Gains (Losses)			Fair Value
Money market funds	$	1,598,428	$	732		$	1,599,160
Asset-backed securities		3,444,037		(9,081	)		3,434,956
Corporate bonds		43,219,180		(130,639	)		43,088,541
Total	$	48,261,645	$	(138,988	)	$	48,122,657

	One Year or Less		One to Five Years		Over Five Years		Total
Asset-backed securities	$	—	$	1,635,712	$	—	$	1,635,712
Corporate bonds		14,785,077		14,577,260		304,839		29,667,176
Total	$	14,785,077	$	16,212,972	$	304,839	$	31,302,888

	Level 1		Level 2		Level 3		Total
Asset-backed securities	$	—	$	1,635,712	$	—	$	1,635,712
Corporate bonds		—		29,667,176		—		29,667,176
Total	$	—	$	31,302,888	$	—	$	31,302,888

	One Year or Less		Over One Year		Over Five Years		Total
Money market funds	$	1,599,160	$	—	$	—	$	1,599,160
Asset-backed securities		—		3,434,956		—		3,434,956
Corporate bonds		14,575,236		27,911,550		601,755		43,088,541
Total	$	16,174,396	$	31,346,506	$	601,755	$	48,122,657

	October 2021		April 2021
Raw materials	$	1,033,801	$	—
Work-in-process		176,522		—
Finished goods		775,184		362,072
Total	$	1,985,507	$	362,072

	October 2021		April 2021
Prepaid inventory	$	1,832,406	$	478,939
Accrued interest held in investments		371,095		—
Prepaid insurance		280,364		—
Prepaid expenses		74,302		115,587
Security deposits		9,372		9,372
Due from related party		—		75,000
Total	$	2,567,539	$	678,898


	October 31, 2022							April 30, 2022
	Gross Value		Accumulated Amortization			Net Value		Gross Value		Accumulated Amortization			Net Value
Proprietary technology	$	4,967,000		(422,773	)	$	4,544,227	$	1,098,000	$	(219,267	)	$	878,733
Non-compete agreements		81,000		(43,166	)		37,834		81,000		(29,667	)		51,333
Customer relationships		39,000		(15,320	)		23,680		39,000		(12,535	)		26,465
Total finite-lived assets		5,087,000		(481,259	)		4,605,741		1,218,000		(261,469	)		956,531
Brand name		3,152,000		—			3,152,000		1,722,000		—			1,722,000
Trademark		20,000		—			20,000		20,000		—			20,000
Total indefinite-lived assets		3,172,000		—			3,172,000		1,742,000		—			1,742,000
Total intangible assets, net	$	8,259,000	$	(481,259	)	$	7,777,741	$	2,960,000	$	(261,469	)	$	2,698,531

Fiscal Year Ended:
	2023	$	434,738
	2024		866,805
	2025		842,471
	2026		815,271
	2027		786,679
	Thereafter		859,777
	Total	$	4,605,741

Date	Acquisition	Goodwill
January 2020	Rotor Riot	$	1,849,073
November 2020	Fat Shark		6,168,260
Balance at April 30, 2021			8,017,333
May 2021	Skypersonic		2,826,918
August 2021	Teal Drones		8,995,499
Balance at April 30, 2022 and October 31, 2022		$	19,839,750

Original cost	$	289,369
Accumulated depreciation		147,243
Net carrying value	$	142,126

	October 31, 2022			April 30, 2022
Equipment and related	$	1,003,488		$	509,376
Leasehold improvements		930,986			149,330
Furniture and fixtures		54,254			42,746
Accumulated depreciation		(287,907	)		(189,762	)
Net carrying value	$	1,700,821		$	511,690

Location	Monthly Rent		Expiration
South Salt Lake, Utah	$	11,000		August 2024
Orlando, Florida	$	4,600		May 2024
Cayman Islands	$	3,438		Month to Month
Troy, Michigan	$	2,667		May 2022
Orlando, Florida	$	1,690		September 2022
Torino, Italy	$	1,445		January 2024

Fiscal Year Ended:
2022	$	140,014
2023		251,254
2024		207,727
2025		90,613
Total	$	689,608