UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑

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

For the quarterly period ended ~~July~~January 31, ~~2022~~2023

☐

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 No.)

15 Ave. Munoz Rivera, Ste 2200

San Juan, Puerto Rico

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 ~~September 9, 2022,~~March 6, 2023, there were ~~54,126,244~~54,453,397 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~~Sheets as of ~~July~~January 31, ~~2022~~2023 and April 30, 2022	3

	Unaudited Statements of Operations for the Three and Nine Months Ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022	4

	Unaudited ~~Statement~~Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022	5

	Unaudited Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022	67

	Notes to Financial Statements	78

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2628

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3034

Item 4.	Controls and Procedures	3134

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3135

Item 1A.	Risk Factors	3135

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3135

Item 3.	Defaults Upon Senior Securities	3135

Item 4.	Mine Safety Disclosures	3135

Item 5.	Other Information	3135

Item 6.	Exhibits	3236

SIGNATURES		3236

RED CAT HOLDINGS

RED CAT HOLDINGS
Consolidated Balance Sheets
(Unaudited)

July 31, April 30,
2022 2022
ASSETS
Current assets
Cash $ 6,245,426 $ 4,084,815
Marketable securities 36,708,627 44,790,369
Accounts receivable, net 929,872 495,506
Inventory 4,584,836 3,895,870
Other 2,694,273 2,354,884
Due from related party 13,404 31,853
Total current assets 51,176,438 55,653,297

Goodwill 25,138,750 25,138,750
Intangible assets, net 2,642,371 2,698,531
Property and equipment, net 1,028,360 511,690
Other 57,033 57,033
Operating lease right-of-use assets 926,500 1,019,324
Total long term assets 29,793,014 29,425,328

TOTAL ASSETS $ 80,969,452 $ 85,078,625

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 937,360 $ 1,018,747
Accrued expenses 471,806 1,084,494
Debt obligations - short term 882,096 956,897
Due to related party 37,196 40,057
Customer deposits 233,515 437,930
Operating lease liabilities 292,004 293,799
Warrant derivative liability 1,700,419 1,607,497
Total current liabilities 4,554,396 5,439,421

Operating lease liabilities 669,935 749,825
Debt obligations - long term 835,719 973,707
Total long term liabilities 1,505,654 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 53,818,442 and 53,748,735 53,818 53,749
Additional paid-in capital 107,492,710 106,821,384
Accumulated deficit (31,310,655 ) (27,499,056 )
Accumulated other comprehensive income (1,336,338 ) (1,470,272 )
Total stockholders' equity 74,909,402 77,915,672
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 80,969,452 $ 85,078,625

See accompanying notes.

Consolidated Balance Sheets

(Unaudited)

	January 31,			April 30,
	2023			2022
ASSETS
Current assets
Cash	$	3,893,162		$	4,084,815
Marketable securities		20,730,033			44,790,369
Accounts receivable, net		2,063,872			495,506
Inventory		9,294,253			3,895,870
Other		4,546,553			2,354,884
Due from related party		—			31,853
Total current assets		40,527,873			55,653,297

Goodwill		19,839,750			25,138,750
Intangible assets, net		7,560,374			2,698,531
Property and equipment, net		2,077,824			511,690
Other		307,033			57,033
Operating lease right-of-use assets		779,734			1,019,324
Total long term assets		30,564,715			29,425,328

TOTAL ASSETS	$	71,092,588		$	85,078,625

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,444,962		$	1,018,747
Accrued expenses		392,457			1,084,494
Debt obligations - short term		908,746			956,897
Due to related party		—			40,057
Customer deposits		219,148			437,930
Operating lease liabilities		318,805			293,799
Warrant derivative liability		856,100			1,607,497
Total current liabilities		5,140,218			5,439,421

Operating lease liabilities		509,468			749,825
Debt obligations - long term		549,935			973,707
Total long term liabilities		1,059,403			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 54,385,461 and 53,748,735		54,385			53,749
Additional paid-in capital		109,191,895			106,821,384
Accumulated deficit		(43,221,134	)		(27,499,056	)
Accumulated other comprehensive income		(1,142,046	)		(1,470,272	)
Total stockholders' equity		64,892,967			77,915,672
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	71,092,588		$	85,078,625

See accompanying notes.

RED CAT HOLDINGS

Consolidated Statements Of Operations

(Unaudited)


	Three months ended January 31,						Nine months ended January 31,
	2023			2022			2023			2022

Revenues	$	3,106,644		$	1,856,751		$	7,706,377		$	5,116,741

Cost of goods sold		3,004,032			1,516,970			7,012,483			4,521,974

Gross Margin		102,612			339,781			693,894			594,767

Operating Expenses
Operations		815,170			334,278			3,616,129			794,390
Research and development		1,302,008			811,288			3,189,692			1,548,983
Sales and marketing		1,208,037			238,624			2,542,037			524,642
General and administrative		1,514,504			1,337,183			4,551,706			3,264,071
Stock based compensation		788,691			782,123			2,790,958			2,066,146
Total operating expenses		5,628,410			3,503,496			16,690,522			8,198,232
Operating loss		(5,525,798	)		(3,163,715	)		(15,996,628	)		(7,603,465	)

Other Expense (Income)
Change in fair value of derivative liability		(157,575	)		(1,026,466	)		(751,397	)		(1,299,527	)
Investment income, net		(23,131	)		(151,165	)		(257,244	)		(251,708	)
Interest expense		28,667			46,596			96,839			109,712
Other, net		292,243			532,137			637,252			701,248
Other Expense (Income)	$	140,204		$	(598,898	)	$	(274,550	)	$	(740,275	)

Net loss	$	(5,666,002	)	$	(2,564,817	)	$	(15,722,078	)	$	(6,863,190	)

Loss per share - basic and diluted	$	(0.10	)	$	(0.05	)	$	(0.29	)	$	(0.15	)

Weighted average shares outstanding - basic and diluted		54,294,116			53,592,927			54,050,127			46,604,898

RED CAT HOLDINGS
Consolidated Statements of Operations
(Unaudited)

Three months ended July 31,
2022 2021
Revenues $ 3,069,271 $ 1,396,751

Cost of goods sold 2,711,644 1,294,347

Gross margin 357,627 102,404

Operating expenses
Operations 1,048,086 176,863
Research and development 532,770 244,254
Sales and marketing 602,231 100,633
General and administrative 1,117,565 876,180
Stock based compensation 755,471 384,086
Total operating expenses 4,056,123 1,782,016
Operating loss (3,698,496 ) (1,679,612 )

Other expense (income)
Change in fair value of derivative liability 92,922 (154,248 )
Investment income, net (130,296 ) —
Interest expense 35,687 17,099
Other, net 114,790 15,309
Other expense (income) 113,103 (121,840 )

Net loss $ (3,811,599 ) (1,557,772 )

Loss per share - basic and diluted $ (0.07 ) (0.05 )

Weighted average shares outstanding -
basic and diluted 53,778,154 34,074,226

See accompanying notes.

See accompanying notes.

RED CAT HOLDINGS

Consolidated Statements of Stockholders’ Equity

RED CAT HOLDINGS
Consolidated Statements of Stockholders' Equity
(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, 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 $ 1,587 968,676 $ 9,867 48,489,085 $ 48,489 $ 94,527,350 $ (17,367,700 ) $ 922 $ 77,220,515

Balances, April 30, 2022 —   $ —   986,676 $ 9,867 53,748,735 $ 53,749 $ 106,821,384 $ (27,499,059 ) $ (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

See accompanying notes.

For the three months ended January 31, 2023 and January 31, 2022

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

Stock based compensation		—		—		—		—		(46,939	)		(47	)		369,974			—			—			369,927

Currency translation adjustments		—		—		—		—		—			—			—			—			567			567

Net loss		—		—		—		—		—			—			—			(2,564,817	)		—			(2,564,817	)

Balances, January 31, 2022		—	$	—		986,676	$	9,867		53,637,971		$	53,638		$	105,947,703		$	(22,673,118	)	$	2,158		$	83,340,248

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

Stock based compensation		—		—		—		—		—			—			788,691			—			—			788,691

Vesting of restricted stock units		—		—		—		—		155,922			156			(3,508	)		—			—			(3,352	)

Unrealized gain on marketable securities		—		—		—		—		—			—			—			—			545,235			545,235

Currency translation adjustments		—		—		—		—		—			—			—			—			1,124			1,124

Net loss		—		—		—		—		—			—			—			(5,666,002	)		—			(5,666,002	)

Balances, January 31, 2023		—	$	—		986,676	$	9,867		54,385,461		$	54,385		$	109,191,895		$	(43,221,134	)	$	(1,142,046	)	$	64,892,967

RED CAT HOLDINGS

RED CAT HOLDINGS
Consolidated Statements of Cash Flows
(Unaudited)

Three months ended July 31,
2022 2021
Cash Flows from Operating Activities
Net loss $ (3,811,599 ) $ (1,557,772 )
Stock based compensation - options 458,023 187,494
Stock based compensation - restricted units 297,448 196,592
Common stock issued for services —   192,000
Amortization of intangible assets 56,160 16,326
Realized loss from sale of marketable securities 10,675 —
Depreciation 28,272 —
Change in fair value of derivative 92,922 (154,248 )
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable (434,299 ) 105,019
Inventory (688,966 ) (472,303 )
Other (339,356 ) (1,996,858 )
Operating lease right-of-use assets and liabilities 11,139 —
Customer deposits (204,415 ) 62,792
Accounts payable (81,335 ) (130,343 )
Accrued expenses (208,484 ) (521,741 )
Net cash used in operating activities (4,813,815 ) (4,073,042 )

Cash Flows from Investing Activities
Cash acquired through acquisitions —   13,502
Purchases of property and equipment (544,942 ) —
Proceeds from maturities of marketable securities 9,094,592 —
Purchases of marketable securities (889,943 ) —
Net cash provided by investing activities 7,659,707 13,502

Cash Flows from Financing Activities
Proceeds from exercise of warrants —   99,999
Payments under related party obligations (2,861 ) (150,255 )
Payments under debt obligations (212,789 ) (114,173 )
Payments of taxes related to equity transactions (469,631 ) —
Proceeds from issuance of common stock, net —   70,065,203
Net cash (used in) provided by financing activities (685,281 ) 69,900,774

Net increase in Cash 2,160,611 65,841,234
Cash, beginning of period 4,084,815 277,347
Cash, end of period 6,245,426 66,118,581

Cash paid for interest 36,082 2,024
Cash paid for income taxes —   —

Non-cash transactions
Fair value of shares issued in acquisitions $ —   $ 2,631,640
Common stock issued for services $ —   $ 192,000
Conversion of derivative liability $ —   $ 163,141
Unrealized gain on marketable securities $ 133,582 —
Indirect payment to related party $ —   $ 132,200
Shares withheld as payment of note receivable $ 18,449 $ —
Taxes related to net share settlement of equity awards $ 15,982 $ —
Conversion of preferred stock into common stock $ —   $ 9,820

See accompanying notes.

Consolidated Statements of Stockholders’ Equity

For the nine months ended January 31, 2023 and January 31, 2022

(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		—			—			—			—			707,293		707		2,715,305			—			—			2,716,012

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

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		(158,704	)		(1,587	)		(982,000	)		(9,820	)		2,140,299		2,140		9,267			—			—			—

Stock based compensation		—			—			—			—			259,176		260		1,269,667			—			—			1,269,927

Vesting of restricted stock units		—			—			—			—			—		—		384,023			—			—			384,023

Shares issued for services		—			—			—			—			111,667		112		250,288			—			—			250,400

Currency translation adjustments		—			—			—			—			—		—		—			—			2,158			2,158

Net loss		—			—			—			—			—		—		—			(6,863,190	)		—			(6,863,190	)

Balances, January 31, 2022		—		$	—			986,676		$	9,867			53,637,971	$	53,638	$	105,947,703		$	(22,673,118	)	$	2,158		$	83,340,248

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		—			—			—			—			—		—		2,790,958			—			—			2,790,958

Vesting of restricted stock units		—			—			—			—			636,726		636		(420,447	)		—			—			(419,811	)

Unrealized gain on marketable securities		—			—			—			—			—		—		—			—			328,006			328,006

Currency translation adjustments		—			—			—			—			—		—		—			—			220			220

Net loss		—			—			—			—			—		—		—			(15,722,078	)		—			(15,722,078	)

Balances, January 31, 2023		—		$	—			986,676		$	9,867			54,385,461	$	54,385	$	109,191,895		$	(43,221,134	)	$	(1,142,046	)	$	64,892,967

See accompanying notes.

RED CAT HOLDINGS

Consolidated Statements of Cash Flows

(Unaudited)


	Nine months ended January 31,
	2023			2022
Cash Flows from Operating Activities
Net loss	$	(15,722,078	)	$	(6,863,190	)
Stock based compensation - options		1,308,768			974,019
Stock based compensation - restricted units		1,482,190			1,092,127
Common stock issued for services		—			250,400
Amortization of intangible assets		437,157			48,978
Realized loss from sale of marketable securities		106,225			—
Depreciation		169,748			17,888
Change in fair value of derivative		(751,397	)		(1,299,527	)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(1,568,366	)		(470,765	)
Inventory		(5,398,383	)		(673,297	)
Other		(2,191,669	)		(3,492,145	)
Operating lease right-of-use assets and liabilities		24,239			10,696
Customer deposits		(218,782	)		227,532
Accounts payable		1,426,215			(1,673,545	)
Accrued expenses		(498,725	)		(188,286	)
Net cash used in operating activities		(21,394,858	)		(12,039,115	)

Cash Flows from Investing Activities
Cash acquired through acquisitions		—			24,866
Purchases of property and equipment		(1,735,882	)		(92,581	)
Proceeds from maturities of marketable securities		24,282,117			6,250,322
Purchases of marketable securities		—			(54,696,624	)
Investment in SAFE agreement		(250,000	)		—
Net cash provided by (used in) investing activities		22,296,235			(48,514,017	)

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	)		(1,969,193	)
Payments under debt obligations		(471,923	)		(694,738	)
Payments of taxes related to equity transactions		(594,454	)		(113,959	)
Proceeds from issuance of common stock, net		—			70,065,203
Net cash (used in) provided by financing activities		(1,093,030	)		67,387,312

Net (decrease) increase in Cash		(191,653	)		6,834,180
Cash, beginning of period		4,084,815			277,347
Cash, end of period		3,893,162			7,111,527

Cash paid for interest		97,005			27,563
Cash paid for income taxes		—			—

Non-cash transactions
Fair value of shares issued in acquisitions	$	—		$	12,727,292
Taxes related to net share settlement of equity awards	$	11,682		$	522,628
Unrealized gain on marketable securities	$	328,006		$	—
Elimination of derivative liability	$	—		$	163,141
Financed purchases of property and equipment	$	—		$	144,383
Indirect payment to related party	$	—		$	132,200
Shares withheld as payment of note receivable	$	18,449		$	5,100
Conversion of preferred stock into common stock	$	—		$	11,407

See accompanying notes.

RED CAT HOLDINGS, INC.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

~~July~~January 31, ~~2022~~2023 and ~~2021~~2022

(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, 2022 of Red Cat Holdings, Inc. (the "Company"), filed with the Securities and Exchange Commission ("SEC") on July 27, 2022.

Note 1 – The Business

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 four wholly owned subsidiaries. Teal Drones is a leader in commercial and government Unmanned Aerial Vehicles (UAV) technology. Fat Shark is a provider of First Person View (FPV) video goggles to the drone industry. Rotor Riot sells FPV drones and equipment to the consumer 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) is not available, yet still record and transmit data even while being operated from thousands of miles away.

Corporate developments ~~during the two years ended July 31, 2022~~since May 1, 2021 include:

Fat Shark Acquisition

On September 30, 2020, the Company entered into a share purchase agreement (“Share Purchase Agreement”) with Greg French (“French”), the founder and sole shareholder of Fat Shark Holdings (“Fat 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 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 was 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

~~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 and a non-compete agreement which are being amortized over 5 and 3 years, respectively. 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.

Skypersonic Acquisition

OnIn May 7, 2021, the Company ~~closed the acquisition of Skypersonic, Inc. ("Skypersonic"). Under the terms of the agreement, we~~ acquired all of the outstanding stock of Skypersonic, Inc. (“Skypersonic”) in exchange for $~~3,000,000~~$3,000,000 of our common stock. The number of shares issuable was based on the volume weighted average price ("VWAP") of our common stock for the 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 to a shareholder. For accounting purposes, the 857,124 shares were valued at $3,291,356 based on the closing price of our common stock of $3.84 on May 7, 2021. Prior to the closing, the Company provided $75,000 to Skypersonic to fund its operating costs. This amount was capitalized as part of the purchase price. 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.

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

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 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 and a non-compete agreement which are being amortized over 5 and 3 years, respectively. 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.

Teal Drones Acquisition

On August 31, 2021, the Company closed the acquisition of Teal Drones Inc., (“Teal”). Under the terms of the agreement, the base purchase price of $14,000,000 was 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 a VWAP of $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 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~~24-month period following the closing. The additional consideration begins at $4 million if sales total at least $18 million and ends at $16 million if sales total $36 million.

~~A revised~~The final summary of the purchase price and its related allocation is ~~set forth below.~~ as follows:

Total Purchase Price – shares issued

10,011,279

Assets acquired
Cash		11,364			11,364
Accounts receivable		47,964			47,964
Other current assets		15,085			15,085
Other assets		48,595			48,595
Inventory		1,253,755			1,253,755
Brand name					1,430,000
Proprietary technology					3,869,000
Total assets acquired		1,376,763			6,675,763
Liabilities assumed
Accounts payable and accrued expenses		1,143,899			1,143,899
Customer deposits		1,766,993			1,766,993
Notes payable		2,749,091			2,749,091
Total liabilities assumed		5,659,983			5,659,983
Total fair value of net assets acquired		(4,283,220	)		1,015,780
Goodwill	$	14,294,499		$	8,995,499

Intangible assets included proprietary technology which is being amortized over 6 years. The ~~foregoing amounts reflect our current estimates~~carrying value of ~~fair value as~~brand name is not being amortized but is reviewed quarterly and formally evaluated at year end. The excess of the ~~August 31, 2021 acquisition date. The Company has engaged an independent valuation services firm to complete a formal evaluation of~~purchase price above the ~~acquisition. The Company expects to recognize fair values associated with the customer relationships~~net assets acquired was recorded as ~~well as the Teal brand name but has not yet accumulated sufficient information to assign such values. When the valuation project~~goodwill which is ~~completed, the Company may make adjustments to the opening balance. 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.~~

~~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~~ ~~(the “Loan”), representing the outstanding principal amount previously due and owing by Teal to DA4. Interest on the Loan accrues~~formally evaluated 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. The Company assumed the Loan Agreement in connection with the acquisition.~~year end.

Supplemental Unaudited Pro Forma Financial ~~Information~~ and Other Information

There is no pro forma financial information for the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 because all acquisitions had closed prior to the beginning of the reporting period.

The following table presents pro forma results ~~for the three months ended July 31, 2021~~ as if our acquisition of Teal had occurred on May 1, 2021:


	July 31, 2021

		Red Cat			Teal			Consolidated		Nine months ended January 31, 2022
										Red Cat			Teal			Consolidated
Revenues	$	1,396,751		$	312,047		$	1,708,798		$	5,116,741		$	416,063		$	5,532,804

Net Loss	$	(1,557,772	)	$	(1,165,987	)	$	(2,723,759	)		(6,863,190	)		(1,467,770	)		(8,330,960	)

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 a manner consistent with the Company's accounting policies, and includes transaction costs, amortization of the acquired intangible assets, and other expenses directly related to each respective acquisition. The unaudited pro forma financial information is based on estimates and assumptions which the Company believes are reasonable and are not necessarily indicative of the results that would have been realized had the acquisitions closed on the dates indicated in the tables, nor are they indicative of results of operations that may occur in the future.

Other information related to the Company’s acquisitions include:

•

The purchase price allocation has been finalized for each acquisition ~~except Teal for which~~based on the ~~Company is waiting for the final~~ 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.

•

Goodwill for Rotor Riot relates to its strong social media presence including ~~its 253,000~~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 of 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 in the United States (“GAAP”). Certain prior period amounts have been restated to conform to the current year presentation.

Principles of Consolidation – Our consolidated financial statements include the accounts of our wholly owned operating subsidiaries, which consist of Teal Drones, Fat Shark, Rotor Riot, and 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 compensation, (ii) complete purchase price accounting for acquisitions, ~~and~~ (iii) accounting for ~~derivatives.~~derivatives, and (iv) reserves and allowances related to accounts receivable and inventory.

Cash and Cash Equivalents – At ~~July~~January 31, ~~2022,~~2023, we had cash of $~~6,245,426~~$3,893,162 in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk.

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

We have elected to present accrued interest ~~receivable~~income separately from marketable securities on our consolidated balance sheets. Accrued interest ~~receivable~~income was $~~334,654~~$233,471 and $~~385,730~~$385,730 as of ~~July~~January 31, ~~2022~~2023 and April 30, 2022, respectively, and was included in other current assets. We did not write off any accrued interest ~~receivable~~income during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 and ~~2021.~~2022.

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.

Inventories – Inventories, which consist of raw materials, work-in-process, and finished goods, are stated at the lower of cost or net realizable value, 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 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 two business segments and evaluate goodwill for impairment based on an evaluation of the fair value of each business segment individually.

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 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~~$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 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 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.

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.

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, accrued expenses and debt. The carrying amounts of 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 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 $~~233,515~~$219,148 and $~~437,930~~$437,930 at ~~July~~January 31, ~~2022~~2023 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.

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 ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 and ~~July~~January 31, ~~2021,~~2022, comprehensive loss was $~~1,336,338~~ ~~higher~~$328,226 lower and $~~922~~$2,158 lower than net loss, respectively, related to unrealized ~~losses~~gains on available-for-sale securities totaling $~~1,340,712~~$328,006 and $0,$0, respectively, ~~partially offset~~as well as by foreign currency translation adjustments of $~~352~~$220 and $~~922~~.$2,158.

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:

	July 31, 2022		April 30, 2022		January 31, 2023		April 30, 2022
Series B Preferred Stock, as converted		822,230		822,230		822,230		822,230
Stock options		3,634,142		3,694,142		4,165,142		3,694,142
Warrants		1,539,999		1,539,999		1,539,999		1,539,999
Restricted stock		971,701		1,083,675		984,841		1,083,675
Total		6,968,072		7,140,046		7,512,212		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.~~ 20.

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 ~~in order~~ 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 2021 - Segment Reporting”.

Note 3 – Marketable Securities

The following tables set forth information related to our marketable securities as of ~~July~~January 31, ~~2022:~~2023:

I.	Cost, unrealized gains or losses, and fair values

	Cost		Unrealized Gains (Losses)			Fair Value		Cost		Unrealized Gains (Losses)			Fair Value
Asset-backed securities	$	2,504,563	$	(35,324	)	$	2,469,239	$	924,509	$	(14,218	)	$	910,291
Corporate bonds		35,544,776		(1,305,388	)		34,239,388		20,951,812		(1,132,070	)		19,819,742
Total	$	38,049,339	$	(1,340,712	)	$	36,708,627	$	21,876,321	$	(1,146,288	)	$	20,730,033

II.	Contractual Maturities

	One Year or Less		One to Five Years		Over Five Years		Total		One Year or Less		One to Three Years		Three to Five Years		Total
Asset-backed securities	$	—	$	2,469,239	$	—	$	2,469,239	$	—	$	910,291	$	—	$	910,291
Corporate bonds		16,876,795		16,804,473		558,120		34,239,388		6,494,035		12,744,060		581,647		19,819,742
Total	$	16,876,795	$	19,273,712	$	558,120	$	36,708,627	$	6,494,035	$	13,654,351	$	581,647	$	20,730,033

III.	Fair Value Hierarchy

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Asset-backed securities	$	—	$	2,469,239	$	—	$	2,469,239	$	—	$	910,291	$	—	$	910,291
Corporate bonds		—		34,239,388		—		34,239,388		—		19,819,742		—		19,819,742
Total	$	—	$	36,708,627	$	—	$	36,708,627	$	—	$	20,730,033	$	—	$	20,730,033

Note 4 – Inventories

Inventories consisted of the following:

July 31, 2022 April 30, 2022
Raw materials $ 2,396,265 $ 2,831,713
Work-in-process 524,811 173,112
Finished goods 1,663,760 891,045
Total $ 4,584,836 $ 3,895,870

	January 31, 2023		April 30, 2022
Raw materials	$	5,608,584	$	2,831,713
Work-in-process		192,166		173,112
Finished goods		3,493,503		891,045
Total	$	9,294,253	$	3,895,870

Inventory purchase orders outstanding totaled approximately $~~31.9~~$26 million. The global supply chain for materials required to produce our drones ~~is presently experiencing~~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.

Note 5 – Other Current Assets

Other current assets included:

	July 31, 2022		April 30, 2022		January 31, 2023		April 30, 2022
Prepaid inventory	$	1,804,539	$	1,707,085	$	3,308,315	$	1,707,085
Accrued interest income		334,654		385,730		233,471		385,730
Prepaid expenses		555,080		262,069		1,004,767		262,069
Total	$	2,694,273	$	2,354,884	$	4,546,553	$	2,354,884

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 ~~required~~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 iswas 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 balance totaled $13,404~~ ~~at July 31, 2022. The shares held at the transfer agent had a fair value of $393,356~~ ~~at July 31, 2022. The note~~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:

July 31, 2022 April 30, 2022
Gross Value Accumulated Amortization Net Value Accumulated Amortization Net Value
Proprietary technology $ 1,098,000 (267,284 ) $ 830,716 $ (219,267 ) $ 878,733
Non-compete agreements 81,000 (36,417 ) 44,583 (29,667 ) 51,333
Customer relationships 39,000 (13,928 ) 25,072 (12,535 ) 26,465
Total finite-lived assets 1,218,000 (317,629 ) 900,371 (261,469 ) 956,531
Brand name 1,722,000 —   1,722,000 —   1,722,000
Trademark 20,000 —   20,000 —   20,000
Total indefinite-lived assets 1,742,000 —   1,742,000 —   1,742,000
Total intangible assets, net $ 2,960,000 (317,629 ) $ 2,642,371 $ (261,469 ) $ 2,698,531


	January 31, 2023							April 30, 2022
	Gross Value		Accumulated Amortization			Net Value		Gross Value		Accumulated Amortization			Net Value
Proprietary technology	$	4,967,000	$	(631,997	)	$	4,335,003	$	1,098,000	$	(219,267	)	$	878,733
Non-compete agreements		81,000		(49,916	)		31,084		81,000		(29,667	)		51,333
Customer relationships		39,000		(16,713	)		22,287		39,000		(12,535	)		26,465
Total finite-lived assets		5,087,000		(698,626	)		4,388,374		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	$	(698,626	)	$	7,560,374	$	2,960,000	$	(261,469	)	$	2,698,531

Proprietary technology and non-compete agreements are being amortized over 5five to six years and 3three years, respectively. Customer relationships is being amortized over 7seven years. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis.

As of ~~July~~January 31, ~~2022,~~2023, expected amortization expense for finite-lived intangible assets for the next five years is as follows:

Fiscal Year Ended:
2023 $ 168,478
2024 221,972
2025 197,638
2026 170,438
2027 141,845
Total $ 900,371

Fiscal Year Ended:
	2023	$	217,371
	2024		866,805
	2025		842,471
	2026		815,271
	2027		786,679
	Thereafter		859,777
	Total	$	4,388,374

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 14,294,499
Balance at April 30, 2022 and July 31, 2022 $ 25,138,750

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 January 31, 2023		$	19,839,750

Note 8 – Property and Equipment

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

	July 31, 2022			April 30, 2022			January 31, 2023			April 30, 2022
Equipment and related	$	630,448		$	509,376		$	1,195,675		$	509,376
Leasehold improvements		567,404			149,330			1,207,357			149,330
Furniture and fixtures		54,254			42,746			54,254			42,746
Accumulated depreciation		(223,746	)		(189,762	)		(379,462	)		(189,762	)
Net carrying value	$	1,028,360		$	511,690		$	2,077,824		$	511,690

Depreciation expense totaled $~~28,272~~169,748 and $017,888 for the nine months ended January 31, 2023 and 2022, respectively.

Note 9 – Other Long Term Assets

Other long term assets included:

	January 31, 2023		April 30, 2022
SAFE agreement	$	250,000	$	—
Security deposits		57,033		57,033
Total	$	307,033	$	57,033

In November 2022, the Company entered into a SAFE (Simple Agreement for Future Equity) agreement with Firestorm Labs, Inc. (“Firestorm”) under which it made a payment of $250,000 to Firestorm in exchange for the right to certain shares of Firestorm stock. The SAFE permits the Company to participate in a future equity financing of Firestorm by converting the $250,000 into shares of Preferred Stock of Firestorm. If there is a change in control of Firestorm or a public offering of shares of its stock, then the Company shall have the right to receive cash payments, or shares of stock, whichever has greater value. The Company’s investment in the SAFE agreement has been recorded on the cost method of accounting. The Company plans to evaluate the investment for any indications of impairment in value on a quarterly basis. No factors indicative of impairment were identified during the three months ended ~~July~~January 31, ~~2022 and 2021, respectively.~~2023.

Note 910 – Operating Leases

As of ~~July~~January 31, ~~2022,~~2023, the Company had operating type leases for real estate and no finance type leases. The Company’s leases have remaining lease terms of up to ~~4.83~~4.33 years, some of which may include options to extend for up to 5 years. Operating lease expense totaled $~~121,506~~296,436 for the ~~three~~nine months ended ~~July~~January 31, ~~2022,~~2023, including period cost for short-term, cancellable, and variable leases, not included in lease liabilities, of $~~7,946~~21,375 for the ~~three~~nine months ended ~~July~~January 31, ~~2022.~~2023.

Location Monthly Rent Expiration
South Salt Lake, Utah $ 22,000 December 2024
Orlando, Florida $ 4,692 May 2024
San Juan, Puerto Rico $ 2,226 June 2027
Troy, Michigan $ 2,667 May 2022
Orlando, Florida $ 1,690 September 2022

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	$	5,775		June 2027
Troy, Michigan	$	2,667		May 2022
Orlando, Florida	$	1,690		September 2022

Supplemental information related to operating leases for the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 was:


Operating cash paid to settle lease liabilities			$~~94,491~~271,568
Weighted average remaining lease term (in years)			~~3.05~~2.62
Weighted average discount rate			12%

Future lease payments at ~~July~~January 31, ~~2022~~2023 were as follows:

Fiscal Year Ended:
2023 $ 291,405
2024 403,878
2025 304,676
2026 76,619
2027 79,300
Thereafter 6,627
Total $ 1,162,505

Fiscal Year Ended:
	2023	$	99,662
	2024		403,878
	2025		304,676
	2026		76,619
	2027		79,300
	Thereafter		6,627
	Total	$	970,762

Note 1011 – Debt Obligations

Decathlon Capital

InOn August 31, 2021, Teal ~~restructured its loan agreement~~entered into an Amended and Restated Loan and Security Agreement with Decathlon ~~Capital. The principal~~Alpha IV, L.P. (“DA4”) (the “Loan Agreement”) in the amount of $1,670,294 ~~bears interest~~(the “Loan”), representing the outstanding principal amount previously due and owing by Teal to DA4. Interest on the Loan accrues at a rate of ten (10%) percent per annum. Principal and interest is payable in monthly installments of $49,275 ~~through its~~until maturity on December 31, ~~2024 maturity date.~~2024. The balance outstanding at ~~July~~January 31, ~~2022~~2023 totaled $~~1,256,632~~1,019,409.

Pelion Note

In May 2021, Teal entered into a note agreement totaling $350,000 which is payable upon demand. The ~~note~~Note bears interest at the applicable Federal Rate as of the date of the Note which was 0.13% on the date of issuance. Accrued interest totaled $~~537~~767 at ~~July~~January 31, ~~2022.~~2023.

Vendor ~~Settlement~~Agreement

In ~~May 2020,~~connection with the acquisition of Teal ~~entered into a settlement agreement with a vendor that had been providing contract manufacturing services. At~~on August 31, 2021, the Company assumed ~~the outstanding~~an obligation with a contract manufacturing firm. The assumed balance of $387,500 ~~which is payable~~was repaid in monthly installments of $37,500 and ~~with a final payment of $12,500~~ ~~that was~~ paid in full in July 2022.

SBA Loan

OnIn February ~~11,~~ 2021, Teal received a Small Business Administration Paycheck Protection Program (“SBA PPP”) loan in the amount of $300,910. The loan was unsecured, non-recourse, and accrued interest at one percent annually. The loan was used to fund qualifying payroll, rent and ~~utilities, and in~~utilities. In February 2022, the principal balance of $300,910 and accrued interest of $3,001 were forgiven.

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. Agreements with activity during the two years ended ~~July~~January 31, ~~2022~~2023 included:

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

Corporate Equity

Beginning in October 2021, and amended in January 2022, Teal financed a total of $120,000 of leasehold improvements with Corporate Equity. The loan bears interest at 8.25% annually and requires monthly payments of $3,595 through December 2024. The balance outstanding at ~~July~~January 31, ~~2022~~2023 and April 30, 2022 totaled $~~93,864~~75,890 and $102,599 respectively.

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. Repayment of the remaining balance was completed in January 2022.

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 payable through October 2024. The balance outstanding at ~~July~~January 31, ~~2022~~2023 totaled $~~17,317~~13,382.

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.

Summary

Outstanding principal payments on debt obligations are due as follows:

Fiscal 2023	$	744,108	$	484,974
Fiscal 2024		572,139		572,139
Fiscal 2025		401,568		401,568
Total	$	1,717,815	$	1,458,681
Short term – through July 31, 2023	$	882,096
Short term – through January 31, 2024			$	908,746
Long term – thereafter	$	835,719	$	549,935

Note 1112 – Due to Related Party

Founder of Fat Shark

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

BRIT, LLC

In January 2020, in connection with the acquisition of Rotor Riot, the Company issued a promissory note for $175,000 to the seller, BRIT, LLC. The note 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.~~paid.

The Company also assumed a line of credit obligation totaling $47,853 which bears interest at 6.67% annually. The ~~outstanding~~remaining balance ~~totaled~~of $37,196 ~~and~~plus accrued interest totaling $~~40,057~~292 ~~at July 31, 2022 and April 30, 2022, respectively.~~was paid in October 2022.

Aerocarve

In 2020, the Company received advances totaling $79,000 from 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 was repaid in full in May 2021.

Note 1213 – Convertible Notes

~~November 2019 Financing~~

~~In November 2019 Financing, 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 years and 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 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 399,998 shares 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 using a multinomial lattice model with $460,588 and $267,999 related to the 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 ~~notes~~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 ~~July~~January 31, ~~2022,~~2023, (a) the 2020 Notes were fully converted into common stock and the related derivative liability eliminated, and (b) 266,666 of the warrants were outstanding with a derivative liability of $~~557,297~~273,196.

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 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.

1920

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 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 ~~July~~January 31, ~~2022,~~2023, (a) the 2021 Notes 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 $~~1,143,122~~582,904.

Note 1314 – 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. 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 ~~July~~January 31, ~~2022~~2023 and April 30, 2022, we had accumulated deficits of approximately $~~31,300,000~~43,000,000 and $27,500,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $~~5,790,500~~7,955,000 and $5,087,500, respectively, calculated using the base Puerto Rico corporate tax rate of 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 ~~July~~January 31, ~~2022~~2023 and April 30, 2022.

Note 1415 – Common Stock

Our common stock has a par value of $0.001 per share. We are authorized to issue 500,000,000 shares of common stock. Each share of common stock is entitled to one vote. A summary of shares of common stock issued by the Company since April 30, 2021 is as follows:

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 ~~33,267~~542,151 to pay taxes and 9,000 to repay a Note		~~55,915~~534,318
Vesting of restricted stock units to Board of Directors		~~12,032~~95,366
Vesting of restricted stock units to consultants		~~1,760~~7,042
~~Share~~Shares outstanding as of ~~July~~January 31, ~~2022~~2023		~~53,818,442~~54,385,461

2021

Note 1516 – Preferred Stock

Series A Preferred Stock outstanding totaled 158,704 at 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”) 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 ~~July~~January 31, ~~2022~~2023 totaled 986,676 which are convertible into 822,230 shares of common stock.

Note 1617 – Warrants

The company issued five-year warrants in connection with two convertible note financings. 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 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 each financing including the calculation of the derivative liability and related expense.

A summary of the warrants issued and their fair values were:

Upon Issuance July 31, 2022
Date of Transaction Number of Warrants Initial Fair Value Number of Warrants Fair Value
October 2020 399,998 $ 267,999 266,666 $ 557,297
January 2021 675,000 $ 2,870,666 540,000 $ 1,143,122

		Upon Issuance				Outstanding at January 31, 2022
Date of Transaction		Number of Warrants		Initial Fair Value		Number of Warrants		Fair Value
	October 2020		399,998	$	267,999		266,666	$	273,196
	January 2021		675,000	$	2,870,666		540,000	$	582,904

In March and April 2021, we received $201,249 related to the exercise of 201,666 of the warrants. Since these exercises resulted in the elimination of the derivative liability in the warrants, the derivative liability was reduced by $694,305 with a corresponding increase in additional paid in capital. In June 2021, we received $99,999 in connection with the exercise of 66,666 ~~additional~~ warrants which resulted in the elimination of ~~an additional~~ $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 term and an exercise price of $5.00.

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

The following table presents the range of assumptions used to estimate the fair values of warrants granted during the ~~three~~nine months ended ~~July~~January 31:

	2022	2021	2023	2022
Risk-free interest rate	—	0.79 – 0.85%	—	0.79 – 0.85%
Expected dividend yield	—	—	—	—
Expected term (in years)	—	5.00 – 5.00	—	5.00
Expected volatility	—	222.45 – 223.17%	—	222.45 – 223.17%

2122

The following table summarizes the changes in warrants outstanding since April 30, 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, 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 July 31, 2022 1,539,999 $ 3.38 3.63 $ 540,466

	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 January 31, 2022	1,539,999		$	3.38		3.13	$	—

Note 1718 – 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.

~~Options~~

Options

The ~~table below sets forth the~~ range of assumptions used to calculate the fair value of options granted during the ~~three~~nine months ended ~~July 31:~~ January 31 was:

	2022	2021		2023		2022
Exercise Price	—	$ 2.41 – 2.60	$	1.06 – 2.38	$	1.69 – 2.82
Stock price on date of grant	—	2.41 – 2.60		1.06 – 2.38		1.69 – 2.82
Risk-free interest rate	—	0.47 – 1.57%		3.34 – 7.52%		0.47 – 1.57%
Dividend yield	—	—		—		—
Expected term (years)	—	3.75 – 10.00		8.25		3.75 – 10.00
Volatility	—	210.68 – 214.17%		253.52 – 513.58%		210.68 – 270.18%

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

Options	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
										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		2,197,475		$	1.79		8.68		4,943,870
Granted		1,681,000			2.58						1,681,000			2.58
Exercised		(150,000	)		2.49						(150,000	)		2.49
Forfeited or expired		(34,333	)		2.11						(34,333	)		2.11
Outstanding as of April 30, 2022		3,694,142			2.17		8.56		1,407,545		3,694,142			2.17		8.56		1,407,545
Granted		—									598,000			1.94
Exercised		—									—			—
Forfeited or expired		(60,000	)		2.55						(127,000	)		2.45
Outstanding as of July 31, 2022		3,634,142			2.16		8.31		1,608,791
Exercisable as of July 31, 2022		2,312,975		$	1.89		7.68	$	1,334,291
Outstanding as of January 31, 2023											4,165,142			2.13		8.11		477,665
Exercisable as of January 31, 2023											2,797,226		$	2.04		7.30	$	447,515

The aggregate intrinsic value of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of ~~July~~January 31, ~~2022~~2023 and ~~July~~January 31, ~~2021,~~2022, there was $~~2,760,989~~3,052,603 and $~~1,592,188~~3,762,636 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of ~~2.10~~2.22 and ~~1.61~~1.64 years, respectively.

22B.

Restricted Stock

~~Restricted Stock~~

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

Restricted Stock	Shares			Weighted Average Grant-Date Fair Value Per Share
						Shares			Weighted Average Grant-Date Fair Value Per Share
Unvested and outstanding as of April 30, 2021		687,500		$	2.69		687,500		$	2.69
Granted		995,659			2.55		995,659			2.55
Vested		(599,484	)		2.64		(599,484	)		2.64
Forfeited		—			—		—			—
Unvested and outstanding as of April 30, 2022		1,083,675			2.59		1,083,675			2.59
Granted		—			—		746,000			2.20
Vested		(111,974	)		2.57		(823,707	)		2.45
Forfeited		—			—		(21,127	)		2.13
Unvested and outstanding as of July 31, 2022		971,701		$	2.59
Unvested and outstanding as of January 31, 2023							984,841		$	2.20

Stock Compensation

~~Stock Compensation~~

Stock compensation expense ~~for the three months ended July 31 was as follows:~~by functional category was:

2022 2021
General and administrative $ 345,168 $ 219,601
Research and development 144,798 56,480
Operations 158,431 63,261
Sales and marketing 107,074 44,744
Total $ 755,471 $ 384,086


	Three months ended January 31,				Nine months ended January 31,
	2023		2022		2023		2022
Operations	$	181,908	$	182,320	$	566,218	$	556,928
Research and development		170,579		143,279		524,874		284,511
Sales and marketing		120,733		112,975		390,076		271,808
General and administrative		315,471		343,549		1,309,790		952,899
Total	$	788,691	$	782,123	$	2,790,958	$	2,066,146

Stock compensation expense pertaining to options totaled $~~458,023~~1,308,768 and $~~187,494~~974,019 for the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Stock compensation expense pertaining to restricted stock units totaled ~~$297,448~~$1,482,190 and ~~$196,592~~$1,092,127 for the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Note 1819 – 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 1213 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 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 ~~July~~January 31, ~~2022~~2023 and April 30, 2022 are set forth below. In addition, the Company's stock price on each measurement date was used in the model.

	~~July~~January 31, ~~2022~~2023	April 30, 2022
Risk-free interest rate	2.83 – 4.51%	0.52 – 2.87%
Expected dividend yield	—	—
Expected term (in years)	~~3.17~~2.67 – 3.50	3.42 – 4.50
Expected volatility	~~225.77~~161.40 – 235.23%	211.02 – 292.28%

As of ~~July~~January 31, ~~2022~~2023 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~~nine months ended ~~July~~January 31, ~~2022~~2023 and the year ended April 30, 2022 were as follows:

	July 31, 2022		April 30, 2022			January 31, 2023			April 30, 2022
Balance, beginning of period	$	1,607,497	$	2,812,767		$	1,607,497		$	2,812,767
Additions		—		—			—			—
Eliminated upon conversion of notes/exercise of warrants		—		(163,141	)		—			(163,141	)
Changes in fair value		92,922		(1,042,129	)		(751,397	)		(1,042,129	)
Balance, end of period	$	1,700,419	$	1,607,497		$	856,100		$	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 1920 - Related-Party Transactions

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 150,000 options to purchase common stock at $2.51 which ~~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~~,$510,323, as further described in Note 6.

Additional related party transactions are disclosed in Note ~~11.~~12.

Note 2021 - 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.

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 nine months ended ~~July~~January 31, ~~2022 and 2021,~~2023, respectively.

For the three months ended July 31, 2022
Enterprise Consumer Corporate Total
Revenues $ 1,126,551 $ 1,942,720 $ —   $ 3,069,271
Cost of goods sold 1,044,431 1,667,213 —   2,711,644
Gross margin 82,120 275,507 —   357,627

Operating expenses 1,661,363 495,028 1,899,732 4,056,123
Operating loss (1,579,243 ) (219,521 ) (1,899,732 ) (3,698,496 )

Other expenses, net 63,229 (124 ) 49,998 113,103
Net loss $ (1,642,472 ) $ (219,397 ) $ (1,949,730 ) $ (3,811,599 )


	For the three months ended January 31, 2023
	Enterprise			Consumer			Corporate			Total
Revenues	$	1,667,683		$	1,438,961		$	—		$	3,106,644
Cost of goods sold		1,764,612			1,239,420			—			3,004,032
Gross margin		(96,929	)		199,541			—			102,612

Operating expenses		2,981,826			541,234			2,105,350			5,628,410
Operating loss		(3,078,755	)		(341,693	)		(2,105,350	)		(5,525,798	)

Other expenses, net		106,611			(11,614	)		45,207			140,204
Net loss	$	(3,185,366	)	$	(330,079	)	$	(2,150,557	)	$	(5,666,002	)


	For the nine months ended January 31, 2023
	Enterprise			Consumer			Corporate			Total
Revenues	$	3,541,846		$	4,164,531		$	—		$	7,706,377
Cost of goods sold		3,432,804			3,579,679			—			7,012,483
Gross margin		109,042			584,852			—			693,894

Operating expenses		8,041,686			1,567,611			7,081,225			16,690,522
Operating loss		(7,932,644	)		(982,759	)		(7,081,225	)		(15,996,628	)

Other expenses, net		265,855			(19,788	)		(520,617	)		(274,550	)
Net loss	$	(8,198,499	)	$	(962,971	)	$	(6,560,608	)	$	(15,722,078	)

The following table sets forth specific asset categories which are reviewed by our CODM in the evaluation of operating segments:


	For the three months ended July 31, 2022								As of January 31, 2023
	Enterprise		Consumer		Corporate		Total		Enterprise		Consumer		Corporate		Total
Accounts receivable, net	$	688,244	$	241,628	$	—	$	929,872	$	2,054,022	$	9,850	$	—	$	2,063,872
Inventory, net		3,486,487		1,098,349		—		4,584,836		6,456,158		2,838,095		—		9,294,253
Inventory deposits	$	1,158,195	$	646,344	$	—	$	1,804,539	$	712,104	$	2,596,211	$	—	$	3,308,315

Note 2122 – Subsequent Events

Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure except as set forth below:

Sale of Consumer Segment

~~In August and September~~On November 21, 2022, the Company entered into ~~inventory purchase orders totaling $3.1~~ ~~million. The global supply chain~~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 ~~materials required to produce our drones is presently experiencing significant disruptions~~$18 million in cash and ~~delays. While we have increased our order lead times, we retain the right to cancel or modify these orders prior to their shipment.~~securities of UM.

2526

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.

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.

The closing of the SPA, is subject to customary conditions including shareholder approval 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.

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.

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 providing products, services and 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 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

Corporate developments ~~since May 1, 2021~~during the two years ended January 31, 2023 include:

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 ~~its~~ 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 with Think Equity. ~~These~~The shares ~~of common stock~~ were 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 S-1 offering generated gross proceeds of $16 million and net proceeds of approximately $14.6 million.

S-3 Offering

On July 21, 2021 the Company closed 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 ~~its Common Stock~~common stock at a purchase price of $4.50 per share to ThinkEquity. ~~These~~The shares ~~of common stock~~ were 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 S-3 offering generated gross proceeds of $60 million and net proceeds of approximately $55.5 million.

~~Acquisitions~~

The Company has completed a number of acquisitions since May 2020. A full description of these acquisitions is set forth in Note 1 of the financial statements. A brief summary of these acquisitions is as follows:

~~In September 2020, the Company acquired Fat Shark Holdings, a provider of First Person View (FPV) video goggles to the drone industry. The purchase price was $8,354,076.~~

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.

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.

Plan of Operations

Since April 2016, the Company's primary business has been to provide products, services, and solutions to the drone industry which it presently does through its 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.~~four acquisitions, including:

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.

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.

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 ~~Holdings is a provider of First Person View (FPV) video goggles to the drone industry.~~and Rotor Riot, ~~sells FPV~~is focused on hobbyists and enthusiasts which are expected to increase as drones and equipment, primarily to the consumer marketplace through its digital storefront located at www.rotorriot.com. Skypersonic provides software and hardware solutions that enable drones to complete inspection servicesbecome more visible 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. Teal Drones is a leader in commercial and government UAV technology.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 nine months ended ~~July~~January 31, ~~2022~~2023 compared to the three and nine months ended ~~July~~January 31, ~~2021~~2022 is significantly impacted by the acquisition of Teal Drones inon August 31, 2021. ~~The timing of~~Teal is the ~~acquisition resulted in there being no financial information related to Teal included in the Company's financial statements for the three months ended July 31, 2021. Conversely, Teal was the~~Company’s largest operating ~~subsidiary during the three months ended July 31, 2022.~~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 nine months ended ~~July~~January 31, ~~2022~~2023 compared to the three and nine months ended ~~July~~January 31, ~~2021~~2022 yields more significant changes than might normally occur.

Three Months Ended ~~July~~January 31, ~~2022~~2023 and ~~July~~January 31, ~~2021~~2022

~~Revenue~~Revenues

~~During~~Revenues totaled $3,106,644 during the three months ended ~~July~~January 31, 2023 (or the "2023 period") compared to $1,856,751 for the three months ended January 31, 2022 (or the "2022 period"), ~~we generated revenues of $3,069,271 compared to $1,396,751 for the three months ended July 31, 2021 (or the "2021 period"),~~ representing an increase of ~~$1,672,520,~~$1,249,893, or ~~120%~~67%. Consumer revenues totaled ~~$1,942,720~~$1,438,961 during the ~~2022~~2023 period compared to ~~$1,355,675~~$1,026,978 during the ~~2021~~2022 period, resulting in an increase of ~~$587,045,~~$411,983, or ~~43%~~40%. ~~Approximately $371,000, or 63%, of the increase is attributed to higher revenues for~~ Fat Shark ~~which~~ launched its newest product, ~~release,~~ the Dominator, in the first ~~quarter. Enterprise~~fiscal quarter during which the Consumer segment generated record quarterly revenues. Fat Shark revenues totaled ~~$1,126,551~~$529,394 during the ~~2022~~2023 period compared to ~~$41,076~~$432,529 during the ~~2021~~2022 period, resulting in an increase of ~~$1,085,475,~~$96,865, or ~~greater than 100%~~22%. Enterprise revenues totaled $1,667,683 during the 2023 period compared to $829,773 during the 2022 period, resulting in an increase of $837,910, or 101%. This increase ~~is due~~primarily related to Teal, which launched the ~~acquisition of~~ Teal ~~that occurred after~~2 during the ~~2021 period which~~2023 period. Teal accounted for ~~98%~~nearly 100% of Enterprise revenues during the ~~2022~~2023 period.

Cost of Goods Sold

Cost of Goods totaled ~~$2,711,644~~$3,004,032 in the ~~2022~~2023 period compared to ~~$1,294,347~~$1,516,970 in the ~~2021~~2022 period, representing an increase of ~~$1,417,297,~~$1,487,062, or ~~109%~~98%. The increase directly related to higher revenues which increased by ~~120%~~67% in the 2023 period compared to the 2022 period.

Gross Margin

Gross margin totaled $102,612 during the three months ended January 31, 2023 compared to $339,781 during the three months ended January 31, 2022, representing a decrease of $237,169, or approximately 70%. On a percentage basis, gross margin was 3% during the 2023 period compared to 18% during the 2022 period. The percentage basis decrease primarily related to Teal which realized lower margins in the 2023 period related to the launch of the Teal 2 and corresponding disposal of obsolete inventory used exclusively for the Golden Eagle.

Operating Expenses

Operations expense totaled $815,170 during the 2023 period compared to $334,278 during the 2022 period, resulting in an increase of $480,892, or greater than 100%. Approximately 98% of the increase, or $469,212, 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 45% of Teal's costs related to payroll, 16% to employee-related office expenses, 21% to professional fees with the balance spread ratably across numerous categories including travel, meals, overhead, and information technology.

Research and development expenses totaled $1,302,008 during the three months ended January 31, 2023 compared to $811,288 during the three months ended January 31, 2022, representing an increase of 490,720, or 60%. Substantially all of the increase 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 24% of Teal's expenses related to payroll with 36% related to office, and 32% related to professional fees.

Sales and marketing costs totaled $1,208,037 during the 2023 period compared to $238,624 during the 2022 period, resulting in an increase of $969,413, or greater than 100%. Payroll costs totaled $417,810 in the 2023 period compared to $164,326 resulting in an increase of $253,484 which represented 26% of the total increase in sales and marketing costs. Advertising and Show Production totaled $348,508 in the 2023 period compared to $61,978 resulting in an increase of $286,530 which represented 30% of the total increase. Professional Fees totaled $280,061 in the 2023 period compared to $6,642 resulting in an increase of $273,419 which represented 28% of the total increase.

General and administrative expenses totaled $1,514,504 during the three months ended January 31, 2023 compared to $1,337,183 during the three months ended January 31, 2022, representing an increase of $177,321, or 13%. Payroll costs totaled $515,883 in the 2023 period compared to $410,640 in the 2022 period resulting in an increase of $105,243 or 59% of the total increase in general and administrative expenses. Legal and lobbying services costs increased by $121,381 representing 68% of the total increase.

During the three months ended January 31, 2023, we incurred stock-based compensation costs of $788,691 compared to $782,123 in the 2022 period, resulting in an increase of 6,568 or 1%. Since the 2022 period, the Company has issued 623,000 additional options which resulted in incremental stock based compensation costs of $99,706 in the 2023 period. In addition, costs related to restricted stock awards totaled $370,634 during the 2023 period compared to $313,925 during the 2022 period, representing an increase of $56,709, or 18%.

Other Income

Other expense totaled $140,204 during the 2023 period compared to other income of $598,898 during the 2022 period, representing an increase of $739,102, which primarily related to the change in fair value of derivative liability. 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 both the 2023 and 2022 periods resulted in a decrease in the carrying value of the liability, and therefore, the recognition of income. Income of $157,575 was recognized during the 2023 period compared to income of $1,026,466 during the 2022 period, representing a decrease of $868,891.

Net Loss

Net Loss totaled $5,666,002 during the three months ended January 31, 2023 compared to $2,564,817 during the three months ended January 31, 2022, representing an increase of $3,101,185, or greater than 100%. The acquisition of Teal Drones on August 31, 2021 accounted for the 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 2023 period totaled $2,901,938 compared to $781,233 for the 2022 period, representing an increase of $2,120,705, or greater than 100%. The higher net loss for Teal represented 68% of the increase in the consolidated net loss.

Nine Months Ended January 31, 2023 and January 31, 2022

Revenues

Revenues during the nine months ended January 31, 2023 (or the "2023 period") totaled $7,706,377 compared to $5,116,741 for the nine months ended January 31, 2022 (or the "2022 period"), representing an increase of $2,589,636, or 51%. Consumer revenues totaled $4,164,531 during the 2023 period compared to $3,737,460 during the 2022 period, resulting in an increase of $427,071, or 11%. Fat Shark revenues totaled $1,703,045 during the 2023 period compared to $2,228,552 during the 2022 period, resulting in a decrease of $525,507, or 24%. Enterprise revenues totaled $3,541,846 during the 2023 period compared to $1,379,281 during the 2022 period, resulting in an increase of $2,162,565, or greater than 100%. This increase primarily related to Teal, which launched its latest product, the Teal 2, during the 2023 period. Teal accounted for 95% of Enterprise revenues during the 2023 period.

Cost of Goods Sold

Cost of Goods totaled $7,012,483 in the 2023 period compared to $4,521,974 in the 2022 period, representing an increase of $2,490,509, or 55%. The increase directly related to higher revenues which increased by 51% in the 2023 period compared to the ~~2021~~2022 period.

Gross Margin

Gross margin totaled ~~$357,627~~$693,894 during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 compared to ~~$102,404~~$594,767 during the ~~three~~nine months ended ~~July~~January 31, ~~2021,~~2022, representing an increase of ~~$255,223,~~$99,127, or ~~approximately 250%~~17%. On a percentage basis, gross margin was ~~11.7%~~9% during the ~~2022~~2023 period compared to ~~7.3%~~12% during the ~~2021~~2022 period. The percentage basis ~~increase~~decrease primarily related to Teal which realized lower margins in the 2023 period related to the launch of the Teal 2 and corresponding disposal of obsolete inventory used exclusively for the Golden Eagle. This obsolete inventory decreased gross margin for Teal from 8% in the 2022 period to 2% in the 2023 period. The percentage basis decrease was partially offset by Fat Shark which realized higher margins in the ~~2022~~2023 period related to the launch of its Dominator goggles compared to the ~~2021~~2022 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 ~~12% in the 2021 period to 16%~~2% in the 2022 period to 15% in the 2023 period.

Operating Expenses

Operations expense totaled ~~$1,048,086~~$3,616,129 during the ~~2022~~2023 period compared to ~~$176,863~~$794,390 during the ~~2021~~2022 period, resulting in an increase of ~~$871,223,~~$2,821,739, or ~~almost five times.~~greater than 100%. Approximately ~~89%~~94% of the increase, or ~~$777,550,~~$2,645,431, related to Teal which was ~~not~~ acquired ~~until~~on August ~~2021,~~31, 2021. Since its acquisition, we have more than tripled Teal's headcount and ~~therefore, had no expenses during~~doubled the ~~2021 period.~~size of its facilities. Approximately ~~62%~~48% of Teal's costs related to payroll, 22% to employee-related office expenses, and 11% to overhead expenses with the balance spread ratably across numerous categories including ~~office, overhead,~~information technology, facilities, professional fees, and ~~information technology.~~travel.

Research and development expenses totaled ~~$532,770~~$3,189,692 during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 compared to ~~$244,254~~$1,548,983 during the ~~three~~nine months ended ~~July~~January 31, ~~2021,~~2022, representing an increase of ~~$288,516,~~$1,640,709, or ~~118%~~greater than 100%. The entire increase ~~related~~can be attributed to ~~expenses incurred at~~ Teal, ~~which was acquired on August 31, 2021, and therefore had no expenses in the 2021 period. Approximately 69% of Teal's~~with approximately 41% its expenses related to payroll, ~~with 25%~~30% related to ~~office.~~office, and 23% related to professional fees.

Sales and marketing costs totaled ~~$602,231~~$2,542,037 during the ~~2022~~2023 period compared to ~~$100,633~~$524,642 during the ~~2021~~2022 period, resulting in an increase of ~~$501,598,~~$2,017,395 or almost ~~five~~four times. Payroll costs, related to hiring at Teal, totaled ~~$217,520~~$553,972 in the ~~2022~~2023 period compared to ~~$50,080~~$19,993 during the 2022 period, resulting in an increase of ~~$167,440~~$533,979 which represented ~~33%~~26% of the total increase in sales and marketing costs. ~~Professional services~~Travel and related costs totaled ~~$150,259~~$369,901 in the ~~2022~~2023 period compared to ~~$5,071~~$2,356 resulting in an increase of ~~$145,188~~$367,545 which represented ~~29%~~18% of the total increase. In addition, higher ~~travel~~advertising and ~~related~~show production costs represented ~~18%~~22% of the increase while ~~advertising costs~~professional fees accounted for ~~17%~~19%.

General and administrative expenses totaled ~~$1,117,565~~$4,551,706 during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 compared to ~~$876,180~~$3,264,071 during the ~~three~~nine months ended ~~July~~January 31, ~~2021,~~2022, representing an increase of ~~$241,385,~~$1,287,635, or ~~28%~~39%. Payroll costs totaled ~~$360,133~~$1,638,765 in the ~~2022~~2023 period compared to ~~$197,435~~$820,027 in the ~~2021~~2022 period resulting in an increase of ~~$162,698,~~$818,738 or ~~67%~~64% of the total increase in general and administrative expenses. ~~Information technology~~Legal and lobbying services costs increased by ~~$72,988~~$388,204 representing 30% of the total increase.

During the ~~three~~nine months ended ~~July~~January 31, ~~2022,~~2023, we incurred stock-based compensation costs of ~~$755,471~~$2,790,958 compared to ~~$384,086~~$2,066,146 in the ~~2021~~2022 period, resulting in an increase of ~~$371,385~~$724,812 or ~~97%~~35%. Since the ~~2021~~2022 period, the Company has issued ~~1,232,000~~623,000 additional options which resulted in incremental ~~stock based~~stock-based compensation costs of ~~$270,529~~$192,128 in the ~~2022~~2023 period. In addition, costs related to restricted stock awards totaled ~~$297,448~~$1,482,190 during the 2023 period compared to $1,092,127 during the 2022 period, ~~compared to $196,592 during~~resulting in an increase of $390,063 or 54% of the ~~2021 period.~~total increase in stock-based compensation costs.

Other Income

Other ~~Income (Expense)~~income totaled ~~other expense of $113,103~~$274,550 during the 2023 period compared to $740,275 during the 2022 period, ~~compared to other income of $121,840 during the 2021 period,~~ representing a ~~change~~decrease of ~~$234,943. The largest component change was the recognition of an expense of $92,922 during the 2022 period~~$465,725, which primarily related to the change in ~~the~~ fair value of derivative ~~liability compared to income of $154,248 during the 2021 period, representing a change of $247,170.~~liability. Changes in the fair value of the derivative liability are most significantly impacted by changes in the Company's stock price. ~~An increase in the stock price during the 2022 period resulted in expense whereas a~~A decrease in the stock price during both the ~~2021 period~~2023 and 2022 periods resulted in a decrease in the carrying value of the liability, and therefore, the recognition of income. ~~In addition,~~Income of $751,397 was recognized during the ~~Company recognized net investment~~2023 period compared to income of ~~$130,296 in~~$1,299,527 during the 2022 period, ~~compared to zero during the 2021 period. Early in fiscal 2022, the Company completed two offerings~~representing a decrease 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 $84,432 in the 2022 period compared to $16,326 in the 2021 period, resulting in an increase of $68,106, or more than 100%.$548,130.

Net Loss

Net Loss totaled ~~$3,811,599~~$15,722,078 during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023 compared to ~~$1,557,772~~$6,863,190 during the ~~three~~nine months ended ~~July~~January 31, ~~2021,~~2022, representing an increase of ~~$2,253,827,~~$8,858,888, or ~~approximately 145%~~greater than 100%. The acquisition of Teal Drones in August 2021 accounted for the majority of the increase as it was fully operational in the 2022 period but was acquired after the end of the 2021 period. Teal's operating loss for the three months ended July 31, 2022 was approximately $1,309,000 which equals approximately 36% of the consolidated net loss for the 2022 period.increase. Since acquiring Teal, we have more than tripled its headcount and significantly expanded its facilities. Net loss for Teal during the 2023 period totaled $7,497,605 compared to $1,222,351 for the 2022 period, representing an increase of $6,275,254, or almost five times. The higher net loss for Teal represented 71% of the increase in the consolidated net loss.

Cash Flows

Operating Activities

Net cash used in operating activities was ~~$4,813,815~~$21,394,858 during the ~~three~~nine months ended ~~July~~January 31, ~~2022,~~2023, compared to net cash used in operating activities of ~~$4,073,042~~$12,039,115 during the ~~three~~nine months ended ~~July~~January 31, ~~2021~~2022, representing an increase of ~~$740,773,~~$9,355,743, or ~~18%~~78%. Net cash used in operations, net of non-cash expenses totaling ~~$943,500,~~$2,752,691, equaled ~~$2,868,099~~$12,969,387 in the ~~2022~~2023 period compared to ~~$1,119,608~~$5,779,305, net of non-cash expenses totaling $1,083,885 in the ~~2021~~2022 period, resulting in an increase of ~~$1,748,491,~~$7,190,082, or greater than 100%. The higher use of cash primarily related to the acquisition of Teal Drones in August 2021 which resulted in a full ~~quarter~~nine months of operations in the 2023 period compared to five months of operations in the 2022 ~~period but no activity in the 2021~~ period. ~~Teal incurred an operating loss of $1,309,219 in the 2022 period which approximates the net cash used.~~ Net cash used related to changes in operating assets and liabilities totaled ~~$1,945,716~~$8,425,471 during the ~~three~~nine months ended ~~July~~January 31, 2023, compared to $6,259,810 during the nine months ended January 31, 2022, ~~compared to $2,953,434 during the three months ended July 31, 2021,~~ representing ~~a decrease~~an increase of ~~$1,007,718,~~$2,165,661 or ~~34%~~35%. 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. ~~During the 2021 period, the Company made deposits to purchase inventory totaling $1,519,598 in response to worldwide supply chain issues.~~

Investing Activities

Net cash provided by investing activities was ~~$7,659,707~~$22,296,235 during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023, compared to ~~$13,502~~net cash used in investing activities of $48,514,017 during the ~~three~~nine months ended ~~July~~January 31, ~~2021~~2022 resulting in an increase of ~~$7,646,205. The increase is primarily due to~~$70,810,252 or greater than 100%. During the 2023 period, net proceeds of ~~$8,204,649~~$24,282,117 from the maturities of marketable securities ~~which~~ were used to fund operations, ~~partially offset by purchases of~~and $1,735,882 was used to purchase property and equipment, ~~of $544,942~~ primarily related to the expansion of the manufacturing facilities for Teal. During the 2022 period, $54,696,624 of proceeds from stock offerings were invested in marketable securities.

Financing Activities

Net cash used in financing activities totaled ~~$685,281~~$1,093,030 during the ~~three~~nine months ended ~~July~~January 31, ~~2022~~2023, compared to net cash provided by financing activities of ~~$69,900,774~~$67,387,312 during the ~~three~~nine months ended ~~July~~January 31, ~~2021.~~2022. Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific to the Company. During the 2022 period, the Company received net proceeds of approximately ~~$70.1~~$70 million in connection with two offerings of common stock.

Liquidity and Capital Resources

At ~~July~~January 31, ~~2022,~~2023, the Company reported current assets totaling ~~$51,176,438,~~$40,527,873 current liabilities totaling ~~$4,554,396~~$5,140,218 and net working capital of ~~$46,622,042.~~$35,387,655. Cash and marketable securities totaled ~~$42,954,053~~$24,623,195 at ~~July~~January 31, ~~2022.~~2023. Inventory related balances, including pre-paid inventory, totaled ~~$6,389,375.~~$12,602,568. 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 ~~July~~January 31, ~~2022,~~2023, the Company was in a strong liquidity and capital position relative to its operating results for the quarter ended ~~July~~January 31, ~~2022~~2023 and its expected cash requirements for the next twelve months.

~~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 4,000,000 shares of its 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 with Think Equity. These shares of common stock were 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 a firm commitment underwritten public offering (the "S-3 Offering") in which it sold an aggregate of 13,333,334 shares of its Common Stock at a purchase price of $4.50 per share to ThinkEquity. These shares of common stock were 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 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 this S-3 Offering, were approximately $55.5 million.

Going Concern

We only began generating revenues in January 2020 and have reported net losses since inception. We expect to report net losses for at least the next twelve months. To date, we have funded our operations through debt and equity transactions. In May and July 2021, we completed common stock offerings which generated gross proceeds of approximately $70 million. At ~~July~~January 31, ~~2022,~~2023, we reported cash and investment balances of approximately ~~$43~~$24.6 million. We expect these financial resources to be sufficient to fund our operations for at least the next twelve months. However, we can provide no assurance that these financial resources will be sufficient to fund our operations until we reach profitability. If we are unable to become profitable before expending our current financial resources, we will need to raise additional capital through equity or debt transactions. We can provide 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.

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.~~derivatives, and (iv) reserves and allowances related to accounts receivable and inventory.

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.

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 ~~July~~January 31, ~~2022.~~2023.

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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 15, 2022, Robert Stang ~~filed~~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 subsidiary’s 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 have ~~purchased from Teal Drones, Inc. prior to the acquisition by the Company.~~purchased. The Complaint also alleges breach of fiduciary duty ~~against Mr. Matus~~ and seeks in excess of $1 million in damages. ~~The~~In connection with the action the Company believes it has a right to indemnification and has 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 First Amended Complaint in an ~~Answer~~action brought against Autonodyne LLC and its founder Daniel Schwinn in the Court of Chancery of the State of Delaware alleging, among other things, breach 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). Defendants filed a motion to ~~the Complaint and the litigation~~dismiss which is ~~ongoing.~~ pending.

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.

3135

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

-------

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: ~~September 12, 2022~~March 7, 2023		Red Cat Holdings, Inc. By: /s/ Jeffrey Thompson Jeffrey Thompson Chief Executive Officer (Principal Executive Officer)

Date: ~~September 12, 2022~~March 7, 2023		By: /s/ Joseph P. Hernon
		Joseph Hernon Chief Financial Officer (Principal Financial and Accounting Officer)

3236


RED CAT HOLDINGS
Consolidated Statements of Stockholders' Equity
(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, 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		968,676		$	9,867			48,489,085	$	48,489	$	94,527,350		$	(17,367,700	)	$	922		$	77,220,515

Balances, April 30, 2022		—	$	—		986,676		$	9,867			53,748,735	$	53,749	$	106,821,384		$	(27,499,059	)	$	(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


See accompanying notes.


RED CAT HOLDINGS
Consolidated Statements of Cash Flows (Unaudited)

	Three months ended July 31,
	2022			2021
Cash Flows from Operating Activities
Net loss	$	(3,811,599	)	$	(1,557,772	)
Stock based compensation - options		458,023			187,494
Stock based compensation - restricted units		297,448			196,592
Common stock issued for services		—			192,000
Amortization of intangible assets		56,160			16,326
Realized loss from sale of marketable securities		10,675			—
Depreciation		28,272			—
Change in fair value of derivative		92,922			(154,248	)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(434,299	)		105,019
Inventory		(688,966	)		(472,303	)
Other		(339,356	)		(1,996,858	)
Operating lease right-of-use assets and liabilities		11,139			—
Customer deposits		(204,415	)		62,792
Accounts payable		(81,335	)		(130,343	)
Accrued expenses		(208,484	)		(521,741	)
Net cash used in operating activities		(4,813,815	)		(4,073,042	)

Cash Flows from Investing Activities
Cash acquired through acquisitions		—			13,502
Purchases of property and equipment		(544,942	)		—
Proceeds from maturities of marketable securities		9,094,592			—
Purchases of marketable securities		(889,943	)		—
Net cash provided by investing activities		7,659,707			13,502

Cash Flows from Financing Activities
Proceeds from exercise of warrants		—			99,999
Payments under related party obligations		(2,861	)		(150,255	)
Payments under debt obligations		(212,789	)		(114,173	)
Payments of taxes related to equity transactions		(469,631	)		—
Proceeds from issuance of common stock, net		—			70,065,203
Net cash (used in) provided by financing activities		(685,281	)		69,900,774

Net increase in Cash		2,160,611			65,841,234
Cash, beginning of period		4,084,815			277,347
Cash, end of period		6,245,426			66,118,581

Cash paid for interest		36,082			2,024
Cash paid for income taxes		—			—

Non-cash transactions
Fair value of shares issued in acquisitions	$	—		$	2,631,640
Common stock issued for services	$	—		$	192,000
Conversion of derivative liability	$	—		$	163,141
Unrealized gain on marketable securities	$	133,582			—
Indirect payment to related party	$	—		$	132,200
Shares withheld as payment of note receivable	$	18,449		$	—
Taxes related to net share settlement of equity awards	$	15,982		$	—
Conversion of preferred stock into common stock	$	—		$	9,820


See accompanying notes.

Fiscal Year Ended:
	2023	$	168,478
	2024		221,972
	2025		197,638
	2026		170,438
	2027		141,845
	Total	$	900,371

Fiscal Year Ended:
	2023	$	291,405
	2024		403,878
	2025		304,676
	2026		76,619
	2027		79,300
	Thereafter		6,627
	Total	$	1,162,505

		Upon Issuance				July 31, 2022
Date of Transaction		Number of Warrants		Initial Fair Value		Number of Warrants		Fair Value
	October 2020		399,998	$	267,999		266,666	$	557,297
	January 2021		675,000	$	2,870,666		540,000	$	1,143,122

	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 July 31, 2022	1,539,999		$	3.38		3.63	$	540,466