What changed in Red Cat Holdings, Inc.'s 10-K — 2023 vs 2024
vs
Paragraph-level year-over-year comparison of Red Cat Holdings, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.
+135 added−540 removedSource: 10-K (2024-08-08) vs 10-K (2023-07-27)
Top changes in Red Cat Holdings, Inc.'s 2024 10-K
135 paragraphs added · 540 removed · 75 edited across 5 sections
- Item 1. Business+63 / −446 · 40 edited
- Item 7. Management's Discussion & Analysis+55 / −80 · 28 edited
- Item 3. Legal Proceedings+7 / −8 · 2 edited
- Item 2. Properties+6 / −2 · 2 edited
- Item 5. Market for Registrant's Common Equity+4 / −4 · 3 edited
Item 1. Business
Business — how the company describes what it does
40 edited+23 added−406 removed3 unchanged
Item 1. Business
Business — how the company describes what it does
40 edited+23 added−406 removed3 unchanged
2023 filing
2024 filing
Biggest changeIn December 2015, the FAA announced that all drones weighing more than 250 grams, or 0.55 pounds, must be registered with the FAA. As of July 2023, the FAA reported the registration of almost 870,000 drones, of which approximately 350,000 were commercial and approximately 520,000 were recreational.
Biggest changeThe FAA began issuing conditional approvals allowing the operation of drones as early 2005 with their scope and frequency expanding in recent years with the significant increase in the number of drones sold. In December 2015, the FAA announced that all drones weighing more than 250 grams, or 0.55 pounds, must be registered with the FAA.
ITEM 1. BUSINESS I. Overview The Company was originally incorporated under the laws of the State of Colorado in 1984 under the name Oravest International, Inc. In November 2016, we changed our name to TimefireVR, Inc. and re-incorporated in Nevada.
ITEM 1. BUSINESS Overview The Company was originally incorporated under the laws of the State of Colorado in 1984 under the name Oravest International, Inc. In November 2016, we changed our name to TimefireVR, Inc. and re-incorporated in Nevada.
These efforts culminated in the launch of the Teal 2 in April 2023. The Teal 2 is the first small, unmanned aircraft system (“sUAS”) designed to “Dominate the Night”, when most military operations take place, through its enhanced capabilities.
These efforts culminated in the launch of the Teal 2 in April 2023. The Teal 2 is the first small, unmanned aircraft system (“sUAS”) designed to “Dominate the Night”, when most combat operations take place, through its enhanced capabilities.
Blue sUAS is an initiative of the Defense Innovation Unit (DIU), the only DoD organization focused on accelerating the adoption of commercial and dual use technology to solve operational challenges at a speed and scale that is faster and higher than normal for government agencies. 3.
Blue sUAS is an initiative of the Defense Innovation Unit (“DIU”), the only DoD organization focused on accelerating the adoption of commercial and dual use technology to solve operational challenges at a speed and scale that is faster and higher than normal for government agencies.
These acquisitions included: In January 2020, we acquired Rotor Riot, LLC (“Rotor Riot”), a reseller of drones and related parts, primarily to the consumer marketplace through its digital storefront located at www.rotorriot.com .
These acquisitions included: In January 2020, we acquired Rotor Riot, a reseller of drones and related parts, primarily to the consumer marketplace through its digital storefront located at www.rotorriot.com.
The total purchase price was $2.0 million. In November 2020, the Company acquired Fat Shark Holdings (“Fat Shark”) which sells consumer electronics products to the first-person view (“FPV”) sector of the drone industry.
The total purchase price was $2.0 million. In November 2020, the Company acquired Fat Shark which sells consumer electronics products to the first-person view (“FPV”) sector of the drone industry.
Future competitors may include established defense contractors that are better capitalized and resourced to compete in Teal's markets. Teal competes with a combination of its unique product value propositions (i.e. nighttime capability, modular platform), and scalable domestic manufacturing. Skypersonic Skypersonic enables drones to "Fly Anywhere".
Future competitors may include established defense contractors that are better capitalized and resourced to compete in Teal's markets. Teal competes with a combination of its unique product value propositions (i.e., nighttime capability, modular platform), and scalable, low-cost, domestic manufacturing.
Customs and Border Protection Contract Worth up to $90 Million over Five Years In December 2021, Teal was one of only five contractors designated to participate in a firm, fixed price, multiple award blanket purchase agreement (BPA) by the United States Customs and Border Protection.
Customs and Border Protection Contract Worth up to $90 Million over Five Years In December 2021, Teal was one of only five contractors designated to participate in a firm, fixed price, multiple award blanket purchase agreement (BPA) by the United States Customs and Border Protection. The BPA has an estimated value of $90 million in total over a 5-year period.
Army banned its forces from using Chinese-made quadcopters due to security risks (the drones’ radio controls are unencrypted and the devices could potentially capture and store sensitive information that could be provided to the Chinese government), the U.S. Department of Defense began developing its own alternatives under a defense program known as Blue sUAS.
Army banned its forces from using Chinese-made quadcopters due to security risks (the radio controls of the drone are unencrypted and the devices could potentially capture, store and upload sensitive information to the Chinese government), the DoD began developing its own alternatives under a defense program known as Blue sUAS.
(“Red Cat” or the “Company” or “we”) and our operating focus to the drone industry. Prior to the share exchange agreement, Propware was focused on the research and development of software solutions that could provide secure cloud-based analytics, storage and services for the drone industry.
Prior to the share exchange agreement, Propware was focused on the research and development of software solutions that could provide secure cloud-based analytics, storage and services for the drone industry.
In May 2019, the Company completed a share exchange agreement with Red Cat Propware (“Propware”) which resulted in the Propware shareholders acquiring an 83% ownership interest, and management control, of the Company. In connection with the share exchange agreement, we changed our name to Red Cat Holdings, Inc.
In May 2019, the Company completed a share exchange agreement with Propware which resulted in the Propware shareholders acquiring an 83% ownership interest, and management control, of the Company. In connection with the share exchange agreement, we changed our name to Red Cat Holdings, Inc. (“Red Cat” or the “Company” or “we”) and our operating focus to the drone industry.
Though regulation is trending toward further restrictions against Chinese made drones, DJI remains a global industry leader and continues to serve markets that Teal is focused on. Domestic competitors of Teal include Vantage Robotics and Skydio. These companies were selected alongside Teal out of 37 companies to compete in the Short Range Reconnaissance Tranche 2 program.
Though regulation is trending toward further restrictions against Chinese made drones, DJI remains a global industry leader and continues to serve markets on which Teal is focused. Teal’s primary domestic competitor is Skydio Inc. This company was selected alongside Teal out of 37 companies to compete in the Short Range Reconnaissance Tranche 2 program.
In January 2022, Teal doubled the size of the facility, which now totals approximately 25,000 square feet, in order to fully scale production capacity to meet the forecast growth in demand and to house its expanding team of software and technology engineers. At the end of fiscal 2023, production capacity was approximately 100 drones per month.
In January 2022, Teal doubled the size of the facility, which now totals approximately 22,000 square feet, to fully scale production capacity to meet the forecast growth in demand and to house its expanding team of software and technology engineers.
The Company believes that maximum production capacity for this facility can reach 1,000 drones per month over the next 2 to 3 years, provided that additional capital investments are made and manufacturing efficiencies realized. Manufacturing in the United States, “Made in the USA”, is a critical consideration of the U.S. government and other state and local government agencies. 4.
We believe that maximum production capacity for this facility can reach 5,000 or more drones per month over the next few years, provided that additional capital investments are made and manufacturing efficiencies realized. Manufacturing in the United States, “Made in the USA,” is a critical consideration of the U.S. government and other state and local government agencies.
Fat Shark’s flagship products are headsets with a built-in display (or “goggles”) that allow a pilot to see a real-time video feed from a camera typically mounted on an aerial platform or drone. The total purchase price was $8.4 million. In May 2021, we acquired Skypersonic, Inc.
Fat Shark’s flagship products are headsets with a built-in display (or “goggles”) that allow a pilot to see a real-time video feed from a camera typically mounted on an aerial platform or drone.
These efforts lay the foundation for more complex operations, such as those beyond visual line of sight at low altitudes, as the FAA and the drone industry move toward a traffic management ecosystem for Unmanned Aircraft System flights separate from, but complimentary to, the air traffic management system.
These efforts lay the foundation for more complex operations, such as those beyond visual line of sight at low altitudes, as the FAA and the drone industry move toward a unified air traffic management ecosystem as drone operations become a routine fixture in the National Airspace System (the “NAS”).
The drones will provide supplemental airborne reconnaissance, surveillance, and tracking capability to enhance situational awareness for field commanders and agents in areas that lack nearby traditional surveillance systems or available manned air support. 3.
The Department of Homeland Security agencies can place orders through the BPA for unmanned aircraft systems (UAS). The drones will provide supplemental airborne reconnaissance, surveillance, and tracking capability to enhance situational awareness for field commanders and agents in areas that lack nearby traditional surveillance systems or available manned air support. U.S.
Suppliers Teal purchases inventory from over 35 suppliers. 80% of this inventory is purchased from four vendors. The most critical components are electronics and cameras. Teal's supply chain is NDAA and Blue UAS compliant. All suppliers are approved based on Teal's strict vendor qualification process. 2. Competition Teal's primary competitor is DJI.
Approximately 80% of this inventory is purchased from four vendors. The most critical components are electronics and cameras. Teal's supply chain is NDAA and Blue UAS compliant. All suppliers are approved based on Teal's strict vendor qualification process. Competition Teal's primary competitor is Shenzhen Da-Jiang Innovations Sciences and Technologies Company Limited (“DJI”), headquartered in Shenzhen, China.
The Army has indicated that Tranche 2 and 3 have been combined and will represent the final tranche of the SRR program. Teal was selected to develop a next-generation sUAS designed for intelligence, surveillance and reconnaissance (ISR) duties, with a focus on autonomous capability, for the U.S. Army.
Teal was selected to develop a next-generation sUAS designed for intelligence, surveillance and reconnaissance (ISR) duties, with a focus on autonomous capability, for the U.S. Army.
Enterprise has substantially completed construction of a new manufacturing facility in Salt Lake City and believes that an increased focus by the United States government and American businesses on purchasing products that are “Made in America” provide Enterprise with a competitive advantage. 5 Teal Drones Teal is the core of the Enterprise segment and was founded in 2015 by George Matus, a Thiel fellow.
We have since completed construction of a manufacturing facility in Salt Lake City and believe that an increased focus by the United States government and American businesses on purchasing products that are “Made in America” provide our Enterprise segment with a competitive advantage.
VI. Other Corporate Information A. Environmental Considerations While the operations of many businesses have some form of negative impact on the environment, drones have a unique ability to provide a positive contribution.
In December 2023, the ASDA was officially passed into law as part of the National Defense Authorization Act. 8 Other Corporate Information Environmental Considerations While the operations of many businesses have some form of negative impact on the environment, drones have a unique ability to provide a positive contribution.
The ultimate goal of the SRR T2 program is to provide a small, rucksack portable, fully encrypted sUAS that provides all Army infantry platoons (consisting of 20-50 soldiers) with situational awareness beyond the next terrain. Following a successful demonstration in September 2021, Teal was notified by the U.S.
The ultimate goal of the SRR T2 program is to provide a small, rucksack portable, fully encrypted sUAS that provides all Army infantry platoons (consisting of 20-50 soldiers) with situational awareness beyond the next terrain. As of May 2024, Teal has completed all milestones in its SRR T2 contract, whose value totaled $5.7 million.
The total purchase price was $2.8 million. In August 2021, the Company acquired Teal Drones ("Teal"), a leader in providing sophisticated and complex unmanned aerial vehicle ("UAV") technology, primarily drones, to government and commercial enterprises, most notably, the military. Teal manufactures drones approved by the U.S. Department of Defense for reconnaissance, public safety, and inspection applications.
Its patented software and hardware solutions allow for inspection services in restricted spaces where GPS is denied or unavailable. The total purchase price was $2.8 million. In August 2021, the Company acquired Teal, a leader in providing sophisticated and complex unmanned aerial vehicle ("UAV") technology, primarily drones, to government and commercial enterprises, most notably, the military.
The FAA believes that remote ID technologies will enhance safety and security by allowing the FAA, law enforcement, and federal security agencies to identify drones flying in their jurisdiction.
In January 2021, the FAA finalized rules requiring that drones be identifiable remotely. These rules became effective for drone manufacturers in September 2022 and for drone pilots in September 2023. The FAA believes that remote ID technologies enhance safety and security by allowing the FAA, law enforcement, and federal security agencies to identify drones flying in their jurisdiction.
Department of Defense approved drone designed for reconnaissance, public safety, and inspection applications. A. Key Business Accomplishments during Fiscal 2023 and to date include: 1. Launches Teal 2, a military-grade sUAS Designed to “Dominate the Night™” Following its acquisition by Red Cat in August 2021, Teal accelerated efforts on the development of its next generation Enterprise drone.
The sale reflects our decision to focus our efforts and capital on defense where we believe there are more opportunities to create long term shareholder value. 4 Key Business Accomplishments during Fiscal 2024 and to date include: Scaling Teal 2, a military-grade sUAS Designed to “Dominate the Night™” Following its acquisition by Red Cat in August 2021, Teal accelerated efforts on the development of its next generation drone for our Enterprise segment.
American Security Drone Act In February 2023, two Congressman introduced the "American Security Drone Act of 2023" which would prohibit the purchase of drones from countries identified as national security threats such as China.
As a result, the testing and evaluation burden on manufacturers is greatly decreased, and the cost of development of UAS may be dramatically reduced. American Security Drone Act In February 2023, two Congressman introduced the American Security Drone Act (ASDA) which would prohibit the purchase and operation of drones from countries identified as national security threats such as China.
While the sales cycle for government agencies can be extensive and take considerable time and effort to establish, they can often become a long-term buyer once initial sales are closed. Key activities in fiscal 2023 related to demonstrating the capabilities of the Teal 2 included: 11 1.
Most of their efforts in fiscal 2024 were focused on developing relationships with the military agencies of the U.S. Federal Government. While the sales cycle for government agencies can be extensive and take considerable time and effort to establish, they can often become a long-term buyer once initial sales are closed.
The Teal 2 offers the latest intelligence, surveillance, and reconnaissance (“ISR”) technology and delivers time-critical information that enables the warfighter to make faster and smarter decisions.
The Teal 2 offers the latest intelligence, surveillance, and reconnaissance (“ISR”) technology and delivers time-critical information that enables the warfighter to make faster and smarter decisions. The Teal 2 is manufactured exclusively at Teal’s purpose-built factory in Salt Lake City, Utah. Teal originally moved into the facility in October 2021.
(“Skypersonic”), a provider of drone products and software solutions that enable drone inspection flights that can be executed by pilots anywhere in the world. Skypersonic powers drones to “Fly Anywhere” and “Inspect the Impossible”. Its patented software and hardware solutions allow for inspection services in restricted spaces where GPS is denied or unavailable.
The total purchase price was $8.4 million. In May 2021, we acquired Skypersonic, a provider of drone products and software solutions that enable drone inspection flights that can be executed by pilots anywhere in the world. Skypersonic powers drones to “Fly Anywhere” and “Inspect the Impossible”.
Many of these relate to a drone’s ability to reach places in a more efficient manner, and include such activities as: aerial mapping and nature monitoring; maintenance of renewal energy sources such as solar panels and wind turbines; disaster relief monitoring and relief delivery; and agricultural sustainability solutions B.
Many of these relate to a drone’s ability to reach places in a more efficient manner, and include such activities as: Aerial mapping and nature monitoring Maintenance of renewable energy sources and infrastructure Disaster relief monitoring Agriculture sustainability Wildlife conservation Intellectual Property The Company has consolidated its intellectual property (“IP”) into a subsidiary, UAVPatent Corp.
Customs and Border Protection which ordered 54 units of the Teal 2. 6 2. Designation of Teal 2 as Blue UAS received from U.S. Department of Defense In June 2023, the Teal 2 received clearance from the U.S. Department of Defense ("DoD") to be designated as a Blue UAS.
Department of Defense In June 2023, the Teal 2 received clearance from the U.S. Department of Defense ("DoD") to be designated as a Blue UAS. The DoD defines these drones as NDAA (National Defense Authorization Act) compliant, validated as cyber secure, and safe to fly.
Government Contracts and Orders Enterprise is focusing on U.S. federal government agencies, particularly the military branches, as its initial target market. Its longer term target customer base includes U.S. state and local government agencies, as well as governments of foreign allies. An overview of existing government contracts and recent developments include: 1. U.S.
The shared goal is advocacy, integrations and co-marketing that bridges considerable technology gaps through modular open architecture. 5 Government Contracts and Orders The Enterprise segment is focused on U.S. federal government agencies, particularly the DoD, as its initial target market. Its longer term target customer base includes U.S. state and local government agencies, as well as governments of foreign allies.
In addition, many governments of allied nations are more likely to purchase Blue UAS approved drones. Teal's legacy drone, the Golden Eagle, is also on the cleared list which is believed to number less than 20 in total. After the U.S.
This designation enables Teal to fill orders from federal, state, and local government agencies subject to oversight by the DoD, including those orders that were contingent upon receiving certification. In addition, many governments of allied nations are more likely to purchase Blue UAS approved drones. Teal's legacy drone, the Golden Eagle, is also on the cleared list. After the U.S.
A. Government Regulation and Federal Policy 1. The Federal Aviation Administration The Federal Aviation Administration (“FAA”) of the United States Department of Transportation is responsible for the regulation and oversight of civil aviation within the U.S. Its primary mission is to ensure the safety of civil aviation.
According to Vantage Market Research, the global military drone market is projected to reach a value of $34.9 billion by 2030 at a CAGR of 11.6%. 7 Government Regulation and Federal Policy The Federal Aviation Administration The Federal Aviation Administration (the “FAA”) of the United States Department of Transportation is responsible for the regulation and oversight of civil aviation within the U.S.
Enterprise Segment The Enterprise segment’s current business strategy is focused on providing integrated robotic hardware and software for use across a variety of applications. Its solutions provide critical situational awareness and actionable intelligence to on-the-ground warfighters and battlefield commanders as well as firefighters and public safety officials.
Its solutions provide critical situational awareness and actionable intelligence to on-the-ground warfighters and battlefield commanders as well as firefighters and public safety officials. Our Enterprise segment’s efforts are centered on developing and scaling an American made family of systems.
Product Development Product development efforts in fiscal 2023 were focused on the development of the Teal 2 which was officially launched in April 2023 at the Army Aviation Mission Solutions Summit. Significant resources were also expended developing the prototype under the Army's SRR Tranche 2 program.
As part of our expanded global sales strategy, the contract delivery featured Teal 2 drone systems, training, and accessories. Product Development Product development efforts in fiscal 2024 were focused on the scaling of the Teal 2 which was officially launched in April 2023 at the Army Aviation Mission Solutions Summit.
Army Tranche 2 Drone Program In March 2022, Teal was selected by the Department of Defense's (DoD) Defense Innovation Unit (DIU) and U.S. Army to compete in the Short Range Reconnaissance Tranche 2 (SRR T2) Program of Record. The rigorous technical requirements and program objectives of SRR T2 dramatically narrowed the field from thirty-three drone manufacturers down to three vendors.
An overview of existing government contracts and recent developments include: Finalist for Short Range Reconnaissance Program of Record In March 2022, Teal was selected by the DoD’s DIU and the U.S. Army to compete in the Short Range Reconnaissance Tranche 2 (SRR T2) Program of Record.
The FAA has adopted the name “unmanned aircraft” (“UA”) to describe aircraft systems without a flight crew on board. More common names include drone, Unmanned Aerial Vehicle (“UAV”) and remotely operated aircraft. The FAA began issuing regulations governing drones in 2005 with their scope and frequency expanding in recent years with the significant increase in the number of drones sold.
Its primary mission is to ensure the safety of civil aviation. The FAA has adopted the name “unmanned aircraft systems” (“UAS”) to describe aircraft systems without a flight crew on board. More common names include drone, UAV and remotely operated aircraft.
Sales and Marketing Since acquiring Teal in August 2021, the Company has built a sales and marketing team which presently consists of 8 direct and support professionals. Most of their efforts in fiscal 2023 were focused on developing relationships with the military agencies of the U.S. Federal Government.
Significant resources were also expended developing the next generation system under the Army's SRR Tranche 2 program. Sales and Marketing Since acquiring Teal in August 2021, we have built a sales and marketing team which presently consists of 16 direct and support professionals.
This resulted in the Enterprise segment narrowing its near term focus on the military and other government agencies. It was determined that Skypersonic's technology would be re-focused, for the next few years, on government applications and that its technology would be consolidated into the operations of Teal Drones.
Subsequently, the segment narrowed its near-term attention on the military and other government agencies. Skypersonic's technology has been redirected to military applications and its operations consolidated into Teal. The Enterprise segment’s current business strategy is focused on providing integrated robotic hardware and software for use across a variety of applications.
Removed
The total purchase price was $10.0 million. II. Recent Developments During the second half of the fiscal year ending on April 30, 2022, the Company focused on integrating and organizing its acquired businesses.
Added
Teal manufactures drones approved by the U.S. Department of Defense for reconnaissance, public safety, and inspection applications. The total purchase price was $10.0 million. Following the Teal acquisition in August 2021, we concentrated on integrating and organizing these businesses.
Removed
These efforts including 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, consisting of Teal and Skypersonic, is focused on opportunities in the commercial sector and the military.
Added
Effective May 1, 2022, we established the Enterprise segment and the Consumer segment to focus on the unique opportunities in each sector. The Enterprise segment’s initial strategy was to provide UAVs to commercial enterprises, and the military, to navigate dangerous military environments and confined industrial and commercial interior spaces.
Removed
Enterprise's initial strategy was to provide UAV's, primarily drones, to navigate dangerous military environments and confined industrial and commercial interior spaces. The Consumer segment, consisting of Rotor Riot and Fat Shark, is focused on enthusiasts and hobbyists which are expected to increase as drones become more visible and useful in our daily lives.
Added
On February 16, 2024, we closed the sale of our Consumer segment, consisting of Rotor Riot and Fat Shark, to Unusual Machines, Inc. (or “Unusual Machines” or “UMAC”).
Removed
Consumer provides a growing revenue base, strong brand visibility, and is an excellent source of professional pilots. 4 Following the establishment of the Enterprise and Consumer segments in the first quarter of fiscal 2023, management spent much of fiscal 2023 evaluating and establishing the long term business strategy of each segment.
Added
During Fiscal 2024, Teal continued to scale the manufacturing facility, including dedicated teams for production and assembly, manufacturing engineering, supply chain and logistics, warranty and returns, as well as a flight operations team that is focused on manufacturing and quality assurance and quality control. Designation of Teal 2 as Blue UAS received from U.S.
Removed
In the fall of calendar 2022, the Company received inquiries and held discussions regarding the potential acquisition of the Consumer segment, specifically Rotor Riot and Fat Shark. These discussions culminated in the execution of a Stock Purchase Agreement ("SPA”) with Unusual Machines in November 2022.
Added
Red Cat Futures Initiative In May 2024, we announced the formation of the Red Cat Futures Initiative (RFI). RFI is an independent, industry-wide consortium of robotics and autonomous systems (RAS) partners dedicated to putting the most advanced and interoperable uncrewed aircraft systems into the hands of warfighters.
Removed
Prior to signing the SPA, the Company completed a comprehensive evaluation of its business segments, including (i) the synergies and challenges of operating two diverse business segments, (ii) the future operating prospects for each segment including revenues, expenses, profits, and cash flows, and (iii) the financial impact of a potential sale of the Consumer segment on the Company.
Added
Anchored by Red Cat’s Teal Drones, the RFI unites the world’s most innovative UAS hardware and software companies focused on AI/ML, swarming, FPV, command and control, and payloads. Founding members include Ocean Power Technologies (NYSE: OPTT), Sentien Robotics, Primordial Labs, Athena AI, Unusual Machines, Reach Power, Doodle Labs, and MMS Products.
Removed
The results of the evaluation indicated a number of significant operating and financial differences between Enterprise and Consumer including (i) Consumer sources a substantial portion of its product from China whereas Enterprise is focused on a "Made in America" policy which is very important to the U.S. government, its primary target customer, (ii) Enterprise is required to meet ITAR export requirements which necessitates that all employees be U.S. persons and undergo a background check whereas Consumer does not have such requirements, (iii) Consumer primarily markets through a social media platform and strategy that focuses on maximizing its public presence whereas Enterprise's marketing efforts in dealing with its government target market are more discrete and (iv) Consumer is focused on reaching profitability whereas Enterprise has been investing in a new manufacturing facility and building strong relationships with government agencies.
Added
The rigorous technical requirements and program objectives of SRR T2 dramatically narrowed the field from 37 drone manufacturers down to two vendors. The Army has indicated that Tranche 2 and 3 have been combined and will represent the final tranche of the SRR program.
Removed
Collectively, these differences would require the Company to establish separate departments for many common functions including purchasing, human resources, and sales and marketing. Finally, closing of the SPA would strengthen the Company's financial position as it would generate immediate cash and eliminate the funding required to support Consumer until it reached profitability.
Added
Teal expects the Army to announce vendor selection of a production award by the fourth quarter of calendar 2024. U.S. Border Patrol $1.8 Million Purchase Order from U.S. Border Patrol In September 2023, Teal was awarded a $1.8 million contract from U.S. Customs and Border Protection to provide Teal 2 systems to U.S. Border Patrol. The U.S.
Removed
The Company concluded that the long term business prospects of the Enterprise segment were significantly greater than those of the Consumer segment, and that a sale of Consumer should be completed.
Added
Border Patrol is using the Teal 2 to provide supplemental airborne reconnaissance, surveillance and tracking capability, enhancing situational awareness for U.S. field commanders and agents.
Removed
The closing of the transaction is contingent upon Unusual Machines completing (i) an initial public offering that raises sufficient capital to close the transaction, and (ii) listing on a public stock exchange such as the NYSE or Nasdaq. III.
Added
Defense Logistics Agency In August 2023, Teal received two purchase orders totaling $5.2 million from the U.S. Defense Logistics Agency (DLA). Both orders were requested by U.S. Air Force Security Forces, whose role is to defend Air Force bases and installations.
Removed
Its mission is to "Dominate the Night" and constantly provide best in class thermal imaging capabilities. Enterprise’s efforts are centered on its Made in America Class 1 drone development program, particularly its Teal 2, and Four Ship products.
Added
The procurements were sourced by global operations support company Noble Supply & Logistics, LLC (NOBLE) as part of the DLA’s Special Operational Equipment Tailored Logistics Support (“SOE TLS Program”). NOBLE is a DLA-designated provider for the SOE TLS Program.
Removed
Its first products were consumer based and the first of their kind to be manufactured in the United States. Beginning in October 2018, Teal migrated its business strategy to focus on the government, military, and enterprise sectors (collectively referred to as “Enterprise”). Its first product offering, the “Golden Eagle”, was launched in June 2020. The Golden Eagle is a U.S.
Added
This 10-year program, capped at $33 billion, covers the delivery of logistics support to federal agencies, military bases and other DLA customers worldwide, helping them meet their special operational equipment requirements. 6 NATO Allied Countries In March 2024, Teal received $2.5 million in new contract awards with two NATO allied countries.
Removed
Some of the unique features and capabilities of the Teal 2, and the partners who developed and helped integrate these technologies into the Teal 2, include: Teledyne FLIR whose new Hadron 640R sensor provides the highest resolution thermal imaging in a small (Group 1) form factor which is optimal for nighttime operations. Tomahawk Robotics whose common control system enables a single operator to simultaneously control up to four Teal 2’s at the same time. Athena AI, an Artificial Intelligence (“AI”) and computer vision architecture firm.
Added
During fiscal 2024, we continued global expansion efforts among U.S. allies. In December 2023, the team showcased the Teal 2 drone at Expodefensa 2023 in Latin America. Expodefensa 2023 is a main hub for security and defense in Latin America, allowing international exhibitors to present their systems and products in response to a growing regional demand.
Removed
Its technology enhances target recognition and battle tracking which enables wartime commanders to make faster battlefield decisions. Reveal Technology whose “Farsight” mapping software enables the automatic combining of imagery from multiple drones to produce high fidelity 3D maps. Immervision, an optical products manufacturer whose navigation camera module is used for surveillance and unmanned systems.
Added
The aim of the event was to help governments and armed forces face their operational and capability challenges while playing a role in building a safer Latin America. In February 2024, the team showcased the Teal 2 drone at the World Defense Show in Saudi Arabia.
Removed
Immervision enhances the navigation skills of the Teal 2 at night and in other difficult flying conditions such as in fog, beneath bridges, and inside buildings. The Teal 2 is manufactured exclusively at Teal’s new purpose-built factory in Salt Lake City, Utah. Early-adopter customers included the U.S.
Added
The World Defense Show provided a unique platform for the world’s defense industry to network, partner, share knowledge, and discover new innovations and capabilities across all defense domains. The World Defense Show attracted key defense figures, government officials, decision-makers, and thought leaders across all levels of the supply chain. Other Teal Information Suppliers Teal purchases inventory from over 35 suppliers.
Removed
The DoD defines these drones as NDAA (National Defense Authorization Act) compliant, validated as cyber secure, and safe to fly. This designation enables Teal to fill orders from federal, state, and local government agencies subject to oversight by the DoD, including those orders that were contingent upon receiving certification.
Added
The Drone Industry The drone industry continues to expand to become a powerful business tool and recreational activity, with growth occurring broadly and across our targeted industries. According to Drone Industry Insights, the global drone market is expected to grow to $54.6 billion by 2030, with the commercial market growing at a 7.7% compound annual growth rate (“CAGR”).
Removed
New Manufacturing Facility Constructed and Scaling Productivity During Fiscal 2023, Teal substantially completed construction of its new manufacturing facility and began to scale production levels. Teal originally moved into the facility, located in Salt Lake City, Utah, in October 2021.
Added
In June 2016, the FAA released a new section under title 14 of the Code of Federal Regulations (Part 107) defining a regulatory framework for the commercial, industrial and public safety use of drones, establishing a licensing program for drone pilots, and issuing Remote Pilot certificates to qualified pilots.
Removed
Awarded Increase in Prototype Development Contract under U.S. Army Tranche 2 Program In June 2023, the Army authorized Teal to complete additional milestones under the terms of a Statement of Work related to its UAS Tranche 2 program.
Added
As of July 2023, the FAA reported the registration of almost 870,000 drones, of which approximately 350,000 were commercial and approximately 520,000 were recreational. In addition, more than 330,000 remote pilots were certified. This data strongly suggests drones represent the largest share of commercial aviation in the United States by number of pilots, aircraft, and flights.
Removed
Under the terms of the Statement of Work, the Army has agreed to fund certain engineering and material costs incurred by Teal to build a next generation prototype based on technical requirements and warfighter feedback. As of June 30, 2023, a total of $2.7 million has been authorized under the Statement of Work.
Added
In May of 2023, the FAA began soliciting recommendations from the industry regarding rule making supporting the implementation of Beyond Visual Line of Sight (BVLOS) operations. This rulemaking would support standard implementation of routine flights over the horizon, and potentially multiple miles from a drone’s control station and pilot.
Removed
Cumulative billings through April 30, 2023 totaled $879,400 and the Company expects to complete and bill the remaining authorized amount of $1,862,701 in fiscal 2024 as milestones are fulfilled. The Statement of Work provides for 15 separate development milestones, of which 9 have been authorized to date.
Added
This rulemaking would free drone pilots and operators from restrictive and labor-intensive conditional approval petitions, and would improve the economies of scale for drones to tackle larger mission sets, such as surveying miles of power lines or railroad tracks, or securing miles of rural border.
… 389 more changes not shown on this page.
Item 2. Properties
Properties — owned and leased real estate
2 edited+4 added−0 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
2 edited+4 added−0 removed0 unchanged
2023 filing
2024 filing
Biggest changePROPERTIES The Company has the following operating leases for real estate locations where it operates: Location Monthly Rent Expiration South Salt Lake, Utah $ 22,667 December 2024 Orlando, Florida $ 4,520 January 2025 San Juan, Puerto Rico $ 5,647 June 2027 Troy, Michigan $ 550 May 2022 These lease agreements have remaining terms up to 4.08 years, excluding options to extend certain leases for up to 5 years.
Biggest changeThe Company has the following operating leases for real estate locations where it operates: Location Monthly Rent Expiration South Salt Lake, Utah $ 22,667 December 2030 San Juan, Puerto Rico $ 5,647 June 2027 Grantsville, Utah $ 1,000 December 2026 The South Salt Lake, Utah facility has approximately 22,000 square feet and is used for our manufacturing.
The weighted average remaining lease term as of April 30, 2023 was 2.40 years. The Company used a discount rate of 12% to calculate its lease liability at April 30, 2023. Future lease payment obligations at April 30, 2023 were as follows: Fiscal Year Ended: 2024 403,878 2025 304,676 2026 76,619 2027 79,300 2028 6,627 Total $ 871,100 47
The weighted average remaining lease term as of April 30, 2024 was 6.16 years. The Company used a discount rate of 12% to calculate its lease liability at April 30, 2024.
Added
ITEM 2. PROPERTIES We lease all properties where our business is operated. We believe that these properties are adequate for the purposes for which they are used. All leases are with unaffiliated third parties.
Added
We believe that the loss of any lease would not have a material adverse effect on our operations, as we believe that we could identify and lease comparable facilities upon approximately equivalent terms.
Added
The San Juan, Puerto Rico facility has approximately 3,600 square feet and is used for administrative purposes. The Grantsville, Utah property is approximately one acre and is used for drone flight operations and testing. These lease agreements have remaining terms up to 6.67 years, including options to extend certain leases for up to six years.
Added
Future lease payment obligations at April 30, 2024 were as follows: Fiscal Year Ended: 2025 $ 366,853 2026 372,449 2027 372,880 2028 293,334 2029 280,080 Thereafter 443,460 Total $ 2,129,056 28
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
2 edited+5 added−6 removed0 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
2 edited+5 added−6 removed0 unchanged
2023 filing
2024 filing
Biggest changeThe case arises from Autonodyne’s unilateral purported termination of a software licensing agreement entered between Teal Drones and Autonodyne in May 2022.
Biggest changeThe case arises from Autonodyne’s unilateral purported termination of a software licensing agreement entered between Teal Drones and Autonodyne in May 2022. Before the defendants answered, we filed a First Amended Complaint on December 5, 2022, which the defendants moved to dismiss. The court partially granted that motion, dismissing the claims asserted against Autonodyne, but not against Schwinn.
On September 29, 2022, we, and our wholly-owned subsidiary Teal Drones, Inc., initiated a legal proceeding (the “Lawsuit”) against Autonodyne LLC (“Autonodyne”) and its principal equity owner Daniel Schwinn (“Schwinn”), in Delaware Chancery Court. The case is captioned as Red Cat Holdings, Inc., et al. v. Autonodyne LLC, et al., C.A. No. 2022-0878.
ITEM 3. LEGAL PROCEEDINGS On September 29, 2022, we, and our wholly owned subsidiary Teal Drones, Inc., initiated a legal proceeding (the “Lawsuit”) against Autonodyne LLC (“Autonodyne”) and its principal equity owner Daniel Schwinn (“Schwinn”), in Delaware Chancery Court. The case is captioned as Red Cat Holdings, Inc., et al. v. Autonodyne LLC, et al., C.A. No. 2022-0878.
Removed
ITEM 3. LEGAL PROCEEDINGS On March 15, 2022, Robert Stang filed an action against Teal Drones, Inc. and George Matus in the United States District Court for the Northern District of California, Robert Stang v.
Added
For jurisdictional reasons, the case subsequently was transferred to Delaware Superior Court. The Lawsuit alleges a cause of action against Schwinn for Tortious Interference with Contractual Relations and Prospective Contractual Relations, concerning a Software Licensing Agreement between Teal Drones and Autonodyne. No discovery or other significant developments in the Lawsuit have occurred.
Removed
Teal Drones, Inc. and George Matus (No. 22-cv-01586-JSC) and on September 15, 2022 filed a First Amended Complaint naming Teal’s former director Benjamin Lambert and the Company as additional defendants. The complaint asserts claims for breach of contract and unlawful conversion and sale of shares of common stock that plaintiff alleges to have purchased.
Added
On May 9, 2024, Autonodyne LLC filed a complaint against wholly-owned Red Cat subsidiary Teal Drones, Inc. in the Superior Court of the State of Delaware. The Complaint alleges a single cause of action, asserting that Teal breached a Software Licensing Agreement between it and Autonodyne (the “SLA”) by disclosing confidential information contained in the SLA.
Removed
The Complaint also alleges breach of fiduciary duty and seeks in excess of $1 million in damages.
Added
Autonodyne alleges that it rightfully terminated the SLA, and at that point it became entitled to $8.25 million of accelerated payments, pursuant to section 14.4(e) of the SLA. Teal Drones has answered the Complaint, but no discovery has been served yet.
Removed
The Company believes it has a right to indemnification under the Teal acquisition agreements and has notified the sellers of its intention to pursue indemnification claims under the Teal acquisition agreement and set off claims against escrowed shares of the Company for such purpose.
Added
As any litigation is subject to many uncertainties, it is not possible to predict the ultimate outcome of this claim or to estimate the loss, if any, which may result.
Removed
The Lawsuit alleges causes of action for Breach of Contract, Breach of the Implied Covenant of Good Faith and Fair Dealing, Tortious Interference with Contractual Relations and Prospective Contractual Relations, Declaratory Judgment, and Injunctive Relief, and seeks both actual damages and injunctive relief.
Added
Accordingly, the outcome of the claim is not yet determinable, and the extent to which an outflow of funds may be required to settle this possible obligation cannot be reliably determined. The Company plans to vigorously assert defenses to the complaint.
Removed
Before the defendants answered, we filed a First Amended Complaint on December 5, 2022, which the defendants have moved to dismiss. The hearing on the motion to dismiss is presently scheduled for October 23, 2023. No discovery or other significant developments in the Lawsuit have occurred.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
3 edited+1 added−1 removed1 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
3 edited+1 added−1 removed1 unchanged
2023 filing
2024 filing
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is trading on the Nasdaq Capital Market (“Nasdaq”) since April 30, 2021 under the symbol “RCAT”. The last reported sales price of our common stock on July 24, 2023 was $1.12.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been listed on the Nasdaq Capital Market (“Nasdaq”) since April 30, 2021 under the symbol “RCAT”. The last reported sales price of our common stock on August 5, 2024 was $1.98 .
Recent Sales of Unregistered Securities There were no sales of equity securities during the period covered by this Annual Report that were not registered under the Securities Act and were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the Company. 49
Recent Sales of Unregistered Securities There were no sales of equity securities during the period covered by this Annual Report that were not registered under the Securities Act and were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the Company.
Holders As of July 26, 2023, there were 598 stockholders of record of our common stock Dividends The Company has never paid dividends on its common stock and does not anticipate that it will pay dividends in the foreseeable future. It intends to use any future earnings for the expansion of its business.
Holders As of August 5, 2024, there were 127 stockholders of record of our common stock. Dividends The Company has never paid dividends on its common stock and does not anticipate that it will pay dividends in the foreseeable future. It intends to use any future earnings for the expansion of its business.
Removed
Securities Authorized for Issuance Under Equity Compensation Plan The following table provides information regarding our equity compensation plans as of April 30, 2023: Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants, and vesting of restricted stock Weighted-average exercise price of outstanding options and warrants Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 7,307,341 $ 1.88 1,442,659 Equity compensation plans not approved by security holders — $ — — ______________ (1) Represents stock options issued and restricted stock units awarded under the Company’s 2019 Equity Incentive Plan.
Added
Purchase of Equity Securities by the Issuer and Affiliated Purchasers We did not repurchase any securities in the fourth quarter of the fiscal year covered by this Annual Report. 29 ITEM 6. RESERVED
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
28 edited+27 added−52 removed15 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
28 edited+27 added−52 removed15 unchanged
2023 filing
2024 filing
Biggest changeWe continue to maintain higher-than-normal inventory balances related to the global supply chain issues, including chip shortages, which continue to impact the timing of our purchase decisions. 55 Going Concern The Company has never been profitable, and its net losses have been increasing related to acquisitions, as well as costs incurred to pursue its long-term growth strategy.
Biggest changeGoing Concern The Company has never been profitable and has incurred net losses related to acquisitions, as well as costs incurred to pursue its long-term growth strategy. During the year ended April 30, 2024, the Company incurred a net loss from continuing operations of $21,526,696 and used cash in operating activities of continuing operations of $17,687,063 .
Our assumptions our based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.
Our assumptions are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.
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. 58
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.
Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross margin, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of capital (i.e., the selected discount rate).
Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross profit, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of capital (i.e., the selected discount rate).
Financial Instruments 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.
Financial Instruments 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. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements.
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. 57 The guidance establishes three levels of the fair value hierarchy as follows: Level 1 : Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 : Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
The 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.
If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. 33 The estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both.
The estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit.
Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit.
We test goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired.
Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired.
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.
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 in August 2021, we concentrated on integrating and organizing these businesses.
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. Net inventory purchases, including deposits, totaled $8,805,110 and $3,457,633 in fiscal 2023 and fiscal 2022, respectively.
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, vendor payments, and customer collections.
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. C.
In January 2020, the Company acquired Rotor Riot, a provider of First Person View (FPV) drones and equipment, primarily to the consumer marketplace. The purchase price was $1,995,114. B. In November 2020, the Company acquired Fat Shark Holdings, a provider of FPV video goggles to the drone industry. The purchase price was $8,354,076. C.
The S-3 offering generated gross proceeds of $60 million and net proceeds of approximately $55.5 million. 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.
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 expanded the scope of its drone products and services through four acquisitions, including: A.
As a result, the comparison of the year ended April 30, 2023 to the year ended April 30, 2022 yields more significant changes than might normally occur. At the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which was written down to zero. In addition, its operations were consolidated into Teal.
At the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which was written down to zero. In addition, its operations were consolidated into Teal. Skypersonic's operating results represented 0% and 2% of consolidated revenues and operating loss for Fiscal 2024.
Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production levels, combined with higher labor and overhead costs, are adversely impacting core gross margins at Teal.
Additionally, lower manufacturing levels in the 2023 period resulted in higher relative overhead costs compared to the 2024 period. Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production levels, combined with higher overhead costs, continue to result in lower than targeted gross profits.
As production levels increase, our fixed overhead costs, including labor, will be allocated to a greater number of drones which will drive our per-drone production costs lower and increase gross margins. The core operating margin for Fat Shark was 15% in Fiscal 2023 compared to 2% in Fiscal 2022.
As production levels increase, our fixed overhead costs, including labor, are expected to be allocated to a greater number of drones which is expected to drive our per-drone production costs lower and increase gross profits.
Skypersonic's operating results represented 2% and 4% of consolidated revenues and operating loss for Fiscal 2023. Based on its immateriality, Skypersonic is not included in the operating analysis set forth below.
Based on its immateriality, Skypersonic is not included in the operating analysis set forth below.
Financing Activities Net cash used in financing activities totaled $1,215,325 during the year ended April 30, 2023, compared to net cash provided by financing activities of $66,430,274 during the year ended April 30, 2022. Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific to the Company.
Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific to the Company.
Investing Activities Net cash provided by investing activities was $29,590,235 during the year ended April 30, 2023, compared to net cash used in investing activities of $46,603,486 during the year ended April 30, 2022 resulting in a decrease of $76,193,721 or greater than 100%.
Investing Activities Net cash provided by investing activities was $13,567,078 during the 2024 period compared to net cash provided by investing activities of $29,590,235 during the 2023 period, resulting in a decrease of $16,023,157 or 54%.
Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, (iii) accounting for derivatives, (iv) reserves and allowances related to accounts receivable and inventory, and (v) the evaluation of long term assets, including goodwill, for impairment. 56 Goodwill and Long-lived Assets – Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and separately recognized.
Significant estimates reflected in these financial statements include those used to (i) complete purchase price accounting for acquisitions, (ii) the evaluation of long-term assets, including goodwill, for impairment, and (iii) the evaluation of other-than-temporary-impairment of equity method investments.
Critical Accounting Policies and Estimates Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis.
Management has concluded that these recent positive developments alleviate any substantial doubt about the Company’s ability to continue its operations, and meet its financial obligations, for twelve months from the date these consolidated financial statements are issued. Critical Accounting Policies and Estimates Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis.
Net cash used in operations, net of non-cash expenses, totaled $20,322,665 during the year ended April 30, 2023, compared to 8,924,419 during the year ended April 30, 2022, resulting in an increase of $11,398,246, or greater than 100%.
Net cash used in operations, net of non-cash expenses, totaled $8,512,449 during the 2024 period, compared to $7,784,364 during the 2023 period, resulting in an increase of $728,085, or 9%.
The adjusted sale price is $20 million, including $3 million in cash, at closing, and $17 million in securities of Unusual Machines. The agreement reflects the Company's decision to focus its efforts and capital on military and defense where it believes that there are more opportunities to create long term shareholder value.
On February 16, 2024, we closed the sale of our Consumer segment, consisting of Rotor Riot and Fat Shark, to Unusual Machines. The sale reflects our decision to focus our efforts and capital on defense where we believe there are more opportunities to create long term shareholder value.
Net cash used related to changes in operating assets and liabilities totaled $8,876,755 during the year ended April 30, 2023, compared to $7,094,901 during the year ended April 30, 2022, representing an increase of $1,781,854 or 25%.
Net cash used related to changes in operating assets and liabilities totaled $4,672,816 during the 2024 period, compared to $5,721,395 during the 2023 period, representing a decrease of $1,048,579 or 18%.
Enterprise's initial strategy was to provide UAV's, primarily drones, to commercial enterprises, including the military, to navigate dangerous military environments and confined industrial and commercial interior spaces. Subsequently, Enterprise narrowed its near term focus on the military and other government agencies. Skypersonic's technology has been re-focused on military applications and its operations consolidated into Teal.
Subsequently, the segment narrowed its near-term attention on the military and other government agencies. Skypersonic's technology has been redirected to military applications and its operations consolidated into Teal. 30 The Enterprise segment’s current business strategy is focused on providing integrated robotic hardware and software for use across a variety of applications.
Liquidity and Capital Resources At April 30, 2023, the Company reported current assets totaling $32,175,012, current liabilities totaling $4,760,616 and net working capital of $27,414,396. Cash and marketable securities totaled $16,074,343 at April 30, 2023. Inventory related balances, including pre-paid inventory, totaled $14,408,065.
During the fiscal 2024 period, the company received net proceeds from issuance of common stock of $8,395,600. 32 Liquidity and Capital Resources At April 30, 2024, the Company reported current assets totaling $22,397,549, current liabilities totaling $3,651,130 and net working capital of $18,746,419. Cash totaled $6,067,169 at April 30, 2024. Inventory related balances, including pre-paid inventory, totaled $8,610,125.
The S-1 offering generated gross proceeds of $16 million and net proceeds of approximately $14.6 million. 50 S-3 Offering On July 21, 2021 the Company closed a firm commitment underwritten public offering (the "S-3 Offering") for the sale of 13,333,334 shares of common stock at a purchase price of $4.50 per share to ThinkEquity.
On December 11, 2023, the Company completed a firm commitment underwritten public offering with ThinkEquity of 18,400,000 shares of common stock which generated gross and net proceeds of $9.2 and $8.4 million, respectively.
Research and development expenses totaled $5,248,336 during the year ended April 30, 2023 compared to $2,606,141 during the year ended April 30, 2022, representing an increase of $2,642,195, or approximately 100%.
Operating Expenses Research and development expenses totaled $5,896,037 during the 2024 period compared to $5,595,281 during the 2023 period, representing an increase of $300,756, or 5%. Supplies and materials expense totaled $2,017,979 in the 2024 period compared to $1,444,051 in the 2023 period.
Removed
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.
Added
In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Removed
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.
Added
For more information regarding forward-looking statements, please refer to the discussion above under the heading “Forward-Looking Statements.” Recent Developments Corporate developments during the two years ended April 30, 2024 include: Capital Transactions During the first quarter of fiscal 2022, the Company completed two firm commitment underwritten public offerings with ThinkEquity, a division of Fordham Financial Management.
Removed
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 Annual Report on Form 10-K. 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.
Added
The first offering, in May 2021, generated gross and net proceeds of $16 and $14.6 million, respectively. The second offering, in July 2021, generated gross and net proceeds of $60 and $55.5 million, respectively.
Removed
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 Annual Report on Form 10-K except as required by federal securities law.
Added
Effective May 1, 2022, we established the Enterprise segment and the Consumer segment to focus on the unique opportunities in each sector. The Enterprise segment’s initial strategy was to provide UAVs to commercial enterprises, and the military, to navigate dangerous military environments and confined industrial and commercial interior spaces.
Removed
Recent Developments Corporate developments during the two years ended April 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") for the sale of 4,000,000 shares of common stock, at a public offering price of $4.00 per share, to ThinkEquity, a division of Fordham Financial Management, Inc., as representative of the underwriters ("ThinkEquity"), pursuant to an underwriting agreement with Think Equity.
Added
Its solutions provide critical situational awareness and actionable intelligence to on-the-ground warfighters and battlefield commanders as well as firefighters and public safety officials. Our Enterprise segment’s efforts are centered on developing and scaling an American made family of systems.
Removed
The shares were sold 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").
Added
We have since completed construction of a manufacturing facility in Salt Lake City and believe that an increased focus by the United States government and American businesses on purchasing products that are “Made in America” provide our Enterprise segment with a competitive advantage.
Removed
The shares were sold 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 a registration statement filed with the SEC on July 19, 2021.
Added
Results of Operations The analysis of the Company's results of operations for the year ended April 30, 2024 ("Fiscal 2024") compared to the year ended April 30, 2023 ("Fiscal 2023") includes only the Company’s Enterprise segment as our Consumer segment was divested in February 2024.
Removed
Beginning in January 2020, the Company expanded the scope of its drone products and services through four acquisitions, including: A. In January 2020, the Company acquired Rotor Riot, a provider of First Person View (FPV) drones and equipment, primarily to the consumer marketplace. The purchase price was $1,995,114. B.
Added
Discussion and Analysis of Fiscal 2024 compared to Fiscal 2023 Revenues Consolidated revenues totaled $17,836,382 during the year ended April 30, 2024 (or the "2024 period") compared to $4,620,834 during the year ended April 30, 2023 (or the "2023 period") representing an increase of $13,215,548, or 286%.
Removed
The Consumer segment, which includes Fat Shark and Rotor Riot, is focused on hobbyists and enthusiasts which are expected to increase as drones become more visible in our daily lives. In November 2022, we entered into an agreement to sell our Consumer segment to Unusual Machines.
Added
The increase primarily related to higher product revenue related to the launch of the Teal 2 in April 2023. Product revenue totaled $13,588,372 during the year ended April 30, 2024 compared to $3,012,470 during the year ended April 30, 2023 representing an increase of $10,575,902, or 351%.
Removed
The closing of the transaction is contingent upon Unusual Machines completing (i) an initial public offering that raises sufficient capital to close the transaction, and (ii) a listing on a public stock exchange such as the NYSE or Nasdaq. 51 Results of Operations The analysis of the Company's results of operations for the year ended April 30, 2023 ("Fiscal 2023") compared to the year ended April 30, 2022 ("Fiscal 2022") includes its wholly owned subsidiaries including Teal Drones, Rotor Riot, Fat Shark, and Skypersonic.
Added
The increase in revenue also partially related to increased contract revenues during the 2024 period. Contract revenues totaled $4,173,005 during the 2024 period compared to $1,312,427 during the 2023 period, representing an increase of $2,860,578, or 218%.
Removed
The results for both periods is significantly impacted by the acquisition of Teal Drones on August 31, 2021. Teal is the Company’s largest operating subsidiary, and its operating results include 8 months for Fiscal 2022 and 12 months for Fiscal 2023. Since acquiring Teal, the Company has more than tripled the number of Teal employees and significantly expanded its facilities.
Added
Contract revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables and amendments. Gross Profit Consolidated gross profit totaled $3,680,546 during the 2024 period compared to negative $834,311 during the 2023 period representing an increase of $4,514,857, or 541%.
Removed
A summary comparison of Fiscal 2023 operating results compared to Fiscal 2022 is as follows: Fiscal 2023 Fiscal 2022 Dollar Change Percentage Change Revenues $ 9,911,780 $ 6,428,963 $ 3,482,817 54 % Cost of Goods $ 10,248,575 $ 5,503,448 $ 4,745,127 86 % Gross Margin $ (336,795 ) $ 925,515 $ (1,262,310 ) (136 ) % Operating Expenses $ 26,790,266 $ 13,927,801 $ 12,862,465 92 % Operating Loss $ (27,127,061 ) $ (13,002,286 ) $ (14,124,775 ) (109 ) % Discussion and Analysis of Fiscal 2023 compared to Fiscal 2022 Revenues Consolidated revenues totaled $9,911,780 during the year ended April 30, 2023 ("Fiscal 2023") compared to $6,428,963 during the year ended April 30, 2022 ("Fiscal 2022") representing an increase of $3,482,817, or 54%.
Added
On a percentage basis, gross profit was 21% during the 2024 period compared to negative 18% during the 2023 period. The percentage basis increase in gross profit in the 2024 period primarily related to obsolete inventory write-offs that occurred during the 2023 period.
Removed
Revenue growth for Teal and Rotor Riot represented $2,854,413 and $1,345,972 of the dollar increase, or 82% and 39%, of the percentage increase, respectively, which was partially offset by Fat Shark’s decrease of $606,006 or 17%. Revenue growth for Teal benefitted from a full year of operations in Fiscal 2023 compared to only eight months in Fiscal 2023.
Added
This increase of $573,928, or 40%, primarily related to increased efforts in developing new products and represented substantially all of the total increase in research and development costs. Sales and marketing costs totaled $4,568,617 during the 2024 period compared to $3,731,776 during the 2023 period, representing an increase of $836,841 or 22%.
Removed
Higher revenues for Rotor Riot were generated by a significant increase in digital marketing spending. Lower revenues for Fat Shark related to its newest product, the Dominator, which was launched at the beginning of Fiscal 2023, and while it generated strong initial sales in the first quarter, sales declined significantly over the remaining quarters in Fiscal 2023.
Added
The increase was driven by higher payroll expenses to support increased sales efforts of the Teal 2. 31 General and administrative expenses totaled $10,679,105 during the 2024 period compared to $12,383,470 during the 2023 period, representing a decrease of $1,704,365 or 14%. The decrease primarily related to lower professional fees.
Removed
Revenues for the Enterprise Segment totaled $4,620,834 in Fiscal 2023 compared to $1,877,983 for Fiscal 2022, representing an increase of $2,742,851, or greater than 100%. This revenue growth was entirely attributable to Teal which recognized product sales of $3,051,348 in Fiscal 2023 and $904,600 of revenue under the SRR Tranche II program.
Added
During the 2024 period, we incurred stock-based compensation costs of $3,609,267 compared to $3,656,724 in the 2023 period, resulting in a decrease of $47,457 or 1%. Other Income Other expense totaled $3,650,484 during the 2024 period compared to $1,004,887 during the 2023 period, representing a decrease of $2,645,597 or 263%.
Removed
Revenues for the Consumer Segment totaled $5,290,946 in Fiscal 2023 compared to $4,550,980 for Fiscal 2022, representing an increase of $739,966, or 16%.
Added
During the 2024 period, the divestiture of the Consumer segment resulted in a gain of $9,642,427, impairment of $11,353,875, and an equity method loss of $503,625. Additionally, during the 2024 period, the Company was awarded a manufacturing modernization grant from the State of Utah for $750,000 of which $675,000 is attributable to the 2024 period.
Removed
This revenue growth was entirely attributable to Rotor Riot whose revenues increased by $1,345,972, more than offsetting a $606,006 decrease for Fat Shark. 52 Gross Margin Consolidated gross margin totaled negative $336,795 during Fiscal 2023 compared to $925,515 during Fiscal 2022 representing a decrease of $1,262,310, or 136%.
Added
Net Loss from Continuing Operations Net loss from continuing operations totaled $21,526,696 for the 2024 period compared to $26,376,643 for the 2023 period, resulting in a decrease of $4,849,947 or 18%. Total operating expenses totaled $21,556,758 for the 2024 period compared to $24,537,445 for the 2023 period. The decrease in operating expenses was offset by the increase in other expense.
Removed
Gross margin dollar contribution for Teal, Rotor Riot, and Fat Shark totaled negative $857,721, positive $431,751, and positive $158,285, respectively. The reported gross margin of negative 19% for Teal was adversely impacted by a charge of $1,405,807 related to the write off of obsolete inventory related to its legacy drone, the Golden Eagle.
Added
Higher gross profit is attributable to the decrease in net loss from continuing operations. Results of Discontinued Operations Net loss from discontinued operations totaled $2,525,933 for the 2024 period compared to $1,730,386 for the 2023 period, representing an increase of $795,547, or 46%.
Removed
Excluding this charge, core gross margin for Teal was 12% in Fiscal 2023 compared to 19% in Fiscal 2022. The lower core gross margin in Fiscal 2023 reflects a significant investment by the Company to build and scale a new manufacturing facility in Salt Lake City, Utah.
Added
Net loss for Fat Shark totaled $1,365,707 for the 2024 period, compared to $543,962 for the 2023 period, representing an increase of $821,745 or 151%, and represents 103% of the total increase in net loss from discontinued operations.
Removed
The lower gross margin in Fiscal 2022 related to price reductions of the prior digital goggle as the Company prepared for the launch of the Dominator in early Fiscal 2023. Separately, Fat Shark recorded a charge of $182,845 related to the write-off of excess quantities of Dominator inventory based on sales volumes during the second half of Fiscal 2023.
Added
Fat Shark’s results were adversely impacted by a charge of $1,244,920 during the 2024 period related to the write-off of excess quantities of Dominator inventory based on sales volumes. Net loss for Rotor Riot totaled $1,160,226 for the 2024 period compared to $1,186,424 for the 2023 period, representing a decrease of $26,198 or 2%.
Removed
This charge reduced gross margin from 15% to 7%. The core operating margin for Rotor Riot was 13% in Fiscal 2023 compared to 21% in Fiscal 2022. The decrease related to higher product and shipping costs.
Added
Cash Flows Operating Activities Net cash used in operating activities was $17,687,063 during the 2024 period compared to net cash used in operating activities of $24,313,674 during the 2023 period, representing a decrease of $6,626,611 or 27%. The decreased use of cash primarily related to timing of accounts receivable receipts for government customers.
Removed
Operating Expenses Operations expenses totaled $4,411,685 during the 2023 period compared to $1,353,904 during the 2022 period, resulting in an increase of $3,057,781, or greater than 100%. Higher costs for Teal represented $2,934,250 or 96% of the percentage increase. Since its acquisition, we have more than tripled Teal's headcount and doubled the size of its facilities.
Added
Proceeds of $12,826,217 and $32,290,448 from the sale of marketable securities were used to fund operations during the 2024 period and the 2023 period, respectively. Financing Activities Net cash provided by financing activities totaled $7,802,076 during the 2024 period compared to net cash used in financing activities of $1,215,325 during the 2023 period.
Removed
Approximately 49% of Teal's costs related to payroll, 21% to employee-related office expenses, and 9% to overhead expenses with the balance spread ratably across numerous categories including information technology, facilities, professional fees, and travel.
Added
As of April 30, 2024, working capital for continuing operations totaled $18,746,419 . These financial results and our financial position at April 30, 2024 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity.
Removed
The entire increase can be attributed to Teal, with approximately 43% of its expenses related to payroll, 33% related to office, 21% related to professional fees, and 3% related to information technology. Sales and marketing costs totaled $4,028,007 during the 2023 period compared to $1,127,532 during the 2022 period, resulting in an increase of $2,900,475 or more than 100%.
Added
On December 11, 2023, we completed a public offering of 18,400,000 shares of common stock which generated net proceeds of approximately $8,400,000. Subsequent to year end, the Company sold its equity method investment for $4,400,000. In addition, the Company’s operating plan for the next twelve months has been updated to reflect recent operating improvements.
Removed
Higher costs for Teal and Rotor Riot represented $2,487,331 and $572,891 of the dollar increase and 86% and 20% of the percentage increase.
Added
Revenues have accelerated and are expected to continue growing. The Company’s manufacturing facility is scaling production and gross profits are projected to increase. If necessary, the Company will seek to obtain additional debt financing for which there can be no guarantee.
Removed
Payroll costs, related to hiring at Teal, totaled $887,891 in the 2023 period compared to $24,428 during the 2022 period, resulting in an increase of $863,463 which represented 30% of the total increase in sales and marketing costs.
Added
Goodwill and Long-lived Assets – Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and separately recognized. We test goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”).
… 27 more changes not shown on this page.