Red Cat Holdings Inc

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Red Cat Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Red Cat Holdings, Inc. (the “Company”) as of April 30, 2024 and 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audits of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Valuation of Goodwill and Intangibles

As discussed in Note 8 to the financial statements, the Company acquired various businesses which resulted in the recording of significant amounts of goodwill and intangible assets. The intangible assets management identified consisted of proprietary technology and tradenames. Management determined the fair value of the intangible assets using a discounted cash flow model. Key assumptions used the model to determine fair value were cash flow projections, the discount rate, long-term growth rates, effective tax rate and the estimated periods to be benefitted of the identifiable intangible assets with definite lives.

We identified the valuation of goodwill and intangible assets for the businesses acquired as a critical audit matter because of the significant assumptions management makes in determining the estimates. Auditing management’s assumptions involved a high degree of auditor judgment and increased audit effort, including the use of valuation specialists, as management’s assumptions are subjective, and changes in these assumptions could have a significant impact on the fair value of the businesses acquired.

Our audit procedures related to the Company’s valuation of goodwill and intangible assets for the businesses acquired included the following, among others:

We evaluated the reasonableness of management’s cash flow projections by comparing management’s prior forecasts to historical results for the Company, as well as inquiry of management of the reporting unit regarding the expected future operations, review of publicly available industry information, and testing the completeness and accuracy of the data used in the projections.

Additionally, we evaluated the reasonableness of management’s use of various rates and other assumptions by comparing them to comparable companies and market data.

Finally, we evaluated the estimated periods to be benefitted of the identifiable intangible assets with definite lives by comparing to comparable companies and market data, as well as recalculating the current and accumulated amortization.

/s/dbbmckennon

We have served as the Company’s auditor since 2024.

Newport Beach, California

August 8, 2024