Red Cat Holdings Inc
For the period ended Jul 31, 2024. Filed Sep 23, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jul 31, 2024 · Filed Sep 23, 2024
RCAT$4.04+18.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-01-31; filed 2024-03-18.
0001554795-24-000065
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-07-31; filed 2024-09-23.
0001554795-24-000238
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 79 previous paragraphs and 59 current paragraphs.
21 unchanged; 18 reworded; 19 added; 40 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 4 previous and 6 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
Overview
Current report
We are a technology company focused on developing products, services, and solutions to the drone industry. We were 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. In May 2019, we 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.”, and our operating focus to the drone industry.
Current report
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. Following the share exchange agreement and name change, we have completed a series of acquisitions and financings which have broadened the scope of our activities in the drone industry.
Current report
On September 4, 2024, the Company, Teal, FW Acquisition, Inc. (“Buyer”), and FlightWave Aerospace Systems Corporation (“Seller”) entered into and closed on the transactions set forth in an Asset Purchase Agreement (the “APA” and the transactions set forth therein, the “Transactions”), pursuant to which Buyer purchased and Seller sold certain assets used in designing, developing, manufacturing, and selling long range, AI-powered UAVs for commercial use.
Current report
As a condition to the closing of the Transactions, each of the shareholders of the Seller entered into a Joinder Agreement with the Company, Teal and Buyer pursuant to which such shareholder agreed to the terms of the APA and agreed to be bound by the provisions thereof applicable to the Seller’s shareholders, including without limit, the indemnification provisions in the APA.
Current report
The purchase price under the APA is equal to $14 million worth of shares of the Company’s common stock which are payable as follows:
Current report
On September 23, 2024, we entered into a Securities Purchase Agreement (the “SPA”) with Lind Global Asset Management X LLC (“Lind”). Under the SPA, within days of closing, we will receive $8 million in funding from Lind in exchange for our issuance to Lind of a Senior Secured Convertible Promissory Note in the amount of $9,600,000 (the “Note”) and a Common Stock Purchase Warrant for the purchase of 750,000 shares of our common stock at a price of $6.50 per share, exercisable for 5 years (the “Warrant”). As addition consideration to Lind, we have agreed to pay a commitment fee in the amount of $280,000, which may be paid by deduction from the funding to be received. The Note, which does not accrue interest, shall be repaid in eighteen (18) consecutive monthly installments in the amount of $533,334 beginning six months from the issuance date.
Current report
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. Our Enterprise segment’s efforts are centered on developing and scaling an American made family of systems. We have since completed construction of a manufacturing facility in Salt Lake City, Utah 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.
Current report
On September 4, 2024, we entered into and closed on the transactions set forth in an Asset Purchase Agreement with FlightWave pursuant to which we purchased certain assets for designing, developing, manufacturing, and selling long range, AI-powered UAVs for commercial use. Please refer to the Recent Developments section above for further information regarding the APA and related transactions.
Current report
Results of Operations
Current report
The analysis of our results of operations for the three months ended July 31, 2024 compared to the three months ended July 31, 2023 includes only our Enterprise segment as our Consumer segment was divested in February 2024.
Current report
Discussion and Analysis of Three Months Ended July 31, 2024 compared to Three Months Ended July 31, 2023
Current report
Gross Profit
Current report
Consolidated gross loss totaled $483,391 during the 2024 period compared to a gross profit of $174,665 during the 2023 period representing a decrease of $658,056, or 377%. On a percentage basis, gross loss was 17% during the 2024 period compared to a gross profit of 10% during the 2023 period. The gross loss in the 2024 period was due to the delivery of final prototypes under the Short Range Reconnaissance Tranche 2 contract with the U.S. Army and did not pertain to product sales.
Current report
Sales and marketing costs totaled $2,041,511 during the 2024 period compared to $1,288,760 during the 2023 period, representing an increase of $752,751 or 58%. The increase was driven by higher payroll expenses and an increase in tradeshow attendance to support increased sales efforts of our Teal 2 drone.
Current report
During the 2024 period, we incurred stock-based compensation costs of $1,446,038 compared to $911,606 in the 2023 period, resulting in an increase of $534,432 or 59%.
Current report
Other Income
Current report
Other expense totaled $4,688,889 during the 2024 period compared to $262,891 during the 2023 period, representing an increase of $4,425,998 or more than 16 times. During the 2024 period, we incurred a loss on the sale of our equity method investment of $4,008,357.
Current report
Net loss from continuing operations totaled $12,416,376 for the 2024 period compared to $5,594,295 for the 2023 period, resulting in an increase of $6,822,081 or 122%. Total operating expenses totaled $6,407,513 for the 2024 period compared to $5,187,700 for the 2023 period. This increase of $1,219,813 or 24%, primarily to the increase in sales and marketing expenses.
Removed paragraphs (40)
Previous report
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.
Previous report
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, 2023, and subsequent filings made with the SEC.
Previous report
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.
Previous report
Corporate developments during the two years ended January 31, 2024 include:
Previous report
Capital Transactions
Previous report
During the first quarter of fiscal 2022, the Company completed two firm commitment underwritten public offerings with ThinkEquity, a division of Fordham Financial Management. 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.
Previous report
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 proceeds of $9,200,000 and net proceeds of approximately $8,400,000.
Previous report
Results of Operations - Continuing Operations
Previous report
The analysis of the Company's results of continuing operations for the three and nine months ended January 31, 2024 compared to the three and nine months ended January 31, 2023 includes only the Company's Enterprise Segment which includes Teal and Skypersonic. During Fiscal 2023, the operations of Skypersonic were consolidated into Teal. The following discussion and analysis describes the operating results of Teal and Skypersonic on a consolidated basis with Teal representing more than 90% of the operating activities of the Enterprise Segment.
Previous report
Discussion and Analysis of the Three Months Ended January 31, 2024 compared to the Three Months Ended January 31, 2023
Previous report
Gross Margin
Previous report
Gross margin totaled $1,101,651 during the 2024 period compared to negative $96,929 during the 2023 period representing an increase of $1,198,580, or more than 12 times. On a percentage basis, gross margin was 19% during the 2024 period compared to negative 6% during the 2023 period. The percentage basis increase in gross margin in the 2024 period primarily related to obsolete inventory write-offs that occurred during the 2023 period. 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 margins. 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 margins.
Previous report
Operations expenses totaled $527,447 during the 2024 period compared to $663,668 during the 2023 period, resulting in a decrease of $136,221, or 21%. This decrease is primarily due to lower professional fees due to the Teal facility expansion having been completed since the 2023 period.
Previous report
Sales and marketing costs totaled $883,982 during the 2024 period compared to $1,015,412 during the 2023 period, representing a decrease of $131,430 or 13%. The decrease was driven by lower advertising expenses and lower professional fees.
Previous report
During the three months ended January 31, 2024, we incurred stock-based compensation costs of $585,771 compared to $788,691 in the 2023 period, resulting in a decrease of $202,920 or 26%. Since the 2023 period, the Company issued 3,442,542 additional options and 298,643 additional RSUs which resulted in incremental stock-based compensation costs of $406,935 and $59,791, respectively. This increase was offset by an RSU award that fully vested since the 2023 period, as well as the forfeiture 643,751 stock options and 70,656 RSU awards resulting in decremental stock-based compensation expense of $570,041.
Previous report
Other (Income) Expense
Previous report
Other income totaled $258,015 during the 2024 period compared to other expense of $151,818 during the 2023 period, representing an increase of $409,833 or 270%. 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.
Previous report
Net loss from continuing operations totaled $4,189,333 for the three months ended January 31, 2024, compared to $5,335,923 for the three months ended January 31, 2023, resulting in a decrease of $1,146.590 or 21%. Total operating expenses totaled $5,548,999 for the three months ended January 31, 2024 compared to $5,087,176 for the three months ended January 31, 2023. The increase in operating expenses was offset by the increase in other income. Higher gross margin is attributable to the decrease in net loss from continuing operations.
Previous report
Results of Discontinued Operations
Previous report
Net loss from discontinued operations totaled $1,299,205 for the three months ended January 31, 2024, compared to $330,079 for the three months ended January 31, 2023, representing an increase of $969,126, or 294%. Net loss for Fat Shark totaled $968,680 for the three months ended January 31, 2024, compared to $42,136 for the three months ended January 31, 2023, representing an increase of $926,544 or nearly 22 times, and represents 96% of the total increase in net loss from discontinued operations. Fat Shark’s results were adversely impacted by a charge of $927,765 during the three months ended January 31, 2024 related to the write-off of excess quantities of Dominator inventory based on sales volumes. Net loss for Rotor Riot totaled $330,525 for the three months ended January 31, 2024, compared to $287,943 for the three months ended January 31, 2023, representing an increase of $42,582 or 15%.
Previous report
Discussion and Analysis of the Nine Months Ended January 31, 2024 compared to the Nine Months Ended January 31, 2023
Previous report
Revenues
Previous report
Revenues totaled $11,526,930 during the nine months ended January 31, 2024 (or the "fiscal 2024 period") compared to $3,541,846 during the nine months ended January 31, 2023 (or the "fiscal 2023 period") representing an increase of $7,985,084, or 225%. The increase primarily related to higher product revenue related to the launch of the Teal 2 in April 2023. Product revenue totaled $9,569,215 during the nine months ended January 31, 2024 compared to $2,229,516 during the nine months ended January 31, 2023 representing an increase of $7,339,699, or 329%. The increase in revenue also partially related to higher contract revenues during the fiscal 2024 period. Contract revenues totaled $1,848,646 during the fiscal 2024 period compared to $1,128,237 during the fiscal 2023 period, representing an increase of $720,409, or 64%. Contract revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables and amendments.
Previous report
Gross Margin
Previous report
Gross margin totaled $2,476,898 during the fiscal 2024 period compared to $109,042 during the fiscal 2023 period representing an increase of $2,367,856, or nearly 22 times. On a percentage basis, gross margin was 21% during the fiscal 2024 period compared to 3% during the fiscal 2023 period. The percentage basis increase in gross margin in the fiscal 2024 period was primarily related to obsolete inventory write-offs that occurred during the fiscal 2023 period. Additionally, lower manufacturing levels in the fiscal 2023 period resulted in higher relative overhead costs compared to the fiscal 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 margins. 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.
Previous report
Operating Expenses
Previous report
Operations expenses totaled $1,675,795 during the fiscal 2024 period compared to $3,131,789 during the fiscal 2023 period, resulting in a decrease of $1,455,994, or 46%. This decrease is primarily due to lower payroll costs, controlled spending on manufacturing supplies, and lower office expenses related to fewer new hires in the fiscal 2024 period.
Previous report
Research and development expenses totaled $5,251,285 during the nine months ended January 31, 2024, compared to $2,938,658 during the nine months ended January 31, 2023, representing an increase of $2,312,627, or 79%. Supplies and materials expense totaled $2,358,971 in the fiscal 2024 period compared to $789,938 in the fiscal 2023 period. This increase of $1,569,033, or 199%, primarily related to increased efforts in developing new products and represented 68% of the total increase in research and development costs. Additionally, higher payroll expenses represented 22% of the increase.
Previous report
Sales and marketing costs totaled $2,546,380 during the fiscal 2024 period compared to $1,986,121 during the fiscal 2023 period, representing an increase of $560,259 or 28%. This increase in sales and marketing expense represents 7% of the total increase in revenue during the fiscal 2024 period compared to the fiscal 2023 period. Headcount for sales, customer service, and marketing totaled 12 at the end of the fiscal 2024 period compared to 8 at the end of the fiscal 2023 period, resulting in total payroll expense of $1,341,913 in the fiscal 2024 period compared to $903,898 in the fiscal 2023 period. This increase of $438,015, or 48% represented 78% of the total increase in sales and marketing costs. Higher travel-related and office expenses represented 33% and 24% of the increase, respectively. This was partially offset by a reduction in advertising expenses and professional fees.
Previous report
General and administrative expenses totaled $4,329,760 during the nine months ended January 31, 2024, compared to $4,275,385 during the nine months ended January 31, 2023, representing an increase of $54,375 or 1%.
Previous report
During the nine months ended January 31, 2024, we incurred stock-based compensation costs of $2,693,702 compared to $2,790,958 in the fiscal 2023 period, resulting in a decrease of $97,256 or 3%. Since the fiscal 2023 period, the Company issued 3,442,542 additional options and 298,643 additional RSUs which resulted in incremental stock-based compensation costs of $1,517,516 and $196,247, respectively. This increase was offset by an RSU award that fully vested since the fiscal 2023 period, as well as the forfeiture 643,751 stock options and 70,656 RSU awards resulting in decremental stock-based compensation expense of $2,060,980.
Previous report
Other (Income) Expense
Previous report
Other expense totaled $818,901 during the fiscal 2024 period compared to other income of $254,762 during the fiscal 2023 period, representing a decrease of $1,073,663 or 421%. Investment loss totaled $733,697 during the nine months ended January 31, 2024, compared to an investment gain of $257,244 during the nine months ended January 31, 2023. During the fiscal 2024 period, the Company sold certain investment grade securities to fund operations. The fair value of these securities had been adversely impacted by the sharp increase in interest rates since the securities were acquired. Changes in the fair value of the derivative liability resulted in income of $302,821 during the fiscal 2024 period compared to income of $751,397 during the fiscal 2023 period, representing a net detrimental difference of $448,576.
Previous report
Net Loss from Continuing Operations
Previous report
Net loss from continuing operations totaled $14,838,925 for the nine months ended January 31, 2024, compared to $14,759,107 for the nine months ended January 31, 2023, resulting in an increase of $79,818 or 1%. The increase in net loss was primarily driven by the decrease in investment income as the Company sold certain investment-grade securities at a loss which were adversely impacted by a sharp increase in interest rates.
Previous report
Results of Discontinued Operations
Previous report
Net loss from discontinued operations totaled $2,141,289 for the nine months ended January 31, 2024, compared to $962,971 for the nine months ended January 31, 2023, representing an increase of $1,178,318, or 122%. Net loss for Rotor Riot totaled $784,967 for the nine months ended January 31, 2024, compared to $726,255 for the nine months ended January 31, 2023, representing an increase of $58,712 or 8%. Net loss for Fat Shark totaled $1,356,322 for the nine months ended January 31, 2024, compared to $236,716 for the nine months ended January 31, 2023, representing an increase of $1,119,606 or 473%. Fat Shark’s results were adversely impacted by a charge of $1,244,920 during the nine months ended January 31, 2024, related to the write-off of excess quantities of Dominator inventory based on sales volumes.
Previous report
Derivative Liabilities
Previous report
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.
Previous report
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. The valuation is updated each reporting date with the change in the liability reflected as a change in derivative liability in the statement of operations.
Reworded paragraphs (18)
Previous wording
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Current wording
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2024 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Previous wording
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:
Current wording
Since April 2016, our primary business has been to provide products, services, and solutions to the drone industry which we presently do through our three wholly owned subsidiaries Skypersonic, Teal, and Propware. Beginning in January 2020, we expanded the scope of our drone products and services through four acquisitions, including:
Previous wording
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. Enterprise's initial strategy was to provide UAV's, primarily drones, to commercial enterprises, and government agencies 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. 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 and useful in our daily lives.
Current wording
Following the Teal acquisition in August 2021, we concentrated on integrating and organizing these businesses. Effective May 1, 2022, we established the Enterprise segment (“Enterprise”) and the Consumer segment (“Consumer”) to focus on the unique opportunities in each sector. Enterprise's initial strategy was to provide UAVs to commercial enterprises, and the military, to navigate dangerous military environments and confined industrial and commercial interior spaces. Subsequently, Enterprise narrowed its near-term attention on the military and other government agencies. Skypersonic's technology has been redirected to military applications and its operations consolidated into Teal.
Previous wording
On February 16, 2024, we closed the sale of our Consumer segment to Unusual Machines, Inc. (or “Unusual Machines” or “UM”). The total consideration received by the Company was valued at $20 million, including $1 million in cash, $2 million in a secured promissory note, and $17 million in securities of Unusual Machines plus a post-closing adjustment for excess working capital. The sale reflects the Company's decision to focus its efforts and capital and defense where it believes that there are more opportunities to create long term shareholder value.
Current wording
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.
Previous wording
Revenues totaled $5,847,933 during the three months ended January 31, 2024 (or the "2024 period") compared to $1,667,683 during the three months ended January 31, 2023 (or the "2023 period") representing an increase of $4,180,250, or 251%. The increase primarily related to higher product revenue related to the launch of the Teal 2 in April 2023. Product revenue totaled $4,764,253 during the three months ended January 31, 2024 compared to $1,176,602 during the three months ended January 31, 2023 representing an increase of $3,587,651, or 305%. The increase in revenue also partially related to increased contract revenues during the 2024 period. Contract revenues totaled $1,008,328 during the 2024 period compared to $486,432 during the 2023 period, representing an increase of $521,896, or 107%. Contract revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables and amendments.
Current wording
Consolidated revenues totaled $2,776,535 during the three months ended July 31, 2024 (or the “2024 period”) compared to $1,748,129 during the three months ended July 31, 2023 (or the “2023 period”) representing an increase of $1,028,406, or 59%. The increase related to higher product revenue and higher contract revenue. Product revenue totaled $1,890,095 during the quarter ended July 31, 2024 compared to $1,437,248 during the quarter ended July 31, 2023 representing an increase of $452,847, or 32%. Contract revenues totaled $886,440 during the 2024 period compared to $310,881 during the 2023 period, representing an increase of $575,559, or 185%. Contract revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables and amendments.
Previous wording
Research and development expenses totaled $2,125,268 during the three months ended January 31, 2024, compared to $1,221,738 during the three months ended January 31, 2023, representing an increase of $903,530, or 74%. Supplies and materials expense totaled $1,339,607 in the 2024 period compared to $395,431 in the 2023 period. This increase of $944,176, or 239%, primarily related to increased efforts in developing new products and represented substantially all of the total increase in research and development costs.
Current wording
Research and development expenses totaled $1,626,440 during the 2024 period compared to $1,353,551 during the 2023 period, representing an increase of $272,889, or 20%. Professional fees totaled $483,129 in the 2024 period compared to $211,883 in the 2023 period. This increase of $271,246, or 128%, primarily related to outsourced software development expenses and represented substantially all of the total increase in research and development costs.
Previous wording
General and administrative expenses totaled $1,426,531 during the three months ended January 31, 2024, compared to $1,397,667 during the three months ended January 31, 2023, representing an increase of $28,864 or 2%. The increase primarily related to payroll, professional fees and information technology expenses.
Current wording
General and administrative expenses totaled $3,483,095 during the 2024 period compared to $2,863,758 during the 2023 period, representing an increase of $619,337 or 22%. The increase primarily related to higher stock compensation expense.
Previous wording
Net cash used in operating activities was $15,354,934 during the nine months ended January 31, 2024, compared to net cash used in operating activities of $16,806,150 during the nine months ended January 31, 2023, representing a decrease of $1,451,216 or 9%. The decreased use of cash primarily related to timing of accounts receivable receipts for government customers. Net cash used in operations, net of non-cash expenses, totaled $10,588,000 during the nine months ended January 31, 2024, compared to $12,006,416 during the nine months January 31, 2023, resulting in a decrease of $1,418,416, or 12%. Net cash used related to changes in operating assets and liabilities totaled $4,766,934 during the nine months ended January 31, 2024, compared to $4,799,734 during the nine months ended January 31, 2023, representing a decrease of $32,800 or 1%. 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.
Current wording
Net cash used in operating activities was $2,348,412 during the 2024 period compared to net cash used in operating activities of $6,926,069 during the 2023 period, representing a decrease of $4,577,657 or 66%. The decreased use of cash primarily related to timing of accounts receivable receipts for government customers. Net cash used in operations, net of non-cash expenses, totaled $6,755,639 during the 2024 period, compared to $1,522,611 during the 2023 period, resulting in an increase of $5,233,028, or 344%. Net cash used related to changes in operating assets and liabilities totaled $3,312,325 during the 2024 period, compared to negative $2,854,385 during the 2023 period, representing an increase of $6,166,710 or 216%. 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.
Previous wording
Net cash provided by investing activities was $12,641,685 during the nine months ended January 31, 2024, compared to net cash provided by investing activities of $22,296,235 during the nine months ended January 31, 2023, resulting in a decrease of $9,654,550 or 43%. During the fiscal 2024 period, proceeds of $12,826,217 from the sale of marketable securities were used to fund operations. During the fiscal 2023 period, proceeds of $24,282,117 from the sale of marketable securities were used to fund operations.
Current wording
Net cash provided by investing activities was $4,300,043 during the 2024 period compared to net cash provided by investing activities of $4,883,345 during the 2023 period, resulting in a decrease of $583,302 or 12%. Proceeds of $4,400,000 from the sale of equity method investment were used to fund operations during the 2024 period.
Previous wording
Net cash provided by financing activities totaled $7,960,091 during the nine months ended January 31, 2024, compared to net cash used in financing activities of $1,093,030 during the nine months ended January 31, 2023. Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific to the Company. During the fiscal 2024 period, the company received net proceeds from issuance of common stock of $8,395,600.
Current wording
Net cash used in financing activities totaled $286,037 during the 2024 period compared to net cash used in financing activities of $146,509 during the 2023 period. Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific to the Company.
Previous wording
At January 31, 2024, the Company reported current assets totaling $27,941,758, current liabilities totaling $5,227,988 and net working capital of $22,713,770. Cash and marketable securities totaled $7,697,335 at January 31, 2024. Inventory related balances, including pre-paid inventory, totaled $10,063,812. We continue to maintain high inventory balances related to the global supply chain issues which continue to impact the timing of our purchase decisions.
Current wording
At July 31, 2024, we reported current assets totaling $21,470,151, current liabilities totaling $4,230,512 and net working capital of $17,239,639. Cash totaled $7,732,763 at July 31, 2024. Inventory related balances, including pre-paid inventory, totaled $10,667,676.
Previous wording
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 nine months ended January 31, 2024, the Company incurred a net loss from continuing operations of $14,838,925 and used cash in operating activities of continuing operations of $15,354,934. As of January 31, 2024, working capital for continuing operations totaled $19,927,073. These financial results and our financial position at January 31, 2024 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity. 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. In addition, the Company’s operating plan for the next twelve months has been updated to reflect recent operating improvements. Revenues have accelerated and are expected to continue growing. The Company’s new manufacturing facility is scaling production and gross margins are projected to increase. 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.
Current wording
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 as further described in Note 1 and Note 12. In addition, our operating plan for the next twelve months has been updated to reflect recent operating improvements. Revenues have accelerated and are expected to continue growing. Our manufacturing facility is scaling production and gross profits are projected to increase. If necessary, we will seek to obtain additional debt financing for which there can be no guarantee. As described in Note 7, we sold our equity method investment for $4,400,000 in July 2024. As described in Note 18, the Company closed a financing with proceeds of $8 million to be received in late September 2024. Management has concluded that these recent positive developments alleviate any substantial doubt about our ability to continue our operations, and meet our financial obligations, for twelve months from the date these consolidated financial statements are issued.
Previous wording
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, and (iv) reserves and allowances related to accounts receivable and inventory.
Current wording
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.
Previous wording
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. 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). 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. The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services.
Current wording
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. 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). 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. The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services.
Previous wording
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.
Current wording
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, we have categorized our recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.
Previous wording
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.
Current wording
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. Our 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.
Previous wording
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.
Current wording
Our 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.
Previous wording
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.
Current wording
We have 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 we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
We have never been profitable and have incurred net losses related to acquisitions, as well as costs incurred to pursue our long-term growth strategy. During the three months ended July 31, 2024, we incurred a net lossof approximately $12,000,000 and used cash in operating activities of approximately $2,300,000. As of July 31, 2024, working capital totaled approximately $17,200,000. These financial results and our financial positionat July 31, 2024 raise substantial doubt about our ability to continue as a going concern. However, we have recently taken actions to strengthen our liquidity.