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Note 2 – Summary of Significant Accounting Policies (Policies) | 3 Months Ended
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Jul. 31, 2024
Accounting Policies [Abstract] |
Basis of Presentation | Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three months ended July 31, 2024 are not necessarily indicative of the results for the full year ending April 30, 2025. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2024, included in the Company’s Annual Report on Form 10-K.
Restatement of Previously Issued Consolidated Financial Statements | Restatement of Previously Issued Consolidated Financial Statements – The Company’s Condensed Consolidated Statement of Operations and Stockholders’ Equity for the three months ended July 31, 2023, which were originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 19, 2023, have been restated. The Company revised its financial statements to remove derivative liabilities due to erroneously reporting warrants from our convertible note financings, as described in Note 14, as having a derivative component. The impacts of these restatements are detailed in the tables below:
|  | Condensed Consolidated Statement of Operations For the three months ended July 31, 2023 |  |
|  | Originally Reported |  | As Restated |  | Change
Change in fair value of derivative liability |  | $ | (26,520 | ) |  | $ | — |  |  | $ | (26,520 | )
Net loss |  | $ | (5,810,348 | ) |  | $ | (5,836,868 | ) |  | $ | (26,520 | )
|  | Condensed Consolidated Statement of Shareholders’ Equity For the three months ended July 31, 2023 |  |
|  | Originally Reported |  | As Restated |  | Change
Additional paid-in capital |  | $ | 110,905,033 |  |  | $ | 113,554,659 |  |  | $ | 2,649,626 |
Accumulated deficit |  | $ | (60,397,141 | ) |  | $ | (62,914,971 | ) |  | $ | (2,517,830 | )
Total equity |  | $ | 49,993,398 |  |  | $ | 50,125,194 |  |  | $ | 131,796 |
Principles of Consolidation | Principles of Consolidation – Our condensed consolidated financial statements include the accounts of our wholly owned subsidiaries which include Teal and Skypersonic as well as Rotor Riot and Fat Shark through the sale date of February 16, 2024. Non-majority owned investments, including the formerly wholly owned subsidiaries Rotor Riot and Fat Shark, are accounted for using the equity method when the Company is able to significantly influence the operating policies of the investee. Intercompany transactions and balances have been eliminated. The Consumer segment businesses are characterized as discontinued operations in these financial statements. The operating results and cash flows of discontinued operations are separately stated in those respective financial statements. See Note 3.
Use of Estimates | Use of Estimates – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) 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.
Concentration of Credit Risk | Concentration of Credit Risk – Financial instruments, which potentially subject the Company to concentrations of credit risk, include trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers, generally does not require collateral and considers the credit risk profile of the customer from which the receivable is due in further evaluating collection risk. Customers that accounted for 10% or greater of accounts receivable, net as of July 31, 2024 and April 30, 2024 were as follows:
|  | July 31, 2024 |  | April 30, 2024
Customer A |  |  | 38 | % |  |  | 53 | %
Customer B |  |  | 25 | % |  |  | 24 | %
As of July 31, 2024, three customers accounted for equal to or greater than 10% of total revenue, totaling 32%, 20% and 12%, respectively. As of July 31, 2023, three customers accounted for equal to or greater than 10% of total revenue, totaling 13%, 12% and 10%, respectively.
Equity Method Investment | Equity Method Investment – The equity method of accounting is applied to investments in which the Company has an ownership interest of between 20% and 50%. The Company evaluates its equity method investments each reporting period for evidence of a loss in value that is other than a temporary decline. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company performed this analysis and concluded that its investment in UMAC was other-than-temporarily impaired and recognized an impairment charge of $11,353,875 for the year ended April 30, 2024. See Note 7 for additional information.
Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures | Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The guidance establishes three levels of the fair value hierarchy as follows: Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of these instruments approximates fair value due to their short-term nature.
Revenue Recognition | Revenue Recognition – The Company recognizes revenue in accordance with ASC Topic 606 - Revenue from Contracts with Customers, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company’s revenue transactions include the shipment of goods to customers as orders are fulfilled, completion of non-recurring engineering, completion of training, and customer support services. The Company recognizes revenue upon shipment of product or prototypes unless otherwise specified in the purchase order or contract. Customer deposits totaled $50,039 and $53,939 at July 31, 2024 and April 30, 2024, respectively. From time to time, non-recurring engineering contracts may involve the capitalization of engineering prototypes, classified as contract assets. Contract assets totaled $0 and $1,477,859 at July 31, 2024 and April 30, 2024, respectively. The following table presents the Company’s revenue disaggregated by revenue type:
|  | Three Months Ended July 31,
|  | 2024 |  | 2023
Contract related |  | $ | 886,440 |  |  | $ | 310,881 |
Product related |  |  | 1,890,095 |  |  |  | 1,437,248 |
Total |  | $ | 2,776,535 |  |  | $ | 1,748,129 |
Product Warranty | Product Warranty - The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. Product warranty reserves are recorded in current liabilities under accrued expenses. Warranty liability was approximately $541,000 and $372,000 as of July 31, 2024 and April 30, 2024 respectively.
Recent Accounting Pronouncements | Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
Comprehensive Loss | Comprehensive Loss – Comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an element of stockholders' equity but are excluded from net loss. Our other comprehensive loss is comprised of foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. During the three months ended July 31, 2024 and July 31, 2023, comprehensive loss was $4,621 higher and $291,035 lower than net loss, respectively, related to unrealized gains on available-for-sale securities totaling $0 and $289,389, respectively, and foreign currency translation adjustments of $4,621 and $1,646.
Basic and Diluted Net Loss per Share | Basic and Diluted Net Loss per Share – Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents were excluded from the computation of diluted net loss per share of common stock because they were anti-dilutive. The conversion or exercise of these common stock equivalents would dilute earnings per share if we become profitable in the future. Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive include:
|  | July 31, 2024 |  | July 31, 2023
Series B Preferred Stock, as converted |  |  | 3,896 |  |  |  | 3,896 |
Stock options |  |  | 7,319,988 |  |  |  | 6,884,017 |
Warrants |  |  | 1,821,291 |  |  |  | 1,539,999 |
Restricted stock |  |  | 2,202,599 |  |  |  | 842,701 |
Total |  |  | 11,347,774 |  |  |  | 9,270,613 |
Related Parties | Related Parties – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors or are direct relatives of key management personnel of members of the Board of Directors. Related Party transactions are disclosed in Note 16.
Liquidity and Going Concern | Liquidity and Going 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 three months ended July 31, 2024, the Company incurred a net loss of 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 position at July 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 as further described in Note 1 and Note 12. 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 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. As described in Note 7, the Company sold its 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 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.

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