Item 3. Legal Proceedings
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. The 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. 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.
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. 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. 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. 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.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
PART II
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