Red Cat Holdings, Inc 10-Q for FY2021 Q2

Red Cat Holdings, Inc. (RCAT)

10-Q 2021-09-20 For: 2021-07-31

Added on April 07, 2026

About this 10-Q

Red Cat Holdings, Inc filed this 10-Q on September 20, 2021, covering the quarter ended July 31, 2021 (FY2021 Q2).

Headline figures

Quarter ended July 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.4M; up 154.8% from $548.28K a year earlier
Net loss: $1.56M; compared with a net loss of $383.24K a year earlier

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Nevada	86-0490034
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)
370 Harbour Drive
Humacao, Puerto Rico	00791
(Address of principal executive offices)	(Zip Code)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☑
Emerging growth company ☐

PART I.	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements:	3

	Unaudited Balance Sheet as of July 31, 2021 and Balance Sheet as of April 30, 2021	3

	Unaudited Statements of Operations for the Three Months Ended July 31, 2021 and 2020	4

	Unaudited Statement of Changes in Shareholders' Equity for the Three Months Ended July 31, 2021 and 2020	5

	Unaudited Statements of Cash Flows for the Three Months Ended July 31, 2021 and 2020	6

	Notes to Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	27

SIGNATURES		28


RED CAT HOLDINGS
Consolidated Balance Sheets
(Unaudited)


		July 31,			April 30,
		2021			2021

ASSETS
Current Assets
Cash and cash equivalents	$	66,118,581		$	277,347
Accounts receivable, net		267,813			321,693
Inventory		884,931			362,072
Other		2,456,532			678,898
Total Current Assets		69,727,857			1,640,010

Long Term Assets
Goodwill		11,650,879			8,017,333
Intangible assets, net		2,015,843			2,032,169
Other		3,853			3,853
Total Long Term Assets		13,670,575			10,053,355

TOTAL ASSETS		83,398,432			11,693,365


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable		920,256			541,903
Accrued expenses		637,769			614,050
Notes payable		154,872			269,045
Due to related party		239,954			390,209
Customer deposits		108,888			46,096
Warrant derivative liability		2,495,378			2,812,767
Total Current Liabilities		4,557,117			4,674,070

Note payable to related party		1,620,800			1,753,000
Total Long Term Liabilities		1,620,800			1,753,000
Commitments and contingencies

Stockholders' Equity
Series A Preferred Stock - shares authorized 2,200,000;
outstanding 158,704 and 158,704		1,587			1,587
Series B Preferred Stock - shares authorized 4,300,000;
outstanding 986,676 and 1,968,676		9,867			19,687
Common stock - shares authorized 500,000,000;
outstanding 48,489,085 and 29,431,264		48,489			29,431
Additional paid-in capital		94,527,350			21,025,518
Accumulated deficit		(17,367,700	)		(15,809,928	)
Accumulated other comprehensive income		922			-
Total Stockholders' Equity		77,220,515			5,266,295
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		83,398,432			11,693,365


See accompanying notes.

	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from ___________ to ___________


RED CAT HOLDINGS
Consolidated Statements Of Operations
(Unaudited)


	Three months ended July 31,
	2021			2020
Revenues	$	1,396,751		$	548,282

Cost of goods sold		1,294,347			446,132

Gross Margin		102,404			102,150

Operating Expenses
Operations		176,863			86,546
Research and development		244,254			87,310
Sales and marketing		100,633			24,136
General and administrative		876,180			180,341
Stock based compensation		384,086			107,061
Total operating expenses		1,782,016			485,394
Operating loss		(1,679,612	)		(383,244	)

Other Income (Expense)
Change in fair value of derivative liability		154,248			-
Interest expense		(17,099	)		-
Other, net		(15,309	)		-
Other Income (Expense)	$	121,840		$	-

Net loss	$	(1,557,772	)	$	(383,244	)

Loss per share - basic and diluted	$	(0.05	)	$	(0.02	)

Weighted average shares outstanding -
basic and diluted		34,074,226			20,011,091


RED CAT HOLDINGS
Consolidated Stockholders' Equity Statements
(Unaudited)

	Series A				Series B						Common Stock				Additional					Accumulated Other
	Preferred Stock				Preferred Stock										Paid-in		Accumulated			Comprehensive		Total
	Shares		Amount		Shares			Amount			Shares		Amount		Capital		Deficit			Income (Loss)		Equity
Balances, April 30, 2020		208,704	$	2,087		3,681,623		$	36,816			20,011,091	$	20,011	$	4,043,837	$	(2,573,753	)		-	$	1,528,998

Stock based compensation																107,061							107,061

Net Loss		-		-		-			-			-		-		-		(383,244	)		-		(383,244	)

Balances, July 31, 2020		208,704	$	2,087		3,681,623		$	36,816			20,011,091	$	20,011	$	4,150,898	$	(2,956,997	)	$	-	$	1,252,815

Balances, April 30, 2021		158,704	$	1,587		1,968,676		$	19,687			29,431,264	$	29,431	$	21,025,518	$	(15,809,928	)	$	-	$	5,266,295

Acquisition of Skypersonic												685,321		685		2,630,955							2,631,640

Public offerings, net of $5,959,800 of issuance costs												17,333,334		17,333		70,022,871							70,040,204

Exercise of warrants												66,666		67		263,073							263,140

Conversion of preferred stock						(982,000	)		(9,820	)		818,333		818		9,002							-

Stock based compensation												62,500		63		384,023							384,086

Shares issued for services												91,667		92		191,908							192,000

Currency translation adjustments																					922		922

Net Loss		-		-		-			-			-		-		-		(1,557,772	)		-		(1,557,772	)

Balances, July 31, 2021		158,704	$	1,587		986,676		$	9,867			48,489,085	$	48,489	$	94,527,350	$	(17,367,700	)	$	922	$	77,220,515


RED CAT HOLDINGS
Consolidated Cash Flows Statements
(Unaudited)


	Three months ended July 31,
	2021			2020
Cash Flows from Operating Activities
Net loss	$	(1,557,772	)	$	(383,244	)
Stock based compensation		384,086			107,061
Common stock issued for services		192,000			-
Amortization of intangible assets		16,326			-
Change in fair value of derivative		(154,248	)		-
Adjustments to reconcile net loss to net cash from operations:
Changes in operating assets and liabilities
Accounts receivable		104,963			-
Inventory		(472,303	)		(54,984	)
Other		(1,996,884	)		3,020
Customer deposits		62,792			38,634
Accounts payable		(130,529	)		46,250
Accrued expenses		(522,395	)		10,441
Net cash used in operating activities		(4,073,964	)		(232,822	)

Cash Flows from Investing Activities
Cash acquired through acquisitions		13,502			-
Net cash provided by investing activities		13,502			-

Cash Flows from Financing Activities
Proceeds from exercise of warrants		99,999			-
Payments under related party obligations		(150,255	)		(480	)
Proceeds from notes payable		-			140,000
Payments under notes payable		(114,173	)		(87,496	)
Proceeds from issuance of common stock, net		70,065,203			-
Net cash provided by financing activities		69,900,774			52,024

Effect of foreign exchange rate changes on cash		922			-

Net increase (decrease) in Cash and cash equivalents		65,841,234			(180,798	)
Cash and cash equivalents, beginning of period		277,347			236,668
Cash and cash equivalents, end of period		66,118,581			55,870

Cash paid for interest		2,024			-
Cash paid for taxes		-			-

Non-cash transactions
Common stock issued for services	$	192,000			-
Fair value of shares issued in acquisitions	$	2,631,640			-
Indirect payment to related party	$	132,200
Conversion of derivative liability	$	163,141			-
Conversion of preferred stock into common stock	$	9,820			-

Shares issued	$	1,820,114
Promissory note issued		175,000
Total Purchase Price	$	1,995,114

*Assets Acquired*
Cash	$	21,623
Accounts receivable		28,500
Other assets		3,853
Inventory		127,411
Trademark		20,000
Brand name		578,000
Customer relationships		39,000
Goodwill		1,756,023
Total assets acquired	$	2,574,410

*Liabilities Assumed*
Accounts payable and accrued expenses	$	171,651
Notes payable		209,799
Due to related party		197,846
Total liabilities assumed		579,296
Net assets acquired	$	1,995,114

Shares issued	$	6,351,076
Promissory note issued		1,753,000
Cash		250,000
Total Purchase Price	$	8,354,076

*Assets Acquired*
Cash	$	201,632
Accounts receivable		249,159
Other assets		384,232
Inventory		223,380
Brand name		1,144,000
Proprietary technology		272,000
Non-compete agreement		16,000
Goodwill		6,168,260
Total assets acquired	$	8,658,663

*Liabilities Assumed*
Accounts payable and accrued expenses	$	279,393
Customer deposits		25,194
Total liabilities assumed		304,587
Net assets acquired	$	8,354,076

	July 2021		April 2021
Prepaid inventory	$	1,998,537	$	478,939
Prepaid insurance		420,546		-
Prepaid expenses		18,023		115,587
Security deposits		19,426		9,372
Due from related party		-		75,000
Total	$	2,456,532	$	678,898

Date of Transaction	Purchased Receivables	Payment to Company	Transaction Fees	Withholding Rate	Balance at July 31, 2021
May 2020	$158,200	$140,000	$18,200	17%	Completed - October 2020
September 2020	$209,050	$185,000	$24,050	17%	Completed - May 2021
April 2021	$236,500	$215,000	$21,500	17%	$154,303

	July 31, 2021
Expected volatility		211 - 223	%
Expected dividends		0	%
Expected term (years)		4.17 - 5.00
Risk-free interest rate		0.52 - 0.85	%

	Number of Shares		Weighted-average Exercise Price per Share		Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance as of April 30, 2020	-			-		-		-
Granted	1,074,998		$	1.50
Exercised	(201,666	)		1.50
Outstanding as of April 30, 2021	873,332			1.50		4.62	$	2,218,263
Granted	733,333			5.45
Exercised	(66,666	)		1.50
Outstanding at July 31, 2021	1,539,999		$	3.38		4.64	$	1,330,999

	July 31, 2021
Exercise price		2.51 - 2.60
Stock price on date of grant		2.51 - 2.60
Volatility		210.68% - 214.17	%
Risk-free interest rate		0.47% - 1.57	%
Expected term (years)		3.75 - 10.00
Dividend yield		-

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding as of April 30, 2020		1,597,475	$	1.10
Granted		600,000		3.63
Exercised		-		-
Forfeited or expired		-		-
Outstanding as of April 30, 2021		2,197,475		1.79
Granted		449,000		2.57
Exercised		-		-
Forfeited or expired		-		-
Outstanding as of July 31, 2021		2,646,475		1.92		8.38	$	3,648,567
Exercisable as of July 31, 2021		1,305,810	$	2.21		8.75	$	1,626,037

	2021		2020
General and administrative	$	219,601	$	94,629
Research and development		56,480		9,945
Operations		63,261		2,487
Sales and marketing		44,744		-
Total	$	384,086	$	107,061


Risk-free interest rate	0.52 - 0.69	%
Expected dividend yield	-
Expected term (in years)	4.17 - 4.50
Expected volatility	211.02 - 219.34	%


Derivative liability at April 30, 2021	$	2,812,767
Eliminated upon exercise of warrants		(163,141	)
Changes in fair value, primarily related to decrease in Company's stock price		(154,248	)
Derivative liability at July 31, 2021	$	2,495,378

Exhibit		Description
31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial and accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

1.	I have reviewed this Quarterly Report on Form 10-Q of Red Cat Holdings, Inc.

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 20, 2021	By:	/s/ Jeffrey Thompson
	Name:	Jeffrey Thompson
	Title:	Chief Executive Officer
		(Principal Executive Officer)

Date: September 20, 2021	By:	/s/ Joseph Hernon
	Name:	Joseph Hernon
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)