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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   

 

For the quarterly period ended October 31, 2021

or

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

 

Commission File Number: 000-31587

 

Red Cat Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

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)

 

(833) 373-3228

(Registrant's telephone number, including area code)

__________________________________

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of Each Class

 

Trading

Symbol(s)

 

 

Name of each exchange on which registered

Common Stock   RCAT   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑  No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☑ 

 

As of December 15, 2021, there were 53,835,579 shares of the registrant's common stock outstanding. 

   

 

 INDEX TO FORM 10-Q

 

PART I. FINANCIAL INFORMATION Page
     
Item 1. Financial Statements: 3
     
  Unaudited Balance Sheet as of October 31, 2021 and Balance Sheet as of April 30, 2021 3
     
  Unaudited Statements of Operations for the Three and Six Months Ended October 31, 2021 and 2020 4
     
  Unaudited Statements of Cash Flows for the Six Months Ended October 31, 2021 and 2020 5
     
  Unaudited Statement of Changes in Shareholders' Equity for the Three and Six Months Ended October 31, 2021 and 2020 6
     
  Notes to Financial Statements 7
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 24
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
     
Item 4. Controls and Procedures 30

 

PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 31
     
Item 1A. Risk Factors 31
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
Item 3.   Defaults Upon Senior Securities 31
     
Item 4. Mine Safety Disclosures 31
     
Item 5. Other Information 31
     
Item 6. Exhibits 31
     
SIGNATURES 32

   

 

 

         
RED CAT HOLDINGS
Consolidated Balance Sheets
 (Unaudited)
 
    October 31    April 30, 
    2021    2021 
ASSETS          
Current Assets          
Cash  $11,559,758   $277,347 
Investments   48,122,657       
Accounts receivable, net   393,738    321,693 
Inventory   1,985,507    362,072 
Other   2,567,539    678,898 
Total Current Assets   64,629,199    1,640,010 
           
Goodwill   26,029,750    8,017,333 
Intangible assets, net   1,999,518    2,032,169 
Property and equipment, net   142,126       
Operating lease right-of-use assets   548,641       
Other   24,907    3,853 
Total Long Term Assets   28,744,942    10,053,355 
TOTAL ASSETS  $93,374,141   $11,693,365 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities          
Accounts payable  $1,218,005   $541,903 
Accrued expenses   653,233    614,050 
Debt obligations - short term   1,338,030    269,045 
Due to related party   144,628    390,209 
Customer deposits   117,842    46,096 
Warrant derivative liability   2,376,565    2,812,767 
Total Current Liabilities   5,848,303    4,674,070 
           
Operating lease liabilities   559,528       
Debt obligations - long term   1,431,739       
Note payable to related party         1,753,000 
Total Long Term Liabilities   1,991,267    1,753,000 
Commitments and contingencies          
           
Stockholders' Equity          
Series A Preferred Stock - shares authorized 2,200,000; outstanding 0 and 158,704         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 53,684,910 and 29,431,264   53,685    29,431 
Additional paid-in capital   105,577,729    21,025,518 
Accumulated deficit   (20,108,301)   (15,809,928)
Accumulated other comprehensive income   1,591       
Total Stockholders' Equity   85,534,571    5,266,295 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $93,374,141   $11,693,365 
           
           
See accompanying notes.

 

 3 

 

 

        
RED CAT HOLDINGS
Consolidated Statements Of Operations
(Unaudited)
             
             
   Three months ended October 31,  Six months ended October 31,
   2021  2020  2021  2020
Revenues  $1,863,239   $427,807   $3,259,990   $976,089 
                     
Cost of goods sold   1,710,657    328,756    3,005,004    774,888 
                     
Gross Margin   152,582    99,051    254,986    201,201 
                     
Operating Expenses                    
Operations   283,249    120,210    460,112    206,756 
Research and development   493,441    86,614    737,695    173,924 
Sales and marketing   185,385    24,679    286,018    48,815 
General and administrative   1,050,708    250,378    1,926,888    430,719 
Stock based compensation   899,937    107,061    1,284,023    214,122 
Total operating expenses   2,912,720    588,942    4,694,736    1,074,336 
Operating loss   (2,760,138)   (489,891)   (4,439,750)   (873,135)
                     
Other Expense (Income)                    
Derivative expense         148,587          148,587 
Change in fair value of derivative liability   (118,813)   83,803    (273,061)   83,803 
Investment income, net   38,447          38,447       
Interest expense   46,017          63,116       
Other, net   14,812          30,121       
Other Expense (Income)  $(19,537)  $232,390   $(141,377)  $232,390 
                     
Net loss  $(2,740,601)  $(722,281)  $(4,298,373)  $(1,105,525)
                     
Loss per share - basic and diluted  $(0.05)  $(0.04)  $(0.10)  $(0.05)
                     
Weighted average shares outstanding - basic and diluted   52,147,541    20,241,390    43,110,884    20,126,241 

 

 4 

 

       
RED CAT HOLDINGS
Condensed Consolidated Cash Flows Statements
 (Unaudited)
 
 
   Six months ended October 31,
   2021  2020
Cash Flows from Operating Activities          
Net loss  $(4,298,373)  $(1,105,525)
Stock based compensation   1,284,023    214,122 
Common stock issued for services   250,400       
Amortization of intangible assets   32,651       
Depreciation   5,455       
Change in fair value of derivative liability   (273,061)   83,803 
Amortization of debt discount         18,401 
Derivative expense         148,587 
Adjustments to reconcile net loss to net cash from operations:          
Changes in operating assets and liabilities          
Accounts receivable   27,002       
Inventory   (319,124)   (91,836)
Other   (3,814,101)   3,020 
Operating lease right-of-use assets and liabilities   10,887       
Customer deposits   8,753    27,786 
Accounts payable   (976,679)   106,042 
Accrued expenses   (506,931)   27,148 
Net cash used in operating activities   (8,569,098)   (568,452)
           
Cash Flows from Investing Activities          
Cash acquired through acquisitions   24,866       
Net cash provided by investing activities   24,866       
           
Cash Flows from Financing Activities          
Proceeds from sale of investments   1,855,788       
Purchases of investments   (49,978,445)      
Purchases of property and equipment   (30,147)      
Proceeds from exercise of warrants   99,999       
Payments under related party obligations   (1,866,381)   (3,907)
Proceeds from debt obligations         419,050 
Payments under debt obligations   (320,965)   (183,294)
Proceeds from convertible debentures         580,000 
Proceeds from issuance of common stock, net   70,065,203       
Net cash provided by financing activities   19,825,052    811,849 
           
Effect of foreign exchange rate changes on cash   1,591       
           
Net increase in Cash   11,282,411    243,397 
Cash, beginning of period   277,347    236,668 
Cash, end of period   11,559,758    480,065 
           
Cash paid for interest   26,175       
Cash paid for taxes            
           
Non-cash transactions          
Common stock issued for services  $250,400   $   
Fair value of shares issued in acquisitions  $12,727,292   $   
Indirect payment to related party  $132,200   $   
Conversion of derivative liability  $163,141   $   
Conversion of preferred stock into common stock  $11,407   $   
Conversion of Notes into common stock  $     $450,000 
Conversion of accrued interest into common stock  $     $45,024 
           
           
See accompanying notes.

 

 5 

 

 

                    
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 
                                                   
Conversion of Debt                       710,444    711    494,314              495,025 
                                                   
Stock based compensation                                 107,061              107,061 
                                                   
Net Loss   —              —              —                     (722,281)          (722,281)
                                                   
Balances, October 31, 2020   208,704   $2,087    3,681,623   $36,816    20,721,535   $20,722   $4,752,273   $(3,679,278)  $     $1,132,620 
                                                   
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 
                                                   
Acquisition of Skypersonic                       21,972    22    84,350              84,372 
                                                   
Acquisition of Teal                       3,588,272    3,588    10,007,691              10,011,279 
                                                   
Conversion of preferred stock   (158,704)   (1,587)             1,321,966    1,322    265                 
                                                   
Stock based compensation                       243,615    244    899,693              899,937 
                                                   
Shares issued for services                       20,000    20    58,380              58,400 
                                                   
Currency translation adjustments                                           669    669 
                                                   
Net Loss   —              —              —                     (2,740,601)          (2,740,601)
                                                   
Balances, October 31, 2021        $      986,676   $9,867    53,684,910   $53,685   $105,577,729   $(20,108,301)  $1,591   $85,534,571 

 

 6 

 

  

 RED CAT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2021 and 2020

(unaudited)

 

Our unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the financial information included in the Annual Report on Form 10-K for the fiscal year ended April 30, 2021 of Red Cat Holdings, Inc. (the "Company"), filed with the Securities and Exchange Commission ("SEC") on August 12, 2021.

 

 

Note 1 - The Business

 

Red Cat Holdings ("Red Cat" or the "Company") was originally incorporated in February 1984. 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 five wholly owned subsidiaries. Teal Drones is a leader in commercial and government UAV technology. Fat Shark Holdings is a provider of First Person View (FPV) video goggles. Rotor Riot sells FPV drones and equipment, primarily to the consumer marketplace. Skypersonic provides software and hardware solutions that enable drones to complete inspection services in locations where GPS (global positioning systems) are not available, yet still record and transmit data even while being operated from thousands of miles away. Red Cat Propware is developing drone flight data analytics and storage solutions, as well as diagnostic products and services.

 

Corporate developments since January 1, 2020 include:

 

  A. Rotor Riot Acquisition

 

In January 2020, the Company consummated a Merger Agreement under which Rotor Riot Acquisition Corp, a wholly owned subsidiary of the Company, merged with and into Rotor Riot, with Rotor Riot continuing as the surviving entity and a wholly owned subsidiary of the Company. Under the Merger Agreement, each member of Rotor Riot received its pro rata portion of the total number of shares of the Company's common stock issued based on (A)(i) $3,700,000 minus (ii) $915,563 (which included certain debt and other obligations of Rotor Riot and its Chief Executive Officer that the Company agreed to assume (the "Assumed Obligations") divided by (B) the volume weighted average price ("VWAP") of the Company's common stock for the twenty trading days prior to the closing of the Merger. Based on a share issuance value of $2,784,437 and a VWAP of $1.25445, the Company issued an aggregate of 2,219,650 shares of common stock to the members of Rotor Riot.

 

Following the closing, the Company's management controlled the operating decisions of the combined company. Accordingly, we accounted for the transaction as an acquisition of Rotor Riot by the Company. Based on purchase price accounting, we recognized the assets and liabilities of Rotor Riot at fair value with the excess of the purchase price over the net assets acquired recognized as goodwill. The table below reflects the acquisition date values of the purchase consideration, assets acquired, and liabilities assumed. The shares issued were valued at $1,820,114 (2,219,650 shares issued times $0.82 per share which equaled the closing price of the Company's common stock on the date that the merger agreement was consummated). A summary of the purchase price and its related allocation is as follows:

 

 7 

 

  

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 
Total assets acquired  818,387 
Liabilities assumed     
Accounts payable and accrued expenses  171,651 
Notes payable   209,799 
Due to related party   197,846 
Total liabilities assumed   579,296 
Total fair value of net assets acquired  239,091 
Goodwill  $1,756,023 

 

The final purchase price allocation was determined by an independent valuation services firm. Customer Relationships with a value of $39,000 are being amortized over 7 years. The carrying value of Brand Name is not being amortized but will be reviewed quarterly and formally evaluated at the end of each fiscal year.

 

  B. Fat Shark Acquisition

 

In November 2020, the Company closed a share purchase agreement ("Share Purchase Agreement") with the sole shareholder of Fat Shark Holdings ("Fat Shark"), to acquire all of the issued and outstanding shares of Fat Shark and its subsidiaries. The transaction was valued at $8,354,076 based on (i) the issuance of 5,227,273 shares of common stock with a value of $6,351,076 on the date of closing (ii) a senior secured promissory note in the original principal amount of $1,753,000, and (iii) a cash payment of $250,000. The Share Purchase Agreement includes indemnification provisions, a two year non-compete agreement, and registration rights for the shares issued in the transaction. A summary of the purchase price and its related allocation is as follows:

  

 8 

 

  

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 
Total assets acquired  2,490,403 
Liabilities assumed     
Accounts payable and accrued expenses  279,393 
Customer deposits   25,194 
Total liabilities assumed   304,587 
Total fair value of net assets acquired  2,185,816 
Goodwill  $6,168,260 

 

The final purchase price allocation was determined by an independent valuation services firm. Intangible assets included proprietary technology and non-compete agreement which are being amortized over 5 and 3 years, respectively. The carrying value of Brand Name is not being amortized but will be reviewed quarterly and formally evaluated at the end of each fiscal year.

 

  C. Skypersonic Acquisition

 

In February 2021, the Company entered into Share Purchase and Liquidity Event Agreements (the "Skypersonic Agreements") with the founder and majority shareholder of Skypersonic, Inc., ("Skypersonic") and the holders of common stock and equity based agreements representing 97.46% of Skypersonic (the "Sellers"), pursuant to which, subject to the satisfaction of certain closing conditions, the Company would acquire all of the issued and outstanding share capital of Skypersonic for an aggregate of $3,000,000 in shares (the "Share Consideration") of the Company's common stock, based upon the VWAP of the Company's common stock at closing of the transaction (the "Skypersonic Transaction"). Prior to the closing, the Company provided $75,000 to fund operating costs of Skypersonic. This amount was capitalized as part of the purchase price. The transaction closed on May 7, 2021 and was paid through the issuance of 857,124 shares of common stock which had a fair market value of $3,291,356. Fifty (50%) percent of the Share Consideration (the "Escrow Shares") was deposited in an escrow account as security for indemnification obligations and any purchase price adjustments due to working capital deficiencies and any other claims or expenses. Under the Skypersonic Agreements, closing date working capital deficits in excess of $300,000 shall result in a reduction of the Share Consideration on a dollar of dollar basis. In October 2021, the Company and Skypersonic agreed to a reduction in the purchase price of $601,622 which resulted in the cancellation of 149,829 shares held in escrow. A revised summary of the purchase price and its related allocation is as follows:

 

 9 

 

  

Shares issued  $2,716,013 
Cash   75,000 
Total Purchase Price  $2,791,013 
Assets acquired     
Cash  13,502 
Accounts receivable   51,083 
Other assets   12,950 
Inventory   50,556 
Total assets acquired  128,091 
Liabilities assumed     
Accounts payable and accrued expenses  1,054,997 
Total liabilities assumed   1,054,997 
Total fair value of net assets acquired  (926,906
Goodwill  $3,717,919 

  

The foregoing amounts reflect our current estimates of fair value as of the May 7, 2021 acquisition date. The Company expects to recognize fair values associated with the customer relationships acquired, as well as the Skypersonic brand name, but has not yet accumulated sufficient information to assign such values. As additional information becomes known regarding the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is a one-year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and intangible assets) requires significant judgment.

 

  D. Teal Drones Acquisition

 

On August 31, 2021, the Company closed the acquisition of Teal Drones Inc., (“Teal”). The acquisition of Teal was made pursuant to an Agreement and Plan of Merger by and among Red Cat Holdings, Inc., a Nevada corporation (the “Company”), Teal Acquisition I Corp., a Delaware corporation (“Acquisition”) and wholly-owned subsidiary of the Company, and Teal, as amended and restated August 31, 2021 (the “Merger Agreement” or “Merger”).

 

On August 31, 2021, Teal entered into an Amended and Restated Loan and Security Agreement with Decathlon Alpha IV, L.P. (“DA4”) (the “Loan Agreement”) in the amount of $1,670,294 (the “Loan”), representing the outstanding principal amount previously due and owing by Teal to DA4. Interest on the Loan accrues at a rate of ten (10%) percent per annum. Principal and interest under the term Loan is payable monthly in an amount equal to $49,275 until maturity on December 31, 2024.

 

Pursuant to the Merger Agreement, we acquired all of the issued and outstanding share capital of Teal in exchange for $14,000,000 of our common stock, par value $0.001 per share (“Common Stock”) at the Volume Weighted Average Price (VWAP) of our Common Stock for the 20 trading days ended August 31, 2021 of $2.908 per share, reduced by the amount of Teal debt assumed consisting of approximately $1.67 million payable to DA4, and approximately $1,457,000 in working capital deficit, for a net closing date payment of $10,872,753. At closing, we issued 3,738,911 shares of our Common Stock (the “Stock Consideration”) which had a fair market value of $10,431,562. Fifteen (15%) of the Share Consideration (the “Escrow Shares”) was deposited in an escrow account for a period of eighteen (18) months as security for indemnification obligations, any purchase price adjustments due to working capital deficiencies and any other claims or expenses. In December 2021, the Company and Teal agreed to a reduction in the purchase price of $438,058 which resulted in the cancellation of 150,639 shares held in escrow. The fair market value of the cancelled shares was $420,283. A revised summary of the purchase price and its related allocation is set forth below.

 

The Stock Consideration payable under the Merger Agreement may be increased upon the achievement of certain milestones set forth in the Merger Agreement (the “Earn-Out Consideration”). Additional shares of Common Stock may become issuable by the Company in the event that within twenty-four (24) months following closing of the Merger, Teal realizes certain revenue targets. A total of Sixteen Million Dollars ($16,000,000) in additional shares of Common Stock will be issued if sales and services of Teal's Golden Eagle drones equal at least Thirty-six Million Dollars ($36,000,000). A total of Ten Million Dollars ($10,000,000) in additional shares of Common Stock will be issued if sales and services of Teal's Golden Eagle drones equal at least $24 million ($24,000,000) but less than $36 million ($36,000,000). A total of Four Million Dollars ($4,000,000) in additional shares of Common Stock will be issued if sales and services of Teal's Golden Eagle drones equal at least Eighteen Million Dollars ($18,000,000) but less than Twenty-Four Million Dollars ($24,000,000). Additional Share Consideration, if earned, is issuable at the VWAP of the Company within thirty (30) days of the determination that Earn-Out Consideration is payable.

 

 10 

 

 

Shares issued  $10,011,279 
Total Purchase Price  $10,011,279 
Assets acquired     
Cash  11,364 
Accounts receivable   47,964 
Other current assets   15,085 
Other assets   48,595 
Inventory   1,253,755 
Total assets acquired  1,376,763 
Liabilities assumed     
Accounts payable and accrued expenses  1,143,899 
Customer deposits   1,766,993 
Notes payable   2,749,091 
Total liabilities assumed   5,659,983 
Total fair value of net assets acquired  (4,283,220
Goodwill  $14,294,499 

 

The foregoing amounts reflect our current estimates of fair value as of the August 31, 2021 acquisition date. The Company expects to recognize fair values associated with the customer relationships acquired, as well as the Teal brand name, but has not yet accumulated sufficient information to assign such values. As additional information becomes known regarding the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is a one-year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and intangible assets) requires significant judgment. 

 

 

Note 2 - Summary of Significant Accounting Policies

 

Basis of Accounting - The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

 

Principles of Consolidation - Our condensed consolidated financial statements include the accounts of our operating subsidiaries, Red Cat Propware, Inc., Rotor Riot, Fat Sharking Holdings, Skypersonic, and Teal Drones. Intercompany transactions and balances have been eliminated.

 

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) determine stock based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) the accounting for derivatives.

 

Cash and Cash Equivalents - At October 31, 2021, we had cash of $11,559,758 in multiple commercial banks and financial services companies. We have not experienced any loss on these accounts and believe they are not exposed to any significant credit risk.

 

Investments – Our investments have been classified and accounted for as available-for-sale securities. Our investment manager can sell any of our investment holdings at any time, and therefore, we have classified our investments as short term. Our available-for-sale securities are carried at fair value, with unrealized gains and losses reported within investment income in our consolidated statements of operations.

 

We have elected to present accrued interest receivable separately from investments on our consolidated balance sheets. Accrued interest receivable was $371,095 as of October 31, 2021 and was recorded as other current assets. We did not write off any accrued interest receivable during the three months ended October 31, 2021.

 

 11 

 

Accounts Receivable, net - Accounts receivable are recorded at the invoiced amount less allowances for doubtful accounts. The Company's estimate of the allowance for doubtful accounts is based on a multitude of factors, including historical bad debt levels for its customer base, past experience with a specific customer, the economic environment, and other factors. Accounts receivable balances are written off against the allowance when it is probable that the receivable will not be collected.

 

Inventories – Inventories, which consist of raw materials, work-in-process, and finished goods, are stated at the lower of cost or net realizable value, with cost being determined by the average-cost method, which approximates the first-in, first-out method. Cost components include direct materials and direct labor, as well as in-bound freight. At each balance sheet date, the Company evaluates ending inventories for excess quantities and obsolescence.

  

Goodwill - Goodwill represents the excess of the purchase price of an acquisition over the estimated fair value of identifiable net assets acquired. The measurement periods for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes known, not to exceed 12 months. Adjustments in a purchase price allocation may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

 

We perform an impairment test at the end of each fiscal year, or more frequently if indications of impairment arise. We have a single reporting unit, and consequently, evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole. 

 

Leases - Effective August 1, 2021, the Company adopted Accounting Standards Codification (ASC) 842 titled “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company adopted ASC 842 on a modified retrospective transition basis which means that it will not restate financial information for any periods prior to August 1, 2021. Upon adoption, the Company recognized a lease liability obligation of $796,976 and a right-of-use asset for the same amount.

 

The Company determines if a contract is a lease or contains a lease at inception.  Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term.  The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its recent debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments.  Lease expense for minimum lease payments is recognized on a straight line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.

 

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 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.

 

 12 

 

The levels of the fair value hierarchy are described below:

 

  Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

 

  Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs other than quoted prices that are observable in the marketplace for the asset. The observable inputs are used in valuation models to calculate the fair value for the asset.

 

  Level 3 inputs are unobservable but are significant to the fair value measurement for the asset, and include situations where there is little, if any, market activity for the asset. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset.

 

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

 

Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

 

The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable and accrued expenses and debt. The carrying amounts of its cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments.

 

Convertible Securities and Derivatives

 

When the Company issues convertible debt or equity instruments that contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds from the convertible host instruments are first allocated to the bifurcated derivative instruments.  The remaining proceeds, if any, are then allocated to the convertible instruments themselves, resulting in those instruments being recorded at a discount from their face value but no lower than zero. Any excess amount is recognized as a derivative expense.

 

Derivative Liabilities

 

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 derivative liabilities in 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. 

 

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 that values the derivative liability within the notes based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

 

Revenue Recognition - The Company recognizes revenue in accordance with ASC 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 a single component, specifically, the shipment of goods to customers as orders are fulfilled. Customers pay at the time they order and the Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $117,842 and $46,096 at October 31, 2021 and April 30, 2021, respectively.

 

Research and Development - Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.

 

Income Taxes - Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. 

 

 13 

 

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 condensed consolidated financial statements.

 

Foreign Currency - The functional currency of our international subsidiary is the local currency. For that subsidiary, we translate assets and liabilities to U.S. dollars using period-end exchange rates, and average monthly exchange rates for revenues, costs, and expenses. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders' equity. Net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency are recorded in other income, net in the consolidated statements of operations.

 

Comprehensive Loss - During the three and six months ended October 31, 2021, differences between net loss and comprehensive loss totaled $922 and $1,591, respectively, relating to foreign currency translation adjustments. During the three and six months ended October 31, 2020, there were no differences between net loss and comprehensive loss.

 

Stock-Based Compensation - We use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation - Stock Compensation. Fair value is determined using the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. We recognize compensation costs on a straight line basis over the service period which is generally the vesting term.

 

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 exercise of these common stock equivalents would dilute earnings per share if we become profitable in the future.

 

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. Related Party transactions are disclosed in Note 17. 

 

 

Note 3 – Fair Value Measurements

 

We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure 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. 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.

 

Our financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts payable, and accrued liabilities. At October 31, 2021, and April 30, 2021, the carrying values of cash and cash equivalents, accounts payable, and accrued liabilities approximated fair value due to their short-term maturities.

 

The following tables set forth information related to our available-for-sales investment securities as of October 31, 2021: 

 

I. Amortized cost, net unrealized gains or losses, and fair values  

 

   Amortized Cost  Net Unrealized Gains (Losses)  Fair Value
Money market funds  $1,598,428   $732   $1,599,160 
Asset-backed securities   3,444,037    (9,081)   3,434,956 
Corporate bonds   43,219,180    (130,639)   43,088,541 
Total  $48,261,645   $(138,988)  $48,122,657 

 

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II. Contractual Maturities

 

   One Year or Less  Over One Year  Over Five Years  Total
Money market funds  $1,599,160   $     $     $1,599,160 
Asset-backed securities         3,434,956          3,434,956 
Corporate bonds   14,575,236    27,911,550    601,755    43,088,541 
Total  $16,174,396   $31,346,506   $601,755   $48,122,657 

 

III. Fair Value Hierarchy

 

   Level 1  Level 2  Level 3  Total
Money market funds  $1,599,160   $     $     $1,599,160 
Asset-backed securities         3,434,956          3,434,956 
Corporate bonds         43,088,541          43,088,541 
Total  $1,599,160   $46,523,497   $     $48,122,657 

 

 

Note 4 – Inventories

 

Inventories consisted of the following:

 

  

October

2021

 

April

2021

Raw materials  $1,033,801   $   
Work-in-process   176,522       
Finished goods   775,184    362,072 
Total  $1,985,507   $362,072 

 

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Note 5 - Other Current Assets

 

Other current assets included:

  

  

October

2021

 

April

2021

Prepaid inventory  $1,832,406   $478,939 
Accrued interest held in investments   371,095       
Prepaid insurance   280,364       
Prepaid expenses   74,302    115,587 
Security deposits   9,372    9,372 
Due from related party         75,000 
Total  $2,567,539   $678,898 

 

 

Note 6 – Property and Equipment

 

Property and equipment consist of assets with an estimated useful life greater than one year. Property and equipment are reported net of accumulated depreciation and the reported values are periodically assessed for impairment. Property and equipment as of October 31, 2021 was as follows:

 

Original cost  $289,369 
Accumulated depreciation   147,243 
Net carrying value  $142,126 

  

 

Note 7 – Lease Agreements

 

The Company has the following operating leases for real estate locations where it operates:

 

Location   Monthly Rent   Expiration
South Salt Lake, Utah   $ 11,000       August 2024
Orlando, Florida   $ 4,600       May 2024
Cayman Islands   $ 3,438       Month to Month
Troy, Michigan   $ 2,667       May 2022
Orlando, Florida   $ 1,690       September 2022
Torino, Italy   $ 1,445       January 2024

 

These lease agreements have remaining terms up to 2.84 years, excluding options to extend certain leases for up to 5 years.  The weighted average remaining lease term as of October 31, 2021 was 2.52 years.  The Company used a discount rate of 12% to calculate its lease liability at October 31, 2021.  Future lease payment obligations at October 31, 2021 were as follows:

 

Fiscal Year Ended: 
2022   $140,014 
2023    251,254 
2024    207,727 
2025    90,613 
Total   $689,608 

 

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Note 8 – Debt Obligations

 

  A. Decathlon Capital

In connection with the acquisition of Teal by the Company, Decathlon Capital agreed to restructure the terms of an existing loan agreement with Teal. Effective August 31, 2021, the principal amount outstanding of $1,670,294 bears interest at 10% annually and is repayable in monthly payments of $49,275 through its December 31, 2024 maturity date. The balance outstanding at October 31, 2021 totaled $1,591,988.

 

  B. Convertible Note

In May 2021, Teal entered into a convertible note agreement totaling $350,000 with one of its equity investors. The note bears interest at the applicable Federal Rate which was approximately 0.13% on the date of issuance. The Company has assumed this obligation which is payable upon demand.

 

  C. Vendor Settlement

In May 2020, Teal entered into a settlement agreement with a vendor that had been providing contract manufacturing services. At August 31, 2021, the Company assumed the outstanding balance of $387,500 which is payable in monthly installments of $37,500 with a final payment of $12,500 due in July 2022. The balance outstanding at October 31, 2021 totaled $350,000.

 

  D. SBA Loan

On February 2, 2021, Teal received a second Small Business Administration Paycheck Protection Program (“SBA PPP”) loan in the amount of $300,910. The loan is unsecured, non-recourse, and accrues interest at one percent annually. All or a portion of the loan is forgivable if used to fund qualifying payroll, rent and utilities. If not forgiven, the loan is payable over five years. Teal used the proceeds for the purposes required and the Company is currently working with the SBA regarding the loan forgiveness process.

 

  E. Shopify Capital

Shopify Capital is an affiliate of Shopify, Inc. which provides sales software and services to the Company.  The Company processes customer transactions ordered on the e-commerce site for Rotor Riot through Shopify.  Shopify Capital has entered into multiple agreements with the Company in which it has "purchased receivables" at a discount.  Shopify retains a portion of the Company's daily receipts until the purchased receivables have been paid.  The Company recognizes the discount as a transaction fee, in full, in the month in which the agreement is executed.  The Company assumed an existing agreement when it acquired Rotor Riot in January 2020.  This agreement was repaid in May 2020.  Since then, the Company has entered into the following agreements with Shopify:

 

 Date of Transaction    Purchased Receivables   Payment to Company   Transaction Fees    Withholding Rate     Balance at October 31, 2021
May 2020     $158,200    $140,000   $18,200   17%   Completed in October 2020
September 2020   $209,050   $185,000   $24,050   17%   Completed in May 2021
April 2021   $236,500   $215,000   $21,500   17%   $77,722

  

  F. Corporate Equity

In October 2021, Teal entered into an agreement with Corporate Equity to fund $60,000 of leasehold improvements. The loan bears interest at 8.25% annually and is repayable in monthly payments of $2,005 through its July 2024 maturity date. The balance outstanding at October 31, 2021 totaled $48,671.

 

  G.  Revenue Financing Arrangement

In April 2021, Teal entered into an agreement under which it sold future customer payments, at a discount to Forward Financing. At August 31, 2021, the Company assumed the outstanding balance of $38,758. The balance outstanding totaled $25,210 at October 31, 2021. Weekly payments of $2,280 are being remitted to Forward Financing and the Company expects that the remaining balance will be repaid in January 2022.

 

  H. Ascentium Capital

In September 2021, Teal entered into a financing agreement with Ascentium Capital to fund the purchase of a fixed asset totaling $24,383. Monthly payments of $656 are being remitted to Ascentium Capital and the Company expects that the remaining balance will be repaid in September 2024. The balance outstanding at October 31, 2021 totaled $15,379.

 

  I. PayPal

PayPal is an electronic commerce company that facilitates payments between parties through online funds transfers. The Company processes certain customer payments ordered on its e-commerce site through PayPal. The Company has entered into multiple agreements under which PayPal provides an advance on customer payments, and then retains a portion of customer payments until the advance is repaid.  PayPal charges a fee which the Company recognizes in full upon entering an agreement.  A November 2019 agreement under which PayPal advanced $100,000 and charged a transaction fee of $6,900 was completed in January 2021.  A January 2021 agreement under which PayPal advanced $75,444 and charged a transaction fee of $2,444 was completed in August 2021.

 

Short and long term debt obligations totaled $1,338,030 and $1,431,739 at October 31, 2021, respectively. Outstanding principal payments are due as follows:

 

Balance of calendar 2021   $608,894 
2022    825,535 
2023    609,099 
2024    641,729 
2025    72,377 
2026    12,135 
Total   $2,769,769 

 

 

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Note 9 - Due to Related Party

 

  A. Founder of Fat Shark

 

In connection with the acquisition of Fat Shark in November 2020, the Company issued a secured promissory note in the amount of $1,753,000 to the seller who is now an employee. The note bears interest at 3% annually and matures in full in November 2023. In May 2021, the Company directed a refund of $132,200 related to prepaid inventory in China to the seller who is also based in China. The entire outstanding balance of $1,620,800 plus accrued interest totaling $45,129 was paid in September 2021.

 

  B. BRIT, LLC

 

In January 2020, in connection with the acquisition of Rotor Riot, the Company issued a promissory note in the amount of $175,000 to the seller, BRIT, LLC. The note bears interest at 4.75% annually. The entire outstanding balance of $85,172 plus accrued interest totaling $12,942 was paid in October 2021.

 

BRIT incurred certain financial obligations in support of the operations of Rotor Riot which the Company assumed responsibility to pay at the effective time of the Merger. These obligations bear interest at annual rates ranging from 5.5% to 6.42%. The outstanding balance totaled $138,771 and $166,529 at October 31, 2021 and April 30, 2021, respectively.

 

  C. Aerocarve

 

In 2020, the Company received advances totaling $79,000 from Aerocarve, which is controlled by the Company's Chief Executive Officer. The parties agreed that the funds would bear interest at 5% annually until repaid. The balance owed at April 30, 2021 was $74,000. The balance was repaid in full in May 2021.

  

 

Note 10 - Convertible Notes

 

In November 2019, the Company issued a convertible note in the principal amount of $300,000 to one accredited investor and in December 2019, the Company issued a convertible note in the principal amount of $125,000 to a director and a convertible note in the principal amount of $25,000 to our chief executive officer (collectively, the "2019 Notes"). The Notes had a term of 2 years and accrued interest at an annual rate of 12% through the date of conversion. In September and October 2020, the entire $450,000 of 2019 Notes, plus accrued interest totaling $45,204, was converted into 710,444 shares of common stock.

 

October 2020 Financing

  

In October 2020, the Company closed a private offering of convertible promissory notes (the "2020 Notes") in the aggregate principal amount of $600,000. The 2020 Notes accrued interest at 12% annually, had a two year term, and were convertible into common stock at the lower of $1.00 or a 25% discount of the price per share of Common Stock offered in a future, qualified offering. The financing also included the issuance of warrants to purchase 399,998 shares of common stock. The Warrants are exercisable for a period of five years at a price equal to the lower of (1) $1.50 per share, or (2) at a price equal to 75% of the price per share of the common stock offered in a future, qualified offering.

 

The Company determined that the provision associated with a potential reduction in the conversion price of the notes and the exercise price of the warrant represented an embedded derivative financial liability. The derivative liability was initially valued at $728,587, of which $580,000 was applied as a debt discount to reduce the initial carrying value of the notes to zero with the remaining $20,000 applied against transaction fees. The derivative liability was valued using a multinomial lattice model with $460,588 and $267,999 related to the derivate features of the notes and warrants, respectively.

 

As of October 31, 2021, (a) the entire $600,000 of 2020 Notes have been converted into common stock and the related derivative liability eliminated, and (b) 266,666 of the warrants were outstanding with a derivative liability of $783,613.

 

 18 

 

January 2021 Financing

 

In January 2021, the Company closed a private offering of convertible promissory notes (the "2021 Notes") in the aggregate principal amount of $500,000. The 2021 Notes accrued interest at 12% annually, had a two year term, and were convertible into shares of the Company's common stock at the lower of $1.00 or a 25% discount of the price per share of Common Stock offered in a future, qualified offering. The financing also included the issuance of warrants to purchase 675,000 shares of common stock. The Warrants are exercisable for a period of five years at a price equal to the lower of (i) $1.50 per share, or (ii) a 25% discount to the price per share of common stock offered in a future qualified offering.

 

The Company determined that the provision associated with a potential reduction in the conversion price of the notes and the exercise price of the warrant represented an embedded derivative financial liability. The derivative liability was initially valued at $4,981,701, of which $500,000 was applied as a debt discount to reduce the initial carrying value of the notes to zero. The derivative liability was valued using a multinomial lattice model with $2,111,035 and $2,870,666 related to the derivative features of the notes and warrants, respectively.

 

As of October 31, 2021, (a) the entire $500,000 of 2021 Notes have been converted into common stock and the related derivative liability eliminated, and (b) 540,000 of the warrants were outstanding with a derivative liability of $1,592,952.

 

 

Note 11 - Income Taxes

 

Our operating subsidiary, Red Cat Propware, Inc., is incorporated and based in Puerto Rico which is a commonwealth of the United States. We are not subject to taxation by the United States as Puerto Rico has its own taxing authority which passed the Export Services Act, also known as Act 20, in 2012. Under Act 20, eligible businesses are subject to a special corporate tax rate of 4%. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods.

 

At October 31, 2021 and April 30, 2021, we had accumulated deficits of approximately $20,100,000 and $15,800,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $804,000 and $632,000, respectively, based on the Act 20 rate of 4%.  Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at October 31, 2021 and April 30, 2021.

 

 19 

 

Note 12 - Common Stock

 

Our common stock has a par value of $0.001 per share. We are authorized to issue 500,000,000 shares of common stock. Each share of common stock is entitled to one vote. 

 

On May 4, 2021, the Company closed an offering of 4 million shares of common stock which generated gross proceeds of $16 million and net proceeds of approximately $14.6 million.

 

On May 4, 2021, the Company issued 50,000 shares of common stock for investor relations services rendered.

 

On May 7, 2021, the Company issued 685,321 shares of common stock in connection with the acquisition of Skypersonic, as further described in Note 1.

 

On July 21, 2021, the Company closed an offering of 13,333,334 shares of common stock which generated gross proceeds of $60 million and net proceeds of approximately $55.5 million.

 

During the three months ended July 31, 2021, 62,500 shares of common stock were issued under the terms of a restricted stock agreement with an offi