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 January 31, 2022

	☐	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 March 15, 2022, there were 53,671,559 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 January 31, 2022 and Balance Sheet as of April 30, 2021	4

	Unaudited Statements of Operations for the Three and Nine Months Ended January 31, 2022 and 2021	5

	Unaudited Statements of Cash Flows for the Nine Months Ended January 31, 2022 and 2021	6

	Unaudited Statement of Changes in Shareholders' Equity for the Three and Nine Months Ended January 31, 2022 and 2021	7

	Notes to Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

SIGNATURES		34


RED CAT HOLDINGS
Consolidated Balance Sheets
(Unaudited)

		January 31,			April 30,
		2022			2021
ASSETS
Current Assets
Cash	$	7,111,527		$	277,347
Marketable securities		48,446,302			—
Accounts receivable, net		891,505			321,693
Inventory		2,339,680			362,072
Other		2,234,583			678,898
Due from related party		225,539			—
Total Current Assets		61,249,136			1,640,010

Goodwill		26,029,750			8,017,333
Intangible assets, net		1,983,192			2,032,169
Property and equipment, net		262,859			—
Other		35,907			3,853
Operating lease right-of-use assets		823,838			—
Total Long Term Assets		29,135,546			10,053,355

TOTAL ASSETS		90,384,682			11,693,365

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable		521,139			541,903
Accrued expenses		1,493,691			614,050
Debt obligations - short term		1,127,596			269,045
Due to related party		41,622			390,209
Customer deposits		336,621			46,096
Operating lease liabilities		261,369			—
Warrant derivative liability		1,350,099			2,812,767
Total Current Liabilities		5,132,137			4,674,070

Operating lease liabilities		573,165			—
Debt obligations - long term		1,339,132			—
Note payable to related party		—			1,753,000
Total Long Term Liabilities		1,912,297			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 53,637,971 and 29,431,264		53,638			29,431
Additional paid-in capital		105,947,703			21,025,518
Accumulated deficit		(22,673,118	)		(15,809,928	)
Accumulated other comprehensive income		2,158			—
Total Stockholders' Equity		83,340,248			5,266,295
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		90,384,682			11,693,365


See accompanying notes.


RED CAT HOLDINGS
Consolidated Statements Of Operations
(Unaudited)

	Three months ended January 31,						Nine months ended January 31,
	2022			2021			2022			2021
Revenues	$	1,856,751		$	2,145,988		$	5,116,741		$	3,122,077

Cost of goods sold		1,516,970			1,576,265			4,521,974			2,351,153

Gross Margin		339,781			569,723			594,767			770,924

Operating Expenses
Operations		334,278			146,539			794,390			353,295
Research and development		811,288			167,968			1,548,983			341,892
Sales and marketing		238,624			48,719			524,642			97,534
General and administrative		1,337,183			499,155			3,264,071			929,874
Stock based compensation		782,123			854,195			2,066,146			1,068,317
Total operating expenses		3,503,496			1,716,576			8,198,232			2,790,912
Operating loss		(3,163,715	)		(1,146,853	)		(7,603,465	)		(2,019,988	)

Other Expense (Income)
Derivative expense		—			4,481,701			—			4,630,288
Change in fair value of derivative liability		(1,026,466	)		3,350,135			(1,299,527	)		3,433,938
Investment income, net		363,760			—			402,207			—
Interest expense		46,596			—			109,712			—
Other, net		17,212			5,571			47,333			5,571
Other Expense (Income)	$	(598,898	)	$	7,837,407		$	(740,275	)	$	8,069,797

Net loss	$	(2,564,817	)	$	(8,984,260	)	$	(6,863,190	)	$	(10,089,785	)

Loss per share - basic and diluted	$	(0.05	)	$	(0.34	)	$	(0.15	)	$	(0.46	)

Weighted average shares outstanding - basic and diluted		53,592,927			26,232,755			46,604,898			22,161,745


RED CAT HOLDINGS
Condensed Consolidated Cash Flows Statements
(Unaudited)

	Nine months ended January 31,
	2022			2021
Cash Flows from Operating Activities
Net loss	$	(6,863,190	)	$	(10,089,785	)
Stock based compensation		2,066,146			1,068,317
Common stock issued for services		250,400			—
Amortization of intangible assets		48,978			5,571
Depreciation		17,888			—
Change in fair value of derivative		(1,299,527	)		3,433,938
Amortization of debt discount		—			79,187
Derivative expense		—			4,630,288
Adjustments to reconcile net loss to net cash from operations:
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(470,765	)		(63,255	)
Inventory		(673,297	)		(405,987	)
Other		(3,492,145	)		(118,613	)
Operating lease right-of-use assets and liabilities		10,696			—
Customer deposits		227,532			32,967
Accounts payable		(1,673,545	)		345,227
Accrued expenses		(190,444	)		165,129
Net cash used in operating activities		(12,041,273	)		(917,016	)

Cash Flows from Investing Activities
Cash acquired through acquisitions		24,866			—
Payment for acquisition, net of cash acquired		—			(48,368	)
Purchases of property and equipment		(92,581	)		—
Proceeds from sale of marketable securities		6,250,322			—
Purchases of marketable securities		(54,696,624	)		—
Net cash used in investing activities		(48,514,017	)		(48,368	)

Cash Flows from Financing Activities
Proceeds from exercise of warrants		99,999			—
Proceeds from related party obligations		—			79,000
Payments under related party obligations		(1,969,193	)		(17,140	)
Proceeds from debt obligations		—			424,419
Payments under debt obligations		(694,738	)		(365,911	)
Proceeds from convertible debentures		—			1,080,000
Payments of taxes related to restricted stock vesting		(113,959	)		—
Proceeds from issuance of common stock, net		70,065,203			—
Net cash provided by financing activities		67,387,312			1,200,368

Effect of foreign exchange rate changes on cash		2,158			—

Net increase in Cash		6,834,180			234,984
Cash, beginning of period		277,347			236,668
Cash, end of period		7,111,527			471,652

Cash paid for interest		27,563			—
Cash paid for income taxes		—			—

Non-cash transactions
Fair value of shares issued in acquisitions	$	12,727,292		$	6,351,076
Taxes related to net shares settlement of equity awards	$	522,628		$	—
Conversion of derivative liability	$	163,141		$	—
Financed purchases of property and equipment	$	144,383		$	—
Indirect payment to related party	$	132,200		$	—
Conversion of preferred stock into common stock	$	11,407		$	—
Shares withheld as payment of note receivable	$	5,100		$	—
Issuance of Note Payable - Related Party in acquisition	$	—		$	1,753,000
Conversion of Notes into common stock	$	—		$	450,000
Conversion of accrued interest into common stock	$	—		$	45,024


See accompanying notes.


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

Acquisition of Fat Shark														5,227,273		5,227		6,345,849							6,351,076

Conversion of preferred stock		(50,000	)		(500	)		(954,741	)		(9,547	)		1,212,118		1,212		8,835							—

Stock based compensation																		854,195							854,195

Net loss					—						—					—		—		(8,984,260	)		—		(8,984,260	)

Balances, January 31, 2021		158,704		$	1,587			2,726,882		$	27,269			27,160,926	$	27,161	$	11,961,152	$	(12,663,538	)	$	—	$	(646,369	)

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

SEC Form 10-Q filed by Red Cat Holdings Inc.