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 July 31, 2021 Commission File Number: 000-31587 Red Cat Holdings, Inc. (Exact name of Registrant as specified in its charter) incorporation or organization) Nevada 86-0490034 (State or other jurisdiction of (I.R.S. Employer Identification Number) 370 Harbour Drive Humacao, Puerto Rico 00791 (Addre ...

Red Cat Holdings Inc. (NASDAQ:RCAT) Q4 2021 Earnings Conference Call August 12, 2021 5:00 PM ET Company Participants Jules Abraham - Investor Relations Jeffrey Thompson - Chief Executive Officer Joseph Hernon - Chief Financial Officer Conference Call Participants Mike Marinac - NECS Operator Welcome to the Red Cat Holdings 2021 Year-End Financial Results and Corporate Update Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an op ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) The company provides drone products and solutions, focusing on FPV systems, expanding via acquisitions and a SaaS platform - The company's business is centered on providing products, services, and solutions to the drone industry, with a particular emphasis on drones piloted with wearable display devices (FPV)[26](index=26&type=chunk) - Red Cat has expanded its operations through several key acquisitions: Rotor Riot (January 2020), Fat Shark (November 2020), Skypersonic (May 2021), and has a pending merger agreement with Teal Drones (July 2021)[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk)[23](index=23&type=chunk) - The company sells FPV flight systems, cameras, transmitters, and goggles through its subsidiaries Rotor Riot and Fat Shark. Prior to the Fat Shark acquisition, approximately **50% of revenue was from reselling** and **50% from its own branded products**[28](index=28&type=chunk) - A key part of the business strategy is the development of "Dronebox," a blockchain-based SaaS platform for secure drone data storage, analytics, and reporting, targeting fleet operators, insurance companies, and government entities[32](index=32&type=chunk)[33](index=33&type=chunk) - The company faces significant competition from market leader DJI, which holds over **70% of the global civilian drone market share**. Red Cat competes by leveraging its strong brand presence on social media, including a Rotor Riot YouTube channel with over **192,000 subscribers**[36](index=36&type=chunk) - The company is heavily reliant on Chinese suppliers, with **68% of Rotor Riot's inventory purchased directly from China**. These imports are subject to U.S. tariffs ranging from **2% to 25%**, which increases costs and reduces profit margins[38](index=38&type=chunk) Research and Development Expenses | Fiscal Year Ended April 30 | R&D Costs (excluding stock-based compensation) ($) | | :--- | :--- | | 2021 | $516,084 | | 2020 | $488,990 | [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces multiple risks including capital needs, competition, supply chain issues, and regulatory compliance - The company has a history of net losses, accumulating approximately **$15.8 million in losses** as of April 30, 2021, and will require additional capital to fund its expanding operations[47](index=47&type=chunk)[50](index=50&type=chunk) - The drone industry is highly competitive, with major players like DJI, and the company faces competition from larger entities with greater financial, marketing, and R&D resources[58](index=58&type=chunk)[59](index=59&type=chunk) - Significant reliance on Chinese suppliers for components exposes the company to supply chain disruptions, long lead times, and the financial impact of U.S. tariffs on Chinese imports[67](index=67&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - The business is subject to extensive and evolving government regulations from bodies like the FAA and FCC, which could increase compliance costs or force product changes[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) - Management holds significant voting control, with the CEO owning approximately **26%** and all officers and directors collectively owning about **32% of the outstanding common stock**, which could influence corporate actions[134](index=134&type=chunk) - The COVID-19 pandemic has adversely impacted operations, sales, and supply chains, causing disruptions, delays, and increased prices for supplies[147](index=147&type=chunk) [Unresolved Staff Comments](index=29&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments - There are no unresolved staff comments as of the report date[150](index=150&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) The company leases its office and warehouse facilities in Puerto Rico, Florida, and Grand Cayman, which are deemed adequate - The company leases its corporate headquarters in Puerto Rico for **$2,000/month**, office/warehouse space in Orlando, FL for **$4,268/month**, and office space in Grand Cayman for **$3,450/month**[151](index=151&type=chunk) [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company reports that it is not a party to any pending legal proceedings - There are no pending legal proceedings to which the company is a party[152](index=152&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=Item%204%20Mine%20Safety%20Disclosures) The company reports that there are no mine safety disclosures - Not applicable[153](index=153&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity) The company's common stock trades on Nasdaq, has 587 stockholders, has never paid dividends, and details its equity plan - Common stock began trading on the Nasdaq Capital Market under the symbol **"RCAT"** on April 30, 2021[156](index=156&type=chunk) - As of August 9, 2021, there were **587 stockholders of record**[157](index=157&type=chunk) - The company has never paid dividends and does not plan to in the foreseeable future[158](index=158&type=chunk) Equity Compensation Plan Information as of April 30, 2021 | Plan category | Number of securities to be issued upon exercise (shares) | Weighted-average exercise price ($) | Number of securities remaining available for future issuance (shares) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 3,197,475 | $1.79 | 5,552,525 | [Selected Financial Data](index=31&type=section&id=Item%206.%20Selected%20Financial%20Data) As a smaller reporting company, Red Cat Holdings, Inc. is not required to provide this information - The company is not required to provide selected financial data as it qualifies as a smaller reporting company[164](index=164&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Acquisitions significantly shaped the company's FY2021 financials, boosting revenue but widening net loss, with subsequent capital raises addressing liquidity and going concern [Results of Operations](index=32&type=section&id=Results%20of%20Operations) FY2021 revenues surged due to acquisitions, but net loss significantly expanded from operating costs and non-cash derivative expenses Comparison of Operations for Fiscal Years Ended April 30 | Metric | 2021 ($) | 2020 ($) | Change (%) | | :--- | :--- | :--- | :--- | | **Revenues** | $4,999,517 | $403,940 | +1137.7% | | **Cost of Goods Sold** | $3,929,832 | $325,379 | +1107.8% | | **Gross Margin** | $1,069,685 | $78,561 | +1261.6% | | **Operating Expenses** | $5,946,295 | $1,708,521 | +248.0% | | **Operating Loss** | ($4,876,610) | ($1,629,960) | +199.2% | | **Other Expense (Income)** | $8,359,565 | ($28,029) | N/A | | **Net Loss** | ($13,236,175) | ($1,601,931) | +726.2% | - The significant increase in revenue for FY 2021 is attributed to the acquisitions of Rotor Riot (January 2020) and Fat Shark (November 2020). Rotor Riot and Fat Shark contributed approximately **44%** and **56% of revenues**, respectively[173](index=173&type=chunk) - Other Expense for FY 2021 was **$8.36 million**, a stark contrast to Other Income of **$28,029** in FY 2020. This expense was primarily driven by derivative liability charges related to convertible debentures and warrants issued in October 2020 and January 2021[180](index=180&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company had a working capital deficit, but significantly improved liquidity post-year-end through public offerings Working Capital as of April 30, 2021 | Component | Amount ($) | | :--- | :--- | | Current Assets | $1,640,010 | | Current Liabilities | $4,674,070 | | **Working Capital** | **($3,034,060)** | - The company has a history of net losses and has funded operations through private offerings. It has raised significant capital post-fiscal year end[186](index=186&type=chunk) - In May 2021, a common stock offering raised gross proceeds of **$16 million**[186](index=186&type=chunk)[198](index=198&type=chunk) - In July 2021, a common stock offering raised gross proceeds of **$60 million**[186](index=186&type=chunk)[200](index=200&type=chunk) [Going Concern](index=36&type=section&id=Going%20Concern) Auditors expressed substantial doubt about the company's going concern due to recurring losses, which management plans to address with capital raises - The independent auditor's report for the fiscal year ended April 30, 2021, includes an explanatory paragraph raising substantial doubt about the company's ability to continue as a going concern[202](index=202&type=chunk)[224](index=224&type=chunk) - Key factors contributing to the going concern doubt are recurring net losses, negative operating cash flows, and an accumulated deficit of approximately **$15.8 million** as of April 30, 2021[202](index=202&type=chunk)[203](index=203&type=chunk) - Management is addressing these concerns through capital raised in public offerings in May 2021 (**$16M gross**) and July 2021 (**$60M gross**), which are intended to fund operations and growth initiatives[204](index=204&type=chunk)[257](index=257&type=chunk) [Financial Statements and Supplementary Data](index=38&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) FY2021 consolidated financial statements reflect significant changes from acquisitions, resulting in increased assets, liabilities, a substantial net loss, and a going concern qualification Consolidated Balance Sheet Highlights (as of April 30) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Cash | $277,347 | $236,668 | | Total Current Assets | $1,640,010 | $318,338 | | Goodwill | $8,017,333 | $2,466,073 | | **Total Assets** | **$11,693,365** | **$2,808,264** | | Total Current Liabilities | $4,674,070 | $829,266 | | Warrant derivative liability | $2,812,767 | $0 | | **Total Liabilities** | **$6,427,070** | **$1,279,266** | | **Total Stockholders' Equity** | **$5,266,295** | **$1,528,998** | Consolidated Statement of Operations Highlights (for the year ended April 30) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Revenues | $4,999,517 | $403,940 | | Gross Margin | $1,069,685 | $78,561 | | Operating Loss | ($4,876,610) | ($1,629,960) | | Derivative expense | $4,630,288 | $0 | | **Net Loss** | **($13,236,175)** | **($1,601,931)** | | **Loss per share** | **($0.56)** | **($0.12)** | Consolidated Cash Flow Highlights (for the year ended April 30) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | | Net cash used in operating activities | ($1,399,001) | ($811,584) | | Net cash (used in) provided by investing activities | ($48,368) | $46,327 | | Net cash provided by financing activities | $1,488,048 | $498,487 | - The auditor's report contains a paragraph expressing substantial doubt about the company's ability to continue as a going concern due to recurring losses and negative cash flows from operations[224](index=224&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=59&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports that there were no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - There were no disagreements with accountants on accounting and financial disclosure[325](index=325&type=chunk) [Controls and Procedures](index=59&type=section&id=Item%209A.%20Controls%20and%20Procedures) This section addresses the company's disclosure controls and procedures [Other Information](index=59&type=section&id=Item%209B.%20Other%20Information) This section provides additional information not covered elsewhere in the report Part III [Directors, Executive Officers, and Corporate Governance](index=59&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) The company's leadership includes key executives and a five-member Board with independent members and established committees - The executive team includes **Jeffrey M. Thompson (CEO)**, **Allan Evans (COO)**, and **Joseph Hernon (CFO)**[326](index=326&type=chunk) - The Board of Directors has five members: **Jeffrey M. Thompson**, **Nicolas Liuzza, Jr.**, **Patrick T. Mitchell**, **Jonathan Read**, and **Joseph Freedman**[326](index=326&type=chunk) - The Board has determined that all directors are independent except for **CEO Jeffrey M. Thompson**[338](index=338&type=chunk) - The Board has three standing committees: **Audit** (Nicholas Liuzza, Jonathan Read), **Compensation** (Joseph Freedman, Nicholas Liuzza), and **Governance and Nominating** (Joseph Freedman, Nicholas Liuzza)[340](index=340&type=chunk)[344](index=344&type=chunk)[348](index=348&type=chunk) - Several late Section 16(a) filings were reported for the fiscal year, involving multiple directors and officers including **Allan Evans**, **Jeffrey Thompson**, and **Joseph Freedman**[361](index=361&type=chunk) [Executive Compensation](index=64&type=section&id=Item%2011.%20Executive%20Compensation) FY2021 executive compensation included significant stock option awards and employment agreements for key executives Summary Compensation Table (Fiscal Year 2021) | Name and Principal Position | Salary ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Jeffrey Thompson, CEO | $167,334 | $2,038,368 | $2,205,702 | | Joseph Hernon, CFO | $125,500 | $0 | $125,500 | - CEO Jeffrey Thompson's employment agreement provides for a base salary of **$248,000**, an annual bonus up to **200% of base salary**, and includes clawback provisions[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk) - CFO Joseph Hernon's employment agreement provides for a base salary equal to **75% of the CEO's salary** and an annual bonus up to **150% of his base salary**[369](index=369&type=chunk) - Fat Shark CEO Allan Evans' employment agreement includes a base salary equal to **70% of the Red Cat CEO's salary** and a grant of **1,000,000 shares of common stock** with performance and time-based vesting conditions[383](index=383&type=chunk)[384](index=384&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=68&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Executive officers and directors collectively owned **32.3%** of common stock, with the CEO holding **26.0%** Security Ownership of Beneficial Owners (as of August 9, 2021) | Name of Beneficial Owner | Percentage of Beneficial Ownership (%) | | :--- | :--- | | **Officers & Directors** | | | Jeffrey Thompson (CEO) | 26.0% | | All executive officers and directors as a group (7 persons) | 32.3% | | **Other 5% Holders** | | | Gregory French | 10.0% | | Empery Asset Management, LP | 6.2% | | CVI Investments, Inc. | 5.2% | | Sabby Volatility Warrant Master Fund, Ltd | 5.3% | [Certain Relationships and Related Transactions, and Director Independence](index=70&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company engaged in related-party transactions, primarily convertible note financings with directors and the CEO - Director Nicholas Liuzza, Jr. participated in convertible note financings in December 2019 (**$125,000**), October 2020 (**$300,000**), and January 2021 (**$100,000**). All notes were subsequently converted to common stock[409](index=409&type=chunk)[411](index=411&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk) - CEO Jeffrey Thompson participated in a convertible note financing in December 2019 for **$25,000**, which was later converted to common stock[409](index=409&type=chunk)[410](index=410&type=chunk) - Director Joseph Freedman participated in a convertible note financing in January 2021 for **$50,000**, which was converted to common stock in March 2021[417](index=417&type=chunk)[418](index=418&type=chunk) - Upon his appointment as a director on January 11, 2021, Joseph Freedman was granted a ten-year option to purchase **100,000 shares of common stock**[413](index=413&type=chunk) [Principal Accounting Fees and Services](index=72&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) For FY2021, the company incurred **$116,500** in total fees from its principal accountant, including **$86,400** for audit services, all pre-approved Accountant Fees Billed | Fee Type | April 30, 2021 ($) | April 30, 2020 ($) | | :--- | :--- | :--- | | Audit Fees | $86,400 | $94,800 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | All Other Fees | $30,100 | — | - The Audit Committee pre-approves all services provided by the principal accountant, BF Borgers, CPA P.C.[425](index=425&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=73&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including underwriting, merger, acquisition, and employment agreements, along with corporate governance documents - Key exhibits filed include underwriting agreements from the April and July 2021 offerings[428](index=428&type=chunk) - Acquisition and merger agreements for Rotor Riot, Skypersonic, and Teal Drones are included as exhibits[428](index=428&type=chunk) - Employment agreements for CEO Jeffrey Thompson, CFO Joseph Hernon, and a consulting agreement for Director Joseph Freedman are filed as exhibits[429](index=429&type=chunk) [Form 10-K Summary](index=74&type=section&id=Item%2016.%20Form%2010-K%20Summary) This section is not applicable - Not applicable[430](index=430&type=chunk)

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, 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 86-049003 ...