Red Cat (RCAT) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited financial statements for October 31, 2021, show significant asset growth and revenue increases driven by acquisitions, alongside expanded net losses and substantial financing activities Consolidated Balance Sheets Total assets dramatically increased to $93.4 million, primarily from cash, investments, and goodwill due to acquisitions, with stockholders' equity expanding to $85.5 million from stock offerings Consolidated Balance Sheet Highlights (Unaudited) | Account | October 31, 2021 ($) | April 30, 2021 ($) | | :--- | :--- | :--- | | Total Current Assets | $64,629,199 | $1,640,010 | | Cash | $11,559,758 | $277,347 | | Investments | $48,122,657 | $— | | Goodwill | $26,029,750 | $8,017,333 | | Total Assets | $93,374,141 | $11,693,365 | | Total Current Liabilities | $5,848,303 | $4,674,070 | | Total Stockholders' Equity | $85,534,571 | $5,266,295 | Consolidated Statements Of Operations Revenues significantly increased for both three and six-month periods due to acquisitions, but net losses widened substantially from increased operating expenses Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Oct 31, 2021 ($) | Three Months Ended Oct 31, 2020 ($) | Six Months Ended Oct 31, 2021 ($) | Six Months Ended Oct 31, 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,863,239 | $427,807 | $3,259,990 | $976,089 | | Gross Margin | $152,582 | $99,051 | $254,986 | $201,201 | | Operating loss | $(2,760,138) | $(489,891) | $(4,439,750) | $(873,135) | | Net loss | $(2,740,601) | $(722,281) | $(4,298,373) | $(1,105,525) | | Loss per share | $(0.05) | $(0.04) | $(0.10) | $(0.05) | Condensed Consolidated Cash Flows Statements Operating cash outflow increased significantly, while financing activities, primarily from $70.07 million in stock issuances, provided substantial cash, resulting in a net cash increase Cash Flow Summary for Six Months Ended October 31 (Unaudited) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,569,098) | $(568,452) | | Net cash provided by investing activities | $24,866 | $— | | Net cash provided by financing activities | $19,825,052 | $811,849 | | Net increase in Cash | $11,282,411 | $243,397 | - The company received net proceeds of $70,065,203 from the issuance of common stock during the six months ended October 31, 2021[12] Notes to Financial Statements Notes detail the company's drone subsidiaries, major acquisitions, accounting policies, fair value measurements, debt, and extensive equity transaction details - The company operates through five wholly-owned subsidiaries: Teal Drones, Fat Shark Holdings, Rotor Riot, Skypersonic, and Red Cat Propware, providing a range of products and services to the drone industry[18] - The company completed several key acquisitions to expand its business, including Skypersonic in May 2021 and Teal Drones in August 2021[26][28] Recent Acquisition Details | Acquired Company | Closing Date | Total Purchase Price ($) | Goodwill Recognized ($) | | :--- | :--- | :--- | :--- | | Skypersonic, Inc. | May 7, 2021 | $2,791,013 | $3,717,919 | | Teal Drones Inc. | August 31, 2021 | $10,011,279 | $14,294,499 | - The company's investments, classified as available-for-sale securities, totaled $48.1 million at fair value as of October 31, 2021, primarily consisting of corporate bonds and asset-backed securities[36][63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth from acquisitions was offset by a gross margin decline to 8% and increased operating expenses, while liquidity improved significantly from $70.1 million in public offerings - The company closed two significant public offerings in 2021: an S-1 offering in May raising approximately $14.6 million net, and an S-3 offering in July raising approximately $55.5 million net[123][124] - The acquisition of Teal Drones on August 31, 2021, is a key strategic development, adding the Golden Eagle drone, approved by the US Department of Defense, to its portfolio[126] YoY Revenue Comparison (Three Months Ended Oct 31) | Period | Revenue ($) | YoY Increase | Key Drivers | | :--- | :--- | :--- | :--- | | 2021 | $1,863,239 | >100% | Fat Shark ($0.899 million) and Teal ($0.402 million) acquisitions | | 2020 | $427,807 | - | - | - Gross margin percentage decreased from 23% to 8% for the three months ended October 31, 2021, compared to the prior year, attributed to higher product and shipping costs from COVID-19 impacts[134] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, Red Cat Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk[166] Item 4. Controls and Procedures Management found disclosure controls ineffective due to untimely financial reporting of certain corporate banking accounts, with no other material changes to internal controls reported - Management identified a weakness in disclosure controls, citing a failure to maintain effective controls for the timely financial reporting of certain corporate banking accounts[167] - There were no changes in internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[168] PART II. OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal proceedings involving the company, its directors, officers, or major shareholders - There are no pending legal proceedings involving the Company[171] Item 1A. Risk Factors As a smaller reporting company, Red Cat Holdings, Inc. is not required to provide risk factor disclosures in this Form 10-Q - The company is a smaller reporting company and is not required to provide risk factor disclosures in this report[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period that were not previously disclosed - No unregistered sales of equity securities occurred during the reporting period that were not previously reported[173] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[174] Item 5. Other Information No other information is reported in this section - None[175] Item 6. Exhibits This section lists filed exhibits, including officer certifications required by Sarbanes-Oxley and XBRL data files - Exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act of 2002, along with XBRL instance documents[176]