# Red Cat Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2018

- Company: [Red Cat Holdings, Inc.](/companies/rcat.md) (CIK 748268)
- Form: 10-Q
- Filed: 2018-11-19
- Accepted by EDGAR: Nov 19, 2018, 16:17 ET
- Period: 2018-09-30
- Accession: 0001554795-18-000345
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/748268/000155479518000345/tfvr1117form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/748268/000155479518000345/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $58.4k | us-gaap:Revenues |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $67.3k | us-gaap:Revenues |
| Gross profit | 3 months, 2018-07-01 to 2018-09-30 | −$81.8k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-01-01 to 2018-09-30 | −$129.8k | us-gaap:GrossProfit |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | −$407.3k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | −$1.5m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | −$511.2k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | −$1.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 234,143,079 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 183,775,242 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | −$720.9k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $974.3k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2018-09-30 | $13.6k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $350.0k | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $1.2m | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $2.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-09-30 | $2.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2018-09-30 | −$1.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 11,552 characters.

The following Management's Discussion and Analysis should be read in conjunction with TimefireVR Inc. financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements relating to our liquidity, and our plans in the cryptocurrency business. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. Investors should review the Risk Factors in the Company’s Form 10-K for the year ended December 31, 2017. Except as required by U.S. securities laws, the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this 10-Q. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

### OVERVIEW

The Company is a Nevada corporation incorporated on April 10, 2002. On November 21, 2016, we changed our name to TimefireVR, Inc. We are currently in the process of changing our name to TeraForge Ventures Inc., subject to shareholder approval.

Effective September 13, 2016, the Company acquired TLLC, a Phoenix-based virtual reality content developer. As consideration for the Merger Agreement, the Company issued the equity holders of TLLC a total of 41,400,000 shares of the Company's common stock and 2,800,000 five-year warrants.

On January 3, 2018, the Company effected the sale of TLLC to a person (the “TLLC Lender”) who had lent the Company or TLLC funds in 2017 without any documentation in order to keep employees from quitting. The Company understood he was acting on behalf of a group (“TLLC Purchasers”) which included its former owners as well as two of our former executive officers and directors. The Company received: (i) $100,000 in cash and (ii) a secured promissory note in the principal amount of $120,000 bearing 6% annual interest that matured in September 2018 and remains unpaid. Additionally, the TLLC Purchasers assumed certain of the Company’s liabilities totaling approximately $558,054. The Company’s business model in the virtual reality business was not successful and the Company was unable to continue to finance its business due to a loss of confidence in the virtual reality business by the Company’s investors (“Prior Investors”) who held past due convertible notes, and threats of resignation from the remaining TLLC employees. The Prior Investors refused to further finance the Company unless TLLC was shut down or preferably sold; the TLLC Lender whose loans were treated as demand loans refused to fund TLLC if it remained owned by the Company. While shareholder approval was required by Nevada law, the TLLC Purchasers refused to fund TLLC unless we closed immediately. The Prior Investors that had financed the Company had agreed to provide further funding if we sold TLLC and received a release from key liabilities including past due promissory notes. Rather than cease operations and have no working capital, we adhered to the TLLC Purchaser’s demands and closed the sale. Pending finalization of the sale of TLLC over the year-end holidays, our Prior Investors lent us approximately $669,000 on December 21, 2017 and cancelled certain past due notes they held on January 3, 2018 as explained in the following paragraph. Because we wanted to eliminate state law liabilities, we opted to get irrevocable proxies which would permit us to seek shareholder ratification. Such ratification is one of the items on the agenda for our annual meeting of shareholders scheduled for November 29, 2018.

Effective January 3, 2018, the Company entered into an exchange agreement with certain of the Company’s Prior Investors pursuant to which the Company issued 303,714 shares of the Company’s new Convertible Series E Preferred Stock in exchange for the cancellation of the Company’s Series A, Series A-1, Series C, the March 2017 Notes, the August 2017 Notes, and certain of the Company’s outstanding Warrants. This exchange had the effect of simplifying our capital structure and eliminating past due secured debt while substantially increasing future potential dilution.

On March 6, 2018, we borrowed $1 million from these same investors and issued them $1,052,632 of senior secured convertible notes (the “2018 Notes”) which are due on April 15, 2019. The 2018 Notes pay 8% per annum interest and are convertible at $0.03 per share. On the maturity date, we must pay 120% of the principal of the 2018 Notes. The 2018 Notes are secured by a first lien on the Company's assets.

On January 3, 2018, we announced our entry into the cryptocurrency and blockchain business. The Company’s current business is focused on the mining of bitcoin, ethereum and litecoin. The Company has expanded that business and has moved its mining operations to Allentown, PA from its prior location in Brooklyn, NY.

In order to secure the technical expertise to engage in the cryptocurrency mining business, we entered into an Advisory Agreement with two parties on March 16, 2018. On November 15, 2018, we provided the other parties to the Advisory Agreement with notice that we intend to terminate the Advisory Agreement effective December 15, 2018.

### Results of Operations

The following discussion analyzes our results of operations for the three and nine months ended September 30, 2018 and 2017. The following information should be considered together with our financial statements for such periods and the accompanying notes thereto.

Revenues for the three months ended September 30, 2018 and 2017 were $58,380 and $0, respectively. The Company generated its first mining revenues beginning in April 2018. Operating expenses for the quarter ended September 30, 2018 amounted to $325,476 as compared to $90,283 for the quarter ended September 30, 2017. This was primarily due to increases in officer compensation and professional fees. The net loss for the three months ended September 30, 2018 was $511,155 as compared to $328,233 for the quarter ended September 30, 2017. This difference is largely due to the change in fair value of derivative, which created a non-cash gain for the three months ended September 30, 2017 of $114,191.

Revenues for the nine months ended September 30, 2018 and 2017 were $67,297 and $0, respectively. Operating expenses for the nine months ended September 30, 2018 amounted to $1,398,035 as compared to $885,123 for the nine months ended September 30, 2017. This was primarily due to the increase in officer compensation. The net loss for the nine months ended September 30, 2018 was $1,441,150 as compared to a net income of $1,559,319 for the nine months ended September 30, 2017. This difference is primarily due to the change in fair value of derivative, which created a non-cash gain for the nine months ended September 30, 2017 of $4,129,252.

### Liquidity and Capital Resources

Historically, our primary source of liquidity has been from the issuances of debt financing. The primary uses of cash are payroll related expenses and professional fees.

Our balance sheet as of September 30, 2018 reflects $13,563 in cash. As of November 19, 2018, the Company had approximately $5,000 in cash.

Management is continuing to pursue financing from various sources, including private placements from investors and institutions. We do not have capital to satisfy our estimated working capital needs for the next 12 months. Moreover, as of September 30, 2018 we owe $1,982,829 in principal on convertible notes due in April 2019. Because of the uncertainty regarding the cryptocurrency business costs as well as the sums we owe our principal lenders, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate enough liquidity. At this time, our Company does not have a commitment from any party to provide additional financing. There is no assurance that any additional financing will be available or if available, on terms that will be acceptable. Any financing will be extremely dilutive to our common shareholders. If we cannot obtain financing, we will cease operations.

### Going Concern

The Company has incurred losses since inception and requires additional funds for future operating activities. The Company’s selling activity has not reached a level of revenue sufficient to fund its operating activities. These factors create an uncertainty as to how the Company will fund its operations and maintain sufficient cash flow to operate as a going concern. The combination of these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

### Critical Accounting Policies and Estimates

Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of financial statements in conformity 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 revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

### Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

### Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

## Market risk

As filed, 184 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”) and are not required to provide the information under this item.

## Controls and procedures

As filed, 1,897 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2018.

### Changes in Internal Control over Financial Reporting

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

## Risk factors

As filed, 144 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Filed Nov 19, 2018.
Source: SEC EDGAR, the filing index for accession 0001554795-18-000345. Last ingested by Listed: Oct 30, 2026, 20:55 ET. No prices; not investment advice.