Red Cat Holdings, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act, as of April 30, 2023. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by a company in reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of April 30, 2023. Management's annual report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with GAAP. Our accounting policies and internal controls over financial reporting, established and maintained by management, are under the general oversight of the Board’s audit committee. Our internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed our internal control over financial reporting as of April 30, 2023. The standard measures adopted by management in making its evaluation are the measures in the Internal-Control Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission. 84 Based on management’s assessment using the COSO criteria, our CEO and CFO concluded that our internal control over financial reporting as of April 30, 2023 was effective. Attestation Report of the Registered Public Accounting Firm. Because the Company is a non-accelerated filer, this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC where registrants that are non-accelerated filers are not required to provide the auditor attestation report. Changes In Controls Over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the year ended April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. ITEM 9B. OTHER INFORMATION ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth information regarding our current directors and executive officers: Name Age Position Jeffrey M. Thompson 59 President, Chief Executive Officer and Director Allan Evans 39 Chief Operating Officer Joseph Hernon 63 Chief Financial Officer, Treasurer and Secretary Joseph Freedman 57 Director Nicholas Liuzza, Jr. 57 Director Christopher Moe 67 Director Biographies Jeffrey M. Thompson, President and Chief Executive Officer Jeffrey Thompson has been President and Chief Executive Officer of the Company since May 15, 2019. In December 1999, Mr. Thompson founded Towerstream Corporation (Nasdaq:TWER), a fixed-wireless fiber alternative company delivering high-speed internet access to businesses, and served as its president, chief executive officer and a director from November 2005 to February 2016. In 1994, Mr. Thompson founded EdgeNet Inc., a privately held Internet service provider (which was sold to Citadel Broadcasting Corporation in 1997) and became eFortress through 1999. Mr. Thompson holds a B.S. degree from the University of Massachusetts. Mr. Thompson’s management and public company experience and his role as President and Chief Executive Officer of the Company, led to his appointment as a director. 85 Dr. Allan Evans, Chief Operating Officer Dr. Allan Evans is a serial entrepreneur with a history of founding and leading technology innovation. He has extensive experience in overseeing different emerging technologies. Prior to becoming Chief Operating Officer of the Company, Dr. Evans was the Chief Executive Officer of our subsidiary, Fat Shark. From August 2017 to October 2020, Dr. Evans served as a board member for Ballast Technologies, a company that specialized in technology for location-based entertainment. In November 2012, he co-founded Avegant, a technology company focused on developing next-generation display technology to enable previously impossible augmented reality experiences. He led design, development, and initial production of the Glyph head mounted display and oversaw technology research and patent strategy while serving as Chief Technology Officer of Avegant until 2016. Dr. Evans received a PhD and M.S. degree in electrical engineering from the University of Michigan and has a B.S. degree from Michigan State University. Dr. Evans has 45 pending or issued patents that cover a range of technologies from implantable medical devices to mixed reality headsets. Academically, his work has an h-index of 15, an i-index of 27, and has been cited in more than 900 publications. He has extensive experience with new technologies, engineering, business development, and corporate strategy, and his expertise in these areas strengthens the company’s collective knowledge and capabilities. Joseph Hernon , Chief Financial Officer and Secretary Joseph Hernon has been Chief Financial Officer and Secretary of the Company since January 23, 2020. Mr. Hernon has extensive experience as a Chief Financial Officer over the course of his 35-year career. Mr. Hernon was a financial consultant to various private companies from May 2016 until January 2020. Prior to that, Mr. Hernon was the Chief Financial Officer for three public companies including most recently, Towerstream Corporation from May 2008 through May 2016. Previously, Mr. Hernon was employed for almost 10 years by PricewaterhouseCoopers in its audit practice and was a Senior Business Assurance Manager during his last five years with the firm. Mr. Hernon is a certified public accountant, but not presently licensed to practice, and earned a Master’s degree in Accountancy from Bentley University in 1986. Joseph Freedman , Director Joe Freedman is an entrepreneur with experience in launching, growing, and successfully exiting businesses in executive search, title insurance, legal services, and hospitality. His entrepreneurial journey includes turnarounds, mergers & acquisitions, as well as winding down and liquidating the assets of an unprofitable business. Prior to selling three businesses to NYSE-listed, private equity, and privately held companies, he successfully built them into industry market leaders. Five companies led by Mr. Freedman were listed on the Inc. 500/5000 a total of 15 times, with one ranking in the top 100. In 2006, Mr. Freedman co-founded Peachtree Tents & Events Holdings, LLC, where he served as chief executive officer until 2021 and currently serves on the board. Previously, he co-founded and served as chief executive officer of RFx Legal, LLC, Richmond Title, LLC, and AMICUS Legal Staffing, Inc. until their acquisitions. In addition to his entrepreneurial pursuits, Mr. Freedman actively participates in various civic boards, including the Entrepreneurs’ Organization (Nashville Chapter), where he has held multiple board positions, including that of president. Currently, he holds the position of Governance Chair. In 2022, Mr. Freedman established the nonprofit organization, Drones For Good Worldwide, driven by his passion for making a positive impact. The organization focuses on providing drones to support humanitarian efforts during disasters worldwide. Mr. Freedman holds a B.S. degree in Finance from Louisiana State University and a Juris Doctorate from Northwestern California University School of Law. His experience in recruiting, business, and finance has provided the foundation for his appointment to the Board of the Company. 86 Nicholas Liuzza Jr . , Director Nicholas Liuzza Jr. has been a director of the Company since June 1, 2019. Mr. Liuzza co-founded Beeline Loans, a Digital Mortgage Lender in 2019. Previously, Mr Liuzza founded Linear Title & Closing, Ltd, a highly automated, and one of the largest, private national title agencies in the U.S in 2005. In 2012, he founded Nexgen Mortgage Services. Both companies merged with Real Matters and went public on the Toronto Stock Exchange (TSX) in 2018 at a $1 billion valuation. Nick served as Executive Vice President of Real Matters, Inc. and exited in 2020 to work for Beeline Loans. Mr. Liuzza founded New Age Nurses, a healthcare staffing company which he grew into a national provider of healthcare personnel services which became the platform for a reverse merger which listed on the OTC upon its acquisition in 2003 by Crdentia. Prior thereto, Mr. Liuzza was Executive Vice President of AMICUS Legal Staffing, a national staffing services provider with a specialization in real estate transactions. Mr. Liuzza started his career with Xerox Corporation in 1988. Mr. Liuzza’s more than 20 years of experience as an entrepreneur in the software industry and his sales and software development experience led to his appointment as a director. Christopher R. Moe , Director Christopher R. Moe serves as the Chief Financial Officer and Director of Yates Electrospace Corporation, a heavy payload autonomous cargo delivery drone developer and producer. Earlier he was the Chairman, Chief Executive Officer and co-Founder of ProBrass Inc., a rifle brass cartridge case manufacturing company. Previously he was the Chief Financial Officer of Vectrix Holdings Limited, a subsidiary of GP Industries Ltd (G20:SGX), an international developer and manufacturer of electric motorcycles and Chief Financial Officer and Director of Mission Motor Company, a company focused on advanced EV and hybrid powertrains for automobile and power sports applications. Earlier he served as the Chief Financial Officer & Director of Vectrix Corporation (LSE:VRX), Managing Director of GH Ventures, Managing Director of Kirkland Investment Corporation, Chief Executive Officer of St. Louis Ship Industries, Vice President of Wasserstein, Perella & Co.’s merchant banking fund and Vice President/Area Head with Citicorp’s Leveraged Capital Group. He served as a Captain of United States Marines and deployed with artillery and infantry units twice to the Western Pacific and Indian Ocean. He is the Treasurer of The Pennfield School and the former Treasurer of the Zabriskie Memorial Church of Saint John the Evangelist. He holds a BA degree in English from Brown University and an MBA from the Harvard Business School. Mr. Moe’s experience in operational finance, and with venture capital, private equity, M&A, and corporate finance transactions, both as agent and principal, with a focus on transportation, provide the basis upon which the Company appointed him to the Board. Composition of our Board of Directors Our board of directors currently consists of four members. Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. There are no family relationships among any of our directors or executive officers. Committees of the Board of Directors Audit Committee The Audit Committee is composed of three independent directors: Christopher Moe, Nicholas Liuzza, and Joseph Freedman. Each member of the Audit Committee is an independent director as defined by the rules of the SEC and Nasdaq. The Audit Committee has the sole authority and responsibility to select, evaluate and engage independent auditors for the Company. The Audit Committee reviews with the auditors and with the Company’s financial management all matters relating to the annual audit of the Company. The Audit Committee monitors the integrity of our financial statements, monitors the independent registered public accounting firm’s qualifications and independence, monitors the performance of our internal audit function and the auditors, and monitors our compliance with legal and regulatory requirements. The Audit Committee also meets with our auditors to review the results of their audit and review of our annual and interim financial statements. The Audit Committee meets at least on a quarterly basis to discuss with management the annual audited financial statements and quarterly financial statements and meets from time to time to discuss general corporate matters. 87 Audit Committee Financial Expert Our Board determined that Christopher Moe is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC, in compliance with the Sarbanes-Oxley Act of 2002. Compensation Committee The Compensation Committee, which currently consists of Nicholas Liuzza, Christopher Moe and Joseph Freedman each of whom are independent directors. Among other things, the Compensation Committee reviews, recommends, and approves salaries and other compensation of the Company’s executive officers, and administers the Company’s equity incentive plans (including reviewing, recommending and approving stock option and other equity incentive grants to executive officers). The Compensation Committee meets in executive session to determine the compensation of the Chief Executive Officer of the Company. In determining the amount, form, and terms of such compensation, the Committee considers the annual performance evaluation of the Chief Executive Officer conducted by the Board in light of company goals and objectives relevant to Chief Executive Officer compensation, competitive market data pertaining to Chief Executive Officer compensation at comparable companies, and such other factors as it deems relevant. The Compensation Committee is guided by, and seeks to promote, the best interests of the Company and its shareholders. In addition, subject to existing agreements, the Compensation Committee determines the salaries, bonuses, and other matters relating to compensation of the executive officers of the Company using similar parameters. It sets performance targets for determining periodic bonuses payable to executive officers. It also reviews and makes recommendations to the Board regarding executive and employee compensation, as well as benefit plans and programs, including employee bonus and retirement plans and programs (except to the extent specifically delegated to a Board appointed committee with authority to administer a particular plan). In addition, the Compensation Committee approves the compensation of non-employee directors and reports it to the full Board. The Compensation Committee also reviews and makes recommendations with respect to stockholder proposals related to compensation matters. The committee administers the Company’s equity incentive plans, including the review and grant of stock options and other equity incentive grants to executive officers, as well as other employees and consultants. The Compensation Committee may, in its sole discretion and at the Company’s cost, retain or obtain the advice of a compensation consultant, legal counsel or other adviser. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the committee. Governance and Nominating Committee The Governance and Nominating Committee, consists of Joseph Freedman, Nicholas Liuzza, and Christopher Moe each of whom meets the independence requirements of all other applicable laws, rules and regulations governing director independence, as determined by the Board. The Governance and Nominating Committee (i) identifies individuals qualified to become members of the Board, consistent with criteria approved by the Board, (ii) recommends to the Board the director nominees for the next annual meeting of stockholders or special meeting of stockholders at which directors are to be elected, (iii) recommends to the Board candidates to fill any vacancies on the Board, (iv) develops, recommends to the Board, and reviews the corporate governance guidelines applicable to the Company, and (v) oversees the evaluation of the Board and management. In recommending director nominees for the next annual meeting of stockholders, the Governance and Nominating Committee ensures the Company complies with its contractual obligations, if any, governing the nomination of directors. It considers and recruits candidates to fill positions on the Board, including as a result of the removal, resignation or retirement of any director, an increase in the size of the Board or otherwise. The Committee conducts, subject to applicable law, any and all inquiries into the background and qualifications of any candidate for the Board and such candidate’s compliance with the independence and other qualification requirements established by the Committee. The Committee also recommends candidates to fill positions on committees of the Board. 88 In selecting and recommending candidates for election to the Board or appointment to any committee of the Board, the Committee does not believe that it is appropriate to select nominees through mechanical application of specified criteria. Rather, the Committee shall consider such factors at it deems appropriate, including, without limitation, the following (i) personal and professional integrity, ethics and values, (ii) experience in corporate management, such as serving as an officer or former officer of a publicly-held company (iii) experience in the Company’s industry, (iv) experience as a board member of another publicly-held company, (v) diversity of expertise and experience in substantive matters pertaining to the Company’s business relative to other directors of the Company, (vi) practical and mature business judgment, (vii) and composition of the Board (including its size and structure). The Committee develops and recommends to the Board a policy regarding the consideration of director candidates recommended by the Company’s stockholders and procedures for submission by stockholders of director nominee recommendations. In appropriate circumstances, the Committee, in its discretion, will consider and may recommend the removal of a director, in accordance with the applicable provisions of the Company’s certificate of incorporation and bylaws. If the Company is subject to a binding obligation that requires director removal structure inconsistent with the foregoing, then the removal of a director shall be governed by such instrument. The Committee oversees the evaluation of the Board and management. It also develops and recommends to the Board a set of corporate governance guidelines applicable to the Company, which the Committee shall periodically review and revise as appropriate. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention. Special Committee In September 2022, the Red Cat Board of Directors established a Special Committee ("SC") with a mandate to oversee and manage the negotiation, structure, and terms of the anticipated UMAC transaction. Additionally, the committee is tasked with providing essential support for this transaction and managing any other matters that may be assigned to them by the board. Joe Freedman and Chris Moe were chosen as Co-Chairs of the committee and were authorized to receive a payment of $15,000 each for their time. Upon the execution or termination of the UMAC transaction and the satisfactory resolution of all other assigned matters, the Special Committee will have fulfilled its purpose and will be dissolved. Board Diversity While we do not have a formal policy on diversity, the Board considers diversity to include the skill set, background, reputation, type and length of business experience of the Board members as well as a particular nominee’s contributions to that mix. The Board believes that diversity brings a variety of ideas, judgments and considerations that benefit the Company and its stockholders. Although there are many other factors, the Board seeks individuals with experience in operating and growing businesses Board Leadership Structure Jeffrey Thompson serves as the Chairman of the Board and actively interfaces with management, the Board and counsel regularly. Board Risk Oversight The Company’s risk management function is overseen by the Board. The Company’s management keeps the Board apprised of material risks and provides the directors with access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect us, and how management addresses those risks. Jeffrey Thompson, Chairman of the Board, works closely together with the other members of the Board when material risks are identified on how to best address such risks. If the identified risk poses an actual or potential conflict with management, the Company’s independent directors may conduct the assessment. Presently, the primary risk affecting us is that we have never been profitable and we have limited financial resources to support our operations. 89 Family Relationships There are no family relationships among any of our officers or directors. Involvement in Legal Proceedings We are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401(f) of Regulation S-K. Code of Ethics The Board has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all of the Company’s employees, including the Company’s Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to the Company’s directors and its Chief Operating Officer. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including (i) the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, (iii) the prompt reporting of illegal or unethical behavior, and (iv) accountability for adherence to the Code of Ethics. Director Compensation Table The following table presents the total compensation for each person who served as a non-employee director during Fiscal 2023. Mr. Thompson is not included in the table below, as he is employed as our Chief Executive Officer and receives no compensation for his service as director. The compensation received by Mr. Thompson as an employee is included in the “Executive Compensation—Summary Compensation Table.” Name Fees Earned or Paid in Cash Stock Awards(1) Options Awards(2) Non-Equity Incentive Plan Compensation Nonqualified Deferred Compensation Earnings Total Joseph Freedman $ 56,983 $ 64,652 — — — $ 121,635 Nicholas Liuzza $ 46,485 $ 58,437 — — — $ 104,922 Jonathan Read (3) $ 21,220 $ 14,999 — — — $ 36,219 Christopher Moe $ 48,770 $ 64,652 — — — $ 113,422 Mary Beth Long (4) $ 18,554 $ 25,589 — — — $ 44,143 (1) We value stock awards based on their fair value on the date that awards vest. Fair value is calculated by multiplying the number of awards vesting times the Company’s closing stock price on the date of vesting. (2) We value option awards in accordance with Accounting Standards Codification Topic 718, Compensation - Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term, discount rates and dividend expectations. Compensation expense is recognized based on the vesting terms of the award. (3) Mr. Read resigned on November 14, 2022. (4) Ms. Long was appointed on November 14, 2022 and resigned July 25, 2023. 90 Non-Employee Director Compensation Arrangements In April 2022, the Board of Directors established a formal compensation plan for Non-Employee Directors. Under the plan, Non-Employee Directors shall receive annual compensation of $100,000 consisting of: • $40,000 in cash compensation, payable in monthly installments beginning May 1, 2022 • $60,000 in equity compensation, payable in the form of shares of restricted common stock to be issued on May 1 annually, with 25% of the shares vesting immediately and the remaining 75% vesting in 24 monthly installments beginning on June 1 In addition, the Chairman of each Committee of the Board shall receive additional annual cash compensation, payable in monthly installments, as follows: • $10,000 - Audit Committee • $6,000 - Compensation Committee • $5,000 - Nominating and Governance Committee In addition, in November 2022, the Board of Directors established Lead Director compensation of $22,500 annually, payable monthly as well as a one-time payment of $15,000 to each member of the Special Committee, payable in the form of fully vested restricted common stock. This resulted in total compensation to each Non-Employee Director for the fiscal year ended April 30, 2023 as follows: • $121,635 to Joseph Freedman, consisting of $40,000 for board service, $733 as Chairman of the Compensation Committee, $5,000 as Chairman of the Nominating and Governance Committee, $11,250 as Lead Director, and $64,652 representing the fair value of the 30,353 shares which vested in the fiscal year ended April 30, 2023. • $104,922 to Nicholas Liuzza, consisting of $40,000 for board service, $1,218 as Chairman of the Audit Committee. $5,267 as Chairman of the Compensation Committee and $58,437 representing the fair value of the 27,435 shares which vested in the fiscal year ended April 30, 2023. • $36,219 to Jonathan Read, consisting of $21,220 for board service and $14,999 representing the fair value of the 7,042 shares which vested in the fiscal year ended April 30, 2023. • $113,422 to Christopher Moe consisting of $40,000 for board service, $8,770 as Chairman of the Audit Committee and $64,652 representing the fair value of the 30,353 shares which vested in the fiscal year ended April 30, 2023. • $44,143 to Mary Beth Long, consisting of $18,554 for board service and $25,589 representing the fair value of the 21,324 shares which vested in the fiscal year ended April 30, 2023. In May 2023, the Board of Directors established Board compensation for the fiscal year ended April 30, 2024. Base compensation was established at $105,000, consisting of $45,000 in cash and $60,000 in restricted stock awards. In addition, Leadership compensation, payable in cash, was established at $25,000 for Joe Freedman, $20,000 for Christopher Moe, $10,000 for Nick Liuzza, and $10,000 for Mary Beth Long. Finally, Committee compensation, payable in restricted stock awards, was established at $30,000 for each of Joe Freedman and Chris Moe. Total compensation for fiscal 2024 was established at $160,000 for Joe Freedman, $155,000 for Chris Moe, $115,000 for Nick Liuzza, and $115,000 for Mary Beth Long. The number of shares of restricted stock to be awarded shall be based on the $1.06 closing price on May 15, 2026, the date these actions were approved. Cash payments shall be made monthly in arrears and the restricted stock awards shall vest as follows: (i) 25% on May 15, 2023, (ii) the remainder vests ratably over 24 monthly installments commencing June 1, 2023. 91 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to each Officer with compensation exceeding $100,000 during the fiscal years ended April 30, 2022 and 2021 (each a "Named Executive Officer"). Summary Compensation Table Name and Principal Position Year Salary Bonus Option Awards All Other Compensation (3) Total Jeffrey Thompson 2023 $ 300,000 $ 165,345 $ 347,582 $ 812,927 Chief Executive Officer and President 2022 $ 255,333 $ 153,600 $ — $ — $ 408,933 Joseph Hernon (1) 2023 $ 230,000 $ 126,304 $ 451,988 $ 808,292 Chief Financial Officer and Secretary 2022 $ 191,500 $ 128,000 $ — $ 185,400 $ 504,900 Allan Evans (2) 2023 $ 230,000 $ 126,904 $ 651,872 $ 1,008,776 Chief Operating Officer 2022 $ 181,918 $ 136,000 $ — $ 875,341 $ 1,193,259 (1) Joseph Hernon joined the Company in January 2020 (2) Allan Evans joined the Company in November 2020 (3) Represents the fair value of restricted stock upon its vesting as follows: (i) Thompson – 153,120 shares in fiscal 2023; (ii) Hernon – 231,360 shares in fiscal 2023 and 75,000 shares in fiscal 2022; and (iii) Evans – 401,702 shares in fiscal 2023 and 369,318 shares in fiscal 2022. Potential Payments and Benefits Upon Termination or a Change in Control Our named executive officers are entitled to certain benefits in the event their employment is terminated without cause by the Company or for good reason by the Executive, as described in the Employment Agreements. The following table describes the potential payments and benefits to each of our named executive officers, as if these obligations were payable on April 30, 2023. The actual amounts payable to each executive listed below upon termination can only be determined definitively at the time of each executive’s actual departure. In addition to the amounts shown in the table below, each executive would receive payments for amounts of base salary and vacation time accrued through the date of termination and payment for any reimbursable business expenses incurred. In the event of a named executive officer’s death, the named executive officer’s beneficiary, legal representative or estate would receive the named executive officer’s potential payments. Potential Payments and Benefits Jeffrey Thompson Joseph Hernon Allan Evans Base Salary (1) $ 600,000 $ 230,000 $ 230,000 Healthcare Benefits (2) $ 32,261 $ 6,745 $ 12,798 Equity Awards Vesting on Termination (3) $ — $ 159,300 $ — Total $ 632,261 $ 396,045 $ 242,798 (1) Represents the named executive officer’s base salary payable over twenty-four (24) months for Thompson and twelve (12) months for Hernon and Evans. (2) Represents the cost of continued healthcare coverage for 18 months for Thompson and 12 months for Hernon and Evans. This value is based upon the type of health insurance coverage and premiums in effect on April 30, 2023. (3) Represents the value attributable to the accelerated vesting of unvested shares of restricted stock and stock options. The value of accelerated options is determined by multiplying the number of options accelerated by the difference between the closing price of our common stock and the exercise price of the options. The value of accelerated stock is determined by multiplying the number of shares accelerated by the closing price of our common stock on April 30, 2023 which was $0.885. 92 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table lists, as of July 24, 2023, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our directors; (iii) each of our Named Executive Officers; and (iv) all executive officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder's address is c/o Red Cat Holdings, Inc., 15 Ave. Munoz Rivera, STE 2200, San Juan, PR 00901. The percentages below are calculated based on 55,541,173 shares of common stock issued and outstanding as of July 24, 2023. Name and Address of Beneficial Owner Amount of Shares Beneficially Owned Percentage of Beneficial Ownership Named Executive Officers and Directors: Jeffrey Thompson 12,792,057 (1) 22.83% Joseph Hernon 1,354,847 (2) 2.40% Allan Evans 1,337,734 (3) 2.41% Nicholas Liuzza 1,411,353 (4) 2.52% Joseph Freedman 447,955 (5) 0.80% Christopher Moe 77,450 (6) 0.14% Mary Beth Long (resigned July 25, 2023) 53,581 (7) 0.10% All executive officers and directors as a group (7 persons) 17,474,977 31.20% Other 5% Holders Gregory French 4,815,533 8.67% (1) Includes 12,292,057 shares of common stock, and 500,000 shares issuable upon the exercise of options. (2) Represents 331,882 shares of common stock, 1,000,000 shares issuable upon the exercise of options, and 22,965 shares of restricted stock vesting in the next 60 days. (3) Represents 1,337,734 shares of common stock. (4) Consists of 967,826 shares of common stock, 335,000 shares issuable upon the exercise of warrants, 100,000 shares issuable upon the exercise of options, and 8,527 shares of restricted stock vesting in the next 60 days. (5) Includes 190,301 shares of common stock, 250,00 shares issuable upon the exercise of options, and 7,654 shares of restricted stock vesting in the next 60 days. (6) Includes 69,796 shares of common stock, and 7,654 shares of restricted stock vesting in the next 60 days. (7) Includes 45,631 shares of common stock, and 7,950 shares of restricted stock vesting in the next 60 days. 93 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The following is a description of transactions since May 1, 2022, to which we were a party or will be party, in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. Please see footnotes 6 and 12 to financial statements filed herewith. Director Independence Our Board has determined that all of our present directors are independent, in accordance with standards under the Nasdaq Listing Rules, other than Mr. Thompson. Our Board determined that, under the Nasdaq Listing Rules, Mr. Thompson is not an independent director because he is the Chief Executive Officer and President of the Company. Our Board has determined that Christopher Moe, Nicholas Liuzza, and Joseph Freedman are independent under the Nasdaq Listing Rules’ independence standards for Audit Committee members. Our Board has also determined that Nicholas Liuzza, Christopher Moe and Joseph Freedman are independent under the Nasdaq Listing Rules independence standards for Compensation Committee members and that Joseph Freedman and Nicholas Liuzza are independent under the Nasdaq Listing Rules independence standards for Governance and Nominating committee members. DELINQUENT SECTION 16(A) REPORTS Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% percent of our equity securities ("Reporting Persons") to file reports of ownership and changes in ownership with the SEC. Based solely on our review of such filings and other information available to us, as well as representations from the Reporting Persons, we believe that during the fiscal year ended April 30, 2023, the Reporting Persons timely filed all such reports, except that the following forms were filed late by the indicated individuals: • Allan Evans for four Form 4’s related to shares of vested stock which were withheld by the Company to satisfy tax withholding obligations • Joseph Hernon for one Form 4 reporting shares of restricted stock which vested, net of shares withheld by the Company to satisfy tax withholding obligations • Nick Liuzza for one Form 4 related to open market purchases and sales of shares of common stock • Mary Beth Long for a Form 3 reporting her equity holdings upon becoming a Director of the Company ITEM 14. PRINCIPAL ACCOUNTING FE ES AND SERVICES BF Borgers, CPA, PC audited our financial statements for the fiscal year ended April 30, 2023. The Company engages Tanner, LLC & HLB Puerto Rico to complete its corporate tax returns. Tax fees paid to HLB Puerto Rico totaled $43,251 for Fiscal 2023. Fees paid to Tanner, LLC totaled $56,139 for Fiscal 2022. Fees paid to Tanner, LLC and HLB Puerto Rico are listed under Tax fees below. 94 Independent Registered Public Accounting Firm Fees and Services We regularly review the services and fees from our independent registered public accounting firm. These services and fees are also reviewed with our Audit Committee annually. In accordance with standard policy, BF Borgers, CPA, PC periodically rotates the individuals who are responsible for our audit. During the years ended April 30, 2023 and April 30, 2022, fees for services provided by BF Borgers, CPA, PC were as follows: Fiscal Year Ended April 30, 2023 April 30, 2022 Audit fees (1) $ 187,000 $ 163,500 Audit-related fees (2) — 43,200 Tax fees (3) 43,251 56,139 Other fees (4) — — Total fees $ 230,251 $ 262,839 (1) Consists of fees rendered in connection with the audit of our consolidated financial statements included in our annual report on Form 10-K, review of the interim consolidated financial statements included in our quarterly reports and services normally provided in connection with regulatory filings. (2) Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” (3) Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, as well as technical tax advice related to federal and state income tax matters, assistance with sales tax and assistance with tax audits. (4) Consists of fees for professional services other than those reported in the categories above, including access to resource materials and portals. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm, the scope of services provided by our independent registered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Our independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. All of the services relating to the fees described in the table above were approved by our Audit Committee. 95 PART IV ITEM 15 . EXHIBITS, FINANCIAL STATEMENTS SCHEDULES. Exhibit No. Description 1.1 Underwriting Agreement, dated July 18, 2021, between the Company and ThinkEquity, as Representative of the Several Underwriters (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 19, 2021) 1.2 Underwriting Agreement, dated April 29, 201 between the Company and ThinkEquity (incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-K dated with the SEC on April 30, 2021) 2.1 Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2016) 2.2 Articles of Merger- Nevada (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2016) 2.3 Articles of Merger- Arizona (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2016) 2.4 Agreement of Merger, dated January 23, 2019, among the Company, Rotor Riot Acquisition, LLC and the stockholder signatory thereon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 29, 2020) 2.5 Amendment No. 1 to the Agreement of Merger, dated December 31, 2019, among the Company, Rotor Riot Acquisition, LLC and the stockholder signatory thereon (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 29, 2020) 2.6 Amendment No. 2 to the Agreement of Merger, dated December 31, 2019, among the Company, Rotor Riot Acquisition, LLC and the stockholder signatory thereon (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on January 29, 2020) 3.1* Amended and Restated Articles of Incorporation, dated July 17, 2019 (incorporated by reference to Exhibit B to the Company’s Schedule 14C Information Statement filed with the SEC on July 2, 2019) 3.2* Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the SEC on February 8, 2017) 3.3 Certification of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 12, 2018) 3.4 Certification of Designation of Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 12, 2018) 3.5 Amendment No. 1 to Certification of Designation of Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 12, 2018) 3.6 Certificate of Withdrawal, dated May 13, 2019 of Certification of Designation of the Series A Preferred Stock, dated December 6, 2018, Series E Convertible Preferred Stock, dated January 3, 2018 and the Amendment to the Certification of Designation of the Series E Convertible Preferred Stock, dated January 3, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 3.7 Certification of Designation of Series A Preferred Stock, dated May 10, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 3.8 Certification of Designation of Series B Preferred Stock, dated May 10, 2019 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 4.2 Description of Capital Stock (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed with the SEC on August 13, 2020) 10.1 Form of Senior Convertible Note (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2019) 10.2 Share Exchange Agreement, dated as of May 13, 2019, among TimefireVR, Inc. (Timefire”), Red Cat Propware, Inc, and Red Cat Propware, Inc’s. shareholders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.3 Warrant, dated May 5, 2019, issued to Calvary Fund I LP (“Calvary”) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.4 Restricted Stock Unit Agreement, dated May 15, 2019, between Timefire and Jonathan Read (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 96 10.5 Securities Exchange Agreement, dated May 13, 2019, between Timefire and Calvary (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.6 Securities Exchange Agreement, dated May 13, 2019, between Timefire and L1 Capital Global Opportunity Master Fund Ltd. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.7 Securities Exchange Agreement, dated May 13, 2019, between Timefire and Digital Power Lending, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.8 Securities Exchange Agreement, dated May 13, 2019, between Timefire and Gary Smith (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.9 Securities Exchange Agreement, dated May 13, 2019, between Timefire and Edward Slade Mead (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.1 Redemption Letter for Series A Preferred Stock, dated May 9, 2019, from Timefire to Jonathan (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2019) 10.11 2019 Equity Incentive Plan (incorporated by reference to Exhibit C to the Company’s Schedule 14C Information Statement filed with the SEC on July 2, 2019) 10.12 $175,000 Promissory Note, dated January 23, 2020, issued to Brains Riding in Tanks. LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 29,2020) 10.13 Make Whole Agreement, dated January 23, 2020, among the Company, Brains Riding in Tanks. LLC, Rotor Riot, LLC and Chad Kapper (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on January 29,2020) 10.14 Share Purchase and Liquidity Event Agreements, dated February 11, 2021 among the Company, Giuseppe Santangelo, the holders of common stock and SAFE agreements representing 97.46% of Skypersonic (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2021) 10.15 Agreement and Plan of Merger, dated July 13, 2021, among the Company, Teal Drones, Inc and Teal Acquisition I Corp. and stockholders of Teal Drones, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 14, 2021 10.16 Executive Employment Agreement with Jeffrey Thompson, dated March 31, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2021) 10.17 Employment Agreement with Joseph Hernon, dated July 1, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2021) 10.18 Consulting Agreement Joseph Freedman, dated July 7, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2021). 10.19 Addendum to Executive Employment Agreement with Joseph Hernon 21.1* List of Subsidiaries 23.1 Consent of BF Borgers, CPA PC 31.1* Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial and accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document *Filed herewith 97 ITEM 16. FORM 10-K SUMMARY Not applicable. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. Red Cat Holdings, Inc. Dated: July 27, 2023 By: / s/ Jeffrey Thompson Jeffrey Thompson Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Jeffrey M. Thompson Chief Executive Officer, President and Director July 27, 2023 Jeffrey M. Thompson (Principal Executive Officer) /s/ Joseph Hernon Chief Financial Officer, Treasurer and Secretary July 27, 2023 Joseph Hernon (Principal Financial and Accounting Officer) /s/ Nicholas Liuzza, Jr. Director July 27, 2023 Nicolas Liuzza, Jr. /s/ Christopher Moe Director July 27, 2023 Christopher Moe /s/ Joseph Freedman Director July 27, 2023 Joseph Freedman 98