Filing identity and reporting period
The supplied filing is TimefireVR, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019, filed May 15, 2019. This does not match the request metadata naming Red Cat Holdings, Inc.; verify the issuer before relying on this summary.
TimefireVR reported a cryptocurrency-mining business, not a drone business. It had previously sold its virtual-reality subsidiary, Timefire LLC, in January 2018.
Financial performance and position
| Metric | Q1 2019 / March 31, 2019 | Comparable period / December 31, 2018 |
|---|---|---|
| Revenue | $4,813 | $0 in Q1 2018 |
| Cost of revenue; gross result | $37,257; gross loss $32,444 | $0; no gross loss reported in Q1 2018 |
| Operating expenses | $131,530 | $636,505 in Q1 2018 |
| Loss from continuing operations | $288,468 | $1,122,326 in Q1 2018 |
| Net loss | $288,468 | $452,078 in Q1 2018, which included a $670,428 gain on the sale of Timefire LLC |
| Operating cash flow | $(44,367) | $(344,854) in Q1 2018 |
| Cash | $8,920 | $5,787 at December 31, 2018 |
| Total current assets / current liabilities | $70,514 / $2,841,491 | $170,711 / $2,690,481 at December 31, 2018 |
| Total liabilities | $2,923,865 | $2,769,569 at December 31, 2018 |
| Shareholders’ deficit | $(2,777,701) | $(2,507,182) at December 31, 2018 |
Operating expenses fell mainly because of lower officer compensation and professional fees. The 2019 quarter’s reported mining revenue was insufficient to cover cost of revenue. Interest expense was $121,097; accrued interest totaled $601,910. Convertible notes payable, net, were $1,980,640, with another $75,000 note payable. The company stated that its notes were in default.
Investing activities provided $62,500, from collection of a miscellaneous receivable; financing activities used $15,000 to repay a related-party note. Cash increased by $3,133 during the quarter. No income-tax expense was reported.
Changes, outlook, and material risks
- The company said it operated mining on a reduced basis after selling mining equipment to pay operating expenses. It reported mining Bitcoin at the time and said mining activity had not generated enough revenue to fund operations.
- Management stated there was substantial doubt about the company’s ability to continue as a going concern. It said the company lacked capital to remain operational for the next 12 months without completing an acquisition or obtaining further funding.
- After quarter-end, the company borrowed $200,000 in cash through notes with $250,000 aggregate principal, due in late July 2019. The filing says those notes were exchanged for Series B Convertible Preferred Stock and were no longer outstanding as of the report date; proceeds were used for expenses, not past-due indebtedness.
- Management expected to complete an acquisition immediately after filing, but gave no assurance it would close. Under the proposed transaction, target shareholders were expected to own approximately 83.3% of the company on a fully diluted basis; existing common shareholders were expected to own 0.87%. The filing said the transaction would be reversed if it did not close and that mining would cease absent additional financing.
- Management reported that disclosure controls and procedures were not effective as of March 31, 2019. It reported no significant subsequent changes in internal control over financial reporting.
- No specific material legal proceeding or significant off-balance-sheet arrangement was disclosed. The filing includes no operating or financial guidance.
Important facts for investors to verify
- Confirm the issuer: the filing identifies TimefireVR, Inc., not Red Cat Holdings, Inc.
- Confirm whether the proposed acquisition closed and review its final terms, capitalization, ownership, and any subsequent filings.
- Reconcile the filing’s statement that all notes were in default with Part II, Item 3, which states “None” under defaults upon senior securities.
- Review the status, terms, and conversion effects of the past-due debt, preferred-stock exchanges, warrants, and other potential dilution.
- Assess near-term liquidity and the basis for management’s going-concern plans, given $8,920 of quarter-end cash and current liabilities far exceeding current assets.