Red Cat Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Notes Payable

Notes Payable	12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]
Notes Payable	6. Notes Payable On March 6, 2017, the Company closed on a private placement offering with institutional investors and one of the Company’s former directors pursuant to which the Company issued and sold the investors senior convertible notes (the “March 2017 Notes”) in the aggregate principal amount of $750,000, with an original issue discount of 5%, for gross proceeds to the Company of $712,500 prior to payment of $20,000 in reimbursement of legal fees of the lead investor. The March 2017 Notes had an original maturity date of September 3, 2017 with an initial interest rate of 8%, and a default interest rate of 18% which became effective as of the maturity date. On the maturity date, the Company was obligated to repay an amount equal to 120% of outstanding principal and accrued interest. On the maturity date (and subsequently, if the holders had elected to extend the maturity date), the investors had the right to convert the Notes into the common stock of the Company at $0.30 per share, subject to adjustment (the “Conversion Price”). As additional consideration, the Company issued the investors a total of 2,500,000 five-year warrants to purchase the Company’s common stock, which are exercisable on or after the maturity date at $0.35 per share. The Company failed to pay the March 2017 Notes on the maturity date, which date the investors did not elect to extend. On August 18, 2017, the Company closed on an offering of convertible notes and warrants on terms substantially identical to the March 6, 2017 financing. The purchasers are the same investors as in the March 2017 Notes except for the former director who did not participate in this financing. The Company received $60,000 in net proceeds from the issuance of $63,158 of convertible notes (the “August 2017 Notes”). Additionally, the Company issued the investors a total of 210,526 five-year warrants exercisable at $.35 per share. The Company failed to pay the August 2017 Notes when due on September 3, 2017. The March 2017 Notes and August 2017 Notes and accompanying warrants were converted on January 3, 2018 into Series E Preferred stock. See Note 10. On October 27, 2017, the Company closed on an offering of convertible notes with two institutional investors in the principal amount of $70,000 (the “October 2017 Notes”). The October 2017 Notes matured on November 29, 2017 and bear interest at 8% per annum. On the maturity date, the Company was obligated to repay an amount equal to 120% of the outstanding principal and accrued interest. The investors may elect to convert the October 2017 Notes into common stock of the Company at $.03 per share. The Company failed to pay these October 2017 Notes when due. On December 21, 2017, the Company closed on an offering with three institutional investors pursuant to which the Company issued and sold convertible notes in the aggregate principal amount of $703,947 (the “December 2017 Notes”). The December 2017 Notes had an original issue discount of 5%, for proceeds to the Company in the amount of $668,750. The notes matured on January 20, 2018, bear interest at 8%, and require the repayment of 120% of principal and accrued interest at maturity. The investors may elect to convert the December 2017 Notes into common stock of the Company at $.03 per share. On March 6, 2018, the holders of the October 2017 Notes and December 2017 Notes agreed to extend the due date of these notes to April 15, 2019 as discussed below. On March 6, 2018, the Company closed on a private placement offering with institutional investors pursuant to which the Company issued and sold Senior Secured Convertible Notes (the “2018 Notes”) to the Investors in the aggregate principal amount of $1,052,632 with an original issue discount of 5% and received gross proceeds of $1,000,000. The 2018 Notes mature on April 15, 2019 and bear interest at 8% per annum. The 2018 Notes are secured by a first lien on all of the assets of the Company. On the maturity date, the Company must repay an amount equal to 120% of the outstanding principal and accrued interest. Beginning on the six-month anniversary of the issuance of the 2018 Notes, the investors may elect to convert the 2018 Notes into common stock of the Company at $0.03 per share, subject to adjustment. In addition, the 2018 Notes are redeemable by the Company up to 90 days following issuance at an amount equal to 110% of outstanding principal and accrued interest, and thereafter at an amount equal to 120% of outstanding principal and accrued interest, subject in either case to upward adjustment to the extent the closing price of the Company’s common stock on the OTCQB exceeds the Conversion Price. As additional consideration, the Company issued the investors a total of 35,087,720 five-year warrants to purchase the Company’s common stock, which are exercisable on or after the six-month anniversary of the issuance at $0.06 per share. In addition, the Investors agreed to extend the due date of the October 2017 Notes and December 2017 Notes. On August 7, 2018, the Company borrowed $76,000 from an institutional investor and issued a 5% original issue discount promissory note in the total principal amount of $80,000. This note matures on the sixth month anniversary of the effective date and bears interest at 12% per annum. The Note automatically becomes due and payable upon the Company closing a financing through which the Company receives proceeds of at least $125,000. This note was repaid upon receipt of the funds for the below listed August 21, 2018 note. On August 21, 2018, the Company borrowed $150,000 from an institutional investor and issued a convertible promissory note in the total principal amount of $156,250. The note matures on April 15, 2019 and bears interest at 8% per annum. On the maturity date, the Company must repay an amount equal to 120% of the outstanding principal and accrued interest. Beginning on the six-month anniversary of the issuance date, the Investor may elect to convert the note into common stock of the Company at $0.03 per share, subject to adjustment. In addition, the note is redeemable by the Company up to 90 days following issuance at an amount equal to 110% of outstanding principal and accrued interest, and thereafter at an amount equal to 120% of outstanding principal and accrued interest, subject in either case to upward adjustment to the extent the closing price of the Company’s common stock on the OTCQB exceeds the Conversion Price. As additional consideration, the Company issued the investor a total of 5,000,000 five-year warrants to purchase the Company’s common stock, which are exercisable on or after the six-month anniversary of the issuance date at $0.06 per share. On October 12, 2018, the Company entered into a promissory note with its Chief Executive Officer in the amount of $15,000. The note bears interest at a rate of 2.55%. This note was repaid subsequent to the date of these financials, in January 2019. On November 21, 2018, the Company borrowed $75,000 from an institutional investor and issued the investor a promissory note in the total principal amount of $75,000. The note matured on February 19, 2019, bears interest at 5% and is in default. The aggregate principal amount of the above described convertible notes that remain outstanding is $1,982,829, which is shown in the accompanying balance sheet as of December 31, 2018, net of $16,258 debt discount, as convertible notes payable-net. The principal amount of the remaining notes payable total $90,000. Accrued interest amounted to $494,956 as of that date and interest expense aggregated $500,182 for the year ended December 31, 2018.

Notes Payable

12 Months Ended

Dec. 31, 2018

6. Notes Payable

On March 6, 2017, the Company closed on a private placement offering with institutional investors and one of the Company’s former directors pursuant to which the Company issued and sold the investors senior convertible notes (the “March 2017 Notes”) in the aggregate principal amount of $750,000, with an original issue discount of 5%, for gross proceeds to the Company of $712,500 prior to payment of $20,000 in reimbursement of legal fees of the lead investor. The March 2017 Notes had an original maturity date of September 3, 2017 with an initial interest rate of 8%, and a default interest rate of 18% which became effective as of the maturity date. On the maturity date, the Company was obligated to repay an amount equal to 120% of outstanding principal and accrued interest. On the maturity date (and subsequently, if the holders had elected to extend the maturity date), the investors had the right to convert the Notes into the common stock of the Company at $0.30 per share, subject to adjustment (the “Conversion Price”). As additional consideration, the Company issued the investors a total of 2,500,000 five-year warrants to purchase the Company’s common stock, which are exercisable on or after the maturity date at $0.35 per share. The Company failed to pay the March 2017 Notes on the maturity date, which date the investors did not elect to extend.

On August 18, 2017, the Company closed on an offering of convertible notes and warrants on terms substantially identical to the March 6, 2017 financing. The purchasers are the same investors as in the March 2017 Notes except for the former director who did not participate in this financing. The Company received $60,000 in net proceeds from the issuance of $63,158 of convertible notes (the “August 2017 Notes”). Additionally, the Company issued the investors a total of 210,526 five-year warrants exercisable at $.35 per share. The Company failed to pay the August 2017 Notes when due on September 3, 2017.

The March 2017 Notes and August 2017 Notes and accompanying warrants were converted on January 3, 2018 into Series E Preferred stock. See Note 10.

On October 27, 2017, the Company closed on an offering of convertible notes with two institutional investors in the principal amount of $70,000 (the “October 2017 Notes”). The October 2017 Notes matured on November 29, 2017 and bear interest at 8% per annum. On the maturity date, the Company was obligated to repay an amount equal to 120% of the outstanding principal and accrued interest. The investors may elect to convert the October 2017 Notes into common stock of the Company at $.03 per share. The Company failed to pay these October 2017 Notes when due.

On December 21, 2017, the Company closed on an offering with three institutional investors pursuant to which the Company issued and sold convertible notes in the aggregate principal amount of $703,947 (the “December 2017 Notes”). The December 2017 Notes had an original issue discount of 5%, for proceeds to the Company in the amount of $668,750. The notes matured on January 20, 2018, bear interest at 8%, and require the repayment of 120% of principal and accrued interest at maturity. The investors may elect to convert the December 2017 Notes into common stock of the Company at $.03 per share.

On March 6, 2018, the holders of the October 2017 Notes and December 2017 Notes agreed to extend the due date of these notes to April 15, 2019 as discussed below.

On March 6, 2018, the Company closed on a private placement offering with institutional investors pursuant to which the Company issued and sold Senior Secured Convertible Notes (the “2018 Notes”) to the Investors in the aggregate principal amount of $1,052,632 with an original issue discount of 5% and received gross proceeds of $1,000,000. The 2018 Notes mature on April 15, 2019 and bear interest at 8% per annum. The 2018 Notes are secured by a first lien on all of the assets of the Company. On the maturity date, the Company must repay an amount equal to 120% of the outstanding principal and accrued interest. Beginning on the six-month anniversary of the issuance of the 2018 Notes, the investors may elect to convert the 2018 Notes into common stock of the Company at $0.03 per share, subject to adjustment. In addition, the 2018 Notes are redeemable by the Company up to 90 days following issuance at an amount equal to 110% of outstanding principal and accrued interest, and thereafter at an amount equal to 120% of outstanding principal and accrued interest, subject in either case to upward adjustment to the extent the closing price of the Company’s common stock on the OTCQB exceeds the Conversion Price. As additional consideration, the Company issued the investors a total of 35,087,720 five-year warrants to purchase the Company’s common stock, which are exercisable on or after the six-month anniversary of the issuance at $0.06 per share. In addition, the Investors agreed to extend the due date of the October 2017 Notes and December 2017 Notes.

On August 7, 2018, the Company borrowed $76,000 from an institutional investor and issued a 5% original issue discount promissory note in the total principal amount of $80,000. This note matures on the sixth month anniversary of the effective date and bears interest at 12% per annum. The Note automatically becomes due and payable upon the Company closing a financing through which the Company receives proceeds of at least $125,000. This note was repaid upon receipt of the funds for the below listed August 21, 2018 note.

On August 21, 2018, the Company borrowed $150,000 from an institutional investor and issued a convertible promissory note in the total principal amount of $156,250. The note matures on April 15, 2019 and bears interest at 8% per annum. On the maturity date, the Company must repay an amount equal to 120% of the outstanding principal and accrued interest. Beginning on the six-month anniversary of the issuance date, the Investor may elect to convert the note into common stock of the Company at $0.03 per share, subject to adjustment. In addition, the note is redeemable by the Company up to 90 days following issuance at an amount equal to 110% of outstanding principal and accrued interest, and thereafter at an amount equal to 120% of outstanding principal and accrued interest, subject in either case to upward adjustment to the extent the closing price of the Company’s common stock on the OTCQB exceeds the Conversion Price. As additional consideration, the Company issued the investor a total of 5,000,000 five-year warrants to purchase the Company’s common stock, which are exercisable on or after the six-month anniversary of the issuance date at $0.06 per share.

On October 12, 2018, the Company entered into a promissory note with its Chief Executive Officer in the amount of $15,000. The note bears interest at a rate of 2.55%. This note was repaid subsequent to the date of these financials, in January 2019.

On November 21, 2018, the Company borrowed $75,000 from an institutional investor and issued the investor a promissory note in the total principal amount of $75,000. The note matured on February 19, 2019, bears interest at 5% and is in default.

The aggregate principal amount of the above described convertible notes that remain outstanding is $1,982,829, which is shown in the accompanying balance sheet as of December 31, 2018, net of $16,258 debt discount, as convertible notes payable-net. The principal amount of the remaining notes payable total $90,000. Accrued interest amounted to $494,956 as of that date and interest expense aggregated $500,182 for the year ended December 31, 2018.