Item 3.02 Unregistered Sales of Equity Securities

On November 2, 2020 Red Cat Holdings, Inc. (the “Company”) completed its previously announced acquisition of Fat Shark Holdings, Ltd., a Cayman Islands Exempted Company (“Fat Shark”) from Greg French, its founder. In accordance with the Agreement, the Company issued 5,227,223 shares of common stock of the Company and paid $250,000 in cash to the seller. Of the shares, 784,091 shares will be held in escrow for up to 18 months to satisfy any indemnification obligations of the seller and working capital adjustments.

In addition, Fat Shark issued a senior note in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) to the seller based upon an estimated positive working capital adjustment to the note in the amount of $500,000 and the seller cancelled approximately $950,000 in indebtedness owed by Fat Shark to seller. The note matures on November 1, 2023, subject to partial acceleration and repayment in certain circumstances including from the sale of certain securities by the Company for cash. The note is subject to a floating charge under Cayman law on all of the assets of Holdings and its subsidiaries.

The Company has agreed to register the shares under the Securities Act of 1933, as amended (the “Act”) under certain circumstances and are subject to various restrictions on disposition for a period of two (2) years following closing. Seller shall be permitted to sell an aggregate of up to the greater of twenty (20%) percent or One Million Dollars ($1,000,000) of the shares prior to the twelve (12) month anniversary of the closing in privately negotiated transactions (provided the purchaser enters into a joinder agreement and agrees to be subject to the same restrictions on such shares applicable to Seller). Following the first year after closing, Seller is permitted to dispose of no more than ten (10%) percent of the average daily volume during the prior ten (10) trading days, as reported. The Agreement also requires Seller to sell a pro-rata amount of Seller’s Common Stock (a Drag-Along Right”) and provides for Seller’s participation in sales (a “Tag-Along Right”) in certain sales.

The Company deems this to be a material acquisition and will, in compliance with Regulation S-X (17 CFR 210.8-05), file audited and pro forma financial statements within 71 calendar days of the date of this Current Report on Form 8-K.

The foregoing descriptions of the terms of the Agreement, the Fat Shark note and floating charge are qualified in their entirety by reference to the full text of the Agreement filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 5, 2020 and Exhibits 10.1 and 10.2 filed herewith.