What changed in this filing

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Item 1. Business

2021-08-12 compared with 2020-08-13 · 299 added, 171 removed, 12 unchanged (98% of the section changed)

Red Cat Holdings, Inc.

“Company”) is a Nevada corporation which was originally incorporated in the State of Colorado.

In November 2016, we

changed our name to TimefireVR Inc.

and in July 2019, we changed our name to Red Cat Holdings.

Since inception, there have been

multiple corporate transactions which resulted in a change in the Company’s operating businesses.

The most recent change

occurred in May 2019 when the Company changed its operating business from the bitcoin industry to the drone industry.

In connection

with the acquisition of Rotor Riot in January 2020, the Company become the parent company of Propware and Rotor Riot.

The Company’s primary business

The Company was incorporated under the laws of the

State of Colorado in 1984 under the name Oravest International, Inc.

In November 2016, we changed our name to TimefireVR, Inc.

and re-incorporated

Effective May 15, 2019, we closed a Share Exchange

Agreement (the “Exchange Agreement”) with Red Cat Propware, Inc., a Nevada corporation (“Red Cat Propware”) and

its then current shareholders (the “Acquisition”) pursuant to which we acquired all of the issued and outstanding capital

stock of Red Cat Propware in exchange for our the issuance of our common stock and Series A Preferred Stock (“Series A Stock”)

to the Red Cat Propware shareholders which constituted approximately 83.33% of our issued an outstanding share capital on a fully-diluted

basis at that time.

In connection with the Share Exchange, we changed our name to Red Cat Holdings, Inc.

and changed our operating business

from the bitcoin industry to the drone industry.

On January 23, 2020, pursuant to the terms

of a merger agreement, we acquired Rotor Riot, LLC (“Rotor Riot”), in which our subsidiary merged with and into Rotor Riot,

resulting in Rotor Riot, LLC being the surviving entity in a merger and a wholly-owned subsidiary of the Company.

On November 2, 2020, the Company acquired Fat Shark

Holdings, Ltd., a Cayman Islands Exempted Company (“Fat Shark”) through a share purchase agreement with our wholly-owned

subsidiary FS Acquisition Corp.

Fat Shark was founded in 2007.

Its primary business is the sale of consumer electronics products to the

first-person view (FPV) sector of the drone industry.

Fat Shark’s flagship products are headsets with a built in display (or “goggles”)

that allow a pilot to see a real-time video feed from a camera mounted on an aerial platform.

Fat Shark is also developing Shark Byte,

a digital video downlink to allow for the low latency transmission from the camera on the drone.

This technology is designed to replace

the analog platforms currently used for FPV.

On May 4, 2021, the Company closed a firm commitment

underwritten public offering (the “Underwritten Offering”) in which it sold an aggregate of 4,000,000 shares of the Company’s

common stock, par value $0.001 per share, at a public offering price of $4.00 per share to underwriters, ThinkEquity, a division of Fordham

Financial Management, Inc., as representative of the underwriters (the “ThinkEquity”), pursuant to a registration statement

on Form S-1, as amended (File No.

333-253491), filed with the Securities and Exchange Commission (the “Commission”),

which was declared effective by the Commission on April 29, 2021.

The Company has also granted the underwriters a 45-day option

to purchase up to an additional 600,000 shares of Common Stock to cover over-allotments, if any.

The Offering closed

on May 4, 2021.

On May 7, 2021, the Company closed the

acquisition of Skypersonic, Inc., (“Skypersonic”) a Michigan corporation.

The acquisition of Skypersonic was made pursuant

to Share Purchase and Liquidity Event Agreements among the Company, Red Cat Skypersonic, Inc., a Nevada corporation and our wholly-owned

subsidiary, Giuseppe Santangelo the founder and majority shareholder of Skypersonic, and certain holders of common stock and SAFE agreements

representing 97.46% of Skypersonic (the “Sellers”) and Wayne State University Anderson Engineering Ventures Institute.

to the Agreements, we acquired all of the issued and outstanding share capital of Skypersonic in exchange for issuance of $3,000,000

of our common stock, at the Volume Weighted Average Price (VWAP) of our common stock on May 7, 2021 of $4.0154 per share.

we issued 857,124 shares common stock to the Sellers (the “Share Consideration”).

Skypersonic, Inc., is a provider of drone

products and software solutions that enable drone inspection flights that can be executed by pilots anywhere in the world.

powers drones to “Fly Anywhere”

and “Inspect the Impossible”.

Its patented software and hardware solutions allow

for inspection services in restricted spaces where GPS is not allowed or available.

Skycopter is a miniature drone fitted into a cage

to avoid damage to inspected areas and the drone.

Skyloc is a stand-alone, real time, software system which enables the drone to record

and transmit inspection data while being operated from thousands of miles away.

Skypersonic’s intellectual property portfolio includes

eight US and European patents.

On July 13, 2021, the Company entered

into an Agreement and Plan of Merger with Teal Drones, Inc., a Delaware corporation (“Teal”) and Teal Acquisition I Corp.,

a Delaware corporation and wholly-owned subsidiary of the Company (“Acquisition”), pursuant to which, and subject to the

satisfaction of certain closing conditions, Acquisition will acquire Teal by merger of Acquisition with and into Teal, with Teal as the

surviving corporation (the “Merger”

or the “Teal Transaction”).

It is contemplated that at the Effective Time

of the Merger.

all of the issued and outstanding share capital of Teal will be exchanged for an aggregate of Fourteen Million Dollars

($14,000,000) of the Company common stock, par value $0.001 per share, (the “Common Stock”) and Series C Convertible Preferred

Stock, par value $0.001 per share (the “Series C Preferred”, and together with the Common Stock, the “Share Consideration”).

a condition to closing the Company has agreed that Teal shall enter into an employment agreement with George Matus, founder and CEO of

The closing of the Teal Transaction is

subject to customary closing conditions which include shareholder approval by the Company’s and Teal’s shareholders, approval

by NASDAQ of the issuance of shares of Common Stock issuable pursuant to the Merger, approval of the terms of the assumed debt to be

incurred by the Company, the lender and Teal, completion of an audit and provision of financial and other information

required by Regulation S-X (17 CFR 210.8-05) and approval of the Company’s shareholders following filing with the SEC and mailing

of the Company’s Information Statement on Schedule 14C and the necessary waiting periods required thereunder.

It is anticipated

that management which holds in excess of forty-nine (49%) percent of the voting power of the Company will vote in favor of the Merger.

On July 18, 2021, The Company entered

into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity, a division of Fordham Financial Management,

Inc., as representative of the underwriters (the “ThinkEquity”), pursuant to which on July 21, 2021, the Company sold

to the underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 13,333,334 shares

of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a public offering price of $4.50

The Company has also granted the underwriters a 45-day option to purchase up to an additional 2,000,000 shares of Common

Stock to cover over-allotments, if any.

The shares of Common Stock were offered by the Company pursuant to a registration statement

on Form S-3, as amended (File No.

333-256216), filed with the Securities and Exchange Commission (the “Commission”),

which was declared effective by the Commission on June 14, 2021 (the “Registration Statement”), and a Supplement to the Prospectus

contained in the Registration Statement filed with the Commission on July 19, 2021.

The Company’s business

is to provide products, services and solutions to the drone industry.

It operates in two sectors of the drone industry.

designs and sells drones and related components, primarily focused on the First Person View (“FPV”) sector.

the operator with a visual experience, using goggles, that simulates being in the cockpit of the drone.

Rotor Riot is focused on

the consumer market and sells its products through its e-commerce platform operated at www.rotorriot.com.

Rotor Riot purchases

drones and components from manufacturers, and then resells such items and custom designs and builds its own line of branded products.

Rotor Riot generates approximately 50% of its revenues as a reseller, and 50% from the sale of its branded products.

The Company’s

principal marketing strategy is to maintain a visible social media presence to attract buyers to its e-commerce platform.

Riot accomplishes this through its Facebook page, where it sponsors a monthly internet episode, as well as its sponsorship of a

leading drone racing team.

The Company is also developing software

solutions to provide secure cloud-based analytics, storage and services for the drone industry.

Its initial product candidate is

Dronebox, a blockchain technology that records, stores and analyzes flight data and information from a drone, much like the “black

utilized by the airline industry.

Dronebox initially records data and then transmits data and information directly to

a third party server, commonly referred to as “the cloud”

or “cloud computing”, where it can be viewed

using the Company’s analytics platform.

Blockchain technology is utilized to ensure that the data has not changed since it

was initially recorded.

The Company plans to offer Dronebox as a Software-as-a-Service platform.

Potential customers include regulators

to track and review flight data, insurance companies for coverage and claims administration, and pilots to maintain compliance

with regulations.

In May 2020, the Company launched Dronebox for beta testing by a limited number of users in order to test the

platform and get user feedback on their real time experience and existing features as well as recommendations for new features.

Initial user feedback has been positive and we continue to enhance and prepare the product for commercial release.

We are currently

targeting the fourth quarter of 2020 for the commercial release of Dronebox although no assurances can be provided regarding the

actual release date.

Our strategy is to provide products, services

and solutions to the drone industry.

We hope to grow our business in the FPV retail consumer market and by develop new solutions

to the broader drone industry such as our Dronebox software product.

Key components of our strategy include:

Grow market share of

existing products.

The Rotor Riot brand name is highly recognized in the drone industry.

We believe that we are regarded as

a leader in the FPV sector of the market.

We hope to increase our market share by continuing to leverage and market the visibility

that we enjoy in social media outlets such as Facebook and YouTube, and through our strong relationship with leading FPV racing

Deliver innovative new

solutions into existing and new markets.

Innovation is a key driver of our growth.

We plan to continue internal research and

development to develop better, more capable products that we can offer for sale through our Rotor Riot e*commerce platform.

some cases, these products will be developed in response to customer inquiries and requests.

In addition, we hope to leverage our

relationships with pilots to introduce entirely new, innovative products, in addition to our FPV products.

The commercial launch

of Dronebox will represent our entry into an entirely new market in the drone industry.

Foster our entrepreneurial

culture to attract and retain highly skilled personnel.

We believe that our corporate culture encourages creativity and an

entrepreneurial spirit which is attractive to highly skilled professionals.

We provide our employees with a wide range of workplace

autonomy which fosters innovation and increases retention.

We design, develop, market, and sell drone software and products.

Our business emphasis focusses on drones piloted with wearable display devices.

These are head mounted displays (“HMDs”)

HMDs give pilots “first person view”

(“FPV”) perspective to control their drone in flight.

a unique experience where the pilot is interacting with an aircraft through visual immersion.

In this augmented virtual reality, the

pilot sees only what the drone sees, as if sitting in the pilot seat.

This experience is accomplished by live streaming footage from

a camera mounted on the nose of the drone directly into specially-designed goggles worn by the pilot.

The image is transmitted via radio

(traditionally analog but increasingly digital) to the pilot.

The drone remote control unit, the drone device, and the FPV goggles are

all inter-connected via radio.

This effect requires sophisticated electronics that transmits visual information with sufficient speed

and reliability to allow pilot control over the drone in real-time.

Pilots routinely achieve speeds of over 90 mph in racing and other

mission critical applications.

An FPV pilot must experience a near complete transfer of their visual consciousness into the body of their

piloted device.

There are three common categories

of FPV flight –

freestyle flight, racing and aerial photography.

In freestyle the pilot navigates around obstacles, focused on

acrobatics and exploring the environment around the aircraft through the HMD.

This type of flight includes remote utility and crop inspection

with onboard navigation and special equipment, such as moisture or heat sensors, and package delivery.

FPV racing describes a growing

spectator sport where pilots fly their drones in competitions through a series of obstacles, flags, and gates in a racetrack.

photography is the process of viewing and recording a subject matter from the air from the viewpoint of the pilot.

We sell FPV flight systems are

sold through our Rotor Riot and Fat Shark subsidiaries.

We sell flight design cameras, video transmitters, goggles, as well as the mounts,

airframes and accessories to build or operate drone aircraft.

We design, develop, assemble and sell each of these FPV components individually

and in packages.

We believe our products have become favorites in FPV racing and we sponsor several racing teams and pilots.

and resell drones and components from leading manufacturers, including industry leader DJI and custom design and build our own line of

branded products.

Prior to our acquisition of Fat Shark, approximately 50% of our revenue had been generated as a reseller and the balance

from the sale of our branded products.

We market through social media

and attract buyers to our ecommerce platforms.

We maintain a robust presence on Facebook and YouTube where we sponsor competitions and

provide education.

Sports networks, and sponsors such as NBC, Sky, Liberty Media, Fox Sports, MGM, Hearst, Twitter, ProSieben, Groupe

AB and Weibo broadcast and sponsor global events where professional pilots and amateurs compete for prizes and sponsorships.

is a global sport with chapters, leagues, and pilots and established guidelines, rules and regulations for participation adopted by organizations

such as MultiGP, Drone Racing League (“DRL”), IUDRO, DR1 Racing, Rotomatch League, FPVR, and Freespace Drone Racing.

specially design their custom built aircraft, selecting and customizing frames, motors, propellors and controllers for speed and maneuverability

from Rotor Riot.

Rotor Riot sponsors a team of six of the leading pilots on the competitive FPV racing circuit, including the 2019 and

2018 Drone Racing League champion.

Drone pilots and spectators alike experience real-time flight through their own HMD.

In 2015 Fat Shark

sponsored the first annual US National Drone Racing Championships held at the California State Fair with a prize of $25,000.

events featured prizes of up to $1 million.

On November 2, 2020 we acquired

The Company believes Fat Shark and its subsidiaries are leaders in the design, development, marketing and sale of HMDs for

The operations of Fat Shark are

expected to constitute a significant majority of our revenue and results of operations and will position us to become a fully-integrated

drone business with a strong supply chain while we continue to develop and promote industry standards through our blockchain-based distributed

network that provides secure data storage, operational analytics, reporting, and SaaS solutions for the drone industry.

We are also developing

the means to accurately track, report and review flight data, which we believe will be the mainstay of future regulatory specifications

and insurability.

We maintain a commitment to deliver unparalleled innovation to make drones, pilots, and products accountable and the

sky a safer place.

In addition, we are developing

a blockchain-based black box to enhance reliability and reporting of drone performance and operations as software as a service (“SaaS”).

Red Cat’s Dronebox software and platform enable an easy-to-use flight log system that keeps clients compliant with regulators and

helps track and collect critical drone data and feed the data to various applications.

The software and platform use a patent-pending

blockchain-based cloud architecture.

To keep the data secure, we hash each log file on our private block chain, proving that the data

is immutable and reliable.

Reliable data is mandatory for regulators and insurance companies and is essential for analyzing drone flights

and effective drone fleet management.

Through our blockchain-based black box for drones, we can offer one easy to use system for analytics

and services.

By applying machine learning to the log files, we can prevent drone flight problems before they happen through artificial

intelligence.

We charge a monthly recurring fee for each drone in the customer’s drone fleet.

We store all flight logs, photos,

and videos from the black box service, which allows detailed flight replay.

Business Strategy

Prior to 2020, we were focused on research and development

of software solutions that could provide secure cloud-based analytics, storage and services for the drone industry.

In May 2020, we launched

“Dronebox”

for beta testing.

Our current strategy involves expanding into product design, development and sales while continuing

research and development into SaaS software opportunities.

We principally focus on commercial and consumer (non-military) markets for

drone products and services, although we are continually exploring opportunities to expand into governmental and military applications.

The Drone Industry

Similar to the internet and GPS (global positioning

system) technologies, drones are moving beyond their military origin to become both a powerful business tool and a recreational

activity for consumers.

Both of these markets are projected to grow dramatically according to a wide range of investment banks

and research firms.

Insider Intelligence estimates that commercial use of drones will reach 2.4 million

in 2023, representing a 66% compounded annual growth rate and that drones will be most

employed by the agriculture, construction and mining, insurance, media and telecommunications

FAA, in a 2019 forecast report, predicted a 300% increase in commercial drones from 2019

Insider Intelligence estimates that the drone services market will grow from $4.4 billion

in 2018 to more than $60 billion by 2025;

MarketsandMarkets

estimated the small drones market size at $13.4 billion in 2018 and projected it to increase

to $40 billion by 2025;

Insider Intelligence estimates that consumer drone shipments will reach 29 million by

International

Data Corporation estimates that spending on drones will reach more than $16 billion in

2020 and experience a compounded annual growth rate of 33% through 2025.

Rotor Riot sells to the consumer marketplace

through its e*commerce site located at www.

Rotorriot.com.

Its target customer is the drone hobbyist with a passion for flying.

Rotor Riot has a core strength in the FPV sector of the market.

FPV refers to drones which are piloted via a video feed from the

drone which provides a view that simulates being in the pilot seat of the drone.

LOS, or line-of-sight, refers to a more conventional

experience of standing on the ground and controlling the flight of the drone based on what the user can visually see.

We plan to market Dronebox in each sector of

the drone industry, including military, commercial, civil, and consumer.

Drones are rapidly moving beyond

their military origin to become a powerful business tool and recreational activity.

We expect both of these markets to continue to grow.

According to Business Insider Intelligence, industry reports project that

commercial use of drones will reach 2.4 million by 2023, a 66% compounded annual growth rate.

Drones will be employed by the agriculture,

construction and mining, insurance, and media and telecommunications industries.

The drone services market is expected to grow to over

$60 billion by 2025, from $4.4 billion in 2018.

Consumer drone shipments will reach 29 million by 2021.

Spending on drones is projected to reach more than $16 billion in 2020 and

experience a compounded annual growth rate of 33% through 2025 as reported by International Data Corporation.

The small drone market size is projected to increase to $40 billion by 2025

from $13.4 billion in 2018 according to Markets and Markets,

The FAA has forecasted a 300% increase in commercial drones from 2019 to

2023 as per businessinsider.com.

Our revenue is principally derived from online sales.

We currently market our products and services to recreational and professional drone pilots and hobbyists.

During 2019, sales to GetFPV,

RCCarMax, and BangGood each represented more than 10% of Fat Shark’s revenue.

Our SaaS software under development is expected to

be marketed to a significantly larger marketplace, namely fleet operators, insurance, and government, including military, commercial

and civil aviation.

The FAA continues to issue new rules and regulations which are designed to build a traffic management ecosystem for

drones which is separate from, but complementary to, existing air traffic control.

For example, in December 2019, the FAA proposed a

rule which would require drones to be capable of remote identification, similar to civilian and military aviation.

We plan to market

Dronebox in each sector of the drone industry, including military, commercial, civil, and consumer.

Rotor Riot competes with a number of significantly

larger, better capitalized companies.

SZ DJI Technology Company, Ltd., commonly known as DJI, is the dominant market leader in

the civilian drone industry with a global market share estimated at more than 70%, according to many industry research firms.

competitors include Parrotand Lumenier.

SZ DJI Technology Company, Ltd., commonly known as DJI, is the dominant market leader in the civilian

drone industry with a global market share estimated at more than 70%, according to many industry research firms.

Other competitors include

Parrotand Lumenier.

Race Day Quads is a larger, direct competitor in the FPV sector.

We compete against these

financially stronger companies by leveraging our visibility on the internet through our Facebook page which has more than 33,000

members and our Rotor Riot channel which has more than 192,000 subscribers.

The Rotor Riot brand has been at the center of the

racing and freestyle culture of drones since registering its domain name in 2015.

Rotor Riot sponsors a team of six of the leading

FPV pilots on the competitive racing circuit, including the Drone Racing League champion pilot in 2019 and 2018.

Dronebox will compete against a

smaller number of companies, most of which are also smaller in size.

These competitors include Airdata, Kittyhawk, DroneLogbook

and Skyward, which was acquired by Verizon in 2017.

While these companies provide certain drone tracking capabilities, we believe

that Dronebox will elevate the quality and quantity of features offered through the platform.

For example, we plan to enhance the

user interface experience and introduce new functionality including a ticketing system which will enable users to track the resolution

of mechanical and other flight issues that need to be resolved.

Rotor Riot presently purchases approximately

56% of its inventory from approximately three suppliers of Dà-Jiāng Innovations.

sourced drones and parts.

is in the process of balancing purchasing activity from these three suppliers.

Approximately 20% of inventory is purchased equally

from two specialty vendors of frames and electronics.

The remaining 24% is purchased from a much wider range of suppliers and vendors.

Government Regulation

We compete against these financially stronger companies

by leveraging our visibility on the internet through our Facebook page which has more than 33,000 members and our Rotor Riot channel

which has more than 192,000 subscribers.

The Rotor Riot brand has been at the center of the racing and freestyle culture of drones since

registering its domain name in 2015.

Rotor Riot sponsors a team of six of the leading FPV pilots on the competitive racing circuit, including

the Drone Racing League champion pilot in 2019 and 2018.

Dronebox will compete against a smaller

number of companies, most of which are also smaller in size.

These competitors include Airdata, Kittyhawk, DroneLogbook and Skyward,

which was acquired by Verizon in 2017.

While these companies provide certain drone tracking capabilities, we believe that Dronebox will

elevate the quality and quantity of features offered through the platform.

For example, we plan to enhance the user interface experience

and introduce new functionality including a ticketing system which will enable users to track the resolution of mechanical and other

flight issues that need to be resolved.

Rotor Riot purchases its inventory from over 60 suppliers.

this inventory is purchased from three vendors.

The two most critical components are electronics and frames.

41% of Rotor Riot's electronics

and frames are purchased from two vendors.

The United States has continuously increased tariffs on the inventory that Rotor Riot purchases

Since 2019, tariffs ranging from 2% to 25% have been imposed on 88% of Rotor Riot’s inventory.

68% of Rotor Riot's inventory

is purchased directly from Chinese based vendors, all of these items are subject to tariffs.

An additional 20% is purchased from vendors

that are affected by the tariffs resulting in increase in costs to Rotor Riot.

28% of Rotor Riot’s inventory consists of DJI products

which are subject to the highest 25% tariff rate.

These tariffs increase the cost of goods which reduces the company’s profit margins.

Rotor Riot has been unable to find comparable non-Chinese products and vendors.

Government Regulation and Federal Policy of Drones

The Federal Aviation Administration (“FAA”)

of the United States Department of Transportation responsible is for the regulation and oversight of civil aviation within the

Its primary mission is to ensure the safety of civil aviation.

The FAA has adopted the name unmanned aircraft (“UA”)

to describe aircraft systems without a flight crew on board.

More common names include drone, Unmanned Aerial Vehicle and remotely

operated aircraft.

The FAA began issuing regulations governing

drones in 2005 with their scope and frequency expanding in recent years with the significant increase in the number of drones sold.

In December 2015, the FAA announced that all drones weighing more than 250 grams, or 0.55 pounds, must be registered with the FAA.

As of March 2020, the FAA reported the registration of 1,563,263 drones, of which 441,709 were commercial and 1,117,900 were recreational,

and the certification of 171,744 remote pilots.

In December 2019, the FAA announced a proposed

rule that would continue the safe integration of drones into the nation’s airspace by requiring them to be identifiable remotely.

The FAA believes that remote ID technologies will enhance safety and security by allowing the FAA, law enforcement, and federal

security agencies to identify drones flying in their jurisdiction.

These efforts lay the foundation for more complex operations,

such as those beyond visual line of sight at low altitudes, as the FAA and the drone industry move toward a traffic management

ecosystem for Unmanned Aircraft System flights separate from, but complimentary to, the air traffic management system.

The Company believes that the oversight of

the FAA is beneficial to the drone industry generally, and the Company specifically.

Approximately 10 % of the drones sold by Rotor

Riot are below the weight threshold required to register.

The remaining 90% have more functionality, are more likely to be used

for commercial purposes, and therefore, should be registered.

The Company believes that the regulations issued by the FAA, such

as the remote identification standard, will provide opportunities as such functionality could be offered through our Dronebox platform.

of the United States Department of Transportation responsible is for the regulation and oversight of civil aviation within the U.S.

primary mission is to ensure the safety of civil aviation.

The FAA has adopted the name unmanned aircraft (“UA”) to describe

aircraft systems without a flight crew on board.

More common names include drone, Unmanned Aerial Vehicle and remotely operated aircraft.

The FAA began issuing regulations governing drones

in 2005 with their scope and frequency expanding in recent years with the significant increase in the number of drones sold.

2015, the FAA announced that all drones weighing more than 250 grams, or 0.55 pounds, must be registered with the FAA.

As of March 2020,

the FAA reported the registration of 1,563,263 drones, of which 441,709 were commercial and 1,117,900 were recreational, and the certification

of 171,744 remote pilots.

In December 2019, the FAA announced a proposed rule

that would continue the safe integration of drones into the nation’s airspace by requiring them to be identifiable remotely.

FAA believes that remote ID technologies will enhance safety and security by allowing the FAA, law enforcement, and federal security

agencies to identify drones flying in their jurisdiction.

These efforts lay the foundation for more complex operations, such as those

beyond visual line of sight at low altitudes, as the FAA and the drone industry move toward a traffic management ecosystem for Unmanned

Aircraft System flights separate from, but complimentary to, the air traffic management system.

The Company believes that the oversight of the FAA

is beneficial to the drone industry generally, and the Company specifically.

Approximately 10 % of the drones sold by Rotor Riot are

below the weight threshold required to register.

The remaining 90% have more functionality, are more likely to be used for commercial

purposes, and therefore, should be registered.

The Company believes that the regulations issued by the FAA, such as the remote identification

standard, will provide opportunities as such functionality could be offered through our Dronebox platform.

The FAA continues to issue new rules and regulations

which are designed to build a traffic management ecosystem for drones.

For example, in December 2019, the FAA proposed a rule which

would require drones to be identified remotely.

For example, in December 2019, the FAA proposed a rule which would

require drones to be identified remotely.

We plan to build this feature into Dronebox.

Environmental Considerations

While the operation of many businesses have

some form of negative impact on the environment, drones have a unique ability to provide a positive contribution.

Many of these

relate to a drone’s ability to reach places in a more efficient manner, and include such activities as:

While the operation of many businesses have some

form of negative impact on the environment, drones have a unique ability to provide a positive contribution.

Many of these relate to

a drone’s ability to reach places in a more efficient manner, and include such activities as:

aerial mapping and nature monitoring;

maintenance of renewal energy sources

such as solar panels and wind turbines;

disaster relief monitoring and relief

maintenance of renewal energy

sources such as solar panels and wind turbines;

disaster relief monitoring and

relief delivery;

agricultural sustainability solutions

Company holds trademarks on the Rotor Riot brand name and logo.

The Company holds a provisional patent application for the

tracking of unmanned aerial systems which expires in November 2020.

As of August 5,

2020, the Company had ten full-time employees and one part-time employee.

During the years

ended April 30, 2020 and 2019, we incurred research and development costs of $488,990 and $366,590, respectively.

Intellectual Property

The Company holds trademarks on the Rotor Riot brand

name and logo.

The Company holds a provisional patent application for the tracking of unmanned aerial systems which expires in

November 2020.

As of July 28, 2021, the Company had 14 full-time

Research and Development

During the years ended April 30, 2021 and 2020, we

incurred research and development costs of $516,084 and $488,990, respectively, excluding $1,269,987 and $55,936 of stock-based compensation,

respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business