What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-07-27 compared with 2021-08-12 · 449 added, 278 removed, 33 unchanged (96% of the section changed)

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.

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 –

The Company was originally 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,

and re-incorporated in Nevada.

In May 2019, the Company completed a share exchange agreement with Red Cat Propware (“Propware”)

which resulted in the Propware shareholders acquiring an 83% ownership interest, and management control, of the Company.

In connection

with the share exchange agreement, we changed our name to Red Cat Holdings, Inc.

(“Red Cat” or the “Company” or

“we”) and changed our operating business from the bitcoin industry to the drone industry.

Recent Developments

Prior to the share exchange agreement, Propware was

focused on the research and development of software solutions that could provide secure cloud-based analytics, storage and services for

the drone industry.

Following the share exchange agreement and its name change, Red Cat Holdings has completed a series of acquisitions

and financings which have broadened the scope of its activities in the drone industry.

These developments include:

In January 2020, we acquired Rotor Riot, LLC, a reseller of drones and related

parts, primarily to the consumer marketplace through its digital storefront located at www.rotorriot.com .

The total purchase price was $2.0 million.

In November 2020, the Company acquired Fat Shark Holdings, which sells 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.

The total purchase price was $8.4 million.

In May 2021, the Company closed a firm commitment underwritten public offering

(the “Underwritten Offering”) resulting in the sale of 4,000,000 shares of common stock at a public offering price of $4.00

per share to underwriters, ThinkEquity, a division of Fordham Financial Management, Inc.

(“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 on April 29, 2021.

The financing generated gross proceeds of $16.0 million and net proceeds of $14.6 million.

In May 2021, we acquired Skypersonic, Inc., a provider of drone products

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

Skypersonic 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 denied or unavailable.

The total purchase price was $2.8 million.

In July 2021, the Company closed an Underwritten Offering resulting in the

sale of 13,333,334 shares of common stock at a public offering price of $4.50 per share to ThinkEquity.

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 Commission

which was declared effective on June 14, 2021 (the “Registration Statement”).

The financing generated gross proceeds of $60.0

million and net proceeds of approximately $55.5 million.

In August 2021, we closed the acquisition of Teal Drones ("Teal"),

a leader in commercial and government unmanned aerial vehicle ("UAV") technology.

Teal manufactures the Golden Eagle, one of

only five drones approved by the U.S.

Department of Defense for reconnaissance, public safety, and inspection applications.

purchase price was $10.0 million.

Business Strategy

Red Cat remains focused on building a portfolio

of complementary products and services to support the continued growth and maturation of the drone industry in both the enterprise and

consumer market segments.

Our disciplined acquisition strategy targets companies with advanced product offerings and unique drone platforms

and intellectual property.

After the integration of Teal Drones, we would expect government customers including defense, public safety,

and infrastructure to be our most significant revenue drivers in the fiscal year ending April 30, 2023.

During the second

half of the fiscal year ending on April 30, 2022, the Company focused on integrating and organizing its acquired businesses.

These efforts

including refining the establishment of Enterprise and Consumer segments in order to sharpen the Company's focus on the unique opportunities

in each sector of the drone industry.

The Enterprise segment is focused on opportunities in the commercial sector and the military.

is building the infrastructure to manage drone fleets, fly and provide services remotely, and navigate confined industrial interior spaces

and dangerous military environments.

The Consumer segment is focused on enthusiasts and hobbyists which are expected to increase as drones

become more visible and useful in our daily lives.

Consumer provides a growing revenue base, strong brand visibility for the Company,

and is an excellent source of professional pilots.

Enterprise Segment

The Enterprise Segment

will focus on developing a hardware enabled software platform of services and solutions to government and commercial enterprises and the

Drones enable businesses to complete many tasks and solve problems more efficiently, quicker, and at a lower cost and risk than

traditional methods.

The Company's Teal and Skypersonic subsidiaries will operate in this segment.

The core business theme for the Enterprise

segment is "Remotely Flying Drones Anywhere."

We have accumulated

an array of software solutions which are enabled by our hardware platform of intelligent drones and digital video link.

We believe our

ability to remotely fly drones anywhere provides our customers with a significant reduction in labor, travel, and training costs when

compared with any other enterprise system on the market.

The Enterprise Segment

plans to engage key products and services from the Consumer Segment to fulfill its mission.

In addition to the Fat Shark data link, a

roster of professional pilots will be sourced through the large social media presence and network of Rotor Riot.

Teal anchors the Enterprise

Segment and is expected to drive the segment’s revenues in fiscal 2023 and beyond.

Founded by Thiel Fellow, George Matus in 2015,

the company’s first products were its Sport and Teal One consumer drones, the first of their kind to be manufactured in the United

A Utah-based operation, Teal has since migrated to the enterprise and government sectors based on its Golden Eagle, a U.S.

of Defense government-approved drone designed for reconnaissance, public safety, and inspection applications.

After the U.S.

Army banned its forces from using

Chinese-made quadcopters due to security risks (the drones’ radio controls are unencrypted and the devices could potentially capture

and store sensitive information that could be passed to the Chinese government) the U.S.

Department of Defense began developing its own

alternatives under a defense program known as Blue sUAS.

Teal is redefining what unmanned systems can

achieve, providing superior aerial surveillance and awareness for inspections and short-range reconnaissance.

The Golden Eagle resembles

a consumer quadcopter but is made to military standards with secure, encrypted communications and advanced computing.

The Golden Eagle

also carries a high-quality thermal imaging system made by FLIR, a subsidiary of Teledyne Technologies.

Teal's open and modular platform

allows a critical mass of applications to be developed and integrated for next-generation capabilities.

Partners actively integrating

technologies with Teal include Autonodyne, Tomahawk Robotics, and DroneLink.

Teal has achieved

the following accomplishments since being acquired by Red Cat Holdings in August 2021.

Teal opens new manufacturing facility located in

Salt Lake City, Utah.

In October 2021, Teal

moved to a new 13,000+ square foot facility to consolidate its manufacturing and corporate activities.

In January 2022, Teal doubled the

size of its facility in order to fully scale production capacity to meet the forecasted growth in demand and to house its expanding team

of software and technology engineers.

Significant Purchase Order Received from Largest

Drone Distributor

In August 2021, Teal received a significant purchase

order for the Golden Eagle from Drone Nerds, the largest distributor of drones in the United States.

To date, approximately 50% of the units

have been delivered to Drone Nerds with the remaining 50% expected to be delivered by the end of calendar year 2022.

Awarded Customs and Border Protection Contract

Worth up to $90 Million over Five Years

In December 2021, Teal Drones was one of only five

contractors awarded a firm, fixed price, multiple award blanket purchase agreement (BPA) by the United States Customs and Border Protection.

The BPA has an estimated value of $90 million in total over a 5-year ordering period.

The Department of Homeland Security agencies can place

orders through the BPA for unmanned aircraft systems (UAS).

The drones will provide supplemental airborne reconnaissance, surveillance,

and tracking capability to enhance situational awareness for field commanders and agents in areas that lack nearby traditional surveillance

systems or available manned air support.

Given the security mandates within the Department

of Defense and Federal Government, as well as the recently passed infrastructure bill that has a 'Build America Buy America' mandate,

we are confident in our ability to offer domestically sourced drone solutions and services.

Selected by U.S.

Army for Short Range Reconnaissance

Tranche 2 Drone Program

In March 2022, Teal was selected by the Department

of Defense's (DoD) Defense Innovation Unit (DIU) and U.S.

Army to compete in the Short Range Reconnaissance Tranche 2 (SRR T2) Program

The rigorous technical requirements and program objectives of SRR T2 dramatically narrowed the field from over three dozen

drone manufacturers to just a handful that were selected by the Army to move forward with the program.

Teal was selected to develop a next-generation,

small unmanned aerial system (sUAS) designed for surveillance and reconnaissance (S&R) duties, with a focus on autonomous

capability, for the U.S.

The ultimate goal of the SRR T2 program is to provide a small, rucksack portable sUAS that provides

all Army infantry platoons (consisting of 20-50 soldiers) with situational awareness beyond the next terrain.

Following a successful demonstration in September

2021, Teal was notified by the U.S.

Army's Short Range Reconnaissance Product Office that it would advance to the prototype phase of the

SRR T2 program and was awarded a $1.5M prototype contract.

Teal will develop a next-generation drone that meets or exceeds the Army's

technical system requirements of SRR T2 and competes for the SRR T2 production contract.

The SRR Tranche 1 program began in 2020, and Teal

was similarly selected for that program with a prototype contract award as part of its selection.

The five drones (including Teal's Golden

Eagle) developed for SRR Tranche 1 became the five drones named to the Blue sUAS list in August 2020 and were subsequently approved by

the Department of Defense (DoD) and other U.S.

Federal Departments.

The Blue sUAS list was originally developed by the Defense Innovation

Unit (DIU), an organization within the DoD organization that is focused on integrating leading commercial technologies into the Government.

Purchase Order for Golden Eagle Drone Units from

NATO Member Country for Deployment in Ukraine

In April 2022, Teal secured an order for 15 Golden

Eagle drone units, plus spares and training, from a NATO (North Atlantic Treaty Organization) member country that has committed to deploy

them in the Ukraine.

The drones are expected to be used for reconnaissance and surveillance on the front lines, thereby lessening the

need to utilize troops to perform such dangerous activities.

The Company believes that Teal is one of the only

drone companies in the world able to provide these types of drones at scale, utilizing its own proprietary technology, manufacturing,

and resources, even despite the supply chain issues that have plagued the industry.

The Company has seen strong interest in the Teal drone

platform from numerous European countries which have increased their defense budgets, not only to support the Ukraine invasion but to

also prepare themselves for future geopolitical conflicts.

Many countries and military units are recognizing the strategic benefit of

having an adequate baseline inventory of drone units that can be invaluable in reconnaissance and surveillance on the front lines.

First Commercial

Enterprise to Bring Complete Multi-Drone System to Market

In May 2022, Teal completed the development and production

of a four-drone, multi-vehicle system for defense, government, and public safety markets.

Developed in close cooperation with strategic

partner Autonodyne, LLC, the multi-vehicle package will be offered in two configurations:

4-Ship and 4-Ship+.

Both configurations will

allow a single pilot to simultaneously control up to four of Teal’s Golden Eagle units.

The 4-Ship is a complete solution that provides operators

with actionable information from multiple vehicles at the same time -- including the display of four simultaneous video feeds -- resulting

in faster situational awareness and decision-making in today’s complex environments.

It also offers a tremendous savings in manpower,

the most expensive component of any drone operation, since four pilots are replaced by just one.

With 4-Ship, we have successfully integrated

the human/machine interface with an embedded autonomy engine that offers additional intelligence and surveillance capabilities from a

single pilot and controller.

The ease of use and multitude of applications makes the 4-Ship a next-generation drone system.

The 4-Ship+ will include two extra Golden Eagle units

and an additional linked controller to facilitate handoff of control from one pilot to another.

The 4-Ship+ configuration allows a back-up

pilot to immediately take over at any time.

The additional two drones also allow pilots to bring in units with fresh batteries, while

units with drained batteries drop off to be charged – all without breaking up the four-drone flight pattern.

This allows for continuous

360-degree surveillance of any target and overcomes the biggest weakness of any drone which is limited battery life.

We believe that 4-Ship represents truly disruptive

technology that will alter the approach to intelligence, surveillance and reconnaissance.

No longer are drone applications limited to

a one-pilot/one-drone situation, drastically altering the potential missions for drones due to the ability of a single pilot to be able

to control a team of drones.

The 4-Ship already provides significant flexibility in applications, from security to agriculture to law

enforcement, as well as the expected military applications, for which there is expressed interest.

Skypersonic enables

drones to "Fly Anywhere".

Its Skycopter is a miniature drone in a protective cage which can navigate restricted spaces, such

as oil and gas pipes, while recording critical inspection data yet not damaging its environment or the drone.

Its Skylogic software system

enables the drone to record the inspection data even though GPS communications are not available in such restricted environments.

is a stand-alone, real time, software system which enables the drone to record and transmit inspection data even while being operated

from thousands of miles away.

Fat Shark's Shark Byte digital video transmitters provide the downlink technology which is essential to

enabling the drone to transmit the data recorded by the Skylogic system to Dronebox.

Skylogic and Fat Shark’s

digital goggles integrate seamlessly to enable drones to be remotely flown from thousands of miles away.

In January 2021, Rotor Riot's

President, Drew Camden, controlled a drone flying in Michigan while he was physically located 1,200 miles away in Orlando, Florida.

accomplishments since the acquisition, including completion of the third trans-Atlantic flight completed remotely, are set forth below:

Awarded NASA Contract

In September 2021, Skypersonic was awarded a five-year

contract with NASA to provide drone and rover software, hardware and support for NASA’s Simulated Mars mission.

NASA is preparing

a series of analog missions that will simulate year-long stays on the surface of Mars, each of which will consist of four crew members

living in Mars Dune Alpha, an isolated 1,700 square foot habitat.

During the mission, the crew will conduct simulated spacewalks and related

operations by remote piloting Skypersonic drones and rover in a simulated Martian environment.

Skypersonic's real-time transoceanic remote

piloting platform will drive the piloting of both the drones and the rover.

Two-year Facility

Inspection Program completed with General Motors

In May 2022, Skypersonic

completed a two-year program with General Motors (“GM”) using the Skycopter™ to perform crane rail inspections in all

19 of its North American stamping (metalworking) facilities.

The Skycopter was

able to capture critical information that is relevant to the maintenance of GM’s facilities and their internal structures in a relatively

short amount of time.

Information was captured in two to three hours versus what would normally take eight to twelve hours and require

shutting the facility down completely, erecting scaffolds, and hoisting personnel in the air and onto the rails for manual inspection.

The Skycopter provided an inspection and data collection service that is faster than traditional methods while also providing a much safer

work environment for employees.

The full inspection

program took over two years to complete, including the initial planning and pilot training phases, while the inspection process across

all 19 facilities required 14 months.

The program consisted of the video recording of 50,000 cumulative feet of crane rails captured from

more than 200 flight hours by the Skycopter across all 19 facilities for subsequent analysis by structural engineers.

The Skycopter was

piloted by General Motors personnel at all times following their completion of an initial pilot training program with Skypersonic.

on learnings from this initial inspection program, General Motors believes it can materially reduce the next round of crane rail inspections

from 14 months for all 19 North American stamping facilities to six months.

General Motors is also evaluating the use of the Skycopter

in other inspection applications across additional plants and facilities.

Trans-Atlantic

Inspection of Italian Utility Plant Completed by Pilot Controlling Drone from the United States

In June 2022, Skypersonic

completed an inspection of a utility plant in Turin, Italy using a drone controlled by a pilot physically located in Orlando, Florida.

The drone was controlled relying solely on an internet connection from a normal cellphone.

The pilot was Drew Camden, president of our

subsidiary, Rotor Riot.

Camden had never visited the plant, nor had he seen any drawings or photos of the floorplan or the layout

which included many staircases, ducts, equipment, and other obstacles through which he guided the Skycopter from across the Atlantic.

Using the Company’s Skyloc operating system, Mr.

Camden was able to pilot the drone without using GPS (Global Positioning System)

which is traditionally used for outdoor flights, but which is often not available in closed, restricted environments.

The Company believes

that Skypersonic can enable companies to complete inspections, monitor operations and complete other business activities in a safer, quicker,

and more efficient manner than traditional methods.

Traditionally, such activities are completed in a manual manner which can require

employees or contractors to travel to the desired location.

In addition, a manual process can be inherently dangerous due to the restricted

environment, including extreme heights and constrained spaces required to complete the activity.

Consumer Segment

The Consumer Segment

will focus on selling drones and related parts to enthusiasts and hobbyists which will continue growing as drones become more visible

in our daily lives.

The Company's Fat Shark and Rotor Riot subsidiaries operate in this segment .

The Consumer segment focuses on drones piloted

with wearable display devices.

These are head mounted displays (“HMDs”) for drone pilots.

HMDs give pilots “first

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

This is 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 interconnected via

This effect requires sophisticated electronics that transmit 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

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.

In freestyle, the pilot navigates around obstacles focused on acrobatics and exploring

the environment around the aircraft through the HMD.

This type of flight can be used for utility and crop inspection, as well as package

These drones are often equipped with special equipment such as moisture or heat sensors.

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.

Aerial 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 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.

We purchase and resell drones

and components from leading manufacturers, including industry leader DJI, and custom design and build our own line of 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, and Twitter broadcast and sponsor global events

where professional pilots and amateurs compete for prizes and sponsorships.

Drone racing 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.

Pilots specially design their custom-built

aircraft, selecting and customizing frames, motors, propellors and controllers for speed and maneuverability from 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.

Fat Shark sponsored its first drone racing championship

Launch of Innovative

Dominator Drone FPV Goggle

In May 2022, Fat Shark

launched a new FPV (first-person viewer) drone headset – the Dominator.

The Dominator is a low latency, 1080p digital goggle with

an extended flight range over existing systems.

Revenues for the Consumer segment are principally

generated through distributors (for Fat Shark) and online (for Rotor Riot through its e-commerce site, www.rotorriot.com ).

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

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 Customer

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

Other competitors include Parrot

and 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.

Fat Shark competes with SZ DJI Technology Company,

LtD., commonly known as DJI as the dominant market leader in the consumer segment.

Fat Shark also competes with other FPV headset companies

that include Skyzone, Orca, and HD Zero.

The Fat Shark brand has been synonymous with FPV headsets since the emergence of the market in

Fat Shark continues to compete through partnerships with other FPV companies and a focus on manufacturing and product quality.

Rotor Riot purchases its inventory from over 60 suppliers.

35% of 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 from China.

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

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.

The Drone Industry

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 industry continues to

expand beyond its military origin to become a powerful business tool and recreational activity.

We expect both of these markets to continue

According to Business Insider Intelligence, commercial use of drones

will reach 2.4 million units 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

7 unchanged sentences

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.

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 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.

Drone Industry to Benefit from Passage of Infrastructure

In November 2021, Congress passed the infrastructure

bill which may provide multiple business opportunities for the drone industry.

Drones already play a vital role in many of the programs

covered by the bill, including railways, roads and bridges, storm preparation, electrical grid strengthening and sewage maintenance.

more than $280 billion earmarked for these programs alone, the Company believes there is a significant opportunity to expand its existing

relationship with the Department of Defense and NASA to include other agencies of the Federal Government.

These services include

enabling rapid inspections and surveillance to ensure efficiency and identifying potential issues developing on roadways or electrical

grids prior to their becoming disabled.

Drones also provide the ability to efficiently manage maintenance once improvements have been

Congress has also been debating an additional $50 million allocation for both 2022 and 2023 as part of the "Drone Infrastructure

Inspection Grant Act" which would provide funding specifically for drone use, thereby adding new opportunities for the Company in

the context of the larger bill.

In addition, the

Company strongly supports the "Build America, Buy America Act" component of the bill which emphasizes the need for infrastructure

improvements and maintenance to be completed by American companies for the benefit of U.S.

Specifically, the bill states:

States taxpayer dollars invested in public infrastructure should not be used to reward companies that have moved their operations, investment

dollars, and jobs to foreign countries or foreign factories, particularly those that do not share the commitment of the United States

to environmental, worker, and workplace safety protections."

Red Cat Holdings was

founded as an American company and each of its acquisitions has been completed within the U.S.

borders to help strengthen the U.S.

and provide U.S.-based jobs.

With Teal’s new drone manufacturing facility up and running in Utah, the Company is well positioned

to provide drones and services to support the needs of these infrastructure programs.

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 U.S.

The Federal Aviation Administration (“FAA”)

of the United States Department of Transportation is responsible 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 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 (“UAV”)

and remotely operated aircraft.

The FAA began issuing regulations governing drones

1 unchanged sentence

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.

As of July 2022,

the FAA reported the registration of 858,550 drones, of which 318,455 were commercial and 536,482 were recreational.

In addition, more

than 286,184 remote pilots were certified.

In January 2021, the FAA finalized rules requiring

that drones be identifiable remotely.

These rules are effective for drone manufacturers beginning in September 2022 and for drone pilots

in September 2023.

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.

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.

We plan to build this feature into Dronebox.

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.

Environmental Considerations

While the operation of many businesses have some

While the operations 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;

maintenance of renewal energy sources such as solar panels and wind turbines;

disaster relief monitoring and

2 unchanged sentences

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.

The company has consolidated

the intellectual property into a subsidiary UAVPatent Corp.

The subsidiary has 29 issued patents and 13 pending patents.

The IP portfolio

includes design and utility patents ranging from FPV headsets to the architecture for Skyperonic's Fly Anywhere platform.

patents are currently licensed and IP is generated in the general course of doing engineering design.

UAVPatent Corp also

has the trademarks on the Rotor Riot, Fat Shark, Teal, Skypersonic, and Red Cat brands and logos.

As of July 20, 2021, the Company had 70 full-time

4 unchanged sentences

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