Unusual Machines, Inc. 10-K

Item 8. Financial Statements and Supplementary Data UNUSUAL MACHINES, INC. INDEX TO FINANCIAL STATEMENTS Page Unaudited ProForma Condensed Combined Financial Statements Explanatory Note F-1 Balance Sheet at December 31, 2023 F-2 Statement of Operations for the year ended December 31, 2023 F-4 Notes to Unaudited ProForma Condensed Combined Financial Statements F-6 Unusual Machines, Inc. Financial Statements Report of Independent Registered Public Accounting Firm F-10 Balance Sheets at December 31, 2023 and 2022 F-11 Statement of Operations for the years ended December 31, 2023 and 2022 F-12 Statement of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022 F-13 Statement of Cash Flows for the years ended December 31, 2023 and 2022 F-14 Notes to Financial Statements F-15 Fat Shark Holdings, Ltd. Unaudited Interim Financial Statements Balance Sheets at January 31, 2023 and April 30, 2023 F-20 Statement of Operations for the three and nine months ended January 31, 2024 and 2023 F-21 Statement of Changes in Stockholders’ Equity for the nine months ended January 31, 2024 and 2023 F-22 Statement of Cash Flows for the nine months ended January 31, 2024 and 2023 F-23 Notes to Financial Statements F-24 Fat Shark Holdings, Ltd. Audited Financial Statements Report of Independent Registered Public Accounting Firm F-31 Balance Sheets at April 30, 2023 and 2022 F-32 Statements of Operations for the years ended April 30, 2023 and 2022 F-33 Statement of Stockholders’ Equity for the years ended April 30, 2023 and 2022 F-34 Statement of Cash Flows for the years ended April 30, 2023 and 2022 F-35 Notes to Financial Statements F-36 Rotor Riot, LLC Unaudited Interim Financial Statements Balance Sheets at January 31, 2024 and April 30, 2023 F-43 Statement of Operations for the three and nine months ended January 31, 2024 and 2023 F-44 Statement of Changes in Stockholders’ Equity for the nine months ended January 31, 2024 and 2023 F-45 Statement of Cash Flows for the nine months ended January 31, 2024 and 2023 F-46 Notes to Financial Statements F-47 Rotor Riot, LLC Audited Financial Statements Report of Independent Registered Public Accounting Firm F-53 Balance Sheets at April 30, 2023 and 2022 F-54 Statements of Operations for the years ended April 30, 2023 and 2022 F-55 Statement of Members’ Equity for the years ended April 30, 2023 and 2022 F-56 Statement of Cash Flows for the years ended April 30, 2023 and 2022 F-57 Notes to Financial Statements F-58 50 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The pro forma adjustments related to the Share Purchase Agreement and Initial Public Offering are described in the notes to the unaudited pro forma combined financial information and principally include the following: · Pro forma adjustment to eliminate intercompany transactions between Fat Shark and Rotor Riot · Pro forma adjustment to eliminate the Fat Shark and Rotor Riot goodwill, liabilities and owners’ equity not acquired as a part of the Share Purchase Agreement · Pro forma adjustment to record the business combination of Fat Shark and Rotor Riot which closed on February 16, 2024 · Pro forma adjustment to record proceeds and costs related to our Initial Public Offering closed on February 16, 2024 The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed consolidated financial statements may be materially different from those reflected in the combined company’s consolidated financial statements subsequent to the Share Purchase. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or results of operations of the combined companies. Reclassifications and adjustments may be required if changes to Fat Shark’s and Rotor Riot’s financial presentation are needed to conform Fat Shark’s and Rotor Riot’s accounting policies to the accounting policies of Unusual Machines, Inc. These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the Share Purchase Agreement or Initial Public Offering. These financial statements also do not include any integration costs the companies may incur related to the transactions as part of combining the operations of the companies. F- 1 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET Unusual Historical Fat Shark Historical Rotor Riot Historical Pro Forma Combining Adjustments Pro Forma Combined December 31, 2023 December 31, 2023 December 31, 2023 December 31, 2023 December 31, 2023 Assets Current Assets Cash $ 894,773 $ 90,277 $ 130,354 $ 2,725,000 A $ 3,840,404 Accounts receivable, net – 395,941 – (391,020 ) B 4,921 Inventories, net – 1,384,430 1,039,960 (133,343 ) C 2,291,047 Deferred offering costs 512,758 – – (512,758 ) D – Other current assets 120,631 1,355,000 231,448 – 1,707,079 Total Current Assets 1,528,162 3,225,648 1,401,762 1,687,879 7,843,451 Right-of-use asset – – 381,801 – 381,801 Other non-current asset 1,254 – 59,425 – 60,679 Goodwill – 6,168,260 – 8,624,820 E 14,793,080 Intangible assets, net – 1,232,888 20,000 – 1,252,888 Total Assets $ 1,529,416 $ 10,626,796 $ 1,862,988 $ 10,312,699 $ 24,331,899 Liabilities and Stockholders’ Equity (Deficit) Accounts payable and accrued expenses $ 114,497 $ 137,827 $ 384,372 $ (391,020 ) F $ 245,676 Customer deposits – 27,505 48,428 – 75,933 Debt obligations – – 120,413 (120,413 ) G – Due to related party – 6,051,295 4,272,352 (10,323,647 ) G – Operating lease liability – current – – 45,891 – 45,891 Total Current Liabilities 114,497 6,216,627 4,871,456 (10,323,647 ) 367,500 Convertible note – – – 2,000,000 H 2,000,000 Operating lease liability - non-current – – 337,238 – 337,238 Total Liabilities 114,497 6,216,627 5,208,694 (8,835,080 ) 2,704,738 Stockholders’ Equity (Deficit) Preferred stock 2 – – – 2 Common stock 32,173 1 – 54,999 I 87,173 Additional paid-in capital 4,715,790 6,351,076 – 14,281,166 J 25,348,032 Accumulated deficit (3,333,046 ) (1,940,908 ) (3,345,706 ) 4,811,614 K (3,808,046 ) Total Stockholders’ Equity (Deficit) 1,414,919 4,410,169 (3,345,706 ) 19,147,779 21,627,161 Total Liabilities and Stockholders’ Equity $ 1,529,416 $ 10,626,796 $ 1,862,988 $ 10,312,699 $ 24,331,899 F- 2 Notes: A Gross cash proceeds of $5,000,000 from our Offering, completed in February 2024, less estimated underwriter fees of $375,000, $50,000 in underwriter non-accountable expense allowance, $125,000 in additional underwriting expenses, $600,000 in other acquisition and offering related costs, $125,000 in a bonus payment to the CFO in accordance with his employment agreement and $1.0 million cash payment related to the purchase of Fat Shark and Rotor Riot. B Eliminated intercompany accounts receivable between Fat Shark and Rotor Riot C Inventory cost adjustment related to intercompany sales between Fat Shark and Rotor Riot D Eliminate current deferred offering costs against additional paid in capital related to the closing of the Offering. E Goodwill recognized according to Accounting Standards Codification (“ASC”) 805, Business Combinations. Adjustment eliminates non-acquired Fat Shark goodwill of $6,168,260 and recognizes goodwill on the share purchase agreement of $14,793,080. Goodwill is based on management’s estimate and will be finalized upon closing of the share purchase agreement based on final assets acquired and liabilities assumed. Reference Note 3 — Purchase Price Allocation and Goodwill for management’s estimation of goodwill. F Eliminated intercompany accounts payable between Fat Shark and Rotor Riot. G Per the terms of the share purchase agreement, Red Cat eliminated any and all indebtedness, relating to Fat Shark and Rotor Riot H Per the terms of the amended share purchase agreement, Unusual Machines issued a $2.0 million Note to Red Cat in February 2024 in conjunction with closing the Business Combination and Offering. The principal and any accrued and unpaid interest is due in full at 18 months from the date of issuance. In the event of default and in lieu of Unusual Machines repaying the Note, Red Cat may convert the Note into shares of common stock at the option of Red Cat. The Note is subject to other terms and conditions as agreed upon by both parties. I Per the terms of the share purchase agreement, Unusual Machines issued $17.0 million in Unusual Machines common stock in February 2024 at a price of $4.00 per share, or 4,250,000 common shares which are subject to certain lock up requirements. In addition and as a part of the Offering, Unusual Machines issued common stock for gross proceeds of $5.0 million in February 2024 at $4.00 per share price, or 1,250,000 common shares. J Unusual Common Stock issued above par value as a part of the share purchase agreement and Common Stock issued above par value as a part of our Offering, offset by elimination of Fat Shark and Rotor Riot equity acquired and expenses related to the Offering. K Fat Shark and Rotor Riot accumulated deficit and adjustments related to the Unaudited Pro Forma Condensed Combined Statement of Operations. F- 3 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the nine months ended Unusual Historical Fat Shark Historical Rotor Riot Historical Pro Forma Adjustments Pro Forma Combined December 31, 2023 December 31, 2023 December 31, 2023 December 31, 2023 Revenue $ – $ 937,896 $ 4,237,767 $ (493,540 ) L $ 4,682,123 Cost of revenues – 1,430,285 3,165,020 (462,921 ) M 4,132,384 Gross profit – (492,389 ) 1,072,747 (30,619 ) 549,739 Gross margin n/a (52.5% ) 25.3% n/a 11.7% Operating expenses: Operations – 182,327 680,133 – 862,460 Research and development – 121,740 98,741 – 220,481 Selling and marketing – 5,401 1,247,645 – 1,253,046 General and administrative 1,794,455 41,777 173,554 475,000 N 2,484,786 Stock based compensation – 17,450 127,377 – 144,827 Total operating expenses 1,794,455 368,695 2,327,450 475,000 4,965,600 Operating loss (1,794,455 ) (861,084 ) (1,254,703 ) (505,619 ) (4,415,861 ) Other income (expenses) – (32,882 ) – – (32,882 ) Interest income – – – – – Interest expense – – (22,856 ) – (22,856 ) Loss before taxes (1,794,455 ) (893,966 ) (1,277,559 ) (505,619 ) (4,471,599 ) Provision for taxes – – – – – Net loss $ (1,794,455 ) $ (893,966 ) $ (1,277,559 ) $ (505,619 ) $ (4,471,599 ) Net loss per share attributable to common shareholders Basic and diluted $ (0.54 ) $ (893.97 ) n/a n/a $ (0.51 ) Weighted average common shares outstanding Basic and diluted 3,307,118 1,000 n/a n/a 8,717,255 F- 4 Notes: L Elimination of intercompany revenues between Fat Shark and Rotor Riot. Fat Shark sells products to Rotor Riot, which is included in total revenue for Fat Shark and have been eliminated in the combined pro forma presentation. M Elimination of intercompany cost of revenues between Rotor Riot and Fat Shark. Rotor Riot purchases inventory from Fat Shark, which is included in total cost of revenues for Rotor Riot and have been eliminated in the combined pro forma presentation. N Estimated expenses of $350,000 incurred related to the business combination of Rotor Riot and Fat Shark and $125,000 related to anticipated bonus to be paid to the CFO as per the terms of his employment agreement. F- 5 Notes to Unaudited Pro Forma Condensed Combined Financial Statements Note 1 — Basis of Presentation On November 21, 2022, Unusual Machines, Inc. (the “Company”) entered into a Share Purchase Agreement (the “Agreement”) with Red Cat Holdings, Inc., a Nevada Corporation (“Red Cat”) for the purchase and sale of Fat Shark Holdings, Ltd., a Nevada Corporation (“Fat Shark”) and Rotor Riot, LLC, an Ohio limited liability Company (“Rotor Riot”). Under the terms of the Agreement, as amended, provides that the Company will acquire all of the outstanding shares of capital stock of Fat Shark and Rotor Riot in exchange for a purchase price of $20.0 million (“Purchase Price”) comprised of (i) $1.0 million in cash, (ii) a $2.0 million Note, and (iii) $17.0 million of the Company’s common stock. The Purchase Price is subject to potential adjustments. The consummation of the transactions contemplated by the Agreement are subject to certain closing conditions including, without limitation, the Company completing their initial public offering (the “Offering”) and the commencement of trading on NYSE American simultaneously with the consummation of the Offering. On February 16, 2024, the Company completed their Offering of 1,250,000 shares of common stock at a public offering price of $4.00 per share. The shares are traded on the NYSE American. Simultaneous with the closing of the Offering, the Company completed the acquisitions of Fat Shark and Rotor Riot while also issuing Red Cat 4,250,000 shares of common stock of the Company. Accounting Standards Codification (“ASC”) 805, Business Combinations , reflects the overall principle that when an entity (the “Acquirer”) takes control of another entity (the “Target”), the fair value of the underlying exchange transaction should be used to establish a new accounting basis of the acquired entity. In accordance with this ASC, the Share Purchase Agreement will be accounted for as an acquisition of Fat Shark and Rotor Riot by the Company. In addition, because obtaining control leaves the acquirer responsible and accountable for all of the acquiree’s assets, liabilities, and operations, the acquirer should recognize and measure the assets acquired and liabilities assumed at their full fair values with limited exceptions as of the date control is obtained. Authoritative guidance 1. ASC 805, Business Combinations (“ASC 805”) 2. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) 3. ASC 350, Intangibles — Goodwill and Other (“ASC 350”) 4. ASC 360, Property, Plant, and Equipment (“ASC 360”) 5. ASC 260, Earnings per Share (“ASC 260”) The unaudited pro forma condensed combined financial statements are based on the Company’s audited and unaudited interim historical consolidated financial statements and Fat Shark and Rotor Riot’s audited and unaudited interim historical combined financial statements as adjusted to give effect to the Company’s acquisition by Unusual Machines. The allocation of the purchase price used in the unaudited pro forma financial statements is based upon management’s estimate of the fair values of the assets and liabilities determined. A final allocation of the purchase price will be determined upon closing of the Share Purchase Agreement with the assistance of a third-party valuation firm. The Unaudited Pro Forma Condensed Combined Financial Statements are provided for informational purpose only and are not necessarily indicative of what the combined company’s financial position and results of operations would have actually been had the transactions been completed on the dates used to prepare these pro forma financial statements. The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed combined financial statements may be materially different from those reflected in the combined company’s consolidated financial statements subsequent to the transactions. In addition, the Unaudited Pro Forma Condensed Combined Financial Statements do not purport to project the future financial position or results of operations of the combined companies. These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the transactions. These financial statements also do not include any integration costs the companies may incur related to the transactions as part of combining the operations of the companies. F- 6 Note 2 — Summary of Significant Accounting Policies The unaudited pro forma condensed combined balance sheet as of December 31, 2023, gives pro forma effect to both the completed business combination and Offering as if they had been consummated as of December 31, 2023. The unaudited proforma condensed combined statements of operations for the year ended December 31, 2023 give pro forma effect to both the business combination and Offering as if they had been consummated as of December 31, 2023. The unaudited pro forma condensed combined financial statements have been prepared in a manner consistent with the accounting policies adopted by the Company. The accounting policies followed for financial reporting on a pro forma basis are the same as those disclosed in the audited financial statements. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies among the Company and Fat Shark and Rotor Riot. Note 3 — Purchase Price Allocation and Goodwill As discussed in Note 1 – Basis of Presentation, the Company entered into the Agreement with Red Cat to acquire all of the capital stock of Fat Shark and Rotor Riot. A summary of management’s estimated purchase price and related allocation was as follows as of December 31, 2023. Per the Agreement, the final purchase price allocation will be agreed upon after closing. In addition, final fair values of assets acquired, including the valuation of any intangible assets, and liabilities assumed will be determined after closing. Common stock $ 17,000,000 Cash 1,000,000 Convertible note 2,000,000 Total Purchase Price $ 20,000,000 Fat Shark Rotor Riot Adjustments Combined Estimated purchase price allocation $ 14,000,000 $ 6,000,000 $ – $ 20,000,000 Estimated assets acquired Cash 90,277 130,354 – 220,631 Accounts receivable 395,941 – (391,020 ) 4,921 Inventory 1,384,430 1,039,960 (133,343 ) 2,291,047 Other current assets 1,355,000 231,448 – 1,586,448 Estimated intangible assets 1,232,888 20,000 – 1,252,888 Operating lease right-of-use assets – 381,801 – 381,801 Other assets – 59,425 – 59,425 Total estimated assets acquired 4,458,536 1,862,988 (524,363 ) 5,797,161 Estimated liabilities assumed Accounts payable and accrued expenses 137,827 384,372 (391,020 ) 131,179 Customer deposits 27,505 48,428 – 75,933 Operating lease liabilities – 383,129 – 383,129 Total estimated liabilities assumed 165,332 815,929 (391,020 ) 590,241 Total estimated fair value of net assets acquired 4,293,204 1,047,059 (133,343 ) 5,206,920 Estimated goodwill $ 9,706,796 $ 4,952,941 $ 133,343 $ 14,793,080 The Company will engage a valuation services firm to value the intangible assets acquired once the final balances as of the closing date are provided. The allocation of the purchase price used in the unaudited pro forma financial statements is based upon management’s estimate of the fair values of the assets and liabilities determined. To the extent that the parties do not agree on the final allocation of the purchase price, a final allocation of the purchase price will be determined in accordance with Section 2.01 of Agreement with the assistance of a nationally-recognized accounting firm that is reasonably acceptable to Unusual and Red Cat. The Unaudited Pro Forma Condensed Combined Financial Statements and estimated goodwill are provided for informational purpose only and are not necessarily indicative of what the combined company’s financial position and results of operations would have actually been had the transactions been completed on the dates used to prepare these pro forma financial statements. F- 7 Note 4 — Pro Forma Transaction Accounting Adjustments The pro forma transaction accounting adjustments are based on the Company’s preliminary estimates, valuations, and assumptions that are subject to change. Note 5 – Related Party Transactions Fat Shark Ltd. sells products to Rotor Riot, LLC which is included in revenue for Fat Shark and cost of goods sold for Rotor Riot. Sales totaled $493,540 during the pro forma year ended December 31, 2023. Cost of goods sold totaled $462,921 during the pro forma year ended December 31, 2023. These transactions have been eliminated as a part of the unaudited pro forma condensed combined statement of operations. Note 6 – Reconciliation of Target Company Interim Statement of Operations to Pro Forma Statement of Operations The following statement of operations provides a reconciliation between the Fat Shark unaudited interim statement of operations for the period ending January 31, 2024 to the Fat Shark unaudited pro forma statement of operations for the twelve months ended December 31, 2023 to conform the target company’s interim period end to the Company’s year end period ending December 31, 2023. Fat Shark Interim Financials Fat Shark Adjustment Period 1 Fat Shark Adjustment Period 2 Fat Shark Pro Forma Financials (unaudited) Nine Months Ended January 31, 2024 Add: January through April 2023 Less: January 2024 12 Months Ended December 31, 2023 Revenue $ 1,379,391 $ 156,496 $ 597,991 $ 937,896 Cost of revenues 2,577,379 400,626 1,527,720 1,430,285 Gross profit (1,177,988 ) (244,130 ) (929,729 ) (492,389 ) Gross margin (85.4% ) (156.0% ) (155.5% ) (52.5% ) Operating expenses: Operations 111,204 77,704 6,581 182,327 Research and development 35,669 90,465 4,394 121,740 Selling and marketing 159 5,437 195 5,401 General and administrative 14,816 28,469 1,508 41,777 Stock based compensation 17,450 11,649 11,649 17,450 Total operating expenses 179,298 213,724 24,327 368,695 Operating income (loss) (1,357,286 ) (457,854 ) (954,056 ) (861,084 ) Other income (expenses) (44,648 ) (42,989 ) (54,755 ) (32,882 ) Interest income – – – – Interest expense – – – – Income (loss) before taxes (1,401,934 ) (500,843 ) (1,008,811 ) (893,966 ) Provision for taxes – – – – Net income (loss) $ (1,401,934 ) $ (500,843 ) $ (1,008,811 ) $ (896,966 ) F- 8 The following statement of operations provides a reconciliation between the Rotor Riot unaudited interim statement of operations for the period ending January 31, 2024 to the Rotor Riot unaudited pro forma statement of operations for the twelve months ended December 31, 2023 to conform the target company’s interim period end to the Company’s year ending December 31, 2023. Rotor Riot Interim Financials Rotor Riot Adjustment Period 1 Rotor Riot Adjustment Period 2 Rotor Riot Pro Forma Financials (unaudited) Nine Months Ended January 31, 2024 Add: January through April 2023 Less: January 2024 12 Months Ended December 31, 2023 Revenue $ 3,122,673 $ 1,412,745 $ 297,651 $ 4,237,767 Cost of revenues 2,186,039 1,151,762 172,781 3,165,020 Gross profit 936,634 260,983 124,870 1,072,747 Gross margin 30.0% 18.5% 42.0% 25.3% Operating expenses: Operations 560,660 166,602 47,129 680,133 Research and development 78,013 27,011 6,283 98,741 Selling and marketing 978,276 348,755 79,386 1,247,645 General and administrative 81,796 128,403 36,645 173,554 Stock based compensation 144,051 67,147 83,821 127,377 Total operating expenses 1,842,796 737,918 253,264 2,327,450 Operating income (loss) (906,162 ) (476,935 ) (128,394 ) (1,254,703 ) Other income (expenses) – – – – Interest expense (22,856 ) – – (22,856 ) Income (loss) before taxes (929,018 ) (476,935 ) (128,394 ) (1,277,559 ) Provision for taxes – – – – Net income (loss) $ (929,018 ) $ (476,935 ) $ (128,394 ) $ (1,277,559 ) F- 9 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of Unusual Machines, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Unusual Machines, Inc. as of December 31, 2023 and 2022, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /S/ BF Borgers CPA PC BF Borgers CPA PC (PCAOB ID 5041 ) We have served as the Company's auditor since 2022 Lakewood, CO March 22, 2024 F- 10 Unusual Machines, Inc. Balance Sheets December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 894,773 $ 3,099,422 Deferred offering costs 512,758 87,825 Other current assets 120,631 139,375 Total current assets 1,528,162 3,326,622 Property and equipment, net 1,254 3,690 Total non-current assets 1,254 3,690 Total assets $ 1,529,416 $ 3,330,312 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 114,497 $ 120,938 Total current liabilities 114,497 120,938 Stockholders’ equity: Series B preferred stock - $ 0.01 par value, 10,000,000 authorized and 190 and 140 shares issued and outstanding at December 31, 2023 and 2022, respectively 2 1 Common stock - $ 0.01 par value, 500,000,000 authorized and 3,217,255 and 3,392,250 shares issued and outstanding at December 31, 2023 and 2022, respectively 32,173 33,923 Additional paid in capital 4,715,790 4,714,041 Accumulated deficit ( 3,333,046 ) ( 1,538,591 ) Total stockholders’ equity 1,414,919 3,209,374 Total liabilities and stockholders’ equity $ 1,529,416 $ 3,330,312 See accompanying independent auditor’s report and notes to the financial statements. F- 11 Unusual Machines, Inc. Statement of Operations For the Years Ended December 31, 2023 and 2022 Year Ended December 31, 2023 2022 Revenue $ – $ – Cost of goods sold – – Gross margin – – Operating expenses: Research and development – 91,325 General and administrative 1,788,855 1,150,522 Depreciation and amortization 5,600 885 Total operating expenses 1,794,455 1,242,732 Loss from operations ( 1,794,455 ) ( 1,242,732 ) Other income: Interest income – 148 Total other income – 148 Net loss before income tax ( 1,794,455 ) ( 1,242,584 ) Income tax benefit (expense) – – Net loss $ ( 1,794,455 ) $ ( 1,242,584 ) Net loss per share attributable to common stockholders Basic and diluted $ ( 0.54 ) $ ( 0.31 ) Weighted average common shares outstanding Basic and diluted 3,307,118 4,006,007 See accompanying independent auditor’s report and notes to financial statements. F- 12 Unusual Machines, Inc. Statement of Changes in Stockholders’ Equity For the Years Ended December 31, 2023 and 2022 Series B, Preferred Stock Common Stock Additional Paid-In Stocks to be Accumulated Shares Value Shares Value Capital Issued Deficit Total Balance, December 31, 2021 – $ – 3,776,000 $ 37,760 $ 2,268,240 $ 1,892,065 $ ( 296,007 ) $ 3,902,058 Issuance of common stock – – 316,250 3,163 2,438,802 ( 1,892,065 ) – 549,900 Conversion to preferred stock 140 1 ( 700,000 ) ( 7,000 ) 6,999 – – – Net loss – – – – – – ( 1,242,584 ) ( 1,242,584 ) Balance, December 31, 2022 140 $ 1 3,392,250 $ 33,923 $ 4,714,041 $ – $ ( 1,538,591 ) $ 3,209,374 Issuance of common shares – – 75,005 750 ( 750 ) – – – Conversion to preferred shares 50 1 ( 250,000 ) ( 2,500 ) 2,499 – – – Net loss – – – – – – ( 1,794,455 ) ( 1,794,455 ) Balance, December 31, 2023 190 $ 2 3,217,255 $ 32,173 $ 4,715,790 $ – $ ( 3,333,046 ) $ 1,414,919 See accompanying independent auditor’s report and notes to financial statements. F- 13 Unusual Machines, Inc. Statement of Cash Flows For the Years Ended December 31, 2023 and 2022 Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 1,794,455 ) $ ( 1,242,584 ) Depreciation 5,600 885 Change in assets and liabilities: Accounts receivable – 945 Deferred offering costs ( 424,933 ) ( 87,825 ) Other current assets 18,744 ( 24,153 ) Accounts payable and accrued expenses ( 6,441 ) 120,938 Net cash used in operating activities ( 2,201,485 ) ( 1,231,794 ) Cash flows from investing activities Purchases of property and equipment ( 3,164 ) ( 4,575 ) Net cash used in investing activities ( 3,164 ) ( 4,575 ) Cash flows from financing activities: Issuance of common stock – 549,900 Net cash provided by financing activities – 549,900 Net increase (decrease) in cash ( 2,204,649 ) ( 686,469 ) Cash, beginning of year 3,099,422 3,785,891 Cash, end of year $ 894,773 $ 3,099,422 Supplemental disclosures of cash flow information: Cash paid for interest $ – $ – Cash paid for income tax $ – $ – See accompanying independent auditor’s report and notes to financial statements. F- 14 Unusual Machines, Inc. Notes to Financial Statements For the Year Ended December 31, 2023 Note 1 – Organization and nature of business Unusual Machines, Inc., formerly AerocarveUS Corporation, (“the Company”) is a corporation engaged in the commercial drone industry. The Company was originally formed as a limited liability company registered with the Department of State under the laws of the Commonwealth of Puerto Rico on July 11, 2019. Note 2 – Summary of significant accounting policies Basis of Accounting The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material. Cash The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2023 or December 31, 2022. The Company maintains cash deposits at a financial institution that is insured by the Federal Deposit Insurance Corporation up to $ 250,000 . The Company’s cash balance may at times exceed these limits. At December 31, 2023 and December 31, 2022, the Company had approximately $ 0.6 million and $ 2.8 million , respectively, in excess of federally insured limits. The Company continually monitors its positions with, and the credit quality of the financial institutions with which it invests. Accounts Receivable, net The Company carries its accounts receivable. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on a history of past write-offs and collections and current credit conditions. Accounts are written-off as uncollectible at the discretion of management. At December 31, 2023 and 2022, the Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established. Deferred offering costs The Company deferred direct incremental costs associated with its ongoing initial public offering (“IPO”). The Company capitalized $ 424,933 and $ 87,825 during the years ended December 31, 2023 and 2022, respectively. These deferred offering costs will be netted against IPO proceeds upon successful completion of the IPO. Deferred offering costs consist of primarily legal, advisory, and consulting fees incurred in connection with the formation and preparation of the IPO. F- 15 Note Receivable During the fiscal year ended December 31, 2021 and 2020, the Company made multiple unsecured and demand loans to Rotor Riot, LLC for a total of $ 115,222 to be used for general operating expenses. The notes do not bear interest. The note receivable was fully repaid during the year ended December 31, 2022. Property and equipment, net Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from two to five years . Revenue Recognition The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including: Step 1: Identify the contract with a customer; Step 2: Identify the performance obligations in the contract; Step 3: Determine the transaction price; Step 4: Allocate the transaction price to the performance obligations in the contract; and Step 5: Recognize revenue when (or as) the Company satisfies a performance obligation at a point in time. The Company receives revenues from the sale of products. Sales revenue is recognized when the products are shipped and the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Revenue is recognized when the title to the products has been passed to the customer, which is the date the products are delivered to the designated locations and the previously discussed requirements are met. Income Taxes The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realizable in the future. The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense. The Company’s current provision for the years ending December 31, 2023 and 2022 consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. Since the Company has not generated an operating profit since inception, there are no deferred tax assets as of December 31, 2023 and 2022. Net Loss per Share Basic and diluted net loss per share is calculated based on the weighted-average of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share . Diluted net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive. Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive include 950,000 and 700,000 shares of Series B Preferred Stock, as converted as of December 31, 2023 and 2022, respectively. F- 16 Note 3 – Other Current Assets Other current assets at December 31 included: Schedule of other current assets 2023 2022 Deposit related to Rotor Riot, LLC and Fat Shark, Ltd. acquisitions $ 100,000 $ 100,000 Prepaid insurance 20,631 39,375 Total other current assets $ 120,631 $ 139,375 Note 4 – Property and Equipment, net Property and equipment consist of assets with an estimated useful life greater than one year. Property and equipment are reported net of accumulated depreciation, and the reported values are periodically assessed for impairment. Property and equipment as of December 31 was as follows: Schedule of property and equipment 2023 2022 Computer equipment $ 7,738 $ 4,575 Accumulated depreciation ( 6,484 ) ( 885 ) Total property and equipment, net $ 1,254 $ 3,690 Depreciation expense totaled $ 5,600 and $ 885 for the year ended December 31, 2023 and 2022, respectively. Note 5 – Common Stock The Company issued 632,500 shares of common stock during the year ended December 31, 2022 for gross proceeds of $ 2,530,000 , of which the Company received net proceeds of $ 2,442,000 , due to fees and other expenses. The Company received $1,892,065 of these proceeds in advance of the shares being issued during the year ended December 31, 2021 and recorded stocks to be issued for these proceeds received in advance. The Company issued 7,552,000 shares of common stock during the year ended December 31, 2021 for total proceeds of $ 2,306,000 . $250,000 of proceeds were received in advance and recorded as stocks to be issued. On December 13, 2022, the Company cancelled 1,400,000 common shares and converted these shares into Series B preferred stock. On December 14, 2022, the Company amended its Articles of Incorporation to, among other things, increase the number of authorized shares of common stock from 90,000,000 to 500,000,000 . On March 7, 2023, the Company issued 150,000 shares of common stock to the investors in the July 2022 private placement. The shares were issued as consideration for its agreement with Revere Securities to modify its engagement letter with the Company. On June 1, 2023, the Company cancelled 500,000 common shares and converted these shares into Series B preferred stock. On July 10, 2023, the Company’s Board of Directors approved a 1-for-2 reverse stock split of our issued and outstanding shares of common stock. In accordance with Staff Accounting Bulletin Topic 4.C, the Company has given retroactive effect to reverse stock split. In addition and in accordance with FASB ASC 260, Earnings Per Share , the Company has retroactively adjusted the computations of basic and diluted share calculations. The common stock par value is $0.01. F- 17 Note 6 – Preferred Stock On December 13, 2022, the Company issued 140 Series B preferred shares in connection with the cancellation of 1,400,000 shares of common stock. On June 1, 2023, the Company issued an additional 50 Series B preferred shares in connection with the cancellation of 500,000 shares of common stock. The Series B preferred stock is convertible into common stock at a ratio of 5,000 shares of common stock for each share of Series B stock held, subject to certain limitations. Series B preferred shares are not entitled to vote on any matters submitted to shareholders of the Company. Shares outstanding at December 31, 2023 totaled 190 which are convertible into 950,000 shares of common stock. The preferred stock par value is $0.01. Note 7 – Business Combination On November 21, 2022, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Red Cat Holdings, Inc. (“Red Cat,”) and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, pursuant to which we agreed to purchase Red Cat’s consumer business consisting of Fat Shark Holdings, Ltd. (“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot”) (the “Business Combination”). Fat Shark and Rotor Riot are in the business of designing and marketing consumer drones and first-person-view (“FPV”) goggles. Rotor Riot is also a licensed authorized reseller of consumer drones manufactured by third-parties. The Purchase Agreement was amended on March 31, 2023. Under the terms of the Purchase Agreement, as amended, upon satisfaction of closing conditions, the Company will purchase from Red Cat its Rotor Riot and Fat Shark subsidiaries for $20 million (the “Purchase Price”) comprised of (i) $1.0 million in cash, (ii) a $2.0 million promissory note (referred to in this Prospectus as the “Note”) issued by the Company to Red Cat, and (iii) $17.0 million of the Company’s common stock. On July 10, 2023, the Company entered into Amendment No. 2 to SPA (the “Second Amendment”). Under the Second Amendment the parties agreed to extend the termination date of the Purchase Agreement until September 30, 2023 and remove the requirement that the Principal Stockholder escrow shares of our common stock at closing. On September 18, 2023, the Company entered into Amendment No. 3 to the SPA (the “Third Amendment”). Under the Third Amendment, the parties agreed to extend the termination date of the Purchase Agreement until October 31, 2023. On December 11, 2023, the Company entered into Amendment No. 4 to the SPA (the “Fourth Amendment”). Under the Fourth Amendment the parties agreed to (a) revise the components of the Purchase Price set forth in Section 2.01 of the Purchase Agreement to reduce the total cash paid to $1.0 million, eliminate the need to deposit $1.0 million of cash on hand into escrow prior to closing, and include the $2.0 million Note as part of the Purchase Price, (b) revise the minimum Offering amount from $10.0 million to $5.0 million, (c) replace Dr. Allan Evans for Brandon Torres Declet in Section 10.01(d) and (d) extend the End Date (as defined in the Purchase Agreement) from October 31, 2023 to May 31, 2024 as provided in Section 11.02(a) of the Purchase Agreement, as amended. In addition, the Company agreed to use its best efforts to prepare and file a registration statement with respect to 500,000 shares of our common stock to be issued to Red Cat, and to cause such registration statement to be filed within 120 days and declared effective within 180 days of closing. Red Cat agreed to execute a lock-up agreement effective for 180 days following the closing, or such lesser period as may be agreed upon by the managing underwriter and Red Cat under which Red Cat agreed not to transfer or sell any of its shares of our common stock during such period, subject to certain exceptions. The Company has also agreed to reimburse Red Cat up to $100,000 for documented legal and out-of-pocket expenses incurred in connection with the transaction. F- 18 Note 8 – Subsequent Events The Company has evaluated events through the date of this filing, which is the date the financial statements were available to be issued. There were no material subsequent events that require recognition or disclosure in these financial statements. The Company has evaluated all subsequent events after December 31, 2023, and there were no material subsequent events requiring disclosure, except the following. On February 16, 2024, the Company completed the acquisitions of Fat Shark and Rotor Riot as discussed in Note 7. On February 16, 2024, the Company completed its initial public offering of 1,250,000 shares of common stock at a price of $4.00 per share. The Company received net proceeds of approximately $3.75 million, after deducting underwriters commissions and expenses and paying $1.0 million to Red Cat as discussed in Note 7 related to the acquisitions of Fat Shark and Rotor Riot. The Company’s total consideration paid for the acquisition of Fat Shark and Rotor Riot was $20.0 million, comprising of the $17.0 million in Company shares, the $1.0 million cash outlay and the $2.0 million 8% promissory note due in eighteen-months with the principal due at maturity. The Company has not completed its evaluation of the full impact of the consolidation of Fat Shark and Rotor Riot for the purpose of its 2024 fiscal year financial reporting. F- 19 Fat Shark Holdings, Ltd. Balance Sheets January 31, April 30, 2024 2023 (Unaudited) (Audited) ASSETS Current assets Cash $ 31,220 $ 85,744 Accounts receivable, net 422,780 236,921 Inventory 408,109 2,307,070 Other 1,355,000 1,908,921 Total current assets 2,217,109 4,538,656 Goodwill 6,168,260 6,168,260 Intangible assets, net 1,237,866 1,282,667 TOTAL ASSETS $ 9,623,235 $ 11,989,583 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 80,549 $ 596,154 Accrued expenses 66,025 67,468 Customer deposits 35,842 25,340 Due to related party 5,976,410 6,434,278 Total current liabilities 6,158,826 7,123,240 Commitments and contingencies – – Stockholders’ equity Common stock 1 1 Additional paid-in capital 6,351,076 6,351,076 Accumulated deficit (2,886,668 ) (1,484,734 ) Total stockholders' equity 3,464,409 4,866,343 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,623,235 $ 11,989,583 See accompanying notes. F- 20 Fat Shark Holdings, Ltd. Statements Of Operations (Unaudited) Three months ended January 31, Nine months ended January 31, 2024 2023 2024 2023 Revenues $ 368,256 $ 529,394 $ 1,379,391 $ 2,060,594 Cost of goods sold 1,302,053 463,320 2,557,379 1,753,695 Gross Margin (933,797 ) 66,074 (1,177,988 ) 306,899 Operating Expenses Operations 25,111 45,775 111,204 180,805 Research and development 5,826 64,638 35,669 208,107 Sales and marketing – 4,111 159 13,837 General and administrative 5,101 5,300 14,816 66,193 Stock based compensation – 8,808 17,450 26,424 Total operating expenses 36,038 128,632 179,298 495,366 Operating loss (969,835 ) (62,558 ) (1,357,286 ) (188,467 ) Other Expense (Income) Other, net 14,931 3,319 44,648 33,063 Other Expense (Income) $ 14,931 $ 3,319 $ 44,648 $ 33,063 Net loss $ (984,766 ) $ (65,877 ) $ (1,401,934 ) $ (221,530 ) See accompanying notes. F- 21 Fat Shark Holdings, Ltd. Statements of Stockholders’ Equity (Unaudited) Common Stock Shares Amount Additional Paid-in Capital Accumulated Earnings (Deficit) Total Equity Balances, April 30, 2022 1,000 $ 1 $ 6,351,076 $ (938,613 ) $ 5,412,464 Net income – – – (221,530 ) $ (221,530 ) Balances, January 31, 2023 1,000 $ 1 $ 6,351,076 $ (1,160,143 ) $ 5,190,934 Balances, April 30, 2023 1,000 $ 1 $ 6,351,076 $ (1,484,734 ) $ 4,866,343 Net loss – – – (1,401,934 ) (1,401,934 ) Balances, January 31, 2024 1,000 $ 1 $ 6,351,076 $ (2,886,668 ) $ 3,464,409 See accompanying notes. F- 22 Fat Shark Holdings, Ltd. Cash Flows Statements (Unaudited) Nine months ended January 31, 2024 2023 Cash flows from operating activities Net loss $ (1,401,934 ) $ (221,530 ) Stock based compensation 17,450 26,424 Amortization of intangible assets 44,801 44,800 Changes in operating assets and liabilities Accounts receivable (185,859 ) (69,852 ) Inventory 1,898,961 (1,762,646 ) Other 553,921 (1,969,765 ) Customer deposits 10,502 22,135 Accounts payable (515,605 ) 429,607 Accrued expenses (1,443 ) (14,918 ) Net cash provided by (used in) operating activities 420,794 (3,515,745 ) Cash flows from financing activities (Payments under) Proceeds from related party obligations (475,318 ) 3,429,027 Net cash (used in) provided by financing activities (475,318 ) 3,429,027 Net decrease in Cash (54,524 ) (86,718 ) Cash, beginning of period 85,744 109,223 Cash, end of period $ 31,220 $ 22,505 Cash paid for interest – – Cash paid for income taxes – – See accompanying notes. F- 23 Fat Shark Holdings, Ltd. NOTES TO FINANCIAL STATEMENTS Note 1 – The Business Originally founded in September 2020 as FS Acquisition Corp. (“FSA” or the “Company”), the company was formed by Red Cat Holdings, Inc., its wholly owned parent, to complete the acquisition of Fat Shark Holdings, LTD (“Holdings”). As further described in Note 3, the acquisition closed on November 2, 2020. In April 2022, the Company re-incorporated in Nevada, United States and formally changed its name to Fat Shark Holdings, Ltd. The Company sells consumer electronics products to the first-person view (“FPV”) sector of the drone industry. Note 2 – Basis of Accounting and Going Concern These financial statements reflect the operating results of the Company for the two years ended January 31, 2024, including the financial support received from its Parent. These financial statements may not be indicative of the company’s operating results if it had operated without financial support from its Parent. The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the financial statements, the Company has incurred net losses totaling $2,886,668 since its inception, and reported negative working capital of $3,941,717 at January 31, 2024. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern. Note 3 – Acquisition of Fat Shark Holdings, LTD In September 2020, the Company entered into a share purchase agreement (“Share Purchase Agreement”) with Greg French (“French”), the founder and sole shareholder of Holdings to acquire all of the issued and outstanding shares of Holdings and its wholly owned subsidiaries, Fat Shark Tech, LTD and Fat Shark Technology SEZC. The transaction closed on November 2, 2020. At closing, the Parent delivered to the Seller, on behalf of the Company, 5,227,273 shares of the Parent's common stock with a fair value of $6,351,076. The Company recognized the shares issued on its behalf by the Parent as an additional capital investment. In addition, a senior secured promissory note was issued to the Seller which was recorded on the Company's balance sheet. Finally, the Seller received a cash payment of $250,000, which was funded by the Parent, and recognized by the Company due to related party. A summary of the purchase price and its related allocation was as follows: Shares issued $ 6,351,076 Promissory note issued 1,753,000 Cash 250,000 Total Purchase Price $ 8,354,076 F- 24 Assets acquired Cash $ 201,632 Accounts receivable 249,159 Other assets 384,232 Inventory 223,380 Brand name 1,144,000 Proprietary technology 272,000 Non-compete agreement 16,000 Goodwill 6,168,260 Total assets acquired 8,658,663 Liabilities assumed Accounts payable and accrued expenses 279,393 Customer deposits 25,194 Total liabilities assumed 304,587 Total fair value of net assets acquired $ 8,354,076 The Company engaged a valuation services firm to value the intangible assets acquired and the purchase price allocation is now complete. Intangible assets included proprietary technology and a non-compete agreement which are being amortized over 5 and 3 years, respectively. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end. The excess of the purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end. Note 4 – Summary of Significant Accounting Policies Basis of Accounting – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain prior period amounts have been restated to conform to the current year presentation. Use of Estimates – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives. Cash and Cash Equivalents – At January 31, 2024 and April 30, 2023, we held cash of $31,220 and $85,744, respectively, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk. F- 25 Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The guidance establishes three levels of the fair value hierarchy as follows: Level 1 : Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 : Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments. Revenue Recognition – The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company’s revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $35,842 and $25,340 at January 31, 2024 and April 30, 2023, respectively. Research and Development – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products. Income Taxes – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. F- 26 Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements. Stock-Based Compensation – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term. Related Parties – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12. Note 5 – Inventories Inventories, consisting solely of finished goods, totaled $408,109 and $2,307,070 at January 31, 2024 and April 30, 2023, respectively. Note 6 – Other Assets Other assets, short term, included: January 31, 2024 April 30, 2023 Prepaid inventory $ 1,355,000 $ 1,908,921 Total $ 1,355,000 $ 1,908,921 Note 7 – Intangible Assets Intangible assets relate to acquisitions completed by the Company, including those described in Note 3. Intangible assets were as follows: January 31, 2024 April 30, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Proprietary technology $ 272,000 $ (178,134 ) $ 93,866 $ 272,000 $ (136,000 ) $ 136,000 Non-compete agreements 16,000 (16,000 ) – 16,000 (13,333 ) 2,667 Total finite-lived 288,000 (194,134 ) 93,866 288,000 (149,333 ) 138,667 Indefinite-lived– Brand name 1,144,000 – 1,144,000 1,144,000 – 1,144,000 Total, net $ 1,432,000 $ (194,134 ) $ 1,237,866 $ 1,432,000 $ (149,333 ) $ 1,282,667 As of January 31, 2024, expected amortization expense for the next five years is as follows: Fiscal Year Ended: 2024 $ 12,266 2025 54,400 2026 27,200 Total $ 93,866 F- 27 Proprietary technology and non-compete agreements are being amortized over 5 and 3 years, respectively. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis. Goodwill is a separately stated intangible asset and represents the excess of the purchase price of acquisitions above the net assets acquired. The balance was $6,168,260 as of January 31, 2024 and April 30, 2023. Note 8 – Debt Obligations In connection with the acquisition of Holdings in November 2020, the Company issued a secured promissory note in the amount of $1,753,000 to the seller. The note bore interest at 3% annually and was scheduled to mature in full in November 2023. In May 2021, the Company made an initial payment of $132,200 by directing a refund from a vendor based in China to the noteholder who is also based in China. The remaining balance of $1,620,800 plus accrued interest totaling $45,129 was paid in September 2021. Note 9 – Income Taxes The Company was originally founded in November 2020 as an entity based in the Cayman Islands. While based in the Cayman Islands, the Company qualified as a Caymans Island Exempted Company which qualified it as a tax exempt entity. In April 2022, the Company changed its name to Fat Shark Holdings, Ltd. and reincorporated in Nevada, United States. Since incorporating in the United States, the Company has incurred net losses through January 31, 2024. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since incorporating in the United States, we have applied a full valuation allowance against our deferred tax assets at January 31, 2024. Note 10 – Share Based Awards Red Cat has established the 2019 Equity Incentive Plan (the “Plan”) to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the “Awards”). The Company recognized stock based compensation expense in connect with Awards to its employees. Options A summary of options activity under the Plan since April 30, 2022 is as follows: Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of April 30, 2022 45,000 $ 2.52 9.56 $ – Granted – Exercised – Forfeited or expired – Outstanding as of April 30, 2023 45,000 2.52 8.56 – Granted – Exercised – Forfeited or expired (45,000 ) 2.52 Outstanding as of January 31, 2024 – – – – Exercisable as of January 31, 2024 – $ – – $ – F- 28 The aggregate intrinsic value of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of January 31, 2024 and 2023, there was $0 and $61,084 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 0 and 1.80 years, respectively. Stock Compensation Stock compensation expense for the three and nine months ended January 31, 2024 and 2023 was as follows: Three months ended January 31, Nine months ended January 31, 2024 2023 2024 2023 Operations $ – $ 4,404 $ 8,725 $ 13,212 Research and development – 4,404 8,725 13,212 Sales and marketing – – – – General and administrative – – – – Total $ – $ 8,808 $ 17,450 $ 26,424 Note 11 – Statement of Stockholders’ Equity The Company is authorized to issue 3,000 shares of common stock having a par value of $0.001 per share. Upon its formation, the Company issued 1,000 shares of common stock to its Parent for $1.00. In connection with its acquisition of Holdings in November 2020, the Company's parent, Red Cat Holdings, issued 5,227,273 of its shares with a fair value of $6,351,076 to the seller of Holdings. The Company recognized the fair value of the capital provided as additional paid in capital. In April 2022, the Company sold Fat Shark Technology SEZC to French for $1. SEZC was a duly registered company in the Cayman Islands but had no assets or liabilities, and was basically a dormant entity. Note 12 - Related-Party Transactions The Company sells product to Rotor Riot LLC (“Rotor Riot”) which is also wholly owned by Red Cat. Sales totaled $430,577 and $357,549 during the nine months ended January 31, 2024 and 2023, respectively. Since its founding in November 2020, the Company has received funding from its Parent to support its operations. The Company received net funding of $3,455,451 during the nine months ended January 31, 2023. The balance due to Red Cat at January 31, 2023 totaled $6,190,051. The Company repaid $475,868 during the nine months ended January 31, 2024. The balance due to Red Cat at January 31, 2024 totaled $5,976,410. F- 29 Note 13 – Sale of Consumer Segment In November 2022, the Company’s sole shareholder, Red Cat Holdings, Inc. (“Red Cat”) approved a Stock Purchase Agreement (the “SPA”) between Red Cat, Unusual Machines, Inc. (“UM”) and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, related to the sale of the Red Cat’s consumer business consisting of Rotor Riot, (“RR”), and Fat Shark Holdings (“FS”), to UM. Under the terms of the Purchase Agreement, as amended, the UM will purchase from Red Cat its Rotor Riot and Fat Shark subsidiaries for $20.0 million (the “Purchase Price”) comprised of (i) $1.0 million in cash, (ii) a $2.0 million promissory note (the “Note”) issued by UM to Red Cat, and (iii) $17.0 million of UM common stock based on the value at its initial public offering. On February 16, 2024 UM completed their initial public offering and subsequently Red Cat and UM completed the sale of Rotor Riot and Fat Shark. Note 14 – Subsequent Events Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure except as noted below. As noted in Note 13, on February 16, 2024, Unusual Machines closed its Initial Public Offering of 1,250,000 shares of common stock at a public offering price of $4.00 per share. The shares will be traded on the New York Stock Exchange American. Simultaneous with the closing of the IPO, the Company acquired Fat Shark and Rotor Riot from Red Cat while also issuing Red Cat 4,250,000 shares of common stock in Unusual Machines. F- 30 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of Fat Shark Holdings, Ltd. Opinion on the Financial Statements We have audited the accompanying balance sheets of Fat Shark Holdings, Ltd. as of April 30, 2023 and April 30, 2022, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and April 30, 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s Liabilities exceeding Assets raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /S/ BF Borgers CPA PC BF Borgers CPA PC (PCAOB ID 5041) We have served as the Company's auditor since 2020 Lakewood, CO August 7, 2023 F- 31 Fat Shark Holdings, Ltd. Balance Sheets April 30, April 30, 2023 2022 ASSETS Current assets Cash $ 85,744 $ 109,223 Accounts receivable, net 236,921 64,630 Inventory 2,307,070 317,556 Other 1,908,921 286,148 Total current assets 4,538,656 777,557 Goodwill 6,168,260 6,168,260 Intangible assets, net 1,282,667 1,342,401 TOTAL ASSETS $ 11,989,583 $ 8,288,218 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 596,154 $ 49,035 Accrued expenses 67,468 83,000 Customer deposits 25,340 9,119 Due to related party 6,434,278 2,734,600 Total current liabilities 7,123,240 2,875,754 Commitments and contingencies – – Stockholders’ equity Common stock 1 1 Additional paid-in capital 6,351,076 6,351,076 Accumulated deficit (1,484,734 ) (938,613 ) Total stockholders' equity 4,866,343 5,412,464 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,989,583 $ 8,288,218 See accompanying notes. F- 32 Fat Shark Holdings, Ltd. Statements of Operations Year ended April 30, 2023 2022 Revenues $ 2,317,444 $ 2,627,792 Cost of goods sold 2,159,159 2,569,307 Gross margin 158,285 58,485 Operating expenses Operations 240,945 252,545 Research and development 280,515 407,881 Sales and marketing 16,858 60,616 General and administrative 88,277 169,096 Stock based compensation 34,946 15,606 Total operating expenses 661,541 905,744 Operating (loss) income (503,256 ) (847,259 ) Other expense Interest expense – 19,338 Other, net 42,865 44,126 Other expense 42,865 63,464 Net loss $ (546,121 ) $ (910,723 ) See accompanying notes. F- 33 Fat Shark Holdings, Ltd. Statements of Stockholders’ Equity Common Stock Shares Amount Additional Paid-in Capital Accumulated Deficit Total Equity Balances, April 30, 2021 1,000 $ 1 $ 6,351,076 $ (27,890 ) $ 6,323,187 Net loss – – – (910,723 ) (910,723 ) Balances, April 30, 2022 1,000 $ 1 $ 6,351,076 $ (938,613 ) $ 5,412,464 Net loss – – – (546,121 ) (546,121 ) Balances, April 30, 2023 1,000 $ 1 $ 6,351,076 $ (1,484,734 ) $ 4,866,343 See accompanying notes. F- 34 Fat Shark Holdings, Ltd. Cash Flows Statements Year ended April 30, 2023 2022 Cash flows from operating activities Net loss $ (546,121 ) $ (910,723 ) Stock based compensation 34,946 15,606 Amortization of intangible assets 59,734 59,733 Changes in operating assets and liabilities Inventory (1,989,514 ) (156,597 ) Accounts receivable (172,291 ) 263,778 Other (1,622,773 ) 151,946 Customer deposits 16,221 (8,550 Accounts payable 547,119 (180,700 ) Accrued expenses (15,532 ) (18,303 ) Net cash used in operating activities (3,688,211 ) (783,810 ) Cash flows from financing activities Cash acquired through acquisition – – Proceeds from related party obligations 3,664,732 2,468,995 Payments under debt obligations – (1,620,800 ) Net cash provided by financing activities 3,664,732 848,195 Net (decrease) increase in Cash (23,479 ) 64,385 Cash, beginning of period 109,223 44,838 Cash, end of period $ 85,744 $ 109,223 Cash paid for interest – 45,129 Cash paid for income taxes – – Non-cash transactions Indirect payment of debt obligation $ – $ 132,200 See accompanying notes. F- 35 Fat Shark Holdings, Ltd. NOTES TO FINANCIAL STATEMENTS April 30, 2023 and 2022 Note 1 – The Business Originally founded in September 2020 as FS Acquisition Corp. (“FSA” or the “Company”), the company was formed by Red Cat Holdings, Inc., its wholly owned parent, to complete the acquisition of Fat Shark Holdings, LTD (“Holdings”). As further described in Note 3, the acquisition closed on November 2, 2020. In April 2022, the Company re-incorporated in Nevada, United States and formally changed its name to Fat Shark Holdings, Ltd. The Company sells consumer electronics products to the first-person view (“FPV”) sector of the drone industry. Note 2 – Basis of Accounting and Going Concern These financial statements reflect the operating results of the Company for the two years ended April 30, 2023, including the financial support received from its Parent. These financial statements may not be indicative of the company’s operating results if it had operated without financial support from its Parent. The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the financial statements, the Company has incurred net losses totaling $1,484,734 since its inception, and reported negative working capital of $2,584,584 at April 30, 2023. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern. Note 3 – Acquisition of Fat Shark Holdings, LTD In September 2020, the Company entered into a share purchase agreement (“Share Purchase Agreement”) with Greg French (“French”), the founder and sole shareholder of Holdings to acquire all of the issued and outstanding shares of Holdings and its wholly owned subsidiaries, Fat Shark Tech, LTD and Fat Shark Technology SEZC. The transaction closed on November 2, 2020. At closing, the Parent delivered to the Seller, on behalf of the Company, 5,227,273 shares of the Parent's common stock with a fair value of $6,351,076. The Company recognized the shares issued on its behalf by the Parent as an additional capital investment. In addition, a senior secured promissory note was issued to the Seller which was recorded on the Company's balance sheet. Finally, the Seller received a cash payment of $250,000, which was funded by the Parent, and recognized by the Company due to related party. A summary of the purchase price and its related allocation was as follows: Shares issued $ 6,351,076 Promissory note issued 1,753,000 Cash 250,000 Total Purchase Price $ 8,354,076 F- 36 Assets acquired Cash 201,632 Accounts receivable 249,159 Other assets 384,232 Inventory 223,380 Brand name 1,144,000 Proprietary technology 272,000 Non-compete agreement 16,000 Goodwill 6,168,260 Total assets acquired 8,658,663 Liabilities assumed Accounts payable and accrued expenses 279,393 Customer deposits 25,194 Total liabilities assumed 304,587 Total fair value of net assets acquired $ 8,354,076 The Company engaged a valuation services firm to value the intangible assets acquired and the purchase price allocation is now complete. Intangible assets included proprietary technology and a non-compete agreement which are being amortized over 5 and 3 years, respectively. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end. The excess of the purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end. Note 4 – Summary of Significant Accounting Policies Basis of Accounting – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain prior period amounts have been restated to conform to the current year presentation. Use of Estimates – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives. Cash and Cash Equivalents – At April 30, 2023 and 2022, we held cash of $85,744 and $109,223, respectively, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk. Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. F- 37 The guidance establishes three levels of the fair value hierarchy as follows: Level 1 : Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 : Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments. Revenue Recognition – The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company’s revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $25,340 and $9,119 at April 30, 2023 and 2022, respectively. Research and Development – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products. Income Taxes – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements. Stock-Based Compensation – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term. Related Parties – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12. F- 38 Note 5 – Inventories Inventories, consisting solely of finished goods, totaled $2,307,070 and $317,556 at April 30, 2023 and 2022, respectively. Note 6 – Other Assets Other assets, short term, included. April 30, 2023 April 30, 2022 Prepaid inventory $ 1,908,921 $ 271,500 Prepaid expenses – 14,648 Total $ 1,908,921 $ 286,148 Note 7 – Intangible Assets Intangible assets relate to acquisitions completed by the Company, including those described in Note 3. Intangible assets as of April 30 were as follows: April 30, 2023 April 30, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Proprietary technology $ 272,000 $ (136,000 ) $ 136,000 $ 272,000 $ (81,600 ) $ 190,400 Non-compete agreements 16,000 (13,333 ) 2,667 16,000 (7,999 ) 8,001 Total finite-lived 288,000 (149,333 ) 138,667 288,000 (89,599 ) 198,401 Indefinite-lived– Brand name 1,144,000 – 1,144,000 1,144,000 – 1,144,000 Total, net $ 1,432,000 $ (149,333 ) $ 1,282,667 $ 1,432,000 $ (89,599 ) $ 1,342,401 As of April 30, 2023, expected amortization expense for the next five years is as follows: Fiscal Year Ended: 2024 $ 57,067 2025 54,400 2026 27,200 Total $ 138,667 Proprietary technology and non-compete agreements are being amortized over 5 and 3 years, respectively. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis. Goodwill is a separately stated intangible asset and represents the excess of the purchase price of acquisitions above the net assets acquired. The balance was $6,168,260 as of April 30, 2023 and 2022. F- 39 Note 8 – Debt Obligations In connection with the acquisition of Holdings in November 2020, the Company issued a secured promissory note in the amount of $1,753,000 to the seller. The note bore interest at 3% annually and was scheduled to mature in full in November 2023. In May 2021, the Company made an initial payment of $132,200 by directing a refund from a vendor based in China to the noteholder who is also based in China. The remaining balance of $1,620,800 plus accrued interest totaling $45,129 was paid in September 2021. Note 9 – Income Taxes The Company was originally founded in November 2020 as an entity based in the Cayman Islands. While based in the Cayman Islands, the Company qualified as a Caymans Island Exempted Company which qualified it as a tax exempt entity. In April 2022, the Company changed its name to Fat Shark Holdings, Ltd. and reincorporated in Nevada, United States. Since incorporating in the United States, the Company has incurred net losses through April 30, 2023. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since incorporating in the United States, we have applied a full valuation allowance against our deferred tax assets at April 30, 2023. Note 10 – Share Based Awards Red Cat has established the 2019 Equity Incentive Plan (the “Plan”) to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the “Awards”). The Company recognized stock based compensation expense in connect with Awards to its employees. Options The range of assumptions used to calculate the fair value of options granted during the year ended April 30 was: 2023 2022 Exercise Price – $ 2.52 Stock price on date of grant – 2.52 Risk-free interest rate – 1.50% Dividend yield – – Expected term (years) – 8.25 Volatility – 270.30% F- 40 A summary of options activity under the Plan since April 30, 2021 is as follows: Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of April 30, 2021 – – – $ – Granted 45,000 $ 2.52 – – Exercised – – – – Forfeited or expired – – – – Outstanding as of April 30, 2022 45,000 2.52 9.56 – Granted – – – – Exercised – – – – Forfeited or expired – – – – Outstanding as of April 30, 2023 45,000 2.52 8.56 – Exercisable as of April 30, 2023 18,750 $ 2.52 8.56 $ – The aggregate intrinsic value of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of April 30, 2023 and April 30, 2022, there was $54,287 and $89,233 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 1.56 and 2.56 years, respectively. Stock Compensation Stock compensation expense for the years ended April 30, 2023 and 2022 was as follows: 2023 2022 General and administrative $ – $ – Research and development 17,473 7,803 Operations 17,473 7,803 Sales and marketing – – Total $ 34,946 $ 15,606 Note 11 – Statement of Stockholders’ Equity The Company is authorized to issue 3,000 shares of common stock having a par value of $0.001 per share. Upon its formation, the Company issued 1,000 shares of common stock to its Parent for $1.00. In connection with its acquisition of Holdings in November 2020, the Company's parent, Red Cat Holdings, issued 5,227,273 of its shares with a fair value of $6,351,076 to the seller of Holdings. The Company recognized the fair value of the capital provided as additional paid in capital. In April 2022, the Company sold Fat Shark Technology SEZC to French for $1. SEZC was a duly registered company in the Cayman Islands but had no assets or liabilities, and was basically a dormant entity. F- 41 Note 12 - Related-Party Transactions The Company sells product to Rotor Riot LLC (“Rotor Riot”) which is also wholly owned by Red Cat. Sales totaled $400,619 and $104,961 during the fiscal years ended April 30, 2023 and 2022, respectively. Since its founding in November 2020, the Company has received funding from its Parent to support its operations. The Company received net funding of $2,484,601 during the fiscal year ended April 30, 2022. The balance due to Red Cat at April 30, 2022 totaled $2,734,600. The Company received net funding of $3,699,678 during the fiscal year ended April 30, 2023, primarily related to inventory deposits and purchases and a net loss of $546,121. The balance due to Red Cat at April 30, 2023 totaled $6,434,278. Note 13 – Sale of Consumer Segment On November 21, 2022, the Company’s sole shareholder, Red Cat Holdings, Inc. (“Red Cat”) approved a Stock Purchase Agreement (the "SPA") between Red Cat, Unusual Machines, Inc. (“UM”) and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, related to the sale of the Red Cat’s consumer business consisting of Rotor Riot, (“RR”), and Fat Shark Holdings (“FS”), to UM for cash and stock consideration totaling $18 million. On November 21, 2022, Red Cat approved the SPA and its submission to shareholders for approval. On March 8, 2023, shareholders approved the sale to UM. On April 13, 2023, the SPA was amended (the “Amendment”) and the total purchase price increased to $20 million. Under the Amendment, the cash consideration payable at closing was reduced to $3.0 million, as may be adjusted for working capital on the closing date (increased for positive working capital and decreased for negative working capital), and the non-cash consideration adjusted to provide for payment of $17 million in shares of UM’s common stock (the “Unusual Common Stock”) issued at the initial public offering price for the Unusual Common Stock. All of the Unusual Common Stock will be subject to a lock-up of 180 days and be eligible for registration. The Company estimates that working capital at closing will range between $2.0 to $4.5 million. In addition, closing of the SPA is subject to successful completion of an initial public offering (the “IPO”) by UM in the minimum amount of $10 million, and the listing of UM’s common stock on Nasdaq or NYSE. UM filed a registration statement on Form S-1 for an initial public offering of its Common Stock with the SEC. Note 14 – Subsequent Events Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure. F- 42 Rotor Riot, LLC Balance Sheets January 31, April 30, 2024 2023 (Unaudited) (Audited) ASSETS Current assets Cash $ 95,551 $ 912 Inventory 1,257,021 861,708 Other 231,938 160,517 Total current assets 1,584,510 1,023,137 Operating lease right-of-use assets 376,751 84,544 Intangible assets, net 20,000 20,000 Other 59,426 3,853 Total long term assets 456,177 108,397 TOTAL ASSETS $ 2,040,687 $ 1,131,534 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 496,892 $ 178,420 Accrued expenses 50,787 42,012 Due to related party 4,412,828 3,070,304 Customer deposits 9,949 227,460 Debt obligations 98,441 – Operating lease liabilities 56,974 49,461 Total current liabilities 5,125,871 3,567,657 Operating lease liabilities – long term 321,771 41,814 Commitments and contingencies Members’ equity Cumulative contributions 151,000 151,000 Cumulative deficit (3,157,632 ) (2,228,614 ) Cumulative distributions (400,323 ) (400,323 ) Total members' equity (3,406,955 ) (2,477,937 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,040,687 $ 1,131,534 See accompanying notes. F- 43 Rotor Riot, LLC Statements Of Operations (Unaudited) Three months ended January 31, Nine months ended January 31, 2024 2023 2024 2023 Revenues $ 942,316 $ 909,567 $ 3,122,673 $ 2,534,514 Cost of goods sold 654,499 776,100 2,186,039 2,170,151 Gross Margin 287,817 133,467 936,634 364,363 Operating Expenses Operations 262,948 105,727 560,660 303,535 Research and development 30,553 15,632 78,013 42,927 Sales and marketing 286,918 188,514 978,276 542,079 General and administrative 37,923 111,537 81,796 210,128 Stock based compensation 50,023 53,189 144,051 150,296 Total operating expenses 668,365 474,599 1,842,796 1,248,965 Operating loss (380,548 ) (341,132 ) (906,162 ) (884,602 ) Other Expense (Income) Interest expense – – 22,856 – Other, net – – – (8,051 ) Other Expense (Income) $ – $ – $ 22,856 $ (8,051 ) Net loss $ (380,548 ) $ (341,132 ) $ (929,018 ) $ (876,551 ) See accompanying notes. F- 44 Rotor Riot, LLC Statements of Members’ Equity (Unaudited) Cumulative Contributions Cumulative Deficit Cumulative Distributions Total Members’ Equity Balances, April 30, 2022 $ 151,000 $ (840,748 ) $ (400,323 ) $ (1,090,071 ) Net loss – (876,551 ) – (876,551 ) Balances, January 31, 2023 $ 151,000 $ (1,717,299 ) $ (400,323 ) $ (1,966,622 ) Balances, April 30, 2023 $ 151,000 $ (2,228,614 ) $ (400,323 ) $ (2,477,937 ) Net loss – (929,018 ) – (929,018 ) Balances, January 31, 2024 $ 151,000 $ (3,157,632 ) $ (400,323 ) $ (3,406,955 ) See accompanying notes. F- 45 Rotor Riot, LLC Cash Flows Statements (Unaudited) Nine months ended January 31, 2024 2023 Cash flows from operating activities Net loss $ (929,018 ) $ (876,551 ) Stock based compensation 144,051 97,107 Changes in operating assets and liabilities Accounts receivable – – Inventory (395,313 ) (479,037 ) Other (126,994 ) (94,957 ) Operating lease right-of-use assets and liabilities (4,737 ) (1,547 ) Customer deposits (217,511 ) (15,176 ) Accounts payable 318,472 112,810 Accrued expenses 8,775 (29,887 ) Net cash used in operating activities (1,202,275 ) (1,287,238 ) Cash flows from financing activities Proceeds from related party obligations 1,198,473 1,328,750 Proceeds from debt obligations 262,856 – Payments under debt obligations (164,415 ) – Net cash provided by financing activities 1,296,914 1,328,750 Net (decrease) increase in Cash 94,369 41,512 Cash, beginning of period 912 20,041 Cash, end of period $ 95,551 $ 61,553 Cash paid for interest 22,856 – Cash paid for income taxes – – See accompanying notes. F- 46 Rotor Riot, LLC NOTES TO FINANCIAL STATEMENTS Note 1 – The Business Originally founded in 2016, Rotor Riot, LLC (“Rotor Riot” or the “Company”) was acquired by and became a wholly owned subsidiary of Red Cat Holdings (“Red Cat” or the “Parent”) in January 2020. The Company sells drones, parts and related equipment to the consumer marketplace through its digital storefront located at www.rotorriot.com. Note 2 – Going Concern The Company has incurred net losses since its acquisition by Red Cat which has provided funding to enable the company to continue to operate. These financial statements reflect the operating results of the Company for the two years ended January 31, 2024, including the financial support received from its Parent. These financial statements may not be indicative of the company’s operating results if it had operated without financial support from its Parent. The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying financial statements, we had negative working capital of $3,541,361 at January 31, 2024 and have accumulated losses totaling $3,157,632 through January 31, 2024. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern. Note 3 – Summary of Significant Accounting Policies Basis of Accounting – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain prior period amounts have been restated to conform to the current year presentation. Use of Estimates – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives. Cash and Cash Equivalents – At January 31, 2024 and April 30, 2023, we held cash of $95,551 and $912, respectively, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk. Leases – Effective August 1, 2021, the Company adopted Accounting Standards Codification (ASC) 842 titled “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company adopted ASC 842 on a modified retrospective transition basis which means that it did not restate financial information for any periods prior to August 1, 2021. Upon adoption, the Company recognized a lease liability obligation of $260,305 and a right-of-use asset for the same amount. This lease was terminated in October 2023 when the Company moved locations. In November 2023, the Company recognized a lease liability obligation of $391,766 and a right-of-use asset for the same amount related to a new lease. The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its last debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur. F- 47 Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The guidance establishes three levels of the fair value hierarchy as follows: Level 1 : Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 : Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments. Revenue Recognition – The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company’s revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $9,949 and $227,460 at January 31, 2024 and April 30, 2023, respectively. Research and Development – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products. F- 48 Income Taxes – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements. Stock-Based Compensation – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term. Related Parties – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12. Note 4 – Inventories Inventories, consisting solely of finished goods, totaled $1,257,021 and $861,708 at January 31, 2024 and April 30, 2023, respectively. Note 5 – Other Assets Other assets, short term, included: January 31, 2024 April 30, 2023 Prepaid inventory $ 231,938 $ 153,117 Prepaid expenses – 7,400 Total $ 231,938 $ 160,517 Other assets, long term, represented security deposits at January 31, 2024 and April 30, 2023. Note 6 – Intangible Assets Intangible assets relate solely to trademarks acquired in an acquisition completed in 2016. F- 49 Note 7 – Operating Leases In October 2023, the Company entered into a new five-year operating lease for approximately 6,900 square feet of warehouse and office space commencing November 2023. The Company had no finance leases. The Company’s leases have remaining lease terms of up to 4.75 years. Operating lease expense totaled $53,263 for the nine months ended January 31, 2024. Location Avg Monthly Rent Expiration Fiscal 2024 Fiscal 2025 Fiscal 2026 Fiscal 2027 Fiscal 2028 & Beyond Total Orlando, Florida $ 8,715 October 2028 $ 24,150 $ 98,532 $ 102,471 $ 106,577 $ 167,360 $ 499,089 Nine Months Ended Supplemental Information January 31, 2024 Operating cash paid to settle lease liabilities $ 52,864 Right of use asset additions in exchange for lease liabilities $ 391,766 Weighted average remaining lease term (in years) 4.75 Weighted average discount rate 12% Note 8 – Debt Obligations A. Shopify Capital Shopify Capital is an affiliate of Shopify, Inc. which provides sales software and services to the Company. The Company processes customer transactions ordered on the e-commerce site for Rotor Riot through Shopify. Shopify Capital has entered into multiple agreements with the Company in which it has “purchased receivables” at a discount. Shopify retains a portion of the Company's daily receipts until the purchased receivables have been paid. The Company recognizes the discount as a transaction fee, in full, in the month in which the agreement is executed. Agreements with activity during the two years ended January 31, 2024 included: Date of Transaction Purchased Receivables Payment to Company Transaction Fees Withholding Rate Fully Repaid In September 2020 $ 209,050 $ 185,000 $ 24,050 17% May 2021 April 2021 $ 236,500 $ 215,000 $ 21,500 17% January 2022 B. PayPal PayPal is an electronic commerce company that facilitates payments between parties through online funds transfers. The Company processes certain customer payments ordered on its e-commerce site through PayPal. The Company has entered into multiple agreements under which PayPal provides an advance on customer payments, and then retains a portion of customer payments until the advance is repaid. PayPal charges a fee which the Company recognizes in full upon entering an agreement. A November 2019 agreement under which PayPal advanced $100,000 and charged interest expense of $6,900 was completed in January 2021. A January 2021 agreement under which PayPal advanced $75,444 and charged interest expense of $2,444 was completed in August 2021. A June 2023 agreement under which PayPal advanced $262,856 and charged interest expense of $22,856. The balance outstanding at January 31, 2024 totaled $98,441. Repayment of the remaining balance was completed in February 2024. F- 50 Note 9 – Income Taxes Rotor Riot is an LLC based in the United States and files its annual income tax return on a Form 1120. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods. At January 31, 2024 and April 30, 2023, we had accumulated deficits of approximately $3,157,000 and $2,229,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $474,000 and $334,000, respectively, calculated using the minimum U.S. corporate tax rate of 15%. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at January 31, 2024 and April 30, 2023. Note 10 – Members’ Equity In January 2020, Red Cat Holdings acquired 8,000,001 Membership Interests, representing 100% ownership of the Company. Note 11 – Share Based Awards Red Cat has established the 2019 Equity Incentive Plan (the “Plan”) to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the “Awards”). The Company recognized stock based compensation expense in connect with Awards to its employees. Options A summary of options activity under the Plan since April 30, 2022 is as follows: Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of April 30, 2022 367,475 $ 1.88 8.59 $ 178,445 Granted 50,000 1.32 Exercised – – Forfeited or expired – – Outstanding as of April 30, 2023 417,475 1.81 7.82 9,586 Granted – – Exercised – – Forfeited or expired (12,000 ) 2.60 Outstanding as of January 31, 2024 405,475 $ 1.79 7.05 $ – Exercisable as of January 31, 2024 335,473 $ 1.75 6.85 $ – The aggregate intrinsic value of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of January 31, 2024 and 2023, there was $87,153 and $416,956 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 1.01 and 1.79 years, respectively. F- 51 Stock Compensation Stock compensation expense for the three and nine months ended January 31, 2024 and 2023 was as follows: Three months ended January 31, Nine months ended January 31, 2024 2023 2024 2023 Operations $ 33,954 $ 2,963 $ 93,717 $ 8,887 Research and development 5,514 36,682 17,387 104,339 Sales and marketing 7,623 7,969 23,704 20,345 General and administrative 2,932 5,575 9,243 16,725 Total $ 50,023 $ 53,189 $ 144,051 $ 150,296 Note 12 - Related-Party Transactions The Company purchases product from Fat Shark Holdings, Ltd, which is also wholly owned by Red Cat Holdings. Purchases from Fat Shark totaled $430,577 and $357,549 during the nine months ended January 31, 2024 and 2023, respectively. Since becoming a wholly owned subsidiary of Red Cat, the Company has received funding from its Parent to support its operations. During the nine months ended January 31, 2023, the Company received net funding of $1,328,750. The balance due to Red Cat at January 31, 2023 totaled $2,955,228. During the nine months ended January 31, 2024, the Company received net funding of $1,198,473. The balance due to Red Cat at January 31, 2024 totaled $4,412,828. Note 13 – Sale of Consumer Segment In November 2022, the Company’s sole shareholder, Red Cat Holdings, Inc. (“Red Cat”) approved a Stock Purchase Agreement (the “SPA”) between Red Cat, Unusual Machines, Inc. (“UM”) and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, related to the sale of the Red Cat’s consumer business consisting of Rotor Riot, (“RR”), and Fat Shark Holdings (“FS”), to UM. Under the terms of the Purchase Agreement, as amended, the UM will purchase from Red Cat its Rotor Riot and Fat Shark subsidiaries for $20.0 million (the “Purchase Price”) comprised of (i) $1.0 million in cash, (ii) a $2.0 million promissory note (the “Note”) issued by UM to Red Cat, and (iii) $17.0 million of UM common stock based on the value at its initial public offering. On February 16, 2024, UM completed their initial public offering and subsequently Red Cat and UM completed the sale of Rotor Riot and Fat Shark. Note 14 – Subsequent Events Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure except as noted below. As noted in Note 13, on February 16, 2024, Unusual Machines closed its Initial Public Offering of 1,250,000 shares of common stock at a public offering price of $4.00 per share. The shares will be traded on the New York Stock Exchange American. Simultaneous with the closing of the IPO, the Company acquired Fat Shark and Rotor Riot from Red Cat while also issuing Red Cat 4,250,000 shares of common stock in Unusual Machines. F- 52 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of Rotor Riot, LLC Opinion on the Financial Statements We have audited the accompanying balance sheets of Rotor Riot, LLC as of April 30, 2023 and April 30, 2022, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and April 30, 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s Liabilities exceeding Assets raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /S/ BF Borgers CPA PC BF Borgers CPA PC (PCAOB ID 5041) We have served as the Company's auditor since 2020 Lakewood, CO August 7, 2023 F- 53 Rotor Riot, LLC Balance Sheets April 30, April 30, 2023 2022 ASSETS Current assets Cash $ 912 $ 20,041 Inventory 861,708 375,570 Other 160,517 245,341 Total current assets 1,023,137 640,952 Operating lease right-of-use assets 84,544 133,293 Intangible assets, net 20,000 20,000 Other 3,853 3,853 Total long term assets 108,397 157,146 TOTAL ASSETS $ 1,131,534 $ 798,098 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 178,420 $ 11,965 Accrued expenses 42,012 68,266 Due to related party 3,070,304 1,529,371 Customer deposits 227,460 136,197 Operating lease liabilities 49,461 51,095 Total current liabilities 3,567,657 1,796,894 Operating lease liabilities – long term 41,814 91,275 Commitments and contingencies Members’ equity Cumulative contributions 151,000 151,000 Cumulative deficit (2,228,614 ) (840,748 ) Cumulative distributions (400,323 ) (400,323 ) Total members' equity (2,477,937 ) (1,090,071 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,131,534 $ 798,098 See accompanying notes. F- 54 Rotor Riot, LLC Statements of Operations Year ended April 30, 2023 2022 Revenues $ 3,447,149 $ 2,028,149 Cost of goods sold 3,015,398 1,587,674 Gross margin 431,751 440,475 Operating expenses Operations 403,912 372,473 Research and development 65,487 58,719 Sales and marketing 845,526 220,007 General and administrative 311,301 220,366 Stock based compensation 201,442 161,087 Total operating expenses 1,827,668 1,032,652 Operating loss (1,395,917 ) (592,177 ) Other expense (income) Interest expense – 4,701 Other, net (8,051 ) – Other expense (income) (8,051 ) 4,701 Net loss $ (1,387,866 ) $ (596,878 ) See accompanying notes. F- 55 Rotor Riot, LLC Statements of Members’ Equity Cumulative Contributions Cumulative Deficit Cumulative Distributions Total Members’ Equity Balances, April 30, 2021 $ 151,000 $ (243,870 ) $ (400,323 ) $ (493,193 ) Net loss – (596,878 ) – (596,878 ) Balances, April 30, 2022 $ 151,000 $ (840,748 ) $ (400,323 ) $ (1,090,071 ) Net loss – (1,387,866 ) – (1,387,866 ) Balances, April 30, 2023 $ 151,000 $ (2,228,614 ) $ (400,323 ) $ (2,477,937 ) See accompanying notes. F- 56 Rotor Riot, LLC Cash Flows Statements Year ended April 30, 2023 2022 Cash flows from operating activities Net loss $ (1,387,866 ) $ (596,878 ) Stock based compensation 201,442 161,087 Changes in operating assets and liabilities Inventory (486,138 ) (161,581 ) Other 84,824 (236,737 ) Operating lease right-of-use assets and liabilities (2,346 ) 9,077 Customer deposits 91,263 107,770 Accounts payable 166,455 4,145 Accrued expenses (26,254 ) 34,911 Net cash used in operating activities (1,358,620 ) (678,206 ) Cash flows from financing activities Proceeds from related party obligations 1,339,491 860,384 Payments under debt obligations – (269,045 ) Net cash provided by financing activities 1,339,491 591,339 Net decrease in Cash (19,129 ) (86,867 ) Cash, beginning of period 20,041 106,908 Cash, end of period $ 912 $ 20,041 Cash paid for interest – 4,701 Cash paid for income taxes – – See accompanying notes. F- 57 Rotor Riot, LLC NOTES TO FINANCIAL STATEMENTS April 30, 2023 and 2022 Note 1 – The Business Originally founded in 2016, Rotor Riot, LLC (“Rotor Riot” or the “Company”) was acquired by and became a wholly owned subsidiary of Red Cat Holdings (“Red Cat” or the “Parent”) in January 2020. The Company sells drones, parts and related equipment to the consumer marketplace through its digital storefront located at www.rotorriot.com. Note 2 – Going Concern The Company has incurred net losses since its acquisition by Red Cat which has provided funding to enable the company to continue to operate. These financial statements reflect the operating results of the Company for the two years ended April 30, 2023, including the financial support received from its Parent. These financial statements may not be indicative of the company’s operating results if it had operated without financial support from its Parent. The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying financial statements, we had negative working capital of $2,544,520 at April 30, 2023 and have accumulated losses totaling $2,228,614 through April 30, 2023. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern. Note 3 – Summary of Significant Accounting Policies Basis of Accounting – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Certain prior period amounts have been restated to conform to the current year presentation. Use of Estimates – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives. Cash and Cash Equivalents – At April 30, 2023 and 2022, we held cash of $912 and $20,041, respectively, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk. Leases – Effective August 1, 2021, the Company adopted Accounting Standards Codification (ASC) 842 titled “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company adopted ASC 842 on a modified retrospective transition basis which means that it did not restate financial information for any periods prior to August 1, 2021. Upon adoption, the Company recognized a lease liability obligation of $260,305 and a right-of-use asset for the same amount. F- 58 The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its last debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur. Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The guidance establishes three levels of the fair value hierarchy as follows: Level 1 : Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 : Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments. Revenue Recognition – The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company’s revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $227,460 and $136,197 at April 30, 2023 and 2022, respectively. F- 59 Research and Development – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products. Income Taxes – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Recent Accounting Pronouncements – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements. Stock-Based Compensation – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term. Related Parties – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12. Note 4 – Inventories Inventories, consisting solely of finished goods, totaled $861,708 and $375,570 at April 30, 2023 and 2022, respectively. Note 5 – Other Assets Other assets, short term, included. April 30, 2023 April 30, 2022 Prepaid inventory $ 153,117 $ 231,467 Prepaid expenses 7,400 13,874 Total $ 160,517 $ 245,341 Other assets, long term, represented security deposits at April 30, 2023 and 2022. Note 6 – Intangible Assets Intangible assets relate solely to trademarks acquired in an acquisition completed in 2016. F- 60 Note 7 – Operating Leases As of April 30, 2023, the Company had operating type leases for real estate and no finance type leases. The Company’s leases have remaining lease terms of up to 1.75 years. Operating lease expense totaled $54,238 for the fiscal year ended April 30, 2023. |-Future Lease Payments-| Location Monthly Rent Expiration Fiscal 2024 Fiscal 2025 Total Orlando, Florida $ 4,692 January 2025 57,716 43,933 101,649 Year Ended Supplemental Information April 30, 2023 Operating cash paid to settle lease liabilities $ 56,584 Right of use asset additions in exchange for lease liabilities $ – Weighted average remaining lease term (in years) 1.75 Weighted average discount rate 12% Note 8 – Debt Obligations A. Shopify Capital Shopify Capital is an affiliate of Shopify, Inc. which provides sales software and services to the Company. The Company processes customer transactions ordered on the e-commerce site for Rotor Riot through Shopify. Shopify Capital has entered into multiple agreements with the Company in which it has “purchased receivables” at a discount. Shopify retains a portion of the Company's daily receipts until the purchased receivables have been paid. The Company recognizes the discount as a transaction fee, in full, in the month in which the agreement is executed. Agreements with activity during the two years ended April 30, 2023 included: Date of Transaction Purchased Receivables Payment to Company Transaction Fees Withholding Rate Fully Repaid In September 2020 $209,050 $185,000 $24,050 17% May 2021 April 2021 $236,500 $215,000 $21,500 17% January 2022 B. PayPal PayPal is an electronic commerce company that facilitates payments between parties through online funds transfers. The Company processes certain customer payments ordered on its e-commerce site through PayPal. The Company has entered into multiple agreements under which PayPal provides an advance on customer payments, and then retains a portion of customer payments until the advance is repaid. PayPal charges a fee which the Company recognizes in full upon entering an agreement. A November 2019 agreement under which PayPal advanced $100,000 and charged a transaction fee of $6,900 was completed in January 2021. A January 2021 agreement under which PayPal advanced $75,444 and charged a transaction fee of $2,444 was completed in August 2021. F- 61 Note 9 – Income Taxes Rotor Riot is an LLC based in the United States and files its annual income tax return on a Form 1120. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods. At April 30, 2023 and 2022, we had accumulated deficits of approximately $2,230,000 and $841,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $334,500 and $126,150, respectively, calculated using the minimum U.S. corporate tax rate of 15%. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at April 30, 2023 and 2022. Note 10 – Members’ Equity In January 2020, Red Cat Holdings acquired 8,000,001 Membership Interests, representing 100% ownership of the Company. Note 11 – Share Based Awards Red Cat has established the 2019 Equity Incentive Plan (the “Plan”) to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the “Awards”). The Company recognized stock based compensation expense in connect with Awards to its employees. Options The range of assumptions used to calculate the fair value of options granted during the year ended April 30 was: 2023 2022 Exercise Price $1.06 – 2.38 $2.52 – 2.60 Stock price on date of grant 1.06 – 2.38 2.52 – 2.60 Risk-free interest rate 3.34 – 4.18% 1.32 – 1.57% Dividend yield – – Expected term (years) 8.25 8.25 – 10.00 Volatility 253.52 – 260.06% 214.53 – 270.30% F- 62 A summary of options activity under the Plan since April 30, 2021 is as follows: Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of April 30, 2021 147,475 $ 0.82 8.99 474,870 Granted 221,000 2.58 Exercised – – Forfeited or expired (1,000 ) 2.60 Outstanding as of April 30, 2022 367,475 1.88 8.59 178,445 Granted 50,000 1.32 Exercised – – Forfeited or expired – – Outstanding as of April 30, 2023 417,475 1.81 7.82 9,586 Exercisable as of April 30, 2023 277,973 $ 1.63 7.43 $ 9,586 The aggregate intrinsic value of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of April 30, 2023 and April 30, 2022, there was $207,986 and $405,863 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 1.58 and 1.44 years, respectively. Stock Compensation Stock compensation expense for the years ended April 30, 2023 and 2022 was as follows: 2023 2022 General and administrative $ 11,756 $ 9,136 Research and development 22,117 18,349 Operations 115,419 108,487 Sales and marketing 52,150 25,115 Total $ 201,442 $ 161,087 Note 12 – Related-Party Transactions The Company purchases drones from Fat Shark Holdings, Ltd, which is also wholly owned by Red Cat Holdings. Purchases from Fat Shark totaled $400,619 and $104,961 during the fiscal years ended April 30, 2023 and 2022, respectively. Since becoming a wholly owned subsidiary of Red Cat, the Company has received funding from its Parent to support its operations. During the fiscal year ended April 30, 2022, the Company received net funding of $1,021,471 primarily related to inventory which increased $398,318, payments of accounts payable and accrued expenses of $269,045, and a net loss of $596,878. The balance due to Red Cat at April 30, 2022 totaled $1,529,371. During the fiscal year ended April 30, 2023, the Company received net funding of $1,540,933 primarily related to increased inventory purchases and a net loss of $1,387,866. The balance due to Red Cat at April 30, 2023 totaled $3,070,304. F- 63 Note 13 – Sale of Consumer Segment On November 21, 2022, the Company’s sole shareholder, Red Cat Holdings, Inc. (“Red Cat”) approved a Stock Purchase Agreement (the "SPA") between Red Cat, Unusual Machines, Inc. (“UM”) and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, related to the sale of the Red Cat’s consumer business consisting of Rotor Riot, (“RR”), and Fat Shark Holdings (“FS”), to UM for cash and stock consideration totaling $18 million. On November 21, 2022, Red Cat approved the SPA and its submission to shareholders for approval. On March 8, 2023, shareholders approved the sale to UM. On April 13, 2023, the SPA was amended (the “Amendment”) and the total purchase price increased to $20 million. Under the Amendment, the cash consideration payable at closing was reduced to $3.0 million, as may be adjusted for working capital on the closing date (increased for positive working capital and decreased for negative working capital), and the non-cash consideration adjusted to provide for payment of $17 million in shares of UM’s common stock (the “Unusual Common Stock”) issued at the initial public offering price for the Unusual Common Stock. All of the Unusual Common Stock will be subject to a lock-up of 180 days and be eligible for registration. The Company estimates that working capital at closing will range between $2.0 to $4.5 million. In addition, closing of the SPA is subject to successful completion of an initial public offering (the “IPO”) by UM in the minimum amount of $10 million, and the listing of UM’s common stock on Nasdaq or NYSE. UM filed a registration statement on Form S-1 for an initial public offering of its Common Stock with the SEC. Note 14 – Subsequent Events Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure except as set forth below: In June 2023, the Company entered into an agreement with PayPal under which PayPal provides an advance on customer payments of $240,000, and then retains a portion of customer payments until the advance is repaid. PayPal charges a transaction fee of $22,856 which the Company recognized in full upon entering the agreement. F- 64 Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure None.