What changed in this filing

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Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 655 added, 524 removed, 466 unchanged (72% of the section changed)

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Cash and cash equivalents

Accounts Receivable

Prepaid inventory

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Goodwill and intangible assets

Other non-current assets

Total non-current assets

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS'

Current liabilities

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Deferred revenue

Warrant liabilities

Derivative liability – convertible

note conversion option

Total current liabilities

Long-term liabilities

Promissory note

Operating lease liabilities – long term

Convertible note

Operating lease liabilities –

Total liabilities

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Stockholders’ equity:

Series B preferred stock - $ 0.01 par value, 10,000,000 authorized and 50 and 190 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Common stock - $ 0.01 par value, 500,000,000 authorized and 10,411,240 and 3,217,255 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Series A preferred stock - $ 0.01

par value, 4,250 authorized and 4,250 and 0 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively

Series B preferred stock - $ 0.01

par value, 10,000,000 authorized and 50 and 190 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively

Series C preferred stock - $ 0.01

par value, 3,000 authorized and 210 and 0 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively

Common stock - $ 0.01 par value,

500,000,000 authorized and 6,184,983 and 3,217,255 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

Additional paid in capital

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Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying condensed unaudited notes to the consolidated

condensed financial statements.

Total liabilities and stockholders’

See accompanying condensed unaudited notes to the

consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Operations

For the Three and Six Months Ended June 30, 2024

Three months ended June 30,

Six months ended June 30,

For the Three and Nine months Ended September

30, 2024 and 2023

Three months ended September 30,

Nine months ended September 30,

Cost of goods sold

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( 1,966,876 )

Other Expense

Other Income (Expense)

Interest income

Interest expense

Other Expense

Loss on debt extinguishment

Change in fair value of derivatives and warrant liabilities

Other (Income) Expense

$ ( 2,144,250 )

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Basic and diluted

See accompanying condensed unaudited notes to the consolidated

condensed financial statements.

See accompanying condensed unaudited notes to the

consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Changes in Stockholders’

For the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30, 2023 (Restated – Note 13)

Consolidated Condensed Statement of Changes

in Stockholders’ Equity

For the Nine months Ended September 30, 2024

Nine months Ended September 30, 2023 (Restated – Note 14)

Series A, Preferred Stock

Series B, Preferred Stock

Series C, Preferred Stock

Additional Paid-In

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$ ( 3,162,786 )

Six Months Ended June 30, 2024

Balance, September 30, 2023

$ ( 3,516,460 )

Nine months Ended September 30, 2024

Series A, Preferred Stock

Series B, Preferred Stock

Series C, Preferred Stock

Additional Paid-In

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$ ( 6,651,286 )

See accompanying condensed unaudited notes to the consolidated

condensed financial statements.

Issuance of common shares, equity incentive plan

Exchange of common shares for Series A preferred

( 4,250,000 )

Exchange of convertible note for Series C preferred

Stock compensation expense – vested stock

Stock option compensation expense

( 2,144,250 )

Balance, September 30, 2024

$ ( 8,795,536 )

See accompanying condensed unaudited notes to the consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Cash Flows

For the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30,

For the Nine months Ended September 30, 2024

Nine months Ended September 30,

(Restated – Note 14)

Cash flows from operating activities:

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$ ( 1,966,876 )

Depreciation and amortization

Stock compensation expense as settlement

Stock compensation expense

Change in fair value for warrant and derivative liabilities

Loss on debt extinguishment, non-cash component

Change in assets and liabilities:

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Cash flows from investing activities

Cash portion of consideration paid for acquisition of businesses, net of cash received

Cash portion of consideration paid for acquisition of businesses;

net of cash received

Purchase of property & equipment

Net cash used in investing activities

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Deferred offering costs recorded as reduction of proceeds

See accompanying condensed unaudited notes to the consolidated

condensed financial statements.

See accompanying condensed unaudited notes to the

consolidated condensed financial statements.

Unusual Machines, Inc.

Notes to Consolidated Condensed Financial Statements

For the Period Ended June 30, 2024

For the Period Ended September 30, 2024

Note 1 – Organization and nature of business

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Principles of Consolidation

The consolidated financial statements include accounts

of the Company and its wholly owned subsidiaries, Fat Shark and Rotor Riot since the acquisitions on February 16, 2024.

Intercompany transactions

and balances have been eliminated upon consolidation.

The consolidated financial statements include

accounts of the Company and its wholly owned subsidiaries, Fat Shark and Rotor Riot since the acquisitions on February 16, 2024.

transactions and balances have been eliminated upon consolidation.

Unaudited interim financial information

The consolidated condensed financial statements of

the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission

Certain information and footnote disclosures normally included in financial statements prepared in accordance

with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations.

Accordingly, these

condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s

The consolidated condensed financial statements

of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange

Commission (the “SEC”).

Certain information and footnote disclosures normally included in financial statements prepared in

accordance with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations.

these condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s

Annual Report on Form 10-K/A, for the year ended December 31, 2023.

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Accordingly, actual results could differ from those estimates, and such results could be material.

The financial statements include some amounts that

are based on management's best estimates and judgments.

Significant estimates reflected in these financial statements include those used

to (i) determine stock-based compensation, (ii) the fair value of assets acquired and liabilities assumed in business combinations and

the value of shares issued as consideration, (iii) reserves and allowances related to accounts receivable, inventory and sales, (iv) the

evaluation of long-term assets, including goodwill, for impairment, (v) the fair value of lease liabilities and related right of use assets,

and (vi) the warranty liability.

The financial statements include some

amounts that are based on management's best estimates and judgments.

Significant estimates reflected in these financial statements

include those used to (i) determine stock-based compensation, (ii) the fair value of assets acquired and liabilities assumed in

business combinations and the value of shares issued as consideration, (iii) reserves and allowances related to accounts receivable,

inventory and sales, (iv) the evaluation of long-term assets, including goodwill, for impairment, (v) the fair value of lease

liabilities and related right of use assets, the fair value of embedded conversion option derivatives and warrant liabilities, and

(vi) the warranty liability reserve.

Cash and Cash Equivalents

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The Company’s cash balance may at times exceed these limits.

At June 30, 2024 and December

At September 30, 2024 and December

31, 2023, the Company had approximately $ 1.4 million and $ 0.6 million, respectively, in excess of federally insured limits.

continually monitors its positions with, and the credit quality of the financial institutions with which it invests.

continually monitors its position with, and the credit quality of the financial institutions with which it invests.

Accounts Receivable, net

The Company carries its accounts receivable at invoiced

Upon the closing of the acquisitions in February 2024 when we acquired accounts receivable, the Company adopted ASC 326, Financial

Instruments – Credit Losses, which the Company evaluates all credit losses as of the reporting date.

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.

The Company carries its accounts receivable at

invoiced amounts.

Upon the closing of the acquisitions in February 2024 when we acquired accounts receivable, the Company adopted ASC

326, Financial Instruments – Credit Losses, which the Company evaluates all credit losses as of the reporting date.

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 June 30, 2024 and December

31, 2023, the Company considers accounts receivable to be fully collectible;

accordingly, no allowance for doubtful accounts has been

Inventories, which consist of finished goods, are

stated at the lower of cost or net realizable value, and are measured using the first-in, first-out method.

Cost components include direct

materials and direct labor, as well as in-bound freight.

At each balance sheet date, the Company evaluates the net realizable value of

its inventory using various reference measures including current product selling prices, as well as evaluating for excess quantities and

obsolescence.

30, 2024 and December 31, 2023, the Company considers accounts receivable to be fully collectible;

accordingly, no allowance for doubtful

accounts has been established.

Inventories, which consist of finished goods,

are stated at the lower of cost or net realizable value, and are measured using the first-in, first-out method.

Cost components include

direct materials and direct labor, as well as in-bound freight.

At each balance sheet date, the Company evaluates the net realizable value

of its inventory using various reference measures including current product selling prices, as well as evaluating for excess quantities

and obsolescence.

Deferred offering costs

The Company deferred direct incremental costs associated

with its IPO.

The Company capitalized $ 127,687 and $ 70,268 during the six months ended June 30, 2024 and 2023 prior to the IPO, respectively

and the deferred offering costs were $ 512,758 as of December 31, 2023.

Deferred offering costs consist of primarily legal, advisory, and

consulting fees incurred in connection with the formation and preparation of the IPO.

After consummation of the IPO, total deferred offering

costs of $ 640,445 were recorded as a reduction to additional paid-in capital generated as a result of the offering.

The Company deferred direct incremental costs

associated with its IPO.

The Company capitalized $ 127,687 and $ 376,702 during the nine months ended September 30, 2024 and 2023 prior

to the IPO, respectively and the deferred offering costs were $ 512,758 as of December 31, 2023.

Deferred offering costs consist of primarily

legal, advisory, and consulting fees incurred in connection with the formation and preparation of the IPO.

After consummation of the IPO,

total deferred offering costs of $ 640,445 were recorded as a reduction to additional paid-in capital generated as a result of the offering.

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 .

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 .

The Company has adopted Accounting Standards Codification

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same amount related to the lease in Orlando, FL.

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 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 used

an effective discount rate of 11.49 % 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.

Therefore, the Company

used an effective discount rate of 11.49 % 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.

Goodwill and Long-lived Assets

Goodwill represents the future economic benefit arising

from other assets acquired in an acquisition that are not individually identified and separately recognized.

The Company tests goodwill

for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”).

is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill

might be impaired.

ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence

of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than

its carrying amount.

If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not

that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required.

if an entity concludes otherwise, then it is required to perform an impairment test.

The impairment test involves comparing the estimated

fair value of a reporting unit with its book value, including goodwill.

If the estimated fair value exceeds book value, goodwill is considered

not to be impaired.

If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in

an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill

allocated to the reporting unit.

The estimate of fair value of a reporting unit is

computed using either an income approach, a market approach, or a combination of both.

Goodwill represents the future economic benefit

arising from other assets acquired in an acquisition that are not individually identified and separately recognized.

The Company tests

goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”).

Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate

that goodwill might be impaired.

ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether

the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit

is less than its carrying amount.

If, after assessing the totality of events or circumstances, an entity determines it is not more likely

than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required.

However, if an entity concludes otherwise, then it is required to perform an impairment test.

The impairment test involves comparing the

estimated fair value of a reporting unit with its book value, including goodwill.

If the estimated fair value exceeds book value, goodwill

is considered not to be impaired.

If, however, the fair value of the reporting unit is less than book value, then an impairment loss is

recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total

amount of goodwill allocated to the reporting unit.

The estimate of fair value of a reporting unit

is computed using either an income approach, a market approach, or a combination of both.

Under the income approach, we utilize the discounted

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based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services.

The Company reviews long-lived assets, including tangible

assets and other intangible assets with definitive lives, for impairment whenever events or changes in circumstances indicate that the

asset’s carrying amount may not be recoverable.

The Company conducts its long-lived asset impairment analyses in accordance with

ASC 360, “Impairment or Disposal of Long-Lived Assets”.

ASC 360 requires the Company to group assets and liabilities at the

lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate

The Company reviews long-lived assets, including

tangible assets and other intangible assets with definitive lives, for impairment whenever events or changes in circumstances indicate

that the asset’s carrying amount may not be recoverable.

The Company conducts its long-lived asset impairment analyses in accordance

with ASC 360, “Impairment or Disposal of Long-Lived Assets”.

ASC 360 requires the Company to group assets and liabilities

at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate

the asset group against the sum of the undiscounted future cash flows.

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value hierarchy as follows:

Inputs are unadjusted, quoted

prices in active markets for identical assets or liabilities at the measurement date;

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;

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

Inputs are unadjusted,

quoted prices in active markets for identical assets or liabilities at the measurement date;

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;

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.

The following table details the fair value measurements

of the Company’s financial liabilities as of September 30, 2024:

Schedule of fair value measurements of financial liabilities

Warrant liabilities

Derivative liability – convertible note conversion option

Changes in Level 3 financial instruments are

Schedule of Level 3 financial instruments

Issuances and

September 30,

Warrant liabilities

Derivative liability – convertible note conversion option

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.

Warranty Liability

Fat Shark products are warranted against defects in

materials and workmanship for a period of two years from the date of shipment.

of cash, receivables, current assets, accounts payable, accrued expenses, debt, and derivative liabilities.

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.

Accrued Warranty

Fat Shark products are warranted against defects

in materials and workmanship for a period of two years from the date of shipment.

If a defect arises during the warranty period, Fat Shark

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Allowances for estimated warranty costs are recorded during the period of sale.

The determination

of such allowances requires the Company to make estimates of product warranty claim rates and expected costs to repair or to replace the

products under warranty.

The Company currently establishes warranty reserves based on historical warranty costs for each product line

combined with liability estimates based on the prior 24 months’ sales activities.

If actual return rates and/or repair and replacement

costs differ significantly from the Company’s estimates, adjustments to recognize additional cost of sales may be required in future

Historically the warranty accrual and the expense amounts have been immaterial.

The warranty liability is included in accrued

expenses on the accompanying consolidated balance sheets and amounted $ 66,025 as of June 30, 2024, which was acquired as a part of the

acquisitions in February 2024.

Rotor Riot does

not provide any warranty of any kind for any of the equipment it sells or otherwise distributes.

Consumers assume all risk for any products

purchased or received from Rotor Riot.

The determination of such allowances requires

the Company to make estimates of product warranty claim rates and expected costs to repair or to replace the products under warranty.

The Company currently establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates

based on the prior 24 months’ sales activities.

If actual return rates and/or repair and replacement costs differ significantly

from the Company’s estimates, adjustments to recognize the additional cost of sales may be required in future periods.

the warranty accrual and the expense amounts have been immaterial.

The warranty liability is included in accrued expenses on the accompanying

consolidated balance sheets and amounted to $ 19,080 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

Rotor Riot does not provide any warranty of any

kind for any of the equipment it sells or otherwise distributes.

Consumers assume all risk for any products purchased or received from

Revenue Recognition

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Identify the contract with a customer;

Identify the performance obligations in the

Identify the performance obligations in

the contract;

Determine the transaction price;

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satisfies a performance obligation at a point in time.

The Company receives revenues from the sale of products

from both retail distributers and individual consumers.

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 probable.

Revenue is recognized when the

title to the products has been passed to the customer, which is the date the products are shipped to the customer.

This is the date the

performance obligation has been met.

The Company receives revenues from the sale of

products from both retail distributers and individual consumers.

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 probable.

Revenue is recognized

when the title to the products has been passed to the customer, which is the date the products are shipped to the customer.

date the performance obligation has been met.

Deferred Revenue

Deferred revenue relates to (i) orders placed, but

not yet fulfilled and (ii) customer tickets purchased related to the Company’s Rampage event, in which tickets are sold in advance

Deferred revenue relates to (i) orders placed,

but not yet fulfilled and (ii) customer tickets purchased related to the Company’s Rampage event, in which tickets are sold in advance

and recognized when the event takes place.

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Deferred revenue related

to orders placed, but not yet fulfilled totaled $ 82,120 and $ 0 as of June 30, 2024 and December 31, 2023, respectively.

to orders placed, but not yet fulfilled totaled $ 300,517 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

Cost of Goods Sold

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Shipping and Handling Costs

Shipping and handling costs incurred for product shipped

to customers are included in general and administrative expenses and amounted to $ 74,634 since February 16, 2024, the date of the acquisition,

through June 30, 2024.

The Company did no t incur and shipping and handling costs in the six months ended June 30, 2023.

Shipping and handling

costs charged to customers are included in sales.

Shipping and handling costs incurred for products

shipped to customers are included in general and administrative expenses and amounted to $ 123,690 since February 16, 2024, the date of

the acquisition, through September 30, 2024.

The Company did no t incur shipping and handling costs in the nine months ended September

Shipping and handling costs charged to customers are included in sales.

Research and Development

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third-party development costs, materials, and a proportionate share of overhead costs.

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

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 six

months ending June 30, 2024 and 2023 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

other than a net operating loss carryforward offset by a valuation allowance as of June 30, 2024 and December 31, 2023.

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

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

nine months ending September 30, 2024 and 2023 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 other than a net operating loss carryforward offset by a valuation allowance as of September 30, 2024 and December 31, 2023.

Stock-Based Compensation

Stock options are valued using 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.

The Company recognizes

forfeitures as they occur.

The fair value of restricted stock is based on our quoted stock price or other fair value indicators on the

date of grant.

Compensation cost is recognized on a straight-line basis over the service period which is typically the vesting term.

The Company accounts for warrants to purchase shares

of its common stock in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”)

Stock options are valued using 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, expected term and future

The Company recognizes forfeitures as they occur.

The fair value of restricted stock is based on our quoted stock price

or other fair value indicators on the date of grant.

Compensation cost is recognized on a straight-line basis over the service

period which is typically the vesting term.

The Company accounts for warrants to purchase

shares of its common stock in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”)

and ASC 815, Derivatives and Hedging (“ASC 815”).

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warrants are outstanding.

For issued or modified warrants that meet all of the

criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance.

or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities

at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Changes in the estimated fair value of the

warrants classified as liabilities are recognized as a non-cash gain or loss in the consolidated statements of operations and comprehensive

For issued or modified warrants that meet all

of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded

as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Changes in the estimated fair

value of the warrants classified as liabilities are recognized as a non-cash gain or loss in the consolidated statements of operations

and comprehensive loss.

Embedded Conversion Option Derivative

The Company accounts for embedded debt conversion

features in accordance with the guidance in ASC 815, Derivatives and Hedging (“ASC 815”).

If the embedded debt conversion

feature is not clearly and closely related to the debt host, then it is required to be bifurcated from the host contract and accounted

for separately as a derivative liability.

The derivative liability is required to be recorded at its initial fair value on the date of

issuance, and each balance sheet date, thereafter.

Changes in the estimated fair value of the derivative are recognized as a non-cash

gain or loss in the consolidated statements of operations and comprehensive loss.

This assessment, which requires the use of professional

judgment, is conducted at the time of Note issuance and as of each subsequent quarterly period end date while the Note is outstanding.

Net Loss per Share

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Segment Reporting

Since the acquisitions of Fat Shark and Rotor Riot,

the Company operates with one reportable segment.

The Company bases its reportable segment based on how our Chief Operating Decision Maker

manages the business, makes resource allocations and operating decisions, and evaluates operating performance.

Since the acquisitions of Fat Shark and Rotor

Riot, the Company operates with one reportable segment.

The Company bases its reportable segment based on how our Chief Operating Decision

Maker manages the business, makes resource allocations and operating decisions, and evaluates operating performance.

Recent Accounting Pronouncements

In November 2023, new accounting guidance was issued

that updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly

provided to the Chief Operating Decision Maker (the “CODM”) and included within each reported measure of a segment's profit

In November 2023, new accounting guidance was

issued that updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that

are regularly provided to the Chief Operating Decision Maker (the “CODM”) and included within each reported measure of a segment's

profit or loss.

This new guidance also requires disclosure of the title and position of the individual identified as the CODM and an explanation

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operates a single segment and the Company does not anticipate any net effect related to the adoption.

In December 2023, new accounting guidance was issued

related to income tax disclosures.

The new guidance requires disaggregated information about a reporting entity’s effective tax

rate reconciliation as well as additional information on income taxes paid.

The new guidance is effective on a prospective basis for annual

periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial statements that have not yet been issued

or made available for issuance.

In December 2023, new accounting guidance was

issued related to income tax disclosures.

The new guidance requires disaggregated information about a reporting entity’s effective

tax rate reconciliation as well as additional information on income taxes paid.

The new guidance is effective on a prospective basis for

annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial statements that have not yet been

issued or made available for issuance.

This new guidance will likely not result in additional required disclosures when adopted.

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Fat Shark and Rotor Riot

On February 16, 2024, the Company closed on the acquisitions

of both Fat Shark and Rotor Riot from Red Cat and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat (the “Business

Combination”) (See Note 11 – Related Party Transactions for additional information).

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 Company specializes in the production and sale

of small drones and essential components and with the acquisitions of Fat Shark and Rotor Riot, it brings brand recognition and a strong

curated retail channel in the FPV drone market segment.

This Business Combination is a realization of the Company’s strategy to

build its business both organically and through strategic acquisitions that leverage our retail business to onshore production of critical

On February 16, 2024, the Company closed on the

acquisitions of both Fat Shark and Rotor Riot from Red Cat and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat (the

“Business Combination”) (See Note 12 – Related Party Transactions for additional information).

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 Company specializes in the production and

sale of small drones and essential components and with the acquisitions of Fat Shark and Rotor Riot, it brings brand recognition and a

strong curated retail channel in the FPV drone market segment.

This Business Combination is a realization of the Company’s strategy

to build its business both organically and through strategic acquisitions that leverage our retail business to onshore production of critical

drone components.

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customers that require a domestic supply chain.

The Business Combination was based on a share purchase

agreement (the “Purchase Agreement”) that was executed on November 21, 2022.

The Business Combination was based on a share

purchase agreement (the “Purchase Agreement”) that was executed on November 21, 2022.

From November 21, 2022 to February 16,

2024, the Purchase Agreement was subject to several amendments and subject to certain working capital adjustments.

Under the terms of the Purchase

Agreement, as amended, the consideration paid for the acquired assets consisted of (i) $ 1 .0 million in cash and a cash deposit of $ 0.1

million made in 2022, (ii) issuance of a $ 4 .0 million 18 month promissory note to Red Cat (see Note 8 “Debt” for further details),

and (iii) the issuance of 4,250,000 shares of the Company’s common stock, which represented approximately 48.66% of the outstanding

common stock of the Company on February 16, 2024, after the effect of the issued shares (collectively the “Consideration Paid”).

The Company has currently valued the Red Cat common stock at $ 4.00 per share which represents the IPO price of the Company’s common

Under the terms of

the Purchase Agreement, as amended, the consideration paid for the acquired assets consisted of (i) $ 1 .0 million in cash and a cash deposit

of $ 0.1 million made in 2022, (ii) issuance of a $ 4 .0 million 18 month promissory note to Red Cat (see Note 8 “Convertible Note”

for further details), and (iii) the issuance of 4,250,000 shares of the Company’s common stock, which represented approximately

48.66% of the outstanding common stock of the Company on February 16, 2024, after the effect of the issued shares (collectively the “Consideration

The Company valued the Red Cat common stock at $ 4.00 per share which represents the IPO price of the Company’s common

stock on February 15, 2024.

Accordingly, the value of the Consideration Paid is equal to $ 22,100,000 .

See Note 14, Subsequent Events,

related to the working capital adjustment.

The acquisitions met the definition of a business

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Such amounts are subject to adjustment during the one-year measurement period.

The following represents the fair value allocation of Fat Shark and Rotor

Riot Purchase Price:

The following represents the fair value allocation of Fat Shark and

Rotor Riot Purchase Price:

Schedule of fair value allocation

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Total purchase price

Initial goodwill and intangible assets relate to Fat

Shark and Rotor Riot being FPV market leaders and their well-known and established brands within the industry.

Combining these entities

and their existing customer base along with Unusual Machines’ strategy of extending to B2B sales of drone components will provide strategic

The Company will evaluate the amount of goodwill and intangibles that are expected to be deductible for tax purposes once the

unallocated purchase price is finalized.

Initial goodwill and intangible assets relate

to Fat Shark and Rotor Riot being FPV market leaders and their well-known and established brands within the industry.

Combining these

entities and their existing customer base along with Unusual Machines’ strategy of extending to B2B sales of drone components will

provide a strategic advantage.

The Company will evaluate the amount of goodwill and intangibles that are expected to be deductible for

tax purposes once the unallocated purchase price is finalized.

The results of Fat Shark and Rotor Riot have been

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Schedule of unaudited pro forma results

For the Six Months Ended

June 30, 2024

June 30, 2023

Proforma (unaudited)

For the Nine months Ended

September 30, 2024

September 30, 2023

Gross profit/(loss)

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Net earnings per share:

This unaudited consolidated pro forma financial information

is presented for informational purposes only.

The unaudited consolidated pro forma adjustments are based on preliminary estimates, information

available and certain assumptions, and may be revised as additional information becomes available.

In addition, the unaudited pro forma

financial information does not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition.

The unaudited pro forma financial information from

the beginning of the periods presented until the acquisition date includes adjustments to:

1) eliminate intercompany revenue and associated

cost of sales for sales of product from Fat Shark to Rotor Riot, 2) to adjust fair value for certain Fat Shark inventory as if the acquisition

had occurred as of the beginning of the respective periods and 3) to include acquisition related expenses in the Q1 ’23 that were

incurred in Q1 ’24.

This unaudited consolidated pro forma financial

information is presented for informational purposes only.

The unaudited consolidated pro forma adjustments are based on preliminary estimates,

information available and certain assumptions, and may be revised as additional information becomes available.

In addition, the unaudited

pro forma financial information does not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition.

The unaudited pro forma financial information

from the beginning of the periods presented until the acquisition date includes adjustments to:

1) eliminate intercompany revenue and

associated cost of sales for sales of product from Fat Shark to Rotor Riot, 2) to adjust fair value for certain Fat Shark inventory as

if the acquisition had occurred as of the beginning of the respective periods and 3) to include acquisition related expenses in the Q1

’23 that were incurred in Q1 ’24.

Note 4 – Inventories

Inventories, consisting solely of finished goods,

totaled $ 1,638,038 and $ 0 as of June 30, 2024 and December 31, 2023, respectively.

In addition, the Company had prepaid and deposits for

inventory totaling $ 1,074,403 and $ 0 as of June 30, 2024 and December 31, 2023, respectively.

totaled $ 1,453,042 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

In addition, the Company had prepaid deposits

for inventory totaling $ 1,140,511 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

Note 5 – Other Current Assets

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Schedule of other current assets

June 30, 2024

September 30, 2024

December 31, 2023

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Prepaid insurance

Other receivables

Other prepaid expenses

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Note 6 – 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 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:

Schedule of property and equipment

June 30, 2024

September 30, 2024

December 31, 2023

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Total property and equipment, net

Depreciation expense totaled $ 342 and $ 762 for the six months ended June

30, 2024 and 2023, respectively.

Depreciation expense totaled $ 513 and $ 1,407 for the nine months ended

September 30, 2024 and 2023, respectively.

Note 7 – Operating Leases

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Operating lease expense

totaled $ 39,429 from the date of acquisition through the period ended June 30, 2024.

totaled $ 65,716 from the date of acquisition through the period ended September 30, 2024.

The following is a summary of future lease payments

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Weighted average discount rate

8 – Promissory Note

In conjunction with the acquisition of Fat Shark

and Rotor Riot, as discussed in Note 3, the Company issued a promissory note (“Note”) with Red Cat Holdings, Inc.

(“Red Cat”) for $ 2 .0

In July 2024, the Company finalized its working capital adjustment with Red Cat which increased the overall purchase price

by an additional $ 2 .0

Note 8 – Promissory and Convertible Notes

In February 2024 and in conjunction with the acquisition

of Fat Shark and Rotor Riot, as discussed in Note 3, the Company issued a promissory note (“Note”) with Red Cat Holdings,

(“Red Cat”) for $ 2 .0 million.

In July 2024, the Company finalized its working capital adjustment with Red Cat which increased

the overall purchase price by an additional $ 2 .0 million.

In accordance with ASC 470, Debt, the additional $ 2 .0 million was treated as

a modification that was not treated as a debt extinguishment and expenses related to the debt were expensed as incurred.

The additional

million was added to the existing Note and was reflected as an adjustment to the opening purchase price and was included in the

opening balance sheet as of February 16, 2024 as an increase to goodwill and intangible assets.

Accordingly, the Note was amended to

increase to $ 4 .0

In conjunction with a private sale of Red Cat’s common stock and its promissory note to two investors, the Company

issued new notes to such investors (the “New Notes”).

The New Notes bear interest at 8 %

In conjunction with the finalization of the working capital adjustment, the maturity date of the New Notes was extended to

be due in full on November 30, 2025, subject to certain conditions.

In the Event of Default as defined in the Promissory Note, the

investors each have the right to convert the New Notes including any accrued and unpaid interest, in whole or in part, into common

The conversion price is calculated at a 10%

discount of the average three-day volume-weighted average price (VWAP) prior to the conversion date.

The balance of the Note payable

was $4.0 million as of June

Interest expense for the six months ended June 30, 2024 was $ 60,183

and the Company had accrued interest of $ 6,677

as of June 30, 2024.

See Note 14, Subsequent Events for additional information.

$ 2 .0 million was added to the existing Note and was reflected as an adjustment to the opening purchase price and was included in the opening

balance sheet as of February 16, 2024 as an increase to goodwill and intangible assets.

Accordingly, the Note was amended to increase

the principal amount of the Note to $ 4 .0 million.

Subsequently and in July 2024, in conjunction

with a private sale of Red Cat’s common stock and its promissory note to two accredited investors (“Investors”), the

Company issued new notes to the Investors (the “July Notes”) and cancelled the original Note.

The July Notes contained 8 % per annum interest.

In addition, the maturity date of the July Notes was extended to November 30, 2025 , subject to certain conditions.

On August 21, 2024, the Company entered into two

exchange agreements with the Investors, under which the Investors exchanged their respective 8 % July Notes for new 4 % Convertible Notes

(the “August Notes”).

Pursuant to the exchange agreements, the Investors exchanged the $4,000,000 of July Notes for an aggregate

of (i) $3,000,000 for the August Notes, (ii) 210 shares of Series C preferred stock, which converts into 630,000 shares of the Company’s

common stock, and (iii) 630,000 warrants with a five-year term and an exercise price of $1.99 per share, subject to certain adjustments.

The July Notes were cancelled as a part of the exchange agreement.

In accordance with ASC 470, since the August Notes were considered

a greater than 10% change from the July Notes and a substantive conversion option was added to the August Notes, this exchange was treated

as a debt extinguishment.

The August Notes bear interest at 4 %

annually with interest payable monthly and the principal due on November 30, 2025.

The August Notes are convertible into common

stock at a fixed $ 1.99 per

share, except in the Event of Default as defined in the August Notes, which the conversion price for an Event of Default Conversion

is calculated at a 10% discount of the average three-day volume-weighted average price prior to the conversion date.

recognized a loss on debt extinguishment of $ 685,151 during

the three and nine months ended September 30, 2024 related to the August Notes.

The loss on extinguishment related to the August

Notes include $ 315,303 fair

value related to the warrant liability issued, $ 347,947 fair

value related to the optional conversion feature derivative liability of the remaining principal balance, and $ 21,901 cash

fees paid for legal costs related to the August Notes.

The Company used the binomial option pricing method for calculating the

derivative fair value related to the warrants and optional conversion feature (see Note 9 – Derivative Liabilities).

Total interest expense for the nine months ended

September 30, 2024 was $ 101,619

The Company had accrued interest of $ 5,004

as of September 30, 2024 related to the August Notes.

Note 9 – Derivative Liabilities

The fair value of the derivative liabilities

are determined using the binomial option pricing model which values the liability on the stock price at the grant date, the estimate

volatility of the stock, the risk-free interest rate over the expected term, and certain estimates and probabilities of different outcomes.

Changes in the fair value of the derivative is recorded in the income statement in other income and expense on a quarterly basis.

Derivative liability – conversion option

In August 2024 and in conjunction with the issuance

of the August Notes as discussed in Note 8 – Convertible Note, the Company recorded a derivative liability related to the optional

conversion feature (“Conversion Derivative”) in accordance with ASC 815 as it is not clearly and closely related to the host

contract and the embedded debt conversion feature meets the definition of a liability due to a potential variable amount of shares that

may be issued upon conversion.

The initial fair value on August 21, 2024 for the Conversion Derivative was $ 347,947 .

The Conversion Derivative

fair value as of September 30, 2024 was $ 311,048 and the Company recorded a change in fair value of derivative liabilities of $ 36,899

during the three months ended September 30, 2024.

Warrant Liability

In August 2024 and in conjunction with the issuance

of the August Notes as discussed in Note 8 – Convertible Note, the Company issued warrants that include specific provisions and

obligations including a fundamental transaction provision that may require a cash payment to the holder upon a triggering event, that

in accordance with ASC 815, require the warrants to be classified as a liability.

The initial fair value on August 21, 2024 for the Warrant

Liability was $ 315,303 and as of September 30, 2024 the fair value is $ 308,964 and the Company recorded a change in fair value of derivative

liabilities of $ 6,340 for the three months ended September 30, 2024.

Note 10 – Earnings Per Share and Stockholders’ Equity

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Outstanding securities not included in the computation

of diluted net loss per share because their effect would have been anti-dilutive include 250,000 and 950,000 shares of Series B Preferred

Stock, as converted as of June 30, 2024 and 2023, respectively, the 310,000 of stock options issued to employees as of June 30, 2024,

the 62,500 of common stock representative warrants issued to the underwriter associated with the February 2024 IPO and 3,418,803 shares

of common stock, as converted, associated with the Note discussed in Note 8 “Debt”.

of diluted net loss per share because their effect would have been anti-dilutive include 4,250,000 and 0 shares of Series A Convertible

Preferred Stock (the “Series A”), as converted as of September 30, 2024 and 2023, respectively.

250,000 and 950,000 shares

of Series B Convertible Preferred Stock (the “Series B”), as converted as of September 30, 2024 and 2023, respectively.

and 0 shares of Series C Convertible Preferred Stock (the “Series C”), as converted as of September 30, 2024 and 2023, respectively.

330,000 of stock options issued to employees as of September 30, 2024, 62,500 of common stock representative warrants issued to the

underwriter associated with the February 2024 IPO, 630,000 warrants issued related to the debt conversion, and 1,507,538 shares of common

stock, as converted, associated with the Note discussed in Note 8 “Convertible Note”.

Preferred Stock

The preferred stock par value is $ 0.01 .

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.

Subsequent to the IPO but prior to June 30, 2024,

certain shareholders converted 140 shares of Series B preferred shares into 700,000 shares of common stock.

The Company canceled the 140

shares of Series B preferred shares upon the conversion.

The Series A is convertible into common stock

at a ratio of 1,000 shares of common stock for each share of Series A stock held, subject to certain limitations.

The Series A shares

are not entitled to vote on any matters submitted to shareholders of the Company.

The Series B 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.

The Series B shares

are not entitled to vote on any matters submitted to shareholders of the Company.

The Series C is convertible into common stock

at a ratio of 3,000 shares of common stock for each share of Series C stock held, subject to certain limitations.

The Series C shares

are not entitled to vote on any matters submitted to shareholders of the Company.

On July 22, 2024, the Company’s

principal shareholder, Red Cat sold all of its securities in the Company to the two unaffiliated third-party Investors.

As part of the transaction and just prior to the above sale, Red Cat entered into an Exchange Agreement with

the Company pursuant to which Red Cat exchanged 4,250,000

shares of the Company’s common stock for 4,250

shares of the Company’s Series A.

The Series A shares can be convertible back into the same amount of shares of common stock

as of the date of the original exchange, and as a result the Company did not recognize any gain or loss related to the exchange.

On August 21, 2024, the Company entered into two

exchange agreements with the Investors, under which each investor exchanged an aggregate of $ 1,000,000 of their Notes for an aggregate

of 210 shares of the Company’s Series C and 630,000 warrants (see Note 11 – Share Based Awards).

Subsequent to the IPO but prior to September 30,

2024, certain shareholders converted 140 shares of Series B into 700,000 shares of common stock.

The Company canceled the 140 shares of

Series B upon the conversion.

On June 1, 2023, the Company issued an additional

50 Series B preferred shares in connection with the cancellation of 250,000 shares of common stock.

Series B preferred shares outstanding at June 30,

2024 totaled 50 which are convertible into 250,000 shares of common stock.

Series B preferred shares outstanding at December 31, 2023

totaled 190 which are convertible into 950,000 shares of common stock.

See Note 14, Subsequent Events, for more information

regarding the Company’s Series A Convertible Preferred Stock.

50 Series B shares in connection with the cancellation of 250,000 shares of common stock.

Preferred shares outstanding at September 30,

2024 and December 31, 2023 were as follows:

Schedule of preferred shares outstanding

Preferred Series

September 30, 2024

Shares as converted, as of September 30, 2024

December 31, 2023

Shares, as converted, as of December 31, 2023

The common stock par value is $ 0.01 .

2024 Transactions

On January 2, 2024, the Company issued 16,086 shares

of common stock to its prior Chief Executive Officer as a part of a separation agreement and recognized compensation expense of $ 64,344 ,

which is $4 per share, the last valuation of the Company’s private placement and the value of the IPO in February 2024.

On January 2, 2024, the Company issued 16,086

shares of common stock to its prior Chief Executive Officer as a part of a separation agreement and recognized compensation expense of

$ 64,344 or $4 per share, the value of the IPO in February 2024.

On February 16, 2024 the Company completed its

IPO and issued 1,250,000

shares of common stock at the IPO Price for total net proceeds of $ 3,849,555 .

The Company incurred $ 510,000

direct deduction from proceeds, $ 127,687

in cash disbursements related to offering costs in the six months ended June 30, 2024 and $ 512,758

in prior year paid and deferred offering costs as of December 31, 2023 for a total of $ 1,150,445

offering costs, associated with the IPO which consisted of underwriter, legal, accounting, and other associated filing fees.

costs have been recorded as a reduction of the gross proceeds from the IPO in stockholder’s equity.

The Company also incurred

additional costs related to warrants to purchase 62,500

shares of common stock issued to the underwriters as partial compensation for services rendered in connection with the IPO, which is

preliminarily valued at $ 250,000

as of the date of the IPO using the IPO Price of $4 per share.

The Company is planning to value the warrants using a Black-Scholes

valuation model but has not completed this workflow.

Any change to the fair value of the warrants would have no change to the

Company’s financial statements since the value of the warrants would only impact the “offering costs” and thus

entry would be to adjust “Additional Paid-In Capital – Common Stock” and “Additional Paid-In Capital –

The warrants are exercisable for common stock at a price of $ 5.00

per share (125% of the IPO Price) at any time beginning on August 15, 2024 through and including February 16, 2029, the expiration

Simultaneously with its IPO and as a part of the Purchase

Agreement as discussed in Note 3, the Company issued Red Cat 4,250,000 shares of common stock as consideration of the business combination.

As agreed in the Purchase Agreement, $ 17 .0 million of the purchase price would be issued in common stock based on the IPO price of $4.00

Subsequent to the IPO and prior to June 30, 2024,

the Company issued 700,000 shares of common stock related to certain shareholders converting 140 of Series B shares into common stock.

On April 30, 2024, the Company issued 937,249 restricted

shares of common stock to executive officers and board members of the Company.

The shares of restricted stock were granted under the Company’s

2022 Equity Incentive Plan.

The restricted shares issued to executive officers are subject to pro rata forfeiture through February 14,

IPO and issued 1,250,000 shares of common stock at the IPO Price for total net proceeds of $ 3,849,555 .

The Company incurred $ 510,000 direct

deduction from proceeds, $ 127,687 in cash disbursements related to offering costs in the nine months ended September 30, 2024 and $ 512,758

in prior year paid and deferred offering costs as of December 31, 2023 for a total of $ 1,150,445 offering costs, associated with the IPO

which consisted of underwriter, legal, accounting, and other associated filing fees.

These costs have been recorded as a reduction of

the gross proceeds from the IPO in stockholder’s equity.

The Company also incurred additional costs related to warrants to purchase

62,500 shares of common stock issued to the underwriters as partial compensation for services rendered in connection with the IPO, which

is preliminarily valued at $ 250,000 as of the date of the IPO using the IPO Price of $4 per share.

The Company is planning to value the

warrants using a Black-Scholes valuation model but has not completed this workflow.

Any change to the fair value of the warrants would

have no change to the Company’s financial statements since the value of the warrants would only impact the “offering costs”

and thus entry would be to adjust “Additional Paid-In Capital – Common Stock” and “Additional Paid-In Capital

The warrants are exercisable for common stock at a price of $ 5.00 per share (125% of the IPO Price) at any time

beginning on August 15, 2024 through and including February 16, 2029, the expiration date.

Simultaneously with its IPO and as a part of

the Purchase Agreement as discussed in Note 3, the Company issued Red Cat 4,250,000 shares of common stock as consideration of the

business combination.

These were subsequently exchanged into 4,250 Series A preferred shares as discussed above.

As agreed in the

Purchase Agreement, $ 17 .0 million of the purchase price would be issued in common stock based on the IPO price of $4.00 per

Subsequent to the IPO and prior to September 30,

2024, the Company issued 700,000 shares of common stock related to certain shareholders converting 140 Series B shares into common stock.

On April 30, 2024, the Company issued 937,249

restricted shares of common stock to executive officers and board members of the Company.

The shares of restricted stock were granted

under the Company’s 2022 Equity Incentive Plan.

The restricted shares issued to executive officers are subject to pro rata forfeiture

through February 14, 2025.

On May 2, 2024, the Company issued an additional

of restricted shares of common stock to Allan Evans, the Company’s CEO related to an agreed upon reduction of salary.

of restricted stock were granted under the Company’s 2022 Equity Incentive Plan.

40,650 of restricted shares of common stock to Allan Evans, the Company’s CEO related to an agreed upon reduction of compensation.

The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan (the “Plan”).

The April 30, 2024 and May 2, 2024 shares were

valued at $ 1.20

per share, respectively for a total of $ 1,174,698

to be recognized pro-rata over the vesting period which is the forfeiture period.

Stock compensation expense of $ 346,854

was recognized during the three months ended June 30, 2024.

See Note 14, Subsequent Events, for additional information.

valued at $ 1.20 and $ 1.23 per share, respectively for a total of $ 1,174,698 to be recognized pro-rata over the vesting period through

February 14, 2015 which is the forfeiture period.

Stock compensation expense of $ 679,699 was recognized during the nine months ended September

Unrecognized stock compensation expense related to these shares is $ 496,661 as of September 30, 2024.

On July 22, 2024, Red Cat sold all of its securities

in the Company to two accredited investors in a private transaction.

As part of the transaction, Red Cat entered into an Exchange Agreement

with the Company pursuant to which Red Cat exchanged 4,250,000 shares of the Company’s common stock for 4,250 shares of the Company’s

There was no gain or loss on this exchange as both the common and preferred shares were determined to have the same fair value

as of the exchange date.

On July 30, 2024, the Company issued 23,743 immediately

vested restricted shares of common stock to board members of the Company.

The shares of restricted stock were granted under the Plan.

The shares were valued at $ 1.79 per share, which was the value of the Company’s common stock on the date of grant, respectively

for a total of $ 42,500 to be recognized as stock compensation expense during the three months ended September 30, 2024.

2023 Transactions

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of common stock for the Company.

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.

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.

Note 11 – Share Based Awards

Stock Options

The Company’s 2022 Equity Incentive Plan (the “Plan”)

allows the Company to incentivize key employees and directors with long term compensation awards such as stock options, restricted stock,

and other similar types of awards.

The Plan is authorized to issue 1,461,876 of awards and has an “evergreen” provision, pursuant

to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first

day of each year beginning in 2025 and ending in 2032 equal to the lesser of (a) five percent (5%) of the shares of stock outstanding

(on an as converted basis) on the last day of the immediately preceding fiscal year and (b) such smaller number of shares of stock as

determined by our board of directors.

On April 30, 2024, the Company’s board of

directors approved the grant of 310,000 stock options under the Plan to certain employees.

The stock options are subject to certain

vesting provisions.

The following table presents the activity for stock

options outstanding:

The Plan allows the Company to incentivize key

employees and directors with long term compensation awards such as stock options, restricted stock, and other similar types of awards.

The Plan is authorized to issue 1,461,876 of awards and has an “evergreen” provision, pursuant to which the number of shares

of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year beginning in

2025 and ending in 2032 equal to the lesser of (a) five percent (5%) of the shares of stock outstanding (on an as converted basis) on

the last day of the immediately preceding fiscal year and (b) such smaller number of shares of stock as determined by our board of directors.

During the nine months ended September 30, 2024,

the Company’s board of directors approved the grant of 330,000 stock options under the Plan to certain employees.

The stock options

are subject to certain vesting provisions.

The following table presents the activity for

stock options outstanding:

Schedule of stock option activity

Weighted Average

Non-Qualified

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Forfeited/canceled

Outstanding – June 30, 2024

The range of assumptions used to calculate the fair value of options granted

during the six months ended June 30, 2024 was:

Outstanding – September 30, 2024

The range of assumptions used to calculate the fair value of options

granted during the nine months ended September 30, 2024 was:

Schedule of stock options assumptions

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Stock Price on date of grant

$ 1.20 – 1.79

Risk-free interest rate

4.080 - 4.71 %

Dividend yield

Expected term (years)

The Company recognized $ 14,389 in stock-based compensation expense related

to stock options during the six months ended June 30, 2024.

As of June 30, 2024, there was $ 325,371 of unrecognized stock-based compensation

expense related to unvested stock options to be recognized over the remaining vesting term through 2028.

129.45 – 143.46 %

The Company recognized $ 37,475 in stock-based compensation expense

related to stock options during the nine months ended September 30, 2024.

As of September 30, 2024, there was $ 335,686 of unrecognized

stock-based compensation expense related to unvested stock options to be recognized over the remaining vesting term through 2028.

Restricted Stock

The following table presents the activity for stock

options outstanding:

The following table presents the activity for

restricted stock outstanding:

Schedule of restricted stock activity

1 unchanged sentence

Forfeited/canceled

Outstanding – June 30, 2024

The Company recognized $ 346,854 in stock-based compensation expense related

to restricted stock during the six months ended June 30, 2024.

As of June 30, 2024, there was $ 827,844 of unrecognized stock-based compensation

expense related to unvested restricted stock to be recognized over the remaining vesting term through February 15, 2025.

The following table presents the activity for warrants outstanding as of

June 30, 2024:

Outstanding – September 30, 2024

The Company recognized $ 722,200 in stock-based compensation expense

related to restricted stock during the nine months ended September 30, 2024.

As of September 30, 2024, there was $ 496,661 of unrecognized

stock-based compensation expense related to unvested restricted stock to be recognized over the remaining vesting term through February

The following table presents the activity for warrants outstanding

as of September 30, 2024:

Schedule of warrant activity

2 unchanged sentences

Forfeited/cancelled/restored

Outstanding – June 30, 2024

Outstanding – September 30, 2024

As discussed in Note 10, “Earnings Per Share

3 unchanged sentences

exercise feature.

All warrants outstanding have a weighted average remaining contractual life of approximately 4.63 years as of June 30,

As discussed in Note 8, “Convertible Note”,

in connection with the exchange of the $ 1,000,000 of the Note Payable balance, the Company issued 630,000 warrants to the Investors to

purchase shares of common stock.

The warrants have an exercise price of $ 1.99 .

All warrants outstanding have a weighted

average remaining contractual life of approximately 4.85

years as of September 30, 2024.

The intrinsic value of the warrants at September 30, 2024 is $ 0 as the share price of the Company’s common

stock is lower than the strike price of the warrants.

Note 12 – Related Party Transactions

In November 2022, the Company entered into the Purchase

Agreement, as amended with Red Cat and Jeffrey Thompson, the Company’s former Chief Executive Officer and President and current

director and also the current Chief Executive Officer of Red Cat, pursuant to which, among other things, Mr.

Thompson and the Company

have agreed to indemnification obligations, which shall survive for a period of nine months from February 16, 2024, subject to certain

limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of 100,000 shares of our

common stock owned by him to secure any indemnification obligations, which stock is our sole remedy, except for fraud.

Our prior Chief

Executive Officer, Mr.

Brandon Torres Declet, negotiated the terms of the Purchase Agreement on an arms’ length basis with Joe Freedman

who was the head of Red Cat’s Special Committee.

The transaction was ultimately approved by the Company’s and Red Cat’s

board of directors.

On March 8, 2023, a majority of the disinterested Red Cat shareholders approved the transactions contemplated in the

Purchase Agreement in a special meeting.

In November 2022, the Company entered into the

Purchase Agreement, as amended with Red Cat and Jeffrey Thompson, the Company’s former Chief Executive Officer and President and

current director and also the current Chief Executive Officer of Red Cat, pursuant to which, among other things, Mr.

Thompson and the

Company have agreed to indemnification obligations, which shall survive for a period of nine months from February 16, 2024, subject to

certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of 100,000 shares

of our common stock owned by him to secure any indemnification obligations, which stock is our sole remedy, except for fraud.

Chief Executive Officer, Mr.

Brandon Torres Declet, negotiated the terms of the Purchase Agreement on an arms’ length basis with

Joe Freedman who was the head of Red Cat’s Special Committee.

The transaction was ultimately approved by the Company’s and

Red Cat’s board of directors.

On March 8, 2023, a majority of the disinterested Red Cat shareholders approved the transactions contemplated

in the Purchase Agreement in a special meeting.

Thompson recused himself from such vote.

6 unchanged sentences

acquisition and IPO.

On April 30, 2024

(“Grant Date”), the Company’s board of directors approved the Company entering into a two-year Management Services

Agreement (the “Agreement”) with 8 Consulting LLC (the “Consultant”) for the services of our Chief Executive

Allan Evans, whereby the Consultant agreed to cause Dr.

Evans to perform his services as the Company’s Chief

Executive Officer and the Consultant will be compensated on behalf of Dr.

Evans by the Company in connection with his performance of

such services.

The Agreement allows Dr.

Evans to receive favorable tax benefits as a resident of the Commonwealth of Puerto Rico who

will perform such services in Puerto Rico.

On April 30, 2024 (“Grant

Date”), the Company’s board of directors approved the Company entering into a two-year Management Services Agreement (the

“Agreement”) with 8 Consulting LLC (the “Consultant”) for the services of our Chief Executive Officer, Dr.

Evans, whereby the Consultant agreed to cause Dr.

Evans to perform his services as the Company’s Chief Executive Officer and the

Consultant will be compensated on behalf of Dr.

Evans by the Company in connection with his performance of such services.

The Agreement

Evans to receive favorable tax benefits as a resident of the Commonwealth of Puerto Rico who will perform such services in

Pursuant to the Agreement, Dr.

Evans will perform the duties and responsibilities that

are customary for a chief executive officer of a public company that either have revenues similar to the Company on a pro forma

basis as reflected in the Prospectus filed with the SEC on February 15, 2024, or if pre-revenues, are an active and on-going

business that are performing pre-revenue activities.

Evans will perform the duties and responsibilities that are customary for a chief executive

officer of a public company that either have revenues similar to the Company on a pro forma basis as reflected in the Prospectus filed

with the SEC on February 15, 2024, or if pre-revenues, are an active and on-going business that are performing pre-revenue activities.

The Consultant agreed to cause Dr.

Evans, as Chief Executive Officer, (i) to

undertake primary responsibility for managing all aspects of the Company and overseeing the preparation of all reports, registration

statements and other filings required filed by the Company with the SEC and executing the certifications required the Sarbanes Oxley

Act of 2002 and the rules of the SEC as the principal executive officer of the Company;

(ii) attend investor meetings and road shows

in connection with the Company’s fundraising and investor relations activities;

(iii) to report to the Company’s board

of directors;

(iv) to perform services for such subsidiaries of the Company as may be necessary.

Evans, as Chief Executive Officer, (i) to undertake primary responsibility for managing all aspects

of the Company and overseeing the preparation of all reports, registration statements and other filings required filed by the Company

with the SEC and executing the certifications required the Sarbanes Oxley Act of 2002 and the rules of the SEC as the principal executive

officer of the Company;

(ii) attend investor meetings and road shows in connection with the Company’s fundraising and investor relations

(iii) to report to the Company’s board of directors;

(iv) to perform services for such subsidiaries of the Company as

may be necessary.

The Consultant receives

fee per year payable in monthly installments.

In addition, the Consultant was granted 488,000

fully vested shares of restricted common stock.

The fair value of the shares was $ 585,600 based on the $1.20 quoted trading price on

the Grant Date and will be recognized over the service period (see below).

The grant of restricted common stock was made under the

Company’s 2022 Equity Incentive Plan.

The shares of restricted common stock are subject to pro rata forfeiture from February

14, 2024 until February 14, 2025, in the event that Dr.

Evans is terminated or ends his services to the Company for any reason other

than death or disability, as defined in the Internal Revenue Code.

a $ 250,000 fee per year payable in monthly installments.

In addition, the Consultant was granted 488,000 fully vested shares of restricted

common stock.

The fair value of the shares was $ 585,600 based on the $1.20 quoted trading price on the Grant Date and will be recognized

over the service period (see below).

The grant of restricted common stock was made under the Company’s 2022 Equity Incentive Plan.

The shares of restricted common stock are subject to pro rata forfeiture from February 14, 2024 until February 14, 2025, in the event

Evans is terminated or ends his services to the Company for any reason other than death or disability, as defined in the Internal

Revenue Code.

The Company and Dr.

previously entered into an Offer Letter dated November 27, 2023, under which he would serve as the Company’s Chief Executive

Officer effective as of December 4, 2023.

The Agreement terminates and replaces the Offer Letter dated November 27, 2023.

Evans previously entered into an Offer Letter dated November 27,

2023, under which he would serve as the Company’s Chief Executive Officer effective as of December 4, 2023.

The Agreement terminates

and replaces the Offer Letter dated November 27, 2023.

Note 13 – Commitments and Contingencies

As part of the business combination that occurred on February 14, 2024,

the Company acquired a five-year operating

lease for approximately 6,900 square feet of warehouse and office space in Orlando, Florida.

The lease commenced in November 2023 and

expires in October 2028.

See Note 7 – Operating Leases for additional information.

As part of the business combination that occurred

on February 14, 2024, the Company acquired a five-year operating lease for approximately 6,900 square feet of warehouse and office space

in Orlando, Florida.

The lease commenced in November 2023 and expires in October 2028.

See Note 7 – Operating Leases for additional

Note 14 – Restatement of Previously Issued Financial Statements

On April 16, 2024, the Company changed their

independent PCAOB-registered accounting firm and terminated its engagement with their prior auditor.

On May 3, 2024, the Securities

and Exchange Commission (“SEC”) issued an order that instituted a cease-and-desist against the Company’s previous

auditor, which required the Company to obtain new auditors and re-audit its financial statements for the years ended December 31,

2023 and 2022.

The Company engaged a new, an independent and registered

accounting firm, to re-audit the Company’s previously issued financial statements.

During the Company’s re-audits, it was

noted that certain transactions were not recorded in the correct period, stock compensation expense of $600,000 related to the March 7,

2023 common stock issuance was not recorded and deferred offering costs were classified as an operating activity rather than a financing

On April 16, 2024, the Company changed their independent

PCAOB-registered accounting firm and terminated its engagement with their prior auditor.

On May 3, 2024, the Securities and Exchange Commission

(“SEC”) issued an order that instituted a cease-and-desist against the Company’s previous auditor, which required the

Company to obtain new auditors and re-audit its financial statements for the years ended December 31, 2023 and 2022.

The Company engaged a new, an independent and

registered accounting firm, to re-audit the Company’s previously issued financial statements.

During the Company’s re-audits,

it was noted that certain transactions were not recorded in the correct period, stock compensation expense of $600,000 related to the

March 7, 2023 common stock issuance was not recorded and deferred offering costs were classified as an operating activity rather than

a financing activity.

Expenses totaling $10,993 were originally recorded in 2023 but related to 2022 expenses.

2 unchanged sentences

and the stock compensation previously not recorded has been properly recorded.

The following presents reconciliations of the impacted

financial statement line items as filed to the restated amounts as of June 30, 2023 and for the periods then ended.

The previously reported

amounts reflect those included in the registration statements the Company filed with the Securities and Exchange Commission on September

The following presents reconciliations of the

impacted financial statement line items as filed to the restated amounts as of September 30, 2023 and for the periods then ended.

previously reported amounts reflect those included in the registration statements the Company filed with the Securities and Exchange

Commission on February 1, 2024.

These amounts are labeled “As Filed” in the tables below.

The amounts labeled “Restatement Adjustments”

represent the effects of these restatements due to the timing differences and stock compensation expense.

The amounts labeled “Restatement

Adjustments” represent the effects of these restatements due to the timing differences and stock compensation expense.

Schedule of restatement adjustments in financial statements

Statement of Operations for the Six Months Ended June 30, 2023

Statement of Operations for the Nine months Ended September 30, 2023

Restatement Adjustments

6 unchanged sentences

Loss from operations

( 1,377,869 )

( 1,966,876 )

Other income:

2 unchanged sentences

Net loss before income tax

( 1,377,869 )

( 1,966,876 )

Income tax benefit (expense)

$ ( 1,377,869 )

$ ( 589,007 )

$ ( 1,966,876 )

Net loss per share attributable to common stockholders

2 unchanged sentences

Basic and diluted

Statements of Changes in Stockholders’ Equity – As Filed – For the Six Months Ended June 30, 2023

Statements of Changes in Stockholders’ Equity – As Filed

– For the Nine months Ended September 30, 2023

Series B, Preferred Stock

6 unchanged sentences

( 1,377,869 )

Balance, June 30, 2023

Balance, September 30, 2023

$ ( 2,916,460 )

Statements of Changes in Stockholders’ Equity – Restatement Adjustments – For the Six Months Ended June 30, 2023

Statements of Changes in Stockholders’ Equity – Restatement

Adjustments – For the Nine months Ended September 30, 2023

Series B, Preferred Stock

3 unchanged sentences

Conversion to preferred shares

Balance, June 30, 2023

Balance, September 30, 2023

$ ( 600,000 )

Statements of Changes in Stockholders’ Equity – As Restated – For the Six Months Ended June 30, 2023

Statements of Changes in Stockholders’ Equity – As

Restated – For the Nine months Ended September 30, 2023

Series B, Preferred Stock

6 unchanged sentences

( 1,966,876 )

Balance, June 30, 2023

Balance, September 30, 2023

$ ( 3,516,460 )

Statement of Cash Flows for the Six Months Ended June 30, 2023

Statement of Cash Flows for the Nine months Ended September 30,

Restatement Adjustments

27 unchanged sentences

Note 15 – Subsequent Events

Amendments to Articles of Incorporation

On July 17, 2024, following approval by the Board of Directors, the Company

filed a Certificate of Designations, Preferences, and Rights of the Series A Convertible Preferred Stock (the "COD”) with the

Nevada Secretary of State.

The COD designated 4,250 shares of Series A Convertible Preferred Stock (the “Series A”).

A ranks senior to both the Company’s common stock and any other series of preferred stock with respect to the preferences as to

dividends, distributions, and payments, upon the liquidation, dissolution, and winding up of the Company.

Each share of Series A may be

converted into 1,000 shares of the Company’s common stock.

The Series A preferred shares have a conversion beneficial ownership limitation

of 4.99%, or 9.99% upon election of the holder upon at least 61 days written notice to the Company.

The Series A preferred shares have

no voting rights, except as required by law and as expressly provided in the COD.

Working Capital Adjustment Agreement

On July 22, 2024, the Company and Red Cat finalized the working capital

adjustment related to the acquisitions of Fat Shark and Rotor Riot pursuant to the Purchase Agreement.

The Purchase Agreement provided

that the purchase price was to be increased on a dollar-for-dollar basis by the amount by which the working capital exceeded the agreed

working capital (the "Working Capital Adjustment”).

After negotiations between the parties, it was determined that the Company

owed Red Cat $2.0 million as a Working Capital Adjustment.

The original Note payable for $2.0 million was reissued to Red Cat with

(i) an increased aggregate principal amount of $4,000,000 to give effect to the working capital adjustments discussed above, and (ii)

extend the maturity date of the new Note to November 30, 2025.

Red Cat Holdings, Inc.’s Sale of Securities

On July 22, 2024, the Company’s principal shareholder, Red Cat sold

all of its securities in the Company to two unaffiliated third-party investors (the "Investors”).

As part of the transaction,

Red Cat entered into an Exchange Agreement with the Company pursuant to which Red Cat exchanged 4,250,000 shares of the Company’s

common stock, par value $0.01 per share for 4,250 shares of the Company’s newly designated Series A Convertible Preferred Stock

(the "Series A”).

Red Cat then sold the Series A and the New Note Payable, to the Investors

on July 22, 2024.

Quarterly Grants to our Board of Directors

On July 30, 2024, the Company issued non-employee

On October 22, 2024, the Company issued non-employee

directors listed in the table below the equity portion of their quarterly compensation.

Each of the directors received a vested restricted

stock grant for services as a director (and where applicable, committee member) during the quarter ended June 30, 2024.

The shares of

restricted common stock were granted under the Company’s 2022 Equity Incentive Plan and was subject to each director executing the

Company’s standard Restricted Stock Agreement, which occurred on July 29, 2024.

The fair value per share was based on the quoted

trading price as of the close of the market as of July 17, 2024.

Fair Value Per Share

Amount of Restricted Common Stock

Aggregate Fair Value

Cristina Colon

Jeffrey Thompson

stock grant for services as a director (and where applicable, committee member) during the quarter ended September 30, 2024.

of restricted common stock were granted under the Company’s 2022 Equity Incentive Plan and was subject to each director executing

the Company’s standard Restricted Stock Agreement.

The fair value per share was based on the quoted trading price as of the close

of the market as of October 22, 2024.

Value Per Share

of Restricted Common Stock

Private Placement Agreement

On October 29, 2024 (the “Closing

Date”), the Company entered into Securities Purchase Agreements (the "SPA”) with accredited investors (each, an

"Investor” and together the "Investors”) for a private placement offering ("Private Placement”), for

aggregate gross proceeds of $1.95 million before deducting fees to the placement agent and other expenses payable by the Company in

connection with the Private Placement.

The Company intends to use the net proceeds of approximately $1.7 million of the Private

Placement for working capital and general corporate purposes.

As part of the Private Placement, the Company issued an aggregate of

1,286,184 units at a per unit purchase price of $1.52 per unit.

Each unit consists of one share of common stock, par value $0.01 per

share (the "Common Stock”) and one warrant to purchase one share of the Company’s Common Stock at an exercise price

of $1.99 per share (each an "Investor Warrant”) and collectively, the Investor Warrants”).

The Investor Warrants

have a term of five and a half years from the Closing Date and may not be exercised for 180 days after the Closing Date and are

exercisable at $1.99 per share, subject to certain limitations and adjustments set forth in the Investor Warrants.

Allan Evans, the

Company’s Chief Executive Officer and Sanford Rich and Robert Lowry, each a member of the Company’s board of directors,

invested an aggregate of $250,000 in the Private Placement on identical terms to the other Investors.

On November 5, 2024, the Board of Directors of

the Company awarded each of the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operation Officer 50,000 restricted

shares of the Company’s Common Stock under the Plan as bonuses related to the Private Placement.

The restricted shares are valued

at $1.96 per share, the closing price of our common stock as of the date of the grant, for a total value of $98,000 for each of the Company’s

The bonuses are subject to the Company’s clawback Policy.

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

What changed 10-Q

Item 1. Financial Statements