Unusual Machines, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures as of December 31, 2024, were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms because of a material weakness in the Company’s internal control over financial reporting as noted below. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: · pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; · provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and · provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting based on the parameters set forth above and has concluded that as of December 31, 2024, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“US GAAP”) as a result of the following material weaknesses: · The Company does not have sufficient segregation of duties within accounting functions. · The Company does not have written documentation of our internal controls policies and procedures. While the Company has implemented and operating effectively with internal controls, we have not yet documented and tested our internal control plan. We plan to rectify these weaknesses by establishing a control framework including a risk assessment, written policies and procedures for our internal control of financial reporting and hiring additional accounting personnel at such time as we raise sufficient capital to do so. 47 Changes In Controls Over Financial Reporting During the year ended December 31, 2024, the Company continued to strengthen its internal controls including the implementation of NetSuite financials for its financial and transaction reporting. This includes certain segregation of duties including the creation of purchase orders by our purchasing team that is approved in accordance with our authorization matrix, the receipt of inventory in NetSuite by our operations team in Orlando, FL, and dual approvals of all outgoing cash payments. As the implementation of NetSuite occurred, we experienced changes to our processes and procedures which in turn, resulted in changes to our internal control over financial reporting. We expect NetSuite to strengthen our internal financial controls. Management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas evolve and plan to document our internal control framework and related activities. Other than as discussed above, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the year ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. During the fourth quarter ended December 31, 2024, none of our directors and officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K, except as described in the table below: Name and Title Action Applicable Date Duration of Trade Arrangements 10b5-1 Trading Arrangement? (Y/N)* Aggregate Number of Securities Subject to Trading Arrangement Dr. Allan Evans Chief Executive Officer and Director Adopt December 13, 2024 May 2025 through December 2025 Y Up to 30,000 shares of Common Stock from May vesting for tax purposes Dr. Allan Evans Chief Executive Officer and Director Adopt December 13, 2024 August 2025 through December 2025 Y Up to 15,000 shares of Common Stock from August vesting for tax purposes Dr. Allan Evans Chief Executive Officer and Director Adopt December 13, 2024 November 2025 through December 2025 Y Up to 15,000 shares of Common Stock from November vesting for tax purposes Brian Hoff Chief Financial Officer Adopt December 13, 2024 April 2025 through December 2025 Y Up to 83,775 shares of Common Stock for tax purposes Brian Hoff Chief Financial Officer Adopt December 13, 2024 May 2025 through December 2025 Y Up to 17,500 shares of Common Stock from May vesting for tax purposes Brian Hoff Chief Financial Officer Adopt December 13, 2024 August 2025 through December 2025 Y Up to 8,750 shares of Common Stock from August vesting for tax purposes Brian Hoff Chief Financial Officer Adopt December 13, 2024 November 2025 through December 2025 Y Up to 8,750 shares of Common Stock from November vesting for tax purposes Andrew Camden Chief Operating Officer Adopt December 13, 2024 May 2025 through December 2025 Y Up to 17,500 shares of Common Stock from May vesting for tax purposes Andrew Camden Chief Operating Officer Adopt December 13, 2024 August 2025 through December 2025 Y Up to 8,750 shares of Common Stock from August vesting for tax purposes Andrew Camden Chief Operating Officer Adopt December 13, 2024 November 2025 through December 2025 Y Up to 8,750 shares of Common Stock from November vesting for tax purposes *Denotes whether the trading plan is intended, when adopted, to satisfy the affirmative defense of Rule 10b5-1(c). Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 48 PART III Item 10. Directors, Executive Officers, and Corporate Governance The following table sets forth information regarding our current directors and executive officers: Name Age Position Dr. Allan Evans 41 Chief Executive Officer and Director Brian Hoff 39 Chief Financial Officer Andrew Camden 34 Chief Operating Officer Robert Lowry 66 Director Sanford Rich 67 Director Jeffrey Thompson 60 Director Cristina A. Colón, Esq. 37 Director Biographies Dr. Allan Evans, Chief Executive Officer and Chairman of the Board of Directors Dr. Allan Evans was appointed to serve as the Chief Executive Officer and a director of the Company effective December 4, 2023. Prior to becoming our Chief Executive Officer, Dr. Evans was the Chief Operating Officer of Red Cat from January 2021 to November 2023 and was the Chief Executive Officer of Fat Shark. Dr. Evans is a serial entrepreneur with a history of founding and leading technological innovation. He has extensive experience in overseeing different emerging technologies. From August 2017 to October 2020, Dr. Evans served as a board member for Ballast Technologies, a company that specialized in technology for location-based entertainment. In November 2012, he co-founded Avegant, a technology company focused on developing next generation display technology to enable previously impossible augmented reality experiences. He led design, development, and initial production of the Glyph head mounted display and oversaw technology research and patent strategy while serving as Chief Technology Officer of Avegant until 2016. Dr. Evans has 47 pending or issued patents that cover a range of technologies from implantable medical devices to mixed reality headsets. Academically, his work has an h-index of 15, an i-index of 28, and has been cited in more than 1,000 publications. He has extensive experience with new technologies, engineering, business development, and corporate strategy, and his expertise in these areas strengthens the Company’s collective knowledge and capabilities. Dr. Evans’ management and public company experience, his experience in the drone business and his role as Chief Executive Officer of the Company, led to his appointment as a director. 49 Brian Hoff, Chief Financial Officer Mr. Hoff has served as the Company’s Chief Financial Officer since November 2022. Prior to that, he served as the Chief Financial Officer of Auddia, Inc. (Nasdaq: AUUD), a technology company focused on audio media, from April 2021 to October 2022. He served as Vice President and Controller at STACK Infrastructure, a digital infrastructure company, from October 2019 to April 2021, and as Controller at Coalfire, a cybersecurity company, from November 2011 until October 2019. Andrew Camden, Chief Operation Officer Mr. Camden, who became our Chief Operating Officer on March 4, 2024, has been President of Rotor Riot since 2018. Prior to that, he worked for four years as an Engineer for General Motors. Cristina A. Colón, Esq., Director Ms. Colón has a served as a director of the Company since August 2022. Ms. Colón has been the owner of Cinmarc & Associates LLC, a public housing consulting firm, since 2018 and has served as its President since August 2021. Ms. Colón has also been the owner/operator Café de La Plaza, a restaurant located in Palmas del Mar, Puerto Rico, since 2009. From 2019 to 2021, Ms. Colón served as an investor relations specialist at OptimizeRX, a medical technology company. Ms. Colón’s experience as an entrepreneur and her marketing and investor relations experience led to her appointment as a director. Ms. Colon is also a lawyer in Puerto Rico and Florida. Robert Lowry, Director Mr. Lowry has served as a director of the Company since August 2022. Mr. Lowry has been the owner of Sebring Assisted Living Facility since 1998, and the owner of Homestead Assisted Living Facility since 2007. Mr. Lowry’s experience as a business entrepreneur and his experience in operational finance led to his appointment as a director. Sanford Rich, Director Mr. Rich serves as director and Audit Committee member of the Company since January 31, 2024. Since March 2012, Mr. Rich has served as a director of Aspen Group, Inc. and since November 29, 2019, as Audit Committee Chairman. From August 2, 2017 to June 23, 2019, Aspen Group, Inc. had its common stock listed on the Nasdaq Capital Market and from June 24, 2019 to March 23, 2023, Aspen Group, Inc. had its common stock listed on Nasdaq Global Market, after which it voluntarily withdrew to focus on its core business and save money. Since January 2016, Mr. Rich has served as the Executive Director of the New York City Board of Education Retirement System. Mr. Rich also serves as a member of the Investor Advisory Group of the PCAOB for a term from June 1, 2022 to December 31, 2026. From November 2012 to January 2016, Mr. Rich served as the Chief of Negotiations and Restructuring for the Pension Benefit Guaranty Corporation (a United States Government Agency). Mr. Rich was selected as a director for his 40 years of experience in the financial sector and his experience serving on the audit committees of public companies. Jeffrey Thompson, Director Mr. Thompson has served as a director of the Company since inception in 2019. He served as the Company’s principal executive officer from inception until April 2022. Mr. Thompson has been President and Chief Executive Officer of Red Cat since May 15, 2019. In 2016, Mr. Thompson founded Red Cat Propware Inc., a provider of cloud-based analytics, storage, and services for drone aircraft, and served as its Chief Executive Officer until May 15, 2019 when it was acquired by Red Cat. Mr. Thompson’s management and public company experience, his experience in the drone business and his role as President and Chief Executive Officer of Red Cat, led to his appointment as a director. 50 Composition of our Board of Directors Our Board of Directors currently consists of five members. Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. There are no family relationships among any of our directors or executive officers. Director Independence Our Board has determined that all of our present directors are independent, in accordance with standards under the NYSE Listing Rules, other than Dr. Evans and Mr. Thompson. Our Board determined that, under the NYSE Listing Rules, Dr. Evans is not an independent director because he is the Chief Executive Officer of the Company. It has also been determined that Mr. Thompson is not an independent director, having previously been Chief Executive Officer of the Company in the last three years. Our Board has determined that Mr. Lowry, Mr. Rich, and Ms. Colón are independent under the NYSE Listing Rules’ independence standards for Audit Committee members. Our Board has also determined that they are independent under the NYSE Listing Rules independence standards for Compensation Committee members and for Governance and Nominating committee members. Committees of the Board of Directors Audit Committee The Audit Committee currently consists of Mr. Rich (Chair), Mr. Lowry, and Ms. Colón. Each member of the Audit Committee is an independent director as defined by the rules of the SEC and NYSE American. The Audit Committee has the sole authority and responsibility to select, evaluate and engage independent auditors for the Company. The Audit Committee reviews with the auditors and with the Company’s financial management all matters relating to the annual audit of the Company. The Audit Committee monitors the integrity of our financial statements, monitors the independent registered public accounting firm’s qualifications and independence, monitors the performance of our internal audit function and the auditors, and monitors our compliance with legal and regulatory requirements. The Audit Committee also meets with our auditors to review the results of their audit and review of our annual and interim financial statements. The Audit Committee plans to meet at least on a quarterly basis to discuss with management the annual audited financial statements and quarterly financial statements and meets from time to time to discuss general corporate matters. Audit Committee Financial Expert Our Board determined that Mr. Rich is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC, in compliance with the Sarbanes-Oxley Act of 2002. Compensation Committee The Compensation Committee currently consists of Mr. Lowry (Chair), Ms. Colón, and Mr. Rich each of whom are independent directors. Among other things, the Compensation Committee reviews, recommends and approves salaries and other compensation of the Company’s executive officers, and administers the Company’s Equity Incentive Plan (including reviewing, recommending and approving stock option and other equity incentive grants to executive officers). 51 In addition, subject to existing agreements, the Compensation Committee is authorized to determine the salaries, bonuses, and other matters relating to compensation of the executive officers of the Company using similar parameters. It may set performance targets for determining periodic bonuses payable to executive officers. It is also authorized to review and make recommendations to the Board regarding executive and employee compensation and benefit plans and programs generally, including employee bonus and retirement plans and programs (except to the extent specifically delegated to a Board appointed committee with authority to administer a particular plan). In addition, the Compensation Committee approves the compensation of non-employee directors and reports it to the full Board. The Compensation Committee also reviews and makes recommendations with respect to shareholder proposals related to compensation matters. The Compensation Committee may, in its sole discretion and at the Company’s cost, retain or obtain the advice of a compensation consultant, legal counsel or other adviser. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the committee. Corporate Governance and Nominating Committee The Corporate Governance and Nominating Committee (the “Nominating Committee”) consists of Ms. Colón (Chair), Mr. Lowry, and Mr. Rich, each of whom meets the independence requirements of all other applicable laws, rules and regulations governing director independence, as determined by the Board. The Nominating Committee has the authority to identify individuals qualified to become members of the Board, consistent with criteria approved by the Board; recommend to the Board the director nominees for the next annual meeting of shareholders at which directors are to be elected; recommend to the Board candidates to fill any vacancies on the Board; develops, recommend to the Board, and reviews the corporate governance guidelines applicable to the Company; and oversees the evaluation of the Board and management. It is authorized to consider and recruit candidates to fill positions on the Board, including as a result of the removal, resignation or retirement of any director, an increase in the size of the Board or otherwise. The Nominating Committee has the authority to conduct, subject to applicable law, any and all inquiries into the background and qualifications of any candidate for the Board and such candidate’s compliance with the independence and other qualification requirements established by the Nominating Committee. In selecting and recommending candidates for election to the Board or appointment to any committee of the Board, the Nominating Committee does not believe that it is appropriate to select nominees through mechanical application of specified criteria. Rather, the Nominating Committee shall consider such factors at it deems appropriate, including, without limitation, the following: personal and professional integrity, ethics and values; experience in corporate management, such as serving as an officer or former officer of a publicly-held company; experience in the Company’s industry; experience as a board member of another publicly-held company; diversity as required by the NYSE Rules; diversity of expertise and experience in substantive matters pertaining to the Company’s business relative to other directors of the Company; practical and mature business judgment; and composition of the Board (including its size and structure). The Nominating Committee will develop and recommend to the Board a policy regarding the consideration of director candidates recommended by the Company’s shareholders and procedures for submission by shareholders of director nominee recommendations. The Nominating Committee oversees the evaluation of the Board and management. It also develops and recommends to the Board a set of corporate governance guidelines applicable to the Company, which the Nominating Committee shall periodically review and revise as appropriate. In discharging its oversight role, the Nominating Committee is empowered to investigate any matter brought to its attention. 52 Board Leadership Structure Allan Evans serves as the Chairman of the Board and actively interfaces with management, the Board and counsel regularly. We believe that Dr. Evans’s experience as an entrepreneur and Chief Executive Officer of a drone company will help the Company with the challenges faced by us at this stage as well as implementing our business and marketing plans, integrating acquisitions, continuing and managing our growth. We believe that Dr. Evans, Mr. Thompson and the other members of the Board will assist the Company’s management with both the operational aspects as well as the strategic aspects of our business. Board Risk Oversight The Company’s risk management function is overseen by the Board. The Company’s management keeps the Board apprised of material risks and provides its directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect us, and how management addresses those risks. Allan Evans, Chairman of the Board, works closely together with the other members of the Board when material risks are identified on how to best address such risks. If the identified risk poses an actual or potential conflict with management, the Company’s independent directors may conduct the assessment. Presently, the primary risks affecting us are our liquidity and continued revenue growth to obtain positive cash flow. Family Relationships There are no family relationships among any of our officers or directors. Involvement in Legal Proceedings We are not aware of any of our directors or officers being involved in any legal proceedings in the past 10 years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401(f) of Regulation S-K of the SEC. Code of Ethics The Board has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all of the Company’s employees, including the Company’s Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to the Company’s directors. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations and the prompt reporting of illegal or unethical behavior, and accountability for adherence to the Code of Ethics. We will provide a copy, without charge, to anyone that requests a copy of our Code of Ethics in writing by contacting 4677 LB McLeod Road, Suite J, Orlando, FL 32811, Attention: Corporate Secretary. Insider Trading Arrangements and Policies We are committed to promoting high standards of ethical business conduct and compliance with applicable laws, rules, and regulations. As part of this commitment, we have adopted our Insider Trading Policy governing the purchase, sale, and/or other dispositions of our securities by our directors, officers, and employees that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the exchange listing standards applicable to us. A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K for the year ended December 31, 2024. 53 Hedging Under the Company’s Insider Trading Policy, all officers, directors and certain identified employees are prohibited from engaging in hedging transactions. Clawback Policy Our Board has adopted a policy relating to recovery of erroneously awarded compensation (a “Clawback Policy”) in accordance with the rules of the New York Stock Exchange, to recoup “excess” incentive compensation, if any, earned by current and former executive officers during a three year look back period in the event of a financial restatement due to material noncompliance with any financial reporting requirement under the securities laws (with no fault required). Our Clawback Policy is filed as Exhibit 97.1 to the Annual Report on Form 10-K for the year ended December 31, 2023. Item 11. Executive Compensation. Executive Compensation Overview This section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive officer during 2024. Our named executive officers, or the Named Executive Officers, for the year ended December 31, 2024, are: · Allan Evans, our Chief Executive Officer; · Brandon Torres Declet, our former Chief Executive Officer; and · Brian Hoff, our Chief Financial Officer · Andrew Camden, our Chief Operating Officer 54 Unusual Machines Summary Compensation Table Years Ended December 31, 2024 and 2023 The following table contains information about the compensation paid to or earned by each Named Executive Officer for the two most recently completed fiscal years. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($)(5) Option Awards ($)(6) All Other Compensation ($) Total ($) Allan Evans (1) 2024 250,000 131,000 733,600 – – 1,114,600 Chief Executive Officer 2023 20,833 – – – – 20,833 Brandon Torres Declet (2) 2024 – – – – – – Former Chief Executive Officer 2023 229,167 – 64,344 – 62,500 356,011 Brian Hoff (3) 2024 250,000 121,220 449,600 – – 820,820 Chief Financial Officer 2023 250,000 – – – – 250,000 Andrew Camden (4) 2024 167,094 6,678 158,000 – – 331,772 Chief Operating Officer 2023 90,000 – – – – 90,000 ________________________ (1) Dr. Evans was appointed Chief Executive Officer in December 2023. On April 30, 2024, Dr. Evans consulting company, 8 Consulting, LLC entered into a two-year Management Services Agreement to serve as the Company’s Chief Executive Officer. (2) Mr. Declet was appointed Chief Executive Officer in May 2022 and resigned from the Board and as Chief Executive Officer in November 2023. Mr. Declet executed a termination agreement pursuant to which he received three months of salary as severance and three months of medical and insurance premiums. Mr. Declet received 16,086 shares of our Common Stock with a value of $4 per share. (3) Mr. Hoff was appointed Chief Financial Officer in November 2022. (4) Mr. Camden was appointed Chief Operating Officer in March 2024. Prior to that, Mr. Camden was the President of Rotor Riot and his 2023 compensation is based on his employment with Red Cat and Rotor Riot prior to the completion of our IPO and acquisitions in February 2024. (5) Amounts reflect the aggregate grant date fair value of restricted share grants computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 10 included in our consolidated financial statements. There can be no assurance that unvested awards will vest. (6) Option awards are valued in accordance with ASC 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term, discount rates, and dividend expectations. Compensation expense is recognized based on the vesting terms of the award. 55 Outstanding Equity Awards at December 31, 2024 The table below summarizes outstanding equity awards held by our Named Executive Officers at December 31, 2024. All of the below awards were issued under the Plan. Stock Awards Name Grant Date Number of Shares or Units of Stock That Have Not Yet Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($)(1) Allan Evans* 4/30/2024 77,089 $ 1,296,637 05/02/2024 6,466 108,758 11/05/2024 – – Brian Hoff 04/30/2024 46,248 $ 777,891 11/05/2024 – – Andrew Camden 4/30/2024 7,899 $ 132,861 11/05/2024 – – ____________________ * Awarded to 8 Consulting, LLC (1) The market value of shares or units of stock that have not yet vested is based on our stock price as of December 31, 2024. Employment Agreements Employment Agreement relating to Dr. Allan Evans, Chief Executive Officer On November 27, 2023, the Company and Dr. Allan Evans entered into an Offer Letter (the “Offer Letter”) under which Dr. Evans agreed to serve as the Company’s Chief Executive Officer effective December 4, 2023. On April 30, 2024, the Company’s Board 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. 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. 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. 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; (iv) to perform services for such subsidiaries of the Company as may be necessary. 56 The Consultant receives 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 Company and Dr. 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. Employment Agreement with Brian Hoff, Chief Financial Officer The Employment Agreement with Mr. Hoff effective November 1, 2022 provides that he will serve as the Chief Financial Officer of the Company on an at will basis. In August 2023, the Employment Agreement was amended (the “First Hoff Amendment”) to increase the percentage of RSUs from 1% to 3% (as discussed below). Pursuant to his Employment Agreement, Mr. Hoff receives an annual base salary of $250,000. In addition, Mr. Hoff’s Employment Agreement entitles him to the following: · Eligibility to earn an annual bonus of 50% of his annual base salary based on key performance indicators, as set forth in a bonus plan that is to be established, approved, administered and determined by the Board and the Chief Executive Officer. · A cash and/or equity bonus of up to $125,000 including the bonus he received following the acquisition of Fat Shark and Rotor Riot. · A cash bonus and/or equity bonus equal to up to $125,000 upon the completion of a capital raise event, defined as a second offering, a private placement offering, an at-the-market offering, a private investment in public equity offering. · A grant of RSUs equal to 3% of the outstanding Common Stock of the Company (after giving effect to the First Hoff Amendment). The RSUs vested following the Closing of the IPO. Additionally, under his Employment Agreement, if Mr. Hoff is terminated by the Company without Cause or terminates his employment for Good Reason, he will be entitled to six months’ annual base salary and COBRA premiums, as well as accelerated vesting of 100% of the then unvested RSUs, if applicable. For this purpose, Good Reason is generally defined as (i) any reduction in his base salary, (ii) any material diminution of his authorities, titles or offices, (iii) being required to report to anyone other than the Chief Executive Officer, (iv) a request by the Company to relocate, or (v) material breach of his Employment Agreement without cure after 30 days’ written notice. Cause is generally defined as (i) failure to perform his material duties under the Employment Agreement, following 30 days’ written notice without cure, (ii) willful misconduct or gross negligence or breach of a fiduciary duty owed to the Company, (iii) conviction of our guilty pleas to a felony or other criminal offense involving moral turpitude, (iv) any act or omission involving dishonesty, disloyalty, or fraud causing or reasonably expected to cause significant economic harm to the Company, or (v) material breach of his Employment Agreement without cure after 30 days’ written notice. 57 E mployment arrangement with Andrew Camden, Chief Operating Officer Our Board appointed Mr. Camden, Chief Operating Officer on March 4, 2024, and agreed to pay him a salary of $150,000 per year. In September 2024, the Compensation Committee approved increasing Mr. Camden’s salary to $200,000. Non-Employee Director Compensation Our non-employee directors did not receive any cash or equity compensation from the Company for the year ended December 31, 2023. Following our February 2024 IPO, our Board approved compensation for our non-employee directors. Our non-employee directors will receive annual aggregate compensation of $60,000 for service on the Board comprised of cash and equity grants. Additional compensation for the chairperson members as set forth below. All cash payments and equity grants will be made semi-annual in arrears. · Audit Committee Chair: $5,000 · Compensation Committee Chair: $5,000 · Nominating and Governance Committee Chair: $5,000 All equity grants issued to our non-employee directors will be granted under our Plan. On February 3, 2025, the Board determined that for 2025 non-employee directors will be granted $90,000 payable in restricted Common Stock with the number of shares determined based upon the closing price of the Company’s Common Stock during each open window period with the first grant equal to two-quarters of compensation on May 19, 2025 using the May 19 th closing price to determine the number of shares, the second quarter grant equal to 25% of the total using the August 19, 2025 closing price and the final grant of restricted stock using the November 19, 2025 closing price with all grants vested and the grants subject to continued service as of the grant date and execution of the Company’s standard Restricted Stock Agreement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 25, 2025 by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Exchange Act known to the Company to be the beneficial owner of more than 5% of the outstanding Common Stock; (ii) each of our directors; (iii) each of our Named Executive Officers; and (iv) all executive officers and directors as a group. Information relating to beneficial ownership of Common Stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder's address is c/o Unusual Machines, Inc., 4677 LB McLeod Rd., Suite J, Orlando Florida, 32811. 58 The percentages below are calculated based on 16,830,170 shares of Common Stock issued and outstanding as of March 25, 2025. Name and Address of Beneficial Owner Title of Class Amount of Shares Beneficially Owned (1) Percentage of Beneficial Ownership Named Executive Officers and Directors: Allan Evans Common Stock 869,439 5.17% Brian Hoff Common Stock 443,000 2.63% Andrew Camden Common Stock 201,000 1.19% Jeffrey Thompson (2) Common Stock 326,818 1.94% Sanford Rich Common Stock 119,600 0.71% Robert Lowry Common Stock 74,406 0.44% Cristina Colón Common Stock 46,338 0.28% All executive officers and directors as a group (6 persons) Common Stock 1,879,601 11.17% Other 5% Holders N/A Common Stock – –% (1) The numbers and percentages outstanding in these columns, exclude: a. 693,227 shares of our Common Stock available for future issuance under the Company’s Plan, which includes shares of Common Stock deliverable under grants of RSUs since the underlying Common Stock cannot be delivered within 60 days of the date of this Form 10-K to our executives; b. 8,500 shares of our Common Stock issuable upon the exercise of warrants to an underwriter of our IPO (the “Representative’s Warrants”). The Representative’s Warrants can be exercised at any time, and from time to time, in whole or in part, during the five-year period commencing 180 days following February 16, 2024. c. 164,473 shares of our Common Stock issuable upon the exercise of warrants from the October 2024 Private Placement. The warrants can be exercised at any time, and from time-to-time, in whole or in part, during the five and a half year period from February 25, 2025. On February 26, 2025, the Company issued 1,224,606 shares of Common Stock to various warrant holders who exercised their warrants at an exercise price of $1.99. The Company received gross proceeds in the aggregate amount of $2,436,966 as a result of the warrant exercises. The shares of common stock issued are fully registered under the Registration Statement on Form S-1 (SEC Registration Number 333-283494). All such warrants were exercised other than such warrants held by Allan Evans, our Chief Executive Officer, Sanford Rich and Robert Lowry, who are each members of our Board. (2) Address is 15 Ave. Munoz Rivera Ste 2200, San Juan, PR 00901. Item 13. Certain Relationships and Related Party Transactions and Director Independence The following is a description of transactions since January 1, 2022, to which we were a party or will be party, in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. As permitted by the SEC rules, discussion of employment relationships or transactions involving the Company’s executive officers and directors, and compensation solely resulting from such employment relationships or transactions, or service as a director of the Company, as the case may be, has been omitted to the extent disclosed in the Executive Compensation or the Director Compensation section of this annual report, as applicable. In November 2024, the Company entered into and received a purchase order with Teal Drones, Inc. a wholly owned subsidiary of Red Cat to provide goods and services to a customer in which Teal Drones is a prime contractor and the Company is a subcontractor. Red Cat is a related party as Jeff Thompson is the Chief Executive Officer of Red Cat and is also on the Board of Directors of Unusual Machines. The Company recognized $155,000 in revenue related to the related party contract during the year ended December 31, 2024. The total value of the contract between Unusual Machines and Red Cat is $250,000. 59 On October 30, 2024, Allan Evans, the Company’s Chief Executive Officer and Sanford Rich and Robert Lowry, each a member of the Company’s Board, invested an aggregate of $250,000 in the Private Placement on identical terms to the other Investors. On April 30, 2024 (“Grant Date”), the Company’s Board approved the Company entering into a two-year Consulting Agreement with the Consultant for the services of our Chief Executive Officer, Dr. Allan Evans, whereby the Consultant agreed to cause Dr. Evans to perform his services as the Company’s Chief Executive Officer and the Consultant is compensated on behalf of Dr. Evans by the Company in connection with his performance of such services. See “Executive Compensation – Employment Agreements.” 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. In February 2024, the Company completed the acquisitions to purchase Fat Shark and Rotor Riot from Red Cat. Jeffrey Thompson is the founder and current Chief Executive Officer of Red Cat. Mr. Thompson is also the founder, prior Chief Executive Officer and current member on the Board of Unusual Machines. Prior to the acquisition, Mr. Thompson held 328,500 shares of Common Stock in Unusual Machines, which represented approximately 10% prior to the acquisition and IPO. On December 8, 2023, our former Chief Executive Officer, Brandon Torres Declet, and the Company executed a termination agreement (the “Termination Agreement”) pursuant to which Mr. Declet received three months of salary severance and three months of medical and insurance premiums. In lieu of 603,208 RSUs that Mr. Declet was to be granted post IPO, Mr. Declet received 16,086 shares of our Common Stock in January 2024. In November 2022, we 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, pursuant to which, among other things, Mr. Thompson and the Company agreed to indemnification obligations, which shall survive for a period of nine months, subject to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of 100,000 shares of our Common Stock owned by him to secure any indemnification obligations, which stock is our sole remedy, except for fraud. Our then Chief Executive Officer negotiated the terms of the Purchase Agreement on an arms’ length basis with Joe Freedman who was the head of Red Cat’s Special Committee. The transaction was ultimately approved by the Company’s and Red Cat’s Board. On March 8, 2023, a majority of the disinterested Red Cat shareholders approved the transactions contemplated in the Purchase Agreement in a special meeting. Mr. Thompson recused himself from such vote. Item 14. Principal Accountant Fees and Services Salberg & Company, P.A. audited our financial statements for the fiscal year ended December 31, 2024 and 2023. Independent Registered Public Accounting Firm Fees The following is a summary and description of fees incurred by Salberg & Company, P.A. for the fiscal years ended December 31, 2024 and 2023. ($ in ‘000s) 2024 2023 Audit fees (1) $ 155 $ 62 Tax fees – – All other fees (2) 21 – Total fees $ 176 $ 62 ________________________ (1) Audit fees consist of fees for the audit of our annual financial statements and the quarterly reviews of our interim financial statements. (2) All other fees consist of fees related to reviews of our registration statements during the year. Audit Committee Pre-approval Policy and Procedures Our Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by our Audit Committee or the engagement is entered into pursuant to the pre-approval procedure described below. From time to time, our Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval details the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. 60 PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements For a list of the financial statements included herein, see Index to the Financial Statements on page F-1 of this Annual Report, incorporated into this Item by reference. 2. Financial Statement Schedules Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the financial statements or the notes thereto. (b) Exhibits The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report are listed in the Exhibit Index below. The exhibits listed in the Exhibit Index are incorporated by reference herein. EXHIBIT INDEX Incorporated by Reference Exhibit No. Description Filed/Furnished Herewith Form Exhibit No. Filing Date 1.1 Form of Underwriting Agreement, dated February 14, 2024, by and between Unusual Machines, Inc. and Dominari Securities, LLC + 8-K 1.1 2/16/24 2.1 Agreement and Plan of Merger by and between Unusual machines, Inc., a Puerto Rico corporation and Unusual machines, Inc., a Nevada corporation 8-K 2.1 4/23/24 3.1 Articles of Incorporation 8-K 3.1 4/23/24 3.2 Amended and Restated Bylaws 8-K 3.1 10/8/24 3.2(a) Amendment No. to Amended and Restated Bylaws 8-K 3.1 2/5/25 3.3 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock 8-K 3.1 7/22/24 3.4 Certificate of Designation of Series B Convertible Preferred Stock 8-K 3.3 4/23/24 3.5 Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock 8-K 3.1 8/22/24 4.1 Form of 8% Promissory Note + 8-K 4.1 7/22/24 4.2 Revised Form of Representatives Warrant S-1/A 10.7 2/1/24 4.4 Description of Securities 10-K 4.7 3/22/24 10.1 Share Purchase Agreement + S-1 10.1 3/14/23 10.1(a) Amended and Restated Amendment No. 1 to Share Purchase Agreement S-1/A 10.2 5/3/23 10.1(b) Amendment No. 2 to Share Purchase Agreement S-1/A 10.3 8/7/23 10.1(c) Amendment No. 3 to Share Purchase Agreement S-1/A 10.4 9/19/23 10.1(d) Amendment No. 4 to Share Purchase Agreement S-1/A 10.5 12/15/23 61 10.2 Security Agreement S-1 10.3 3/14/23 10.3 Employment Agreement with Brian Hoff #+ S-1 10.6 3/14/23 10.3(a) Form of Amendment No. 1 to the Employment Agreement with Brian Hoff # S-1/A 10.11A 8/7/23 10.4 Form of Patent Assignment S-1/A 10.6 8/7/23 10.5 Form of Trademark Assignment S-1/A 10.7 8/7/23 10.6 Form of Restricted Stock Unit Agreement S-1/A 10.18 8/7/23 10.7 Amended 2022 Equity Incentive Plan # S-1/A 10.11 12/15/23 10.8 Employment Offer Letter with Dr. Allan Evans # S-1/A 10.21 12/15/23 10.9 Brandon Torres Declet Termination and Release Agreement S-1/A 10.22 12/15/23 10.10 Form of Lock-up Agreement S-1/A 10.14 2/1/24 10.11 Form of Lock-up Agreement – Jeffrey Thompson S-1/A 10.15 2/1/24 10.12 Allan Evans Non-Compete Agreement 8-K 10.9 2/22/24 10.13 Management Services Agreement # 8-K 10.1 5/6/24 10.14 Form of Restricted Stock Agreement 8-K 10.2 5/6/24 10.15 Form of Exchange Agreement + 8-K 10.1 7/22/24 10.16 Form of Closing Date working Capital Agreement and Consent + 8-K 10.2 7/22/24 10.17 Form of Restricted Stock Agreement 8-K 10.1 7/31/24 10.18 4% Convertible Promissory Note – Titan Multi-Strategy Fund I, Ltd. S-1 10.20 9/11/24 10.19 4% Convertible Promissory Note – Eleven Ventures LLC + S-1 10.21 9/11/24 10.20 Common Stock Purchase Warrant – Titan Multi-Strategy Fund I, Ltd. + S-1 10.22 9/11/24 10.21 Common Stock Purchase Warrant - Eleven Ventures LLC + S-1 10.23 9/11/24 10.22 Exchange Agreement – Titan Multi-Strategy Fund I, Ltd. + S-1 10.24 9/11/24 10.23 Exchange Agreement – Eleven Ventures LLC + S-1 10.25 9/11/24 10.24 Registration Rights Agreement – Titan Multi-Strategy Fund I, Ltd. + S-1 10.26 9/11/24 10.25 Registration Rights Agreement – Eleven Ventures LLC + S-1 10.27 9/11/24 10.26 Letter Agreement - Titan Multi-Strategy Fund I, Ltd. 8-K 10.1 10/8/24 10.27 Letter Agreement - Eleven Ventures LLC 8-K 10.2 10/8/24 10.28 Amendment No.1 to 2022 Equity Incentive Plan, as amended # 8-K 10.3 10/8/24 10.29 Form of Restricted Stock Agreement 8-K 10.1 10/24/24 10.30 Form of Securities Purchase Agreement 8-K 10.1 10/30/24 10.31 Placement Agency Agreement 8-K 10.2 10/30/24 10.32 Registration Rights Agreement 8-K 10.3 10/30/24 10.33 Form of Common Stock Purchase Warrant 8-K 10.4 10/30/24 10.34 Form of Placement Agent Warrant 8-K 10.5 10/30/24 10.35 Form of Lock-up Agreement 8-K 10.6 10/30/24 10.36 Form of Restricted Stock Agreement 8-K 10.1 11/7/24 10.37 Form of Advisory Agreement S-1 10.28 11/27/24 10.38 Form of Restricted Stock Agreement 8-K 10.1 1/16/25 10.39 Agreement and Plan of Merger and Reorganization dated February 1, 2025 8-K 10.1 2/4/25 62 14.1 Code of Ethics S-1/A 10.17 8/7/23 16.1 Letter from Salberg & Company, P.A. 8-K/A 7.1 8/15/24 19.1 Insider Trading Policy 10-K 19.1 3/22/24 21.1 List of Subsidiaries 10-K/A 21.1 8/9/24 31.1 Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1) 31.2 Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1) 32.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) 32.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) 97.1 Clawback Policy 10-K 97.1 3/22/24 101.INS Inline XBRL Instance Document (1) 101.SCH Inline XBRL Taxonomy Extension Schema (1) 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase (1) 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase (1) 101.LAB Inline XBRL Taxonomy Extension Label Linkbase (1) 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase (1) 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). (1) + Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC Staff upon request. # Indicates management contract or compensatory plan, contract or agreement. (1) Filed herein (3) Furnished herein. Item 16. Form 10-K Summary The Company has elected not to include summary information. 63 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. Unusual Machines, Inc. By: / s/ Allan Evans Allan Evans Chief Executive Officer, President and Director (Principal Executive Officer) By: / s/ Brian Hoff Brian Hoff Chief Financial Officer Date: March 27, 2025 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Allan Evans Chief Executive Officer, President and Director March 27, 2025 Allan Evans (Principal Executive Officer) /s/ Brian Hoff Chief Financial Officer March 27, 2025 Brian Hoff (Principal Financial and Accounting Officer) /s/ Cristina Colón Director March 27, 2025 Cristina Colón /s/ Robert Lowry Director March 27, 2025 Robert Lowry /s/ Sanford Rich Director March 27, 2025 Sanford Rich /s/ Jeffrey Thompson Director March 27, 2025 Jeffrey Thompson 64