false
--12-31
2024
Q3
0001956955
0001956955
2024-01-01
2024-09-30
0001956955
2024-11-13
0001956955
2024-09-30
0001956955
2023-12-31
0001956955
us-gaap:SeriesAPreferredStockMember
2024-09-30
0001956955
us-gaap:SeriesAPreferredStockMember
2023-12-31
0001956955
us-gaap:SeriesBPreferredStockMember
2024-09-30
0001956955
us-gaap:SeriesBPreferredStockMember
2023-12-31
0001956955
us-gaap:SeriesCPreferredStockMember
2024-09-30
0001956955
us-gaap:SeriesCPreferredStockMember
2023-12-31
0001956955
2024-07-01
2024-09-30
0001956955
2023-07-01
2023-09-30
0001956955
2023-01-01
2023-09-30
0001956955
UMAC:SeriesAPreferredStocksMember
2022-12-31
0001956955
UMAC:SeriesBPreferredStocksMember
2022-12-31
0001956955
UMAC:SeriesCPreferredStocksMember
2022-12-31
0001956955
us-gaap:CommonStockMember
2022-12-31
0001956955
us-gaap:AdditionalPaidInCapitalMember
2022-12-31
0001956955
us-gaap:RetainedEarningsMember
2022-12-31
0001956955
2022-12-31
0001956955
UMAC:SeriesAPreferredStocksMember
2023-03-31
0001956955
UMAC:SeriesBPreferredStocksMember
2023-03-31
0001956955
UMAC:SeriesCPreferredStocksMember
2023-03-31
0001956955
us-gaap:CommonStockMember
2023-03-31
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-03-31
0001956955
us-gaap:RetainedEarningsMember
2023-03-31
0001956955
2023-03-31
0001956955
UMAC:SeriesAPreferredStocksMember
2023-06-30
0001956955
UMAC:SeriesBPreferredStocksMember
2023-06-30
0001956955
UMAC:SeriesCPreferredStocksMember
2023-06-30
0001956955
us-gaap:CommonStockMember
2023-06-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-06-30
0001956955
us-gaap:RetainedEarningsMember
2023-06-30
0001956955
2023-06-30
0001956955
UMAC:SeriesAPreferredStocksMember
2023-12-31
0001956955
UMAC:SeriesBPreferredStocksMember
2023-12-31
0001956955
UMAC:SeriesCPreferredStocksMember
2023-12-31
0001956955
us-gaap:CommonStockMember
2023-12-31
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-12-31
0001956955
us-gaap:RetainedEarningsMember
2023-12-31
0001956955
UMAC:SeriesAPreferredStocksMember
2024-03-31
0001956955
UMAC:SeriesBPreferredStocksMember
2024-03-31
0001956955
UMAC:SeriesCPreferredStocksMember
2024-03-31
0001956955
us-gaap:CommonStockMember
2024-03-31
0001956955
us-gaap:AdditionalPaidInCapitalMember
2024-03-31
0001956955
us-gaap:RetainedEarningsMember
2024-03-31
0001956955
2024-03-31
0001956955
UMAC:SeriesAPreferredStocksMember
2024-06-30
0001956955
UMAC:SeriesBPreferredStocksMember
2024-06-30
0001956955
UMAC:SeriesCPreferredStocksMember
2024-06-30
0001956955
us-gaap:CommonStockMember
2024-06-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2024-06-30
0001956955
us-gaap:RetainedEarningsMember
2024-06-30
0001956955
2024-06-30
0001956955
UMAC:SeriesAPreferredStocksMember
2023-01-01
2023-03-31
0001956955
UMAC:SeriesBPreferredStocksMember
2023-01-01
2023-03-31
0001956955
UMAC:SeriesCPreferredStocksMember
2023-01-01
2023-03-31
0001956955
us-gaap:CommonStockMember
2023-01-01
2023-03-31
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-01-01
2023-03-31
0001956955
us-gaap:RetainedEarningsMember
2023-01-01
2023-03-31
0001956955
2023-01-01
2023-03-31
0001956955
UMAC:SeriesAPreferredStocksMember
2023-04-01
2023-06-30
0001956955
UMAC:SeriesBPreferredStocksMember
2023-04-01
2023-06-30
0001956955
UMAC:SeriesCPreferredStocksMember
2023-04-01
2023-06-30
0001956955
us-gaap:CommonStockMember
2023-04-01
2023-06-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-04-01
2023-06-30
0001956955
us-gaap:RetainedEarningsMember
2023-04-01
2023-06-30
0001956955
2023-04-01
2023-06-30
0001956955
UMAC:SeriesAPreferredStocksMember
2023-07-01
2023-09-30
0001956955
UMAC:SeriesBPreferredStocksMember
2023-07-01
2023-09-30
0001956955
UMAC:SeriesCPreferredStocksMember
2023-07-01
2023-09-30
0001956955
us-gaap:CommonStockMember
2023-07-01
2023-09-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-07-01
2023-09-30
0001956955
us-gaap:RetainedEarningsMember
2023-07-01
2023-09-30
0001956955
UMAC:SeriesAPreferredStocksMember
2024-01-01
2024-03-31
0001956955
UMAC:SeriesBPreferredStocksMember
2024-01-01
2024-03-31
0001956955
UMAC:SeriesCPreferredStocksMember
2024-01-01
2024-03-31
0001956955
us-gaap:CommonStockMember
2024-01-01
2024-03-31
0001956955
us-gaap:AdditionalPaidInCapitalMember
2024-01-01
2024-03-31
0001956955
us-gaap:RetainedEarningsMember
2024-01-01
2024-03-31
0001956955
2024-01-01
2024-03-31
0001956955
UMAC:SeriesAPreferredStocksMember
2024-04-01
2024-06-30
0001956955
UMAC:SeriesBPreferredStocksMember
2024-04-01
2024-06-30
0001956955
UMAC:SeriesCPreferredStocksMember
2024-04-01
2024-06-30
0001956955
us-gaap:CommonStockMember
2024-04-01
2024-06-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2024-04-01
2024-06-30
0001956955
us-gaap:RetainedEarningsMember
2024-04-01
2024-06-30
0001956955
2024-04-01
2024-06-30
0001956955
UMAC:SeriesAPreferredStocksMember
2024-07-01
2024-09-30
0001956955
UMAC:SeriesBPreferredStocksMember
2024-07-01
2024-09-30
0001956955
UMAC:SeriesCPreferredStocksMember
2024-07-01
2024-09-30
0001956955
us-gaap:CommonStockMember
2024-07-01
2024-09-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2024-07-01
2024-09-30
0001956955
us-gaap:RetainedEarningsMember
2024-07-01
2024-09-30
0001956955
UMAC:SeriesAPreferredStocksMember
2023-09-30
0001956955
UMAC:SeriesBPreferredStocksMember
2023-09-30
0001956955
UMAC:SeriesCPreferredStocksMember
2023-09-30
0001956955
us-gaap:CommonStockMember
2023-09-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2023-09-30
0001956955
us-gaap:RetainedEarningsMember
2023-09-30
0001956955
2023-09-30
0001956955
UMAC:SeriesAPreferredStocksMember
2024-09-30
0001956955
UMAC:SeriesBPreferredStocksMember
2024-09-30
0001956955
UMAC:SeriesCPreferredStocksMember
2024-09-30
0001956955
us-gaap:CommonStockMember
2024-09-30
0001956955
us-gaap:AdditionalPaidInCapitalMember
2024-09-30
0001956955
us-gaap:RetainedEarningsMember
2024-09-30
0001956955
us-gaap:IPOMember
2024-02-14
2024-02-16
0001956955
us-gaap:IPOMember
2024-02-16
0001956955
us-gaap:IPOMember
2024-01-01
2024-09-30
0001956955
us-gaap:IPOMember
2023-01-01
2023-09-30
0001956955
UMAC:OrlandoFLMember
UMAC:RotorRiotMember
2024-02-16
0001956955
us-gaap:GeneralAndAdministrativeExpenseMember
2024-01-01
2024-09-30
0001956955
us-gaap:GeneralAndAdministrativeExpenseMember
2023-01-01
2023-09-30
0001956955
us-gaap:FairValueInputsLevel1Member
2024-09-30
0001956955
us-gaap:FairValueInputsLevel2Member
2024-09-30
0001956955
us-gaap:FairValueInputsLevel3Member
2024-09-30
0001956955
us-gaap:WarrantMember
us-gaap:FairValueInputsLevel3Member
2023-12-31
0001956955
us-gaap:WarrantMember
us-gaap:FairValueInputsLevel3Member
2024-01-01
2024-09-30
0001956955
us-gaap:WarrantMember
us-gaap:FairValueInputsLevel3Member
2024-09-30
0001956955
us-gaap:DerivativeMember
us-gaap:FairValueInputsLevel3Member
2023-12-31
0001956955
us-gaap:DerivativeMember
us-gaap:FairValueInputsLevel3Member
2024-01-01
2024-09-30
0001956955
us-gaap:DerivativeMember
us-gaap:FairValueInputsLevel3Member
2024-09-30
0001956955
us-gaap:FairValueInputsLevel3Member
2023-12-31
0001956955
us-gaap:FairValueInputsLevel3Member
2024-01-01
2024-09-30
0001956955
UMAC:FatSharkAndRotorRiotMember
2024-02-14
2024-02-16
0001956955
UMAC:FatSharkAndRotorRiotMember
2024-01-01
2024-09-30
0001956955
UMAC:FatSharkAndRotorRiotMember
2024-02-16
0001956955
UMAC:FatSharkAndRotorRiotMember
srt:ProFormaMember
2024-01-01
2024-09-30
0001956955
UMAC:FatSharkAndRotorRiotMember
2023-01-01
2023-09-30
0001956955
UMAC:FatSharkAndRotorRiotMember
srt:ProFormaMember
2023-01-01
2023-09-30
0001956955
UMAC:FatSharkAndRotorRiotMember
2024-09-30
0001956955
UMAC:FatSharkAndRotorRiotMember
2023-12-31
0001956955
UMAC:RotorRiotLeaseMember
2024-01-01
2024-09-30
0001956955
UMAC:OrlandoFLMember
UMAC:RotorRiotMember
2024-02-18
2024-09-30
0001956955
UMAC:Year2024Member
2024-09-30
0001956955
UMAC:Year2025Member
2024-09-30
0001956955
UMAC:Year2026Member
2024-09-30
0001956955
UMAC:Year2027Member
2024-09-30
0001956955
UMAC:Year2028Member
2024-09-30
0001956955
UMAC:RedCatMember
2024-07-01
2024-07-31
0001956955
UMAC:RedCatMember
UMAC:JulyNotesMember
2024-07-01
2024-07-31
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
2024-08-20
2024-08-21
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
2024-08-21
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
2024-07-01
2024-09-30
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
2024-01-01
2024-09-30
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
UMAC:FairValueRelatedWarrantLiabilityMember
2024-08-20
2024-08-21
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
UMAC:FairValueRelatedToDerivativeLiabilityMember
2024-08-20
2024-08-21
0001956955
UMAC:TwoExchangeAgreementMember
UMAC:AugustNotesMember
UMAC:CashFeesPaidForLegalCostsMember
2024-08-20
2024-08-21
0001956955
2024-08-21
0001956955
UMAC:SeriesAConvertiblePreferredStockMember
2024-01-01
2024-09-30
0001956955
UMAC:SeriesAConvertiblePreferredStockMember
2023-01-01
2023-09-30
0001956955
UMAC:SeriesBConvertiblePreferredStockMember
2024-01-01
2024-09-30
0001956955
UMAC:SeriesBConvertiblePreferredStockMember
2023-01-01
2023-09-30
0001956955
UMAC:SeriesCConvertiblePreferredStockMember
2024-01-01
2024-09-30
0001956955
UMAC:SeriesCConvertiblePreferredStockMember
2023-01-01
2023-09-30
0001956955
us-gaap:EmployeeStockOptionMember
2024-01-01
2024-09-30
0001956955
UMAC:CommonStockWarrantsMember
2024-01-01
2024-09-30
0001956955
UMAC:WarrantsIssuedRelatedToDebtConversionMember
2024-01-01
2024-09-30
0001956955
UMAC:ConvertibleNoteCommonStockMember
2024-01-01
2024-09-30
0001956955
us-gaap:ConvertibleCommonStockMember
UMAC:RedCatMember
2024-07-21
2024-07-22
0001956955
us-gaap:SeriesAPreferredStockMember
UMAC:RedCatMember
2024-07-21
2024-07-22
0001956955
UMAC:TwoExchangeAgreementsMember
UMAC:InvestorsMember
2024-08-20
2024-08-21
0001956955
UMAC:TwoExchangeAgreementsMember
UMAC:InvestorsMember
us-gaap:SeriesCPreferredStockMember
2024-08-21
0001956955
UMAC:TwoExchangeAgreementsMember
UMAC:InvestorsMember
2024-08-21
0001956955
us-gaap:SeriesBPreferredStockMember
2024-01-01
2024-09-30
0001956955
us-gaap:ConvertibleCommonStockMember
2024-09-30
0001956955
us-gaap:SeriesBPreferredStockMember
2023-05-29
2023-06-01
0001956955
us-gaap:ConvertibleCommonStockMember
2023-05-29
2023-06-01
0001956955
UMAC:PriorChiefExecutiveOfficerMember
2023-12-29
2024-01-02
0001956955
us-gaap:IPOMember
UMAC:DirectDeductionFromProceedsMember
2024-09-30
0001956955
us-gaap:IPOMember
UMAC:CashDisbursementsMember
2024-09-30
0001956955
us-gaap:IPOMember
UMAC:PaidPriorYearMember
2023-12-31
0001956955
us-gaap:IPOMember
2023-12-31
0001956955
us-gaap:IPOMember
UMAC:UnderwritersMember
2024-02-14
2024-02-16
0001956955
us-gaap:IPOMember
UMAC:UnderwritersMember
2024-02-16
0001956955
UMAC:RedCatMember
2024-02-14
2024-02-16
0001956955
UMAC:ExecutiveOfficersAndBoardMembersMember
2024-04-29
2024-04-30
0001956955
srt:ChiefExecutiveOfficerMember
2024-05-01
2024-05-02
0001956955
UMAC:ExecutiveOfficersAndBoardMembersMember
2024-04-30
0001956955
srt:ChiefExecutiveOfficerMember
2024-05-02
0001956955
UMAC:BoardMembersMember
2024-07-29
2024-07-30
0001956955
UMAC:BoardMembersMember
2024-07-30
0001956955
UMAC:January2023EngagementMember
2023-03-06
2023-03-07
0001956955
UMAC:January2023EngagementMember
2023-03-07
0001956955
UMAC:BoardOfDirectorsMember
2023-07-09
2023-07-10
0001956955
us-gaap:StockOptionMember
2024-01-01
2024-09-30
0001956955
UMAC:UnvestedStockOptionsMember
2024-09-30
0001956955
us-gaap:RestrictedStockMember
2024-01-01
2024-09-30
0001956955
UMAC:UnvestedRestrictedStockMember
2024-09-30
0001956955
us-gaap:StockOptionMember
2023-12-31
0001956955
us-gaap:StockOptionMember
2024-09-30
0001956955
us-gaap:StockOptionMember
srt:MinimumMember
2024-09-30
0001956955
us-gaap:StockOptionMember
srt:MaximumMember
2024-09-30
0001956955
us-gaap:StockOptionMember
srt:MinimumMember
2024-01-01
2024-09-30
0001956955
us-gaap:StockOptionMember
srt:MaximumMember
2024-01-01
2024-09-30
0001956955
us-gaap:RestrictedStockMember
2023-12-31
0001956955
us-gaap:RestrictedStockMember
UMAC:AwardsVestedMember
2023-12-31
0001956955
us-gaap:RestrictedStockMember
UMAC:AwardsUnvestedMember
2023-12-31
0001956955
us-gaap:RestrictedStockMember
UMAC:AwardsVestedMember
2024-01-01
2024-09-30
0001956955
us-gaap:RestrictedStockMember
UMAC:AwardsUnvestedMember
2024-01-01
2024-09-30
0001956955
us-gaap:RestrictedStockMember
2024-09-30
0001956955
us-gaap:RestrictedStockMember
UMAC:AwardsVestedMember
2024-09-30
0001956955
us-gaap:RestrictedStockMember
UMAC:AwardsUnvestedMember
2024-09-30
0001956955
UMAC:ManagementServicesAgreementMember
UMAC:ConsultantMember
2024-09-30
0001956955
UMAC:ManagementServicesAgreementMember
UMAC:ConsultantMember
UMAC:RestrictedCommonStockMember
2024-04-29
2024-04-30
0001956955
UMAC:RotorRiotLease1Member
2024-01-01
2024-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
2023-01-01
2023-09-30
0001956955
srt:RestatementAdjustmentMember
2023-01-01
2023-09-30
0001956955
UMAC:AsRestatedMember
2023-01-01
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
UMAC:PreferredSeriesBMember
2022-12-31
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:CommonStockMember
2022-12-31
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:AdditionalPaidInCapitalMember
2022-12-31
0001956955
srt:ScenarioPreviouslyReportedMember
UMAC:StocksToBeIssuedMember
2022-12-31
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:RetainedEarningsMember
2022-12-31
0001956955
srt:ScenarioPreviouslyReportedMember
2022-12-31
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:CommonStockMember
2023-01-01
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:AdditionalPaidInCapitalMember
2023-01-01
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
UMAC:PreferredSeriesBMember
2023-01-01
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:RetainedEarningsMember
2023-01-01
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
UMAC:PreferredSeriesBMember
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:CommonStockMember
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:AdditionalPaidInCapitalMember
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
UMAC:StocksToBeIssuedMember
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
us-gaap:RetainedEarningsMember
2023-09-30
0001956955
srt:ScenarioPreviouslyReportedMember
2023-09-30
0001956955
srt:RestatementAdjustmentMember
UMAC:PreferredSeriesBMember
2022-12-31
0001956955
srt:RestatementAdjustmentMember
us-gaap:CommonStockMember
2022-12-31
0001956955
srt:RestatementAdjustmentMember
us-gaap:AdditionalPaidInCapitalMember
2022-12-31
0001956955
srt:RestatementAdjustmentMember
UMAC:StocksToBeIssuedMember
2022-12-31
0001956955
srt:RestatementAdjustmentMember
us-gaap:RetainedEarningsMember
2022-12-31
0001956955
srt:RestatementAdjustmentMember
2022-12-31
0001956955
srt:RestatementAdjustmentMember
us-gaap:AdditionalPaidInCapitalMember
2023-01-01
2023-09-30
0001956955
srt:RestatementAdjustmentMember
us-gaap:RetainedEarningsMember
2023-01-01
2023-09-30
0001956955
srt:RestatementAdjustmentMember
UMAC:PreferredSeriesBMember
2023-09-30
0001956955
srt:RestatementAdjustmentMember
us-gaap:CommonStockMember
2023-09-30
0001956955
srt:RestatementAdjustmentMember
us-gaap:AdditionalPaidInCapitalMember
2023-09-30
0001956955
srt:RestatementAdjustmentMember
UMAC:StocksToBeIssuedMember
2023-09-30
0001956955
srt:RestatementAdjustmentMember
us-gaap:RetainedEarningsMember
2023-09-30
0001956955
srt:RestatementAdjustmentMember
2023-09-30
0001956955
UMAC:AsRestatedMember
UMAC:PreferredSeriesBMember
2022-12-31
0001956955
UMAC:AsRestatedMember
us-gaap:CommonStockMember
2022-12-31
0001956955
UMAC:AsRestatedMember
us-gaap:AdditionalPaidInCapitalMember
2022-12-31
0001956955
UMAC:AsRestatedMember
UMAC:StocksToBeIssuedMember
2022-12-31
0001956955
UMAC:AsRestatedMember
us-gaap:RetainedEarningsMember
2022-12-31
0001956955
UMAC:AsRestatedMember
2022-12-31
0001956955
UMAC:AsRestatedMember
us-gaap:CommonStockMember
2023-01-01
2023-09-30
0001956955
UMAC:AsRestatedMember
us-gaap:AdditionalPaidInCapitalMember
2023-01-01
2023-09-30
0001956955
UMAC:AsRestatedMember
UMAC:PreferredSeriesBMember
2023-01-01
2023-09-30
0001956955
UMAC:AsRestatedMember
us-gaap:RetainedEarningsMember
2023-01-01
2023-09-30
0001956955
UMAC:AsRestatedMember
UMAC:PreferredSeriesBMember
2023-09-30
0001956955
UMAC:AsRestatedMember
us-gaap:CommonStockMember
2023-09-30
0001956955
UMAC:AsRestatedMember
us-gaap:AdditionalPaidInCapitalMember
2023-09-30
0001956955
UMAC:AsRestatedMember
UMAC:StocksToBeIssuedMember
2023-09-30
0001956955
UMAC:AsRestatedMember
us-gaap:RetainedEarningsMember
2023-09-30
0001956955
UMAC:AsRestatedMember
2023-09-30
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
xbrli:pure
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
Quarterly REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
For the quarterly period ended September 30, 2024 |
|
Or |
|
☐ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
For the transition period from _____________ to _____________ |
Commission File No. 333-270519
Unusual Machines, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada |
|
66-0927642 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
4677 L B McLeod Rd
Suite J
Orlando, FL |
|
32811 |
Address of Principal Executive Offices |
|
Zip Code |
(855) 921-4600
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
|
|
|
Common Stock, par value $0.01 per share |
|
UMAC |
|
NYSE American |
Indicate by check mark whether the registrant:
(1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ |
Accelerated Filer ☐ |
Non-accelerated Filer ☒ |
Smaller Reporting Company ☒ |
|
Emerging Growth Company ☒ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ☐ No ☒
As of November 13, 2024, 8,300,480 shares of
the registrant’s common stock, $0.01 par value per share, were outstanding.
UNUSUAL MACHINES, INC.
2024 QUARTERLY REPORT
ON FORM 10-Q
TABLE OF CONTENTS
Unless we state otherwise or the context otherwise
requires, the terms “Unusual Machines,” “we,” “us,” “our” and the “Company”
refer to Unusual Machines, Inc., a Nevada corporation.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Quarterly Report
on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking
statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities
laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”,
“expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology.
Forward-looking statements
are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions
regarding the future of our business, our ability to raise additional capital to meet our liquidity needs, future plans and strategies,
projections, anticipated events and trends, the uncertainty of the amount of amortization of certain intangibles, the economy and other
future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes
in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of
these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from
those indicated in the forward-looking are described more fully in the Section entitled “Risk Factors” contained in our final
Prospectus filed with the Securities and Exchange Commission on October 25, 2024.
These forward-looking
statements speak only as of the date of this Form 10-Q and are subject to business and economic risks. We do not undertake any obligation
to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such
statements were made, except to the extent required by law.
PART I – FINANCIAL INFORMATION
Item 1. |
Financial Statements |
Unusual Machines, Inc.
Consolidated Condensed Balance Sheets
| |
| |
|
| |
September
30, 2024 | |
December
31, 2023 |
| |
(Unaudited) | |
|
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,685,772 | | |
$ | 894,773 | |
Accounts Receivable | |
| 79,907 | | |
| – | |
Inventory | |
| 1,453,042 | | |
| – | |
Prepaid inventory | |
| 1,140,511 | | |
| – | |
Other current assets | |
| 158,093 | | |
| 120,631 | |
Total current assets | |
| 4,517,325 | | |
| 1,015,404 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property and equipment, net | |
| 741 | | |
| 1,254 | |
Deferred offering costs | |
| – | | |
| 512,758 | |
Operating lease right-of-use assets | |
| 340,389 | | |
| – | |
Goodwill and intangible assets | |
| 19,666,086 | | |
| – | |
Total non-current assets | |
| 20,007,216 | | |
| 514,012 | |
| |
| | | |
| | |
Total assets | |
$ | 24,524,541 | | |
$ | 1,529,416 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS'
EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 1,032,636 | | |
$ | 114,497 | |
Operating lease liabilities | |
| 65,089 | | |
| – | |
Deferred revenue | |
| 300,517 | | |
| – | |
Warrant liabilities | |
| 308,964 | | |
| – | |
Derivative liability – convertible
note conversion option | |
| 311,048 | | |
| – | |
Total current liabilities | |
| 2,018,254 | | |
| 114,497 | |
| |
| | | |
| | |
Long-term liabilities | |
| | | |
| | |
Convertible note | |
| 3,000,000 | | |
| – | |
Operating lease liabilities –
long term | |
| 280,285 | | |
| – | |
| |
| | | |
| | |
Total liabilities | |
| 5,298,539 | | |
| 114,497 | |
| |
| | | |
| | |
Commitments and contingencies (See note 13) | |
| – | | |
| – | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
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 | |
| 43 | | |
| – | |
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 | |
| 1 | | |
| 2 | |
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 | |
| 2 | | |
| – | |
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 | |
| 61,850 | | |
| 32,173 | |
Additional paid in capital | |
| 27,959,642 | | |
| 5,315,790 | |
Accumulated deficit | |
| (8,795,536 | ) | |
| (3,933,046 | ) |
Total stockholders’ equity | |
| 19,226,002 | | |
| 1,414,919 | |
| |
| | | |
| | |
Total liabilities and stockholders’
equity | |
$ | 24,524,541 | | |
$ | 1,529,416 | |
See accompanying condensed unaudited notes to the
consolidated condensed financial statements.
Unusual Machines, Inc.
Consolidated Condensed Statement of Operations
For the Three and Nine months Ended September
30, 2024 and 2023
(Unaudited)
| |
| |
| |
| |
|
| |
| |
|
| |
Three months ended September 30, | |
Nine months ended September 30, |
| |
2024 | |
2023 | |
2024 | |
2023 |
|
|
|
|
|
|
|
|
|
|
|
(Restated –
Note 14) |
|
Revenues | |
$ | 1,531,264 | | |
$ | – | | |
$ | 3,561,303 | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Cost of goods sold | |
| 1,131,777 | | |
| – | | |
| 2,569,209 | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 399,487 | | |
| – | | |
| 992,094 | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | |
Operations | |
| 218,126 | | |
| – | | |
| 544,220 | | |
| – | |
Research and development | |
| 15,000 | | |
| – | | |
| 42,078 | | |
| – | |
Sales and marketing | |
| 252,253 | | |
| – | | |
| 795,643 | | |
| – | |
General and administrative | |
| 1,374,989 | | |
| 353,029 | | |
| 3,728,749 | | |
| 1,965,469 | |
Depreciation and amortization | |
| 171 | | |
| 645 | | |
| 513 | | |
| 1,407 | |
Total operating expenses | |
| 1,860,539 | | |
| 353,674 | | |
| 5,111,203 | | |
| 1,966,876 | |
Operating loss | |
| (1,461,052 | ) | |
| (353,674 | ) | |
| (4,119,109 | ) | |
| (1,966,876 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 180 | | |
| – | | |
| 180 | | |
| – | |
Interest expense | |
| (41,465 | ) | |
| – | | |
| (101,648 | ) | |
| – | |
Loss on debt extinguishment | |
| (685,151 | ) | |
| – | | |
| (685,151 | ) | |
| – | |
Change in fair value of derivatives and warrant liabilities | |
| 43,238 | | |
| – | | |
| 43,238 | | |
| – | |
Other (Income) Expense | |
| (683,198 | ) | |
| – | | |
| (743,381 | ) | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (2,144,250 | ) | |
$ | (353,674 | ) | |
$ | (4,862,490 | ) | |
$ | (1,966,876 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share attributable to common stockholders | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.30 | ) | |
$ | (0.11 | ) | |
$ | (0.63 | ) | |
$ | (0.59 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 7,147,866 | | |
| 3,217,255 | | |
| 7,749,285 | | |
| 3,337,402 | |
See accompanying condensed unaudited notes to the
consolidated condensed financial statements.
Unusual Machines, Inc.
Consolidated Condensed Statement of Changes
in Stockholders’ Equity
For the Nine months Ended September 30, 2024
and 2023
(Unaudited)
Nine months Ended September 30, 2023 (Restated – Note 14)
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
| |
Series A, Preferred Stock | |
Series B, Preferred Stock | |
Series C, Preferred Stock | |
Common Stock | |
Additional Paid-In | |
Accumulated | |
Total Stockholders’ |
| |
Shares | |
Value | |
Shares | |
Value | |
Shares | |
Value | |
Shares | |
Value | |
Capital | |
Deficit | |
Equity |
Balance, December 31, 2022 | |
– | | |
$ | – | | |
140 | | |
$ | 1 | | |
– | | |
$ | – | | |
3,392,250 | | |
$ | 33,923 | | |
$ | 4,714,041 | | |
$ | (1,549,584 | ) | |
$ | 3,198,381 | |
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares for services | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
75,005 | | |
| 750 | | |
| 599,250 | | |
| – | | |
| 600,000 | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (1,177,904 | ) | |
| (1,177,904 | ) |
Balance, March 31, 2023 | |
– | | |
$ | – | | |
140 | | |
$ | 1 | | |
– | | |
$ | – | | |
3,467,255 | | |
$ | 34,673 | | |
$ | 5,313,291 | | |
$ | (2,727,488 | ) | |
$ | 2,620,477 | |
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
Conversion of preferred stock | |
– | | |
| – | | |
50 | | |
| 1 | | |
– | | |
| – | | |
(250,000 | ) | |
| (2,500 | ) | |
| 2,499 | | |
| – | | |
| – | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (435,298 | ) | |
| (435,298 | ) |
Balance, June 30, 2023 | |
– | | |
$ | – | | |
190 | | |
$ | 2 | | |
– | | |
$ | – | | |
3,217,255 | | |
$ | 32,173 | | |
$ | 5,315,790 | | |
$ | (3,162,786 | ) | |
$ | 2,185,179 | |
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (353,674 | ) | |
| (353,674 | ) |
Balance, September 30, 2023 | |
– | | |
$ | – | | |
190 | | |
$ | 2 | | |
– | | |
$ | – | | |
3,217,255 | | |
$ | 32,173 | | |
$ | 5,315,790 | | |
$ | (3,516,460 | ) | |
$ | 1,831,505 | |
continued
Nine months Ended September 30, 2024
| |
Series A, Preferred Stock | |
Series B, Preferred Stock | |
Series C, Preferred Stock | |
Common Stock | |
Additional Paid-In | |
Accumulated | |
Total Stockholders’ |
| |
Shares | |
Value | |
Shares | |
Value | |
Shares | |
Value | |
Shares | |
Value | |
Capital | |
Deficit | |
Equity |
Balance, December 31, 2023 | |
– | | |
$ | – | | |
190 | | |
$ | 2 | | |
– | | |
$ | – | | |
3,217,255 | | |
$ | 32,173 | | |
$ | 5,315,790 | | |
$ | (3,933,046 | ) | |
$ | 1,414,919 | |
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares as settlement | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
16,086 | | |
| 161 | | |
| 64,183 | | |
| – | | |
| 64,344 | |
Issuance of common shares, initial public offering, net of offering costs | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
1,250,000 | | |
| 12,500 | | |
| 3,837,055 | | |
| – | | |
| 3,849,555 | |
Issuance of common shares, business combination | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
4,250,000 | | |
| 42,500 | | |
| 16,957,500 | | |
| – | | |
| 17,000,000 | |
Conversion of preferred shares | |
– | | |
| – | | |
(120 | ) | |
| (1 | ) | |
– | | |
| – | | |
600,000 | | |
| 6,000 | | |
| (5,999 | ) | |
| – | | |
| – | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (1,106,002 | ) | |
| (1,106,002 | ) |
Balance, March 31, 2024 | |
– | | |
$ | – | | |
70 | | |
$ | 1 | | |
– | | |
$ | – | | |
9,333,341 | | |
$ | 93,334 | | |
$ | 26,168,529 | | |
$ | (5,039,048 | ) | |
$ | 21,222,816 | |
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
Conversion of preferred shares | |
– | | |
| – | | |
(20 | ) | |
| – | | |
– | | |
| – | | |
100,000 | | |
| 1,000 | | |
| (1,000 | ) | |
| – | | |
| – | |
Issuance of common shares, equity incentive plan | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
977,899 | | |
| 9,779 | | |
| (9,779 | ) | |
| – | | |
| – | |
Stock compensation expense - vested stock | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| 346,854 | | |
| – | | |
| 346,854 | |
Stock option compensation expense | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| 14,389 | | |
| – | | |
| 14,389 | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (1,612,238 | ) | |
| (1,612,238 | ) |
Balance, June 30, 2024 | |
– | | |
$ | – | | |
50 | | |
$ | 1 | | |
– | | |
$ | – | | |
10,411,240 | | |
$ | 104,113 | | |
$ | 26,518,993 | | |
$ | (6,651,286 | ) | |
$ | 19,971,821 | |
| |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares, equity incentive plan | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
23,743 | | |
| 237 | | |
| (237 | ) | |
| – | | |
| – | |
Exchange of common shares for Series A preferred | |
4,250 | | |
| 43 | | |
– | | |
| – | | |
– | | |
| – | | |
(4,250,000 | ) | |
| (42,500 | ) | |
| 42,457 | | |
| – | | |
| – | |
Exchange of convertible note for Series C preferred | |
– | | |
| – | | |
– | | |
| – | | |
210 | | |
| 2 | | |
– | | |
| – | | |
| 999,998 | | |
| – | | |
| 1,000,000 | |
Stock compensation expense – vested stock | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| 375,345 | | |
| – | | |
| 375,345 | |
Stock option compensation expense | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| 23,086 | | |
| – | | |
| 23,086 | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (2,144,250 | ) | |
| (2,144,250 | ) |
Balance, September 30, 2024 | |
4,250 | | |
$ | 43 | | |
50 | | |
$ | 1 | | |
210 | | |
$ | 2 | | |
6,184,983 | | |
$ | 61,850 | | |
$ | 27,959,642 | | |
$ | (8,795,536 | ) | |
$ | 19,226,002 | |
See accompanying condensed unaudited notes to the consolidated condensed financial statements.
Unusual Machines, Inc.
Consolidated Condensed Statement of Cash Flows
For the Nine months Ended September 30, 2024
and 2023
(Unaudited)
| |
| |
|
| |
Nine months Ended September 30, |
| |
2024 | |
2023 |
|
|
|
|
|
(Restated – Note 14) |
|
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (4,862,490 | ) | |
$ | (1,966,876 | ) |
Depreciation | |
| 513 | | |
| 1,407 | |
Stock compensation expense as settlement | |
| 64,344 | | |
| 600,000 | |
Stock compensation expense | |
| 759,673 | | |
| – | |
Change in fair value for warrant and derivative liabilities | |
| (43,239 | ) | |
| – | |
Loss on debt extinguishment, non-cash component | |
| 663,250 | | |
| – | |
Change in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (73,109 | ) | |
| – | |
Inventory | |
| 337,562 | | |
| – | |
Prepaid inventory | |
| (319,532 | ) | |
| – | |
Other assets | |
| (29,100 | ) | |
| 33,750 | |
Accounts payable and accrued expenses | |
| 630,595 | | |
| (50,819 | ) |
Operating lease liabilities | |
| (33,056 | ) | |
| – | |
Customer deposits and other current liabilities | |
| 186,076 | | |
| – | |
Net cash used in operating activities | |
| (2,718,513 | ) | |
| (1,382,538 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Cash portion of consideration paid for acquisition of businesses; net of cash received | |
| (852,801 | ) | |
| – | |
Purchase of property & equipment | |
| – | | |
| (3,164 | ) |
Net cash used in investing activities | |
| (852,801 | ) | |
| (3,164 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of common shares | |
| 5,000,000 | | |
| – | |
Common share issuance offering costs | |
| (637,687 | ) | |
| (376,702 | ) |
Net cash provided by (used in) financing activities | |
| 4,362,313 | | |
| (376,702 | ) |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 790,999 | | |
| (1,762,404 | ) |
| |
| | | |
| | |
Cash, beginning of period | |
| 894,773 | | |
| 3,099,422 | |
| |
| | | |
| | |
Cash, end of period | |
$ | 1,685,772 | | |
$ | 1,337,018 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Non-cash consideration paid for assets acquired and liabilities assumed | |
$ | 19,000,000 | | |
$ | – | |
Deferred acquisition costs | |
$ | 100,000 | | |
$ | – | |
Deferred offering costs recorded as reduction of proceeds | |
$ | 512,758 | | |
$ | – | |
See accompanying condensed unaudited notes to the
consolidated condensed financial statements.
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
For the Period Ended September 30, 2024
Note 1 – Organization and nature of business
Unusual Machines, Inc. (“the Company”)
is a Nevada corporation engaged in the commercial drone industry. The Company reincorporated from Puerto Rico to Nevada on April 22, 2024.
On February 16, 2024, the Company closed its Initial
Public Offering (the “IPO”) of 1,250,000 shares of common stock at a public offering price of $4.00 per share (“IPO
Price”). The shares are traded on NYSE American. Simultaneous with the closing of the IPO, the Company acquired Fat Shark Holdings
Ltd. (“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot”) from Red Cat Holdings, Inc. (“Red Cat”) (See
Note 3).
Note 2 – Summary of significant accounting policies
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.
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 (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. Accordingly,
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. The results for any interim period are not necessarily indicative
of results for any future period.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material.
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
The Company considers all highly liquid debt instruments
and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains
cash deposits in multiple commercial banks and financial services companies. These financial institutions are insured by the Federal Deposit
Insurance Corporation up to $250,000. The Company’s cash balance may at times exceed these limits. 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. The Company
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 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 September
30, 2024 and December 31, 2023, the Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful
accounts has been established.
Inventory
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 $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.
Leases
The Company has adopted Accounting Standards Codification
(ASC) 842, “Leases” which requires the recognition of assets and liabilities associated with lease agreements. As of February
16, 2024, the date of the acquisition, the Company recognized a lease liability obligation of $378,430 and a right-of-use asset for the
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'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.
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”).
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
cash flow method to estimate the fair value of a reporting unit. Significant assumptions inherent in estimating the fair values include
the estimated future cash flows, growth assumptions for future revenues (including gross margin, operating expenses, and capital expenditures),
and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of
capital (i.e., the selected discount rate). Management’s assumptions are based on historical data, supplemented by current and anticipated
market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics
of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is
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 asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount
of the asset group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds
its fair value based on discounted cash flow analysis or appraisals.
Fair Values, Inputs and Valuation Techniques
for Financial Assets and Liabilities, and Related Disclosures
The fair value measurements and disclosure guidance
defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement
date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level
fair value hierarchy based on the priority of the inputs to the valuation technique.
The fair value hierarchy gives the highest priority
to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the
fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input
to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The guidance establishes three levels of the fair
value hierarchy as follows:
Level 1: Inputs are unadjusted,
quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2: Inputs are observable,
unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets
or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities; and
Level 3: Unobservable inputs
that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
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 | |
| |
| |
| |
|
| |
Total | |
Level 1 | |
Level 2 | |
Level 3 |
Warrant liabilities | |
$ | 308,964 | | |
$ | – | | |
$ | – | | |
$ | 308,964 | |
Derivative liability – convertible note conversion option | |
| 311,048 | | |
| – | | |
| – | | |
| 311,048 | |
Total | |
$ | 620,012 | | |
$ | – | | |
$ | – | | |
$ | 620,012 | |
Changes in Level 3 financial instruments are
as follows:
Schedule of Level 3 financial instruments | |
| | | |
| | | |
| | | |
| | |
| |
December 31, | |
Purchases,
Issuances and | |
Change in | |
September 30, |
| |
2023 | |
Settlements | |
Fair Value | |
2024 |
Warrant liabilities | |
$ | – | | |
$ | 315,303 | | |
$ | (6,339 | ) | |
$ | 308,964 | |
Derivative liability – convertible note conversion option | |
| – | | |
| 347,947 | | |
| (36,899 | ) | |
| 311,048 | |
Total | |
$ | – | | |
$ | 663,250 | | |
$ | (43,238 | ) | |
$ | 620,012 | |
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, 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
will either (i) repair the affected product at no charge using new parts or parts that are equivalent to new in performance and reliability;
(ii) exchange the affected product with a functionally equivalent product; or (iii) refund the original purchase price for the affected
product. 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 the additional cost of sales may be required in future periods. 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 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
Rotor Riot.
Revenue Recognition
The Company recognizes revenue in accordance with
ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”).
This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including:
Step 1: Identify the contract with a customer;
Step 2: Identify the performance obligations in
the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance
obligations in the contract; and
Step 5: Recognize revenue when (or as) the Company
satisfies a performance obligation at a point in time.
The Company receives revenues from the sale of
products 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.
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
and recognized when the event takes place. All deferred revenue is expected to be recognized within one year. Deferred revenue related
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
Cost of goods sold includes inventory costs, direct
packaging costs and production related depreciation, if any.
Shipping and Handling Costs
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 not incur shipping and handling costs in the nine months ended September
30, 2023. Shipping and handling costs charged to customers are included in sales.
Research and Development
Research and development expenses include payroll,
employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include
third-party development costs, materials, and a proportionate share of overhead costs.
Income Taxes
The Company accounts for income taxes using an
asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences
of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion
of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realizable in the future.
The Company recognizes benefits of uncertain tax
positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits,
as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy
is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense.
The Company’s current provision for the
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, expected 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.
Warrants
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”). The Company classifies warrants issued for the purchase of shares
of its common stock as either equity or liability instruments based on an assessment of the specific terms and conditions of each respective
contract. The assessment considers whether the warrants are freestanding financial instruments or embedded in a host instrument, whether
the warrants meet the definition of a liability pursuant to ASC 480, whether the warrants meet the definition of a derivative under ASC
815, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the
use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the
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.
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
Basic and diluted net loss per share is calculated
based on the weighted-average of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted net
loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common
shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect
would be anti-dilutive.
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.
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 or loss. This new guidance also requires disclosure of the title and position of the individual identified as the CODM and an explanation
of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate
resources. The new guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024. The new guidance is required to be applied retrospectively to all prior periods presented in the financial
statements. Early adoption is also permitted. On January 1, 2024, the Company adopted ASC 280, Segment Reporting. The Company currently
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. This new guidance will likely not result in additional required disclosures when adopted.
Note 3 – Acquisitions
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 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. With the transition to onshoring production of drone components, the Company intends to expand into B2B channels for
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. 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 “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
Paid”). 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.
The acquisitions met the definition of a business
combination under ASC 805, Business Combinations, and therefore the assets acquired, and liabilities assumed are accounted for at fair
value. The Company has not completed its evaluation of the fair value of assets acquired and liabilities assumed of Fat Shark and Rotor
Riot for the purpose of its 2024 fiscal year financial reporting and as such has not fully determined the unallocated purchase price between
goodwill and other intangible assets. 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:
Schedule of fair value allocation | |
|
Cash | |
$ | 147,200 | |
Accounts receivable (approximates contractual value) | |
| 6,798 | |
Inventories (on hand and prepaid) | |
| 2,611,583 | |
Other current assets | |
| 10,892 | |
Right of use asset – operating | |
| 378,430 | |
Other long-term assets | |
| 59,426 | |
Goodwill and intangible assets (unallocated purchase price) | |
| 19,666,086 | |
| |
| | |
Total assets | |
| 22,880,415 | |
| |
| | |
Accounts payable and accrued liabilities | |
| 287,544 | |
Customer deposits | |
| 114,441 | |
Operating lease liability – current and long-term | |
| 378,430 | |
Total liabilities | |
| 780,415 | |
| |
| | |
Total purchase price | |
$ | 22,100,000 | |
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
included in the Consolidated Financial Statements from the date of acquisition. The table below presents the results as reported by the
Company and unaudited pro forma results of the Company, assuming that the acquisition of Fat Shark and Rotor Riot at the beginning of
each period are as follows. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the
acquisitions been in effect for the periods presented (in thousands, except per share data):
Schedule of unaudited pro forma results | |
| |
| |
| |
|
| |
For the Nine months Ended | |
For the Nine months Ended |
| |
September 30, 2024 | |
September 30, 2023 |
| |
As Reported | |
Proforma
(unaudited) | |
As Reported | |
Proforma
(unaudited) |
Revenue | |
$ | 3,561 | | |
$ | 4,056 | | |
$ | – | | |
$ | 4,115 | |
Gross profit/(loss) | |
| 992 | | |
| 1,024 | | |
| – | | |
| 705 | |
Loss from operations | |
| (4,119 | ) | |
| (4,163 | ) | |
| (1,967 | ) | |
| (3,209 | ) |
Other expense | |
| (743 | ) | |
| (743 | ) | |
| – | | |
| 51 | |
Net loss | |
$ | (4,862 | ) | |
$ | (4,906 | ) | |
$ | (1,967 | ) | |
$ | (3,260 | ) |
Net earnings per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.63 | ) | |
$ | (0.63 | ) | |
$ | (0.59 | ) | |
$ | (0.37 | ) |
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 $1,453,042 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
Other current assets included as of:
Schedule of other current assets | |
| |
|
| |
September 30, 2024 | |
December 31, 2023 |
Deposit related to Rotor Riot, LLC and Fat Shark, Ltd. acquisitions | |
$ | – | | |
$ | 100,000 | |
Prepaid insurance | |
| 94,500 | | |
| 20,631 | |
Rent deposit | |
| 59,426 | | |
| – | |
Other prepaid expenses | |
| 4,167 | | |
| – | |
Total other current assets | |
$ | 158,093 | | |
$ | 120,631 | |
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 as of:
Schedule of property and equipment | |
| |
|
| |
September 30, 2024 | |
December 31, 2023 |
Computer equipment | |
$ | 7,738 | | |
$ | 7,738 | |
Accumulated depreciation | |
| (6,997 | ) | |
| (6,484 | ) |
Total property and equipment, net | |
$ | 741 | | |
$ | 1,254 | |
Depreciation expense totaled $513 and $1,407 for the nine months ended
September 30, 2024 and 2023, respectively.
Note 7 – Operating Leases
As identified in Note 3 “Acquisitions”,
the acquired businesses, specifically Rotor Riot, has entered into 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. The Company has valued
the ROUA and the associated liability, as of February 15, 2024, at $378,430. The Company has no finance leases. Operating lease expense
totaled $65,716 from the date of acquisition through the period ended September 30, 2024. The following is a summary of future lease payments
required under the five-year lease agreement:
Schedule of future lease payments | |
| |
| |
|
Year | |
Future Lease Payments | |
Operating Lease Discount | |
Operating Lease Liability |
2024 | |
$ | 24,796 | | |
$ | (9,412 | ) | |
$ | 15,384 | |
2025 | |
| 101,133 | | |
| (33,313 | ) | |
| 67,820 | |
2026 | |
| 105,177 | | |
| (25,468 | ) | |
| 79,709 | |
2027 | |
| 109,037 | | |
| (15,985 | ) | |
| 93,052 | |
2028 | |
| 94,185 | | |
| (4,776 | ) | |
| 89,409 | |
Total | |
$ | 434,327 | | |
$ | (88,954 | ) | |
$ | 345,374 | |
Schedule of supplemental information | |
|
Supplemental Information | |
|
Weighted average remaining lease term (in years) | |
| 4.08 | |
Weighted average discount rate | |
| 11.49% | |
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,
Inc. (“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
$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. The Company
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
Earnings per Share
Outstanding securities not included in the computation
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. 630,000
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.
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 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 | |
Shares as of
September 30, 2024 | |
Shares as converted, as of September 30, 2024 | |
Shares as of
December 31, 2023 | |
Shares, as converted, as of December 31, 2023 |
Series A | |
| 4,250 | | |
| 4,250,000 | | |
| – | | |
| – | |
Series B
| |
| 50 | | |
| 250,000 | | |
| 190 | | |
| 950,000 | |
Series C | |
| 210 | | |
| 630,000 | | |
| – | | |
| – | |
Common Stock
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 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 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
– Warrants”. 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
share.
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
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 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
30, 2024. 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
Series A. 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
On March 7, 2023, the Company issued 75,000 shares
of common stock to an investment banking firm (“Revere”) as a fee for the termination of the January 2023 engagement with
Revere. These shares were allocated by Revere to some of the Company’s existing shareholders. The Company recorded $600,000 of stock
compensation expense related to the issuance of the shares valued at $8.00 per share, which was based on the most recent private sale
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.
Note 11 – Share Based Awards
Stock Options
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 | |
| |
| |
| |
|
| |
Non-Qualified
Options | |
Weighted
Average
Exercise Price | |
Weighted
Average
Remaining
Contractual Term | |
Aggregate
Intrinsic Value |
Outstanding - December 31, 2023 | |
| – | | |
$ | – | | |
| – | | |
| – | |
Granted | |
| 330,000 | | |
| 1.24 | | |
| 9.59 | | |
$ | 99,200 | |
Forfeited/canceled | |
| – | | |
| – | | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | | |
| – | | |
| – | |
Outstanding – September 30, 2024 | |
| 330,000 | | |
$ | 1.24 | | |
| 9.59 | | |
$ | 99,200 | |
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 |
|
|
Exercise Price |
|
$ |
1.20 – 1.79 |
|
Stock Price on date of grant |
|
$ | 1.20 – 1.79 | |
Risk-free interest rate |
|
| 4.080- 4.71% | |
Dividend yield |
|
| – | |
Expected term (years) |
|
| 6.11 | |
Volatility |
|
| 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
restricted stock outstanding:
Schedule of restricted stock activity | |
| |
| |
|
| |
Restricted | |
Awards | |
Awards |
| |
Stock | |
Vested | |
Unvested |
Outstanding - December 31, 2023 | |
| – | | |
| – | | |
| – | |
Granted | |
| 1,001,642 | | |
| 501,253 | | |
| 500,389 | |
Forfeited/canceled | |
| – | | |
| – | | |
| – | |
Outstanding – September 30, 2024 | |
| 1,001,642 | | |
| 501,253 | | |
| 500,389 | |
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
15, 2025.
Warrants
The following table presents the activity for warrants outstanding
as of September 30, 2024:
Schedule of warrant activity | |
| |
|
| |
| |
Weighted |
| |
Warrants | |
Average |
| |
Outstanding | |
Exercise Price |
Outstanding - December 31, 2023 | |
| – | | |
$ | – | |
| |
| | | |
| | |
Granted | |
| 692,500 | | |
| 2.26 | |
Forfeited/cancelled/restored | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | |
Outstanding – September 30, 2024 | |
| 692,500 | | |
$ | 2.26 | |
As discussed in Note 10, “Earnings Per Share
and Stockholders’ Equity”, in connection with the IPO, the Company issued 62,500 representative warrants to its underwriters
to purchase shares of common stock. The representative warrants have an exercise price of $5.00 or can be exercised through a cashless
exercise feature.
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. Mr. Thompson recused himself from such vote.
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 Directors 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 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. 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 of directors; (iv) to perform services for such subsidiaries of the Company as
may be necessary.
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 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. 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.
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.
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 activity. Expenses totaling $10,993 were originally recorded in 2023 but related to 2022 expenses.
With this restatement, the transactions previously
recorded in the incorrect period have been updated to the correct period, classifications on the statements of cash flow have been corrected
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 September 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 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.
Schedule of restatement adjustments in financial statements | |
| | | |
| | | |
| | |
Statement of Operations for the Nine months Ended September 30, 2023 | |
| |
| |
|
| |
As Filed | |
Restatement Adjustments | |
As Restated |
| |
| |
| |
|
Revenue | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | |
Cost of goods sold | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | |
Gross profit | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Research and development | |
| – | | |
| – | | |
| – | |
General and administrative | |
| 1,376,462 | | |
| 589,007 | | |
| 1,965,469 | |
Depreciation and amortization | |
| 1,407 | | |
| – | | |
| 1,407 | |
Total operating expenses | |
| 1,377,869 | | |
| 589,007 | | |
| 1,966,876 | |
| |
| | | |
| | | |
| | |
Loss from operations | |
| (1,377,869 | ) | |
| (589,007 | ) | |
| (1,966,876 | ) |
| |
| | | |
| | | |
| | |
Other income: | |
| | | |
| | | |
| | |
Interest income | |
| – | | |
| – | | |
| – | |
Total other income | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Income tax benefit (expense) | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (1,377,869 | ) | |
$ | (589,007 | ) | |
$ | (1,966,876 | ) |
| |
| | | |
| | | |
| | |
Net loss per share attributable to common stockholders | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.41 | ) | |
$ | (0.17 | ) | |
$ | (0.59 | ) |
| |
| | | |
| | | |
| | |
Weighted average common shares outstanding | |
| | | |
| | | |
| | |
Basic and diluted | |
| 3,337,402 | | |
| – | | |
| 3,337,402 | |
Statements of Changes in Stockholders’ Equity – As Filed
– For the Nine months Ended September 30, 2023
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
Series B, Preferred Stock | |
Common Stock | |
Additional Paid-In | |
Stocks to be | |
Accumulated | |
|
| |
Shares | |
Value | |
Shares | |
Value | |
Capital | |
Issued | |
Deficit | |
Total |
Balance, December 31, 2022 | |
| 140 | | |
$ | 1 | | |
| 3,392,250 | | |
$ | 33,923 | | |
$ | 4,714,041 | | |
$ | – | | |
$ | (1,538,591 | ) | |
$ | 3,209,374 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares | |
| – | | |
| – | | |
| 75,005 | | |
| 750 | | |
| (750 | ) | |
| – | | |
| – | | |
| – | |
Conversion to preferred shares | |
| 50 | | |
| 1 | | |
| (250,000 | ) | |
| (2,500 | ) | |
| 2,499 | | |
| – | | |
| – | | |
| – | |
Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (1,377,869 | ) | |
| (1,377,869 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September 30, 2023 | |
| 190 | | |
$ | 2 | | |
| 3,217,255 | | |
$ | 32,173 | | |
$ | 4,715,790 | | |
$ | – | | |
$ | (2,916,460 | ) | |
$ | 1,831,505 | |
Statements of Changes in Stockholders’ Equity – Restatement
Adjustments – For the Nine months Ended September 30, 2023
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
Series B, Preferred Stock | |
Common Stock | |
Additional Paid-In | |
Stocks to be | |
Accumulated | |
|
| |
Shares | |
Value | |
Shares | |
Value | |
Capital | |
Issued | |
Deficit | |
Total |
Balance, December 31, 2022 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | (10,993 | ) | |
$ | (10,993 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares | |
| – | | |
| – | | |
| – | | |
| – | | |
| 600,000 | | |
| – | | |
| – | | |
| 600,000 | |
Conversion to preferred shares | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (589,007 | ) | |
| (589,007 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September 30, 2023 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
$ | 600,000 | | |
$ | – | | |
$ | (600,000 | ) | |
$ | – | |
Statements of Changes in Stockholders’ Equity – As
Restated – For the Nine months Ended September 30, 2023
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
Series B, Preferred Stock | |
Common Stock | |
Additional Paid-In | |
Stocks to be | |
Accumulated | |
|
| |
Shares | |
Value | |
Shares | |
Value | |
Capital | |
Issued | |
Deficit | |
Total |
Balance, December 31, 2022 | |
| 140 | | |
$ | 1 | | |
| 3,392,250 | | |
$ | 33,923 | | |
$ | 4,714,041 | | |
$ | – | | |
$ | (1,549,584 | ) | |
$ | 3,198,381 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares | |
| – | | |
| – | | |
| 75,005 | | |
| 750 | | |
| 599,250 | | |
| – | | |
| – | | |
| 600,000 | |
Conversion to preferred shares | |
| 50 | | |
| 1 | | |
| (250,000 | ) | |
| (2,500 | ) | |
| 2,499 | | |
| – | | |
| – | | |
| – | |
Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (1,966,876 | ) | |
| (1,966,876 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September 30, 2023 | |
| 190 | | |
$ | 2 | | |
| 3,217,255 | | |
$ | 32,173 | | |
$ | 5,315,790 | | |
$ | – | | |
$ | (3,516,460 | ) | |
$ | 1,831,505 | |
Statement of Cash Flows for the Nine months Ended September 30,
2023
| |
| |
| |
|
| |
As Filed | |
Restatement Adjustments | |
As Restated |
| |
| |
| |
|
Cash flows from operating activities: | |
| | | |
| | | |
| | |
Net loss | |
$ | (1,377,869 | ) | |
$ | (589,007 | ) | |
$ | (1,966,876 | ) |
Depreciation | |
| 1,407 | | |
| – | | |
| 1,407 | |
Stock compensation expense | |
| – | | |
| 600,000 | | |
| 600,000 | |
Change in assets and liabilities: | |
| | | |
| | | |
| | |
Accounts receivable | |
| – | | |
| – | | |
| – | |
Deferred offering costs | |
| (376,702 | ) | |
| 376,702 | | |
| – | |
Other current assets | |
| 33,750 | | |
| – | | |
| 33,750 | |
Accounts payable and accrued expenses | |
| (39,826 | ) | |
| (10,993 | ) | |
| (50,819 | ) |
Net cash used in operating activities | |
| (1,759,240 | ) | |
| 376,702 | | |
| (1,382,538 | ) |
| |
| | | |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | | |
| | |
Purchases of property and equipment | |
| (3,164 | ) | |
| – | | |
| (3,164 | ) |
Net cash used in investing activities | |
| (3,164 | ) | |
| – | | |
| (3,164 | ) |
| |
| | | |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | | |
| | |
Deferred offering costs | |
| – | | |
| (376,702 | ) | |
| (376,702 | )) |
Net cash provided by financing activities | |
| – | | |
| (376,702 | ) | |
| (376,702 | )) |
| |
| | | |
| | | |
| | |
Net increase (decrease) in cash | |
| (1,762,404 | ) | |
| – | | |
| (1,762,402 | ) |
| |
| | | |
| | | |
| | |
Cash, beginning of period | |
| 3,099,422 | | |
| – | | |
| 3,099,422 | |
| |
| | | |
| | | |
| | |
Cash, end of period | |
$ | 1,337,018 | | |
$ | – | | |
$ | 1,337,018 | |
| |
| | | |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | | |
| | |
Cash paid for interest | |
$ | – | | |
$ | – | | |
$ | – | |
Cash paid for income tax | |
$ | – | | |
$ | – | | |
$ | – | |
Note 15 – Subsequent Events
Quarterly Grants to our Board of Directors
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 September 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. The fair value per share was based on the quoted trading price as of the close
of the market as of October 22, 2024.
Director |
Fair
Value Per Share |
Amount
of Restricted Common Stock |
Aggregate
Fair Value |
Cristina
Colon |
$1.45 |
7,472 |
$10,833 |
Sanford
Rich |
$1.45 |
7,472 |
$10,833 |
Robert
Lowry |
$1.45 |
7,472 |
$10,833 |
Jeffrey
Thompson |
$1.45 |
6,897 |
$10,000 |
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