# EDGAR Filing Document

**Accession Number:** 0001956955
**File Stem:** 0001683168-23-001467
**Filing Date:** 2023-3
**Character Count:** 1031517
**Document Hash:** d770984df8098aa86c7ffca85ae0d98a
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001683168-23-001467.hdr.sgml**: 20230314

**ACCESSION NUMBER**: 0001683168-23-001467

**CONFORMED SUBMISSION TYPE**: S-1

**PUBLIC DOCUMENT COUNT**: 22

**FILED AS OF DATE**: 20230314

**DATE AS OF CHANGE**: 20230314

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Unusual Machines, Inc.
- **CENTRAL INDEX KEY:** 0001956955
- **STANDARD INDUSTRIAL CLASSIFICATION:** RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663]
- **IRS NUMBER:** 660927642
- **STATE OF INCORPORATION:** PR
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** S-1
- **SEC ACT:** 1933 Act
- **SEC FILE NUMBER:** 333-270519
- **FILM NUMBER:** 23729370

**BUSINESS ADDRESS:**
- **STREET 1:** 151 CALLE DE SAN FRANCISCO
- **STREET 2:** STE 200 PMB 2106
- **CITY:** SAN JUAN
- **STATE:** PR
- **ZIP:** 00901-1607
- **BUSINESS PHONE:** 720-383-8983

**MAIL ADDRESS:**
- **STREET 1:** 151 CALLE DE SAN FRANCISCO
- **STREET 2:** STE 200 PMB 2106
- **CITY:** SAN JUAN
- **STATE:** PR
- **ZIP:** 00901-1607

[**Table of Contents**](#toc)

**Registration No. 333- _______**

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM S-1**

**REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933** 

**<u>UNUSUAL MACHINES, INC.</u>**

(Exact name of registrant as specified in its charter)

---

| | | |
|:---|:---|:---|
| **Puerto Rico** | **3663** | **66-0927642** |
| (State or jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
| incorporation or organization) | Classification Code Number) | Identification No.) |

---

**151 Calle De San Francisco<br> Ste. 200 PMB 2106<br> San Juan, Puerto Rico 00901-1607** 

**+1 855-921-4600** 

(Address, including zip code, and telephone number, including area code of registrant's principal executive offices)

Brandon Torres Declet

**151 Calle De San Francisco<br> Ste. 200 PMB 2106<br> San Juan, Puerto Rico 00901-1607** 

**+1 855-921-4600**

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

---

| | |
|:---|:---|
| **Michael D. Harris, Esq.** | **Ross Carmel, Esq.** |
| **Edward Schauder, Esq.** | **Carmel, Milazzo & Feil LLP** |
| **Constantine Christakis, Esq.** | **55 West 39<sup>th</sup> Street, 18<sup>th</sup> Floor** |
| **Nason, Yeager, Gerson, Harris & Fumero, P.A.** | **New York, NY 10018** |
| **3001 PGA Boulevard** | **Telephone: (212) 658-0458** |
| **Palm Beach Gardens, FL 33410** |  |
| **Telephone: (561) 644-2222** |  |

---

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

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 the 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 ☐ <br> Non-accelerated filer ☒ Smaller reporting company ☒ <br> 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. ☐

**The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.**

**The information contained in this preliminary Prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.**

---

| | | |
|:---|:---|:---|
| <br> **PRELIMINARY PROSPECTUS** | **SUBJECT TO COMPLETION** | **DATED MARCH 14, 2023** |

---

**______________ Shares**

**of Common Stock**

**Unusual Machines, Inc.**

This is the initial public offering, or the "Offering," of ________ shares of common stock, par value $0.01 per share of Unusual Machines, Inc., a Puerto Rico corporation ("UMAC" or the "Company"), on a firm commitment basis. A significant amount of the proceeds of the Offering will be used by the Company to pay $5.0 million of the $18 million purchase price (the "Purchase Price") to acquire Fat Shark Holdings, Ltd. ("Fat Shark") and Rotor Riot LLC ("Rotor Riot") each of which are wholly-owned subsidiaries of Red Cat Holdings, Inc. ("Red Cat"), which acquisition is referred to elsewhere in this Prospectus as the "[Business Combination](#a_011)". The Company will issue Red Cat a senior secured convertible note in the principal amount of $2.5 million (the "Senior Note") .. See "Use of Proceeds". The conversion price of the Senior Note is the lower of $4.00 and the per-share offering price in this Offering, and for purposes of the descriptions and amounts contained in this Prospectus we are assuming the conversion price of $4.00 per share. The 625,000 shares of common stock issuable to Red Cat upon conversion of the Senior Note are referred to in this Prospectus as the "Conversion Shares."

Upon consummation of the Offering, assuming the issuance of ____ shares of our common stock at $___ per share (the anticipated midpoint of the range) Mr. Jeffrey Thompson, our largest stockholder, will beneficially own ___% of our common stock (excluding the exercise of the over-allotment option by the underwriters and the issuance of the warrants to the underwriters, the issuance of the Conversion Shares and the issuance of our Series A Convertible Preferred Stock (referred to in this Prospectus as the "Series A") as part of the Purchase Price, which Mr. Thompson will not be deemed to beneficially own. See "[The Business Combination](#a_011)" and "[Principal Stockholders](#a_017)" for more information.

Prior to this Offering, there has been no public market for our common stock. We expect that the initial public offering price will be between $____ and $____ per share. We intend to list the shares of our common stock on The Nasdaq Capital Market under the symbol "UMAC." However, there is no assurance that the Offering will be closed and our common stock will begin trading on The Nasdaq Capital Market ("Nasdaq"). The Offering is contingent upon final approval of our listing on Nasdaq,

We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

Upon the completion of this Offering, we will have ______ shares of common stock issued and outstanding, or ___________ shares of common stock if the underwriters exercise their over-allotment option in full. Each share of our common stock is entitled to one vote.

**Investing in our common stock involves a high degree of risk. See "[Risk Factors](#a_005)" beginning on page 8. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.**

---

| | | |
|:---|:---|:---|
|  | Per Share | Total |
| Initial public offering price | $— | $— |
| Underwriting discounts and commissions<sup>(1)</sup> | $— | $— |
| Proceeds to us, before expenses<sup>(2)</sup> | $— | $— |

---

______________

(1) We have agreed to pay __________ ("_________"), as
a lead underwriter named in this prospectus, a discount equal to 7.5% of the gross proceeds of the offering. We refer you to "Underwriting"
beginning on page 76 for additional information regarding underwriters' compensation.

(2) Represents a non-accountable expense allowance equal to 1.0% of the
gross proceeds of this Offering, payable to the _________.

The underwriters are selling ________ shares of common stock (or _____ shares of common stock if the underwriters exercise their over-allotment option in full) in this Offering on a firm commitment basis. We have granted the underwriters an option, exercisable for 45 days following the effective date of this Prospectus, to purchase up to an additional ___ % of the shares of common stock offered in this Offering on the same terms solely to cover over-allotments. The Registration Statement of which this Prospectus is a part also covers the shares of common stock issuable upon the exercise of the underwriter's over-allotment option. For additional information regarding our arrangement with the underwriters, please see "[Underwriting](#a_019)" beginning on page 76.

The underwriters expect to deliver the shares to purchasers on or about ________ __, 2023.

*Sole Book Running Manager*

 

____________

*Co-Manager*

_____________________

The date of this Prospectus is ________, 2023.

**TABLE OF CONTENTS** 

---

| | |
|:---|:---|
|  | **Page** |
| [Cautionary Statement Regarding Forward-Looking Statements](#a_001) | 1 |
| [Prospectus Summary](#a_002) | 2 |
| [Risk Factors](#a_005) | 8 |
| [Use of Proceeds](#a_006) | 35 |
| [Capitalization](#a_007) | 36 |
| [Market for our Shares](#a_008) | 37 |
| [Determination of Offering Price](#a_009) | 38 |
| [Dilution](#a_010) | 39 |
| [The Business Combination](#a_011) | 41 |
| [Business](#a_012) | 42 |
| [Management's Discussion and Analysis of Financial Condition and Results of Operations](#a_013) | 52 |
| [Management and Board of Directors](#a_014) | 62 |
| [Executive and Director Compensation](#a_015) | 68 |
| [Related Party Transactions](#a_016) | 72 |
| [Principal Stockholders](#a_017) | 73 |
| [Description of Securities](#a_018) | 74 |
| [Underwriting](#a_019) | 76 |
| [Legal Matters](#a_021) | 80 |
| [Experts](#a_022) | 80 |
| [Where You Can Find More Information](#a_024) | 80 |
| [Index to Financial Statements](#a_025) | F-1 |

---

**You should rely only on information contained in this Prospectus. We have not, and the underwriter has not, authorized anyone to provide you with additional information or information different from that contained in this Prospectus. Neither the delivery of this Prospectus nor the sale of our securities means that the information contained in this Prospectus is correct after the date of this Prospectus. This Prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.**

**For investors outside the United States: Neither we nor the underwriter has taken any action that would permit this Offering or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this Prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities covered hereby and the distribution of this Prospectus outside of the United States.** 

**The information in this Prospectus is accurate only as of the date on the front cover of this Prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.**

**No person is authorized in connection with this Prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this Prospectus, other than the information and representations contained in this Prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.**

**Neither we nor the underwriters have done anything that would permit this Offering or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this Offering and the distribution of this Prospectus.**

i

**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

This Prospectus contains, in addition to historical information, certain forward-looking statements that includes information relating to future events, future financial performance, strategies, business opportunities, expectations including our goals and projections with respect to the planned Business Combination, our anticipated operations and business strategy with respect to Fat Shark and Rotor Riot and the design, manufacture and sale of drone and drone-related products through those entities, projections and estimates for demand, growth and other metrics regarding drone products and the drone industry, future plans for and anticipated transactions and relationships with respect to our products and intellectual property portfolio and operations, our working capital needs, the planned use and sufficiency of the proceeds from this Offering, our further development and implementation of our business plan and our ability to locate sources of capital necessary to meet our business needs and objectives. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

In some cases, you can identify forward-looking statements by terminology, such as "may," "should," "would," "expect," "intend," "anticipate," "believe," "estimate," "continue," "plan," "potential" and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Prospectus or incorporated herein by reference.

You should read this Prospectus and the documents we have filed as exhibits to the Registration Statement, of which this Prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this Prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.

Risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this Prospectus under the heading "[Risk Factors](#a_005)."

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Prospectus particularly our forward-looking statements, by these cautionary statements.

**Industry and Market Data**

This Prospectus contains estimates made, and other statistical data published, by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this Prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are inherently subject to a high degree of uncertainty and actual events or circumstances may differ materially from events and circumstances reflected in this information. We caution you not to give undue weight to such projections, assumptions and estimates. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.

**PROSPECTUS SUMMARY**

*This summary highlights certain information contained elsewhere in this Prospectus. This summary is not intended to be complete and does not contain all of the information that you should consider in making your investment decision. You should carefully read this entire Prospectus, including our consolidated financial statements and the related notes and the information set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in this Prospectus before making an investment decision.*

*Unless the context otherwise requires, references to "we," "our," "us," "Unusual" "Unusual Machines" or the "Company" in this Prospectus means Unusual Machines, Inc., a Puerto Rico corporation.*

**Company Background**

We are a Puerto Rico corporation, originally incorporated July 11, 2019, with our principal place of business in San Juan, Puerto Rico. Our principal corporate office is located at 151 Calle De San Francisco, Ste 200 PMB 2106 San Juan, Puerto Rico 00901-1607 and our telephone number is +1 855-921-4600. Our corporate website is unusualmachines.com. Information on our website is not incorporated into this Prospectus.

The Company was incorporated in Puerto Rico under the name "Red Cat Motor Corporation" on July 11, 2019, before changing its name to "AerocarveUS Corporation" on October 20, 2020 and then to "Unusual Machines, Inc." on July 5, 2022.

**The Business Combination**

On November 21, 2022, we entered into a Share Purchase Agreement (the "Purchase Agreement") with Red Cat Holdings, Inc. ("Red Cat") and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, pursuant to which we agreed to purchase Red Cat's consumer business consisting of Fat Shark and Rotor Riot. 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. Under the terms of the Purchase Agreement, upon satisfaction of closing conditions including the affirmative vote of the shareholders of Red Cat and the closing of the Offering, Unusual will purchase from Red Cat its Rotor Riot and Fat Shark subsidiaries for $18 million in a combination of cash, a convertible note (referred to in this Prospectus as the "Senior Note") and issuance of our Series A Convertible Preferred Stock (referred to in this Prospectus as the "Series A"). See "[The Business Combination](#a_011)" for more information.

**Business Overview**

Simultaneous with the closing of this Offering, we will acquire Fat Shark Ltd., referred into in this Prospectus as "Fat Shark," and Rotor Riot, LLC, referred into in this Prospectus as "Rotor Riot," which are first-person view ("FPV") drone technology market leaders. Because Unusual Machines is still in its development stage and has limited operations on a pre-transaction basis, the business-related and certain financial information in this Prospectus focuses on the business, products and operations of Fat Shark and Rotor Riot, which will entail the Company's business focus following the acquisition. While each entity exists independently, their operations have been structured and developed to complement each other and operate largely in tandem, as the discussions contained elsewhere in this Prospectus describe in greater detail.

Fat Shark is a leader in FPV, designing and manufacturing ultra-low latency FPV video goggles for drone pilots, which it markets towards retail distributors including Rotor Riot. Rotor Riot is a rapidly growing e-commerce marketplace, backed by the largest community of FPV drone pilots in the world, and markets drones and drone-related products including Fat Shark goggles and competitor offerings, to end users of the drones and drone products including drone enthusiasts, hobbyists and competitive racers. Over the next two years, we expect that these businesses will continue to excel in the consumer FPV market, while expanding into new enterprise verticals like public safety and drone delivery. This is part of our vision to enable people to be part of the robotics revolution.

Headquartered in Puerto Rico, we intend to build both organically and through strategic acquisitions, by targeting companies within the highly fragmented drone industry that have valuable intellectual property, revenue generating customers, and exceptional teams.

**The Drone Industry**

The drone industry has expanded beyond its military origin to become a powerful tool for businesses and popular recreational activity. We expect both of these markets to continue to grow. According to a study by Insider Intelligence, total global drone shipments are estimated to reach 2.4 million in 2023 – increasing at a 66.8% compound annual growth rate (CAGR). Drone growth is expected to occur across all industries: direct to consumer (DTC), public safety, and drone delivery. For example, Reporter Link compiled a report in 2021 that projected the drone services market is expected to surpass $60 billion by 2025, from approximately $4.4 billion in 2018. International Data Corporation Markets has projected that the small drone market will increase from 3.8 billion in 2022 to 6.2 billion by 2027, and a CAGR of 10.1% from to 2022 to 2027. The Federal Aviation Administration (the "FAA") has forecasted a 300% increase in commercial drones from 2019 to 2023 as per businessinsider.com.

Accordingly, we will pursue strategic acquisition targets in the FPV drone technology space that have the potential to improve our own hardware and software solutions, rapidly grow our revenues, open new industry verticals, and integrate best in class intellectual property and teams. We believe that very promising, private companies (such as those we will likely target) are in many instances grossly underfunded and missing out on the ability to go public and bring their innovative products and solutions to a larger set of customers globally. Unlocking this potential will be key to industry consolidation and breaking the dominance of China in the drone industry. We stand at the forefront of this important trend.

**Exclusively FPV**

Fat Shark and Rotor Riot principally operate in the drone FPV segment of the industry. This segment focuses on drones piloted with wearable display devices. These are head mounted displays ("HMDs") or goggles for drone pilots. These goggles give pilots FPV perspective to control their drone in flight. This is a unique experience where the pilot is interacting with an aircraft through visual immersion. In this augmented reality (AR), the pilot sees only what the drone sees, as if sitting in the pilot seat. This experience is accomplished by live streaming footage from a camera mounted on the nose of the drone directly into specially designed goggles worn by the pilot. The image is transmitted via radio (traditionally analog but increasingly digital) to the pilot. The drone remote control unit, the drone, and the FPV goggles are all interconnected via radio. This effect requires sophisticated electronics that transmit visual information with sufficient speed and reliability to allow pilot control over the drone in real-time. Pilots routinely achieve speeds of over 90 mph in racing and other mission critical applications.

There are three common categories of FPV flight – freestyle flight, racing, and aerial photography. In freestyle, the pilot navigates around obstacles focused on acrobatics and exploring the environment around the aircraft through the HMD. This type of flight can be used for public safety as well as package delivery. FPV racing describes a growing spectator sport where pilots fly their drones in competitions through a series of obstacles, flags, and gates in a racetrack. Aerial photography is the process of viewing and recording a subject matter from the air from the viewpoint of the pilot.

**Plans for Growth, Development, and Expansion**

We plan to strengthen our market position through continued revenue growth. In parallel, we are aggressively investing in the development or acquisition of FPV products and services that serve a broad set of industries including consumer, public safety, and drone delivery. Our business strategy includes (i) increasing our overall customer base with a superior product and rapid adoption; (ii) investing in new products and IP, beginning with the Fat Shark and Rotor Riot acquisitions, (iii) exploring and pursuing acquisitions of additional products, teams and technologies that complement and expand the functionality of the FPV goggles offered by Fat Shark and the inventory and marketing capabilities of Rotor Riot; (iv) expanding and growing our customer base and revenue streams from our existing customer base using a "land-and-expand" model that establishes initial relationships and grows those relationships through the provision of high quality products and services, (v) enhancing our products to improve the integration of third-party solutions; (vi) targeting underserved drone pilots as customers and as potential marketing partners, and (viii) seeking strategic partnerships and sponsorships with companies that want access to the FPV community.

**Risk Factors Summary**

Our business and an investment in our common stock are subject to numerous risks and uncertainties, including those highlighted in the section titled "Risk Factors" immediately following this prospectus summary. Some of these risks include:

&nbsp;&nbsp;&nbsp;&nbsp;· The
 reports from Rotor Riot and Fat Shark's independent registered public accounting firm
 for the fiscal year ended April 30, 2022 and prior years include an explanatory paragraph
 that they may not be able to continue operating as a going concern.

&nbsp;&nbsp;&nbsp;&nbsp;· Because the Company will have no operating history
prior to its acquisition of Fat Shark and Rotor Riot, any investment in us is highly speculative.

&nbsp;&nbsp;&nbsp;&nbsp;· Fat Shark and Rotor Riot have incurred net losses
since their acquisition by Red Cat and may fail to achieve or maintain profitability.

&nbsp;&nbsp;&nbsp;&nbsp;· If the proceeds of this Offering are insufficient
to meet our working capital needs, and if we are then not able to obtain sufficient capital, we may be forced to limit the scope of our
operations.

&nbsp;&nbsp;&nbsp;&nbsp;· If we lose key personnel, it may adversely affect
our business.

&nbsp;&nbsp;&nbsp;&nbsp;· Conflicts of interest involving our management
team and other parties could materially harm our business.

&nbsp;&nbsp;&nbsp;&nbsp;· If we are unable to attract new customers or
maintain and grow Fat Shark and Rotor Riot existing customer relationships in a manner that is cost-effective, our revenue growth could
be slower than we expect and our business may be harmed.

&nbsp;&nbsp;&nbsp;&nbsp;· Future operating results and key metrics may
fluctuate significantly from period-to-period due to a wide range of factors, which makes our future results difficult to predict.

&nbsp;&nbsp;&nbsp;&nbsp;· Our failure to effectively manage our growth
could harm our business.

&nbsp;&nbsp;&nbsp;&nbsp;· If we are unable to attract, integrate and retain
additional qualified personnel, including top technical talent, our business could be adversely affected.

&nbsp;&nbsp;&nbsp;&nbsp;· We operate in an emerging and rapidly evolving
industry which makes it difficult to evaluate our business and future prospects.

&nbsp;&nbsp;&nbsp;&nbsp;· We face competition from larger companies that
have substantially greater resources which challenges our ability to establish market share, grow the business, and reach profitability.

&nbsp;&nbsp;&nbsp;&nbsp;· The development and manufacture of FPV goggles
encompasses several complex processes and several steps of our production processes are dependent upon third party vendors, supply chains,
the availability of printed circuit boards (PCBs), optics, and certain chips, and any change in availability of these components, manufacturing
or design partners could result in delivery interruptions, which could adversely affect our operating results.

&nbsp;&nbsp;&nbsp;&nbsp;· Several steps of our production processes are
dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.

&nbsp;&nbsp;&nbsp;&nbsp;· We may not be able to procure necessary key components
for our products or may produce or purchase too much inventory.

&nbsp;&nbsp;&nbsp;&nbsp;· Lack of long-term purchase orders and commitments
from customers, and other factors such as seasonality and high fluctuation in revenue, may lead to a rapid decline in sales or make it
difficult to evaluate us.

&nbsp;&nbsp;&nbsp;&nbsp;· Our products require ongoing research and development
and may experience technical problems or delays, which could lead the business to fail.

&nbsp;&nbsp;&nbsp;&nbsp;· If we are involved in litigation, which may arise
from intellectual property disputes, personal injury, property damage, regulatory violations other disputes, it could harm our business
or otherwise distract management.

&nbsp;&nbsp;&nbsp;&nbsp;· Our business is highly dependent upon our brand
recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation, including due to our high reliance
on online and social media platforms, would likely adversely affect our business and operating results.

&nbsp;&nbsp;&nbsp;&nbsp;· Future growth and ability to generate and grow
revenue and achieve or maintain profitability may be adversely affected if our marketing initiatives are not effective in generating sufficient
levels of brand awareness.

&nbsp;&nbsp;&nbsp;&nbsp;· Future acquisitions could disrupt our business
and adversely affect our operating results, financial condition and cash flows.

&nbsp;&nbsp;&nbsp;&nbsp;· Product quality issues and a higher-than-expected
number of warranty claims or returns could harm our business and operating results.

&nbsp;&nbsp;&nbsp;&nbsp;· If third-party intellectual property infringement
claims are asserted against us, it may prevent or delay our product development and commercialization efforts and have a material adverse
effect on our business and future prospects.

&nbsp;&nbsp;&nbsp;&nbsp;· We may depend on intellectual property rights
including patent rights that have not yet been and may not be obtained by us, and our intellectual property rights and proprietary rights
may not adequately protect our products.

&nbsp;&nbsp;&nbsp;&nbsp;· If we lose our rights under our third-party technology
licenses, our operations could be adversely affected.

&nbsp;&nbsp;&nbsp;&nbsp;· Significant inflation could adversely affect
our business and financial results.

&nbsp;&nbsp;&nbsp;&nbsp;· Failure to obtain necessary regulatory approvals
from the FAA or other governmental agencies by us, our customers, or others who use our products, or limitations put on the use of unmanned
aircraft systems, or "UAS," in response to public privacy or safety concerns, may prevent us from expanding the sales of our
drone solutions in the United States.

&nbsp;&nbsp;&nbsp;&nbsp;· Rising threats of international tariffs, including
tariffs applied to goods between the U.S. and China, may materially and adversely affect our business.

&nbsp;&nbsp;&nbsp;&nbsp;· We are or may become subject to governmental
export and import controls, economic sanctions and other laws and regulations that could subject us to liability and impair our ability
to compete in international markets.

&nbsp;&nbsp;&nbsp;&nbsp;· If we fail to comply with U.S. and foreign laws
related to privacy, data security, and data protection, it could adversely affect our operating results and financial condition.

&nbsp;&nbsp;&nbsp;&nbsp;· Any failures of or damage to, attack on or unauthorized
access to our information technology systems or facilities or disruptions to our continuous operations, including the systems, facilities
or operations of third parties with which we do business, such as resulting from cyber-attacks, could result in significant costs, reputational
damage and limits on our ability to conduct our business activities.

&nbsp;&nbsp;&nbsp;&nbsp;· Our management will have significant discretion
over our use of the net proceeds from this Offering and we may use these proceeds in ways with which you may not agree.

&nbsp;&nbsp;&nbsp;&nbsp;· Because the market price of shares of our common
stock is subject to fluctuation, you may not be able to sell your common stock at the Offering price.

&nbsp;&nbsp;&nbsp;&nbsp;· Because our public offering price is substantially
higher than our net tangible book value per share, you will experience immediate and substantial dilution.

&nbsp;&nbsp;&nbsp;&nbsp;· Because our sole remedy under the Purchase Agreement
in the event of any breaches of representations and warranties is to cancel some or all of the 450,000 shares of our common stock placed
in escrow, the value of such shares maybe an insufficient remedy.

&nbsp;&nbsp;&nbsp;&nbsp;· We will incur significant additional costs as
a result of being a public company, and our management will be required to devote substantial time to compliance with our public company
responsibilities and corporate governance practices.

&nbsp;&nbsp;&nbsp;&nbsp;· Our failure to maintain effective disclosure
controls and internal controls over financial reporting could have an adverse impact on us.

&nbsp;&nbsp;&nbsp;&nbsp;· Because our common stock will be listed on Nasdaq,
we will become subject to additional regulations and continued requirements.

&nbsp;&nbsp;&nbsp;&nbsp;· Our Board of Directors may authorize and issue
shares of new classes of stock that could be superior to or adversely affect current holders of our common stock.

&nbsp;&nbsp;&nbsp;&nbsp;· If we raise capital in the future may dilute
our existing stockholders' ownership and/or have other adverse effects on us, our securities or our operations.

&nbsp;&nbsp;&nbsp;&nbsp;· Common stock eligible for future sale may adversely
affect the market.

&nbsp;&nbsp;&nbsp;&nbsp;· If securities or industry analysts do not publish
research or reports about our business, or if they adversely change their recommendations regarding our common stock, the market price
for our common stock and trading volume could decline.

&nbsp;&nbsp;&nbsp;&nbsp;· We and our investors face the implications of
our status as an emerging growth company under the federal securities laws and regulations.

&nbsp;&nbsp;&nbsp;&nbsp;· We have never paid dividends and we do not expect
to pay dividends for the foreseeable future

**Summary of the Offering**

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| | |
|:---|:---|
| **Common stock offered by the Company:** | _________ shares of our common stock (_________ shares if the underwriters exercise their over-allotment option in full), on a firm commitment basis. |
| **Shares of common stock outstanding prior to the Offering:** | _________ shares |
| **Shares of common stock outstanding after the Offering (1):** | __________shares (________ shares if the underwriters exercise their over-allotment option in full), based on an assumed offering price of $____ per share (the midpoint of the range). |
| **Over-allotment option:** | The underwriters have an option for a period of 45 days to purchase up to ____ additional shares, or an additional ___% of the shares of common stock offered in this Offering to cover over-allotments, if any.<br>|
| **Use of proceeds:** | We estimate that we will receive net proceeds of approximately $_________ from our sale of shares of common stock in this Offering, after deducting underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds of this Offering to pay the cash portion of the purchase price for the Business Combination, and for working capital and general corporate purposes. |
| **Underwriter's warrants:** | We have agreed to issue warrants ("Underwriter's Warrants") to purchase __________ (or five percent (5%)) shares of our common stock (sold in the Offering) to ________. Underwriter's Warrants will be exercisable at any time, and from time to time, in whole or in part, during the five- year period commencing 180 days following the effective date of the registration statement of which this Prospectus is a part at an exercise price of $_______ (one hundred and twenty-five percent (125%) of the public offering price per share). |
| **Potential sales to insiders:** | It is possible that one or more of our directors or their affiliates or related parties could purchase common stock in this Offering; however, these person or entities may determine not to purchase any shares of common stock in this Offering, or the underwriters may elect not to sell any common stock in this Offering to such persons or entities. |
| **Nasdaq symbol:** | We plan to have the shares of common stock listed on the Nasdaq Capital Market under the symbol "UMAC" upon the Closing of this Offering. We will not proceed with the Business Combination or this Offering unless our common stock is approved for listing on Nasdaq. |
| **Risk factors:** | Investing in our securities involves a high degree of risk and purchasers of our securities may lose their entire investment. See "[Risk Factors](#a_005)" and the other information included and incorporated by reference into this Prospectus for a discussion of risk factors you should carefully consider before deciding to invest in our securities. |

---

**Summary Combined Pro Forma Financial Data**

The following summary combined pro forma statements of operations for the years ended December 31, 2022 and 2021 and summary combined pro forma balance sheet data as of December 31, 2022 and 2021 have been derived from our, Fat Shark and Rotor Riot unaudited combined pro forma financial statements included elsewhere in this Prospectus. You should read this "Summary Combined Pro Forma Financial Data" section together with our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. Our financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.

---

| | | |
|:---|:---|:---|
| **Pro Forma Balance Sheet Data (unaudited)** | **Fiscal Year <br>Ended <br>December 31, <br>2022** | **Fiscal Year<br> Ended<br> December 31,<br> 2021** |
| Cash and cash equivalents | $6733592 | $4132182 |
| Total assets | $25479229 | $22621559 |
| Total liabilities | $3307680 | $8029950 |
| Total shareholders' equity | $22171549 | $14591609 |

---

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | **2021** |
| **Pro Forma Statements of Operations (unaudited)** |  |  |
| Revenues | $4889729 | $6431924 |
| Gross Margin | $783877 | $860413 |
| Operating Loss | $(2642831) | $(963782) |
| Other expense | $(36214) | $(56003) |
| Net loss | $(2679045) | $(1019785) |

---

**RISK FACTORS**

Any investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this Prospectus before deciding whether to purchase our securities. Our business, financial condition and results of operations could be materially adversely affected by these risks if any of them actually occur. This Prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere in this Prospectus.

**<u>Risks Related to our Business and Financial Condition</u>**

**Because Fat Shark and Rotor Riot's auditors have qualified their reports on a going concern basis and with our history of losses, we may not be able to continue operating as a going concern.**

 ****

We have experienced losses from operations since inception and have never generated positive cash flow. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our operating costs and obtaining financing from this Offering. The reports from Fat Shark and Rotor Riot's independent registered public accounting firm for the fiscal year ended April 30, 2022 and prior years include an explanatory paragraph stating Fat Shark and Rotor Riot have each recurring net losses from operations, negative operating cash flows, and will need additional working capital for ongoing operations. These factors, among others, raise substantial doubt about each of Fat Shark and Rotor Riot's ability to continue as a going concern. If we are unable to close this Offering, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern.

**Because the Company will have no operating history prior to its acquisition of Fat Shark and Rotor Riot, any investment in us is highly speculative.**

We plan to acquire Fat Shark and Rotor Riot simultaneously with the closing of this Offering. Both companies have been operated by Red Cat since their acquisition by Red Cat in 2020. While we expect the management of each target to remain, no Red Cat officer is joining us. Our management team will be headed by our executive officers together with individuals from Fat Shark and Rotor Riot, and our operations going forward are therefore subject to ordinary integration risks where two companies and two cultures are combined. Further, we may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our budgeted plans and estimates of future revenue. Similarly, if we are able to raise sufficient capital in this Offering or in future financing transactions, we may use a portion of the proceeds to acquire other operating businesses in our industry or in related industries to facilitate strategic growth and build our market presence and revenue potential. If we do acquire one or more businesses in the future, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force us to curtail our business operations or plan of operations or acquisitions.

Additionally, our current revenue projections are based largely on customer and partner relationships and contracts that are still the subject of negotiation, the results of which remain uncertain. Additionally, Fat Shark and Rotor Riot currently operate as subsidiaries of Red Cat, a holding company of drone-related businesses, which also holds two drone businesses that market products for government, industrial and military applications in addition to its consumer-focused product offerings which we will acquire through Fat Shark and Rotor Riot. Therefore, in addition to having no experience as a public company, our new operations will be subject to the risk of a lack of diversification, as today we are limited to drone products designed for consumer or recreational use rather than military or industrial applications. In the future, we may diversify our products beyond the consumer and recreational use but the timeline and success of those efforts are uncertain. Our new subsidiaries will lack the support they previously had in terms of their product development and production efforts, as they can no longer access the more vertically integrated resources that were available to them at Red Cat. The risk of this occurring will intensify if a recession occurs in the U.S. or global economy, as our future business is aimed at consumers whose spending patterns will likely decline as a result of inflation and the prospect of an economic downturn.

Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations, integration and growth process. Due to these contingencies, we may be unable to achieve or maintain profitability in some or all of our business segments in a timely manner or at all, in which case you could lose all or some of your investment.

**Fat Shark and Rotor Riot have incurred net losses since their acquisition by Red Cat and may fail to achieve or maintain profitability.**

Since their acquisition by Red Cat in 2020, Fat Shark and Rotor Riot incurred net losses for each reported quarter with the exception of Fat Shark which reported a small net income in the quarter ended July 31, 2022. Further, Unusual Machines was formed in July 2019 and have not conducted any active business. Following our acquisition of Fat Shark and Rotor Riot, their operations will constitute our business. Further, each of Fat Shark and Rotor Riot had lower revenues and higher net losses in fiscal year 2022 compared to fiscal year 2021, and generally experience fluctuating revenue as a result of recurring seasonal sales cycles. We will need to generate higher revenues and control operating costs in order to attain profitability. There can be no assurances that we will be able to do so or to reach profitability.

We expect to continue to incur losses for the foreseeable future and we expect costs to increase in future periods as we expend substantial financial and other resources on, among other things:

&nbsp;&nbsp;&nbsp;&nbsp;· researching, developing, producing and distributing
new products;

&nbsp;&nbsp;&nbsp;&nbsp;· sales and marketing, which will require time
before these investments generate sales results;

&nbsp;&nbsp;&nbsp;&nbsp;· general and administrative expenditures, including
significantly increasing expenses in accounting and legal fees related to the increase in the sophistication and resources required for
public company compliance and other needs arising from the growth and maturity of the Company;

&nbsp;&nbsp;&nbsp;&nbsp;· competing with other companies that are currently
in, or may in the future enter, the markets in which we compete;

&nbsp;&nbsp;&nbsp;&nbsp;· maintaining high customer satisfaction and ensuring
product and service quality;

&nbsp;&nbsp;&nbsp;&nbsp;· developing our indirect sales channels and strategic
partner network;

&nbsp;&nbsp;&nbsp;&nbsp;· maintaining the quality of our technology infrastructure;

&nbsp;&nbsp;&nbsp;&nbsp;· establishing and increasing market awareness of our Company and enhancing
our brand;

&nbsp;&nbsp;&nbsp;&nbsp;· maintaining compliance with applicable governmental
regulations and other legal obligations, including those related to intellectual property and drones; and

&nbsp;&nbsp;&nbsp;&nbsp;· attracting and retaining top talent in a competitive
labor market.

These expenditures may not result in additional revenue or the growth of our business in the manner or to the extent anticipated or intended or at all. If following the acquisition of Fat Shark and Rotor Riot, we fail to grow revenue or to achieve or sustain profitability, our business, financial condition, results of operations, and prospects could be materially adversely affected and the market price of our common stock could be adversely affected.

**If the proceeds of this Offering are insufficient to meet our working capital needs, and if we are then not able to obtain sufficient capital, we may be forced to limit the scope of our operations.**

We expect that the net proceeds of this Offering after payment to Red Cat will be sufficient to meet our working capital needs. However, our future business is aimed at consumers who face inflation and the prospect of a recession. Accordingly, we may require substantial additional working capital. The expected use of net proceeds of this Offering represents our current intentions based upon our present plan and business conditions. As of the date of this Prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this Offering. We will have broad discretion in the application of the net proceeds in the category of working capital and general corporate purposes, including acquisitions, and to fund ongoing operations and expansion of our business, and investors will be relying on our judgment regarding the application of the net proceeds of this Offering other than payments to Red Cat. Depending on the outcome of our business activities and other unforeseen events, our plans and priorities may change and we may apply the net proceeds of this Offering in different proportions than we currently anticipate.

There can be no assurance that our businesses will reach profitability. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, then we may not be able to continue to develop our business activities, and we will have to modify our business plan. These factors could have a material adverse effect on our future operating results and our financial condition.

Our ability to raise financing through sales of equity linked securities depends on general market conditions and the demand for our common stock. We may be unable to raise adequate capital through sales of equity linked securities, and if our stock price is lower than the Offering price at the time of such sales, our existing stockholders could experience substantial dilution. Debt transactions often include restrictive covenants that could limit our ability to engage in strategic transactions, acquire complimentary businesses, or adjust to changing market environments as quickly or efficiently as we otherwise would or at all. Further, if adequate financing is not available or is unavailable on acceptable terms, we may find we are unable to fund our planned expansion, continue offering the Fat Shark and Rotor Riot products, take advantage of acquisition opportunities, develop or enhance or products, or to respond to competitive pressures in the industry which may jeopardize our ability to continue operations.

**Because of the price protection contained in the Series A and the** Senior **Note, if we raise money in the future at priced below $4.00, investors will experience dilution which may be significant**.

Both the Series A and the Senior Note are convertible at $4.00 per share and each contain standard full ratchet price protection that if we raise money at lower prices, the conversion prices of the Series A and Senior Note are adjusted to the same price as used in any future financing, subject to customary exceptions. As a result investors may sustain substantial dilution if we raise money in the future at lower prices. For example, at $4.00 per share, the Series A and Senior Note converts into 2,675,000 shares and 625,000 shares, respectively. At $3.00 per share, the Series A and Senior Note converts into 3,500,000 shares and 833,333 shares, respectively. At $1.00 per share, the Series A and Senior Note converts into 10,500,000 shares and 2,500,000 shares, respectively. Accordingly, if we raise money at increasingly lower prices, the dilution impact will be more significant.

**If we lose key personnel, it may adversely affect our business.**

Our future success depends in large part on the continued contributions of our executive officers, members of senior management and other key personnel, particularly Brandon Torres Declet, our Chief Executive Officer and Chairman of the Board. As more fully described elsewhere in this Prospectus, Mr. Declet's leadership, knowledge and experience in the drone industry is expected to be crucial to our business plan and any future successes and progress we experience. The loss of Mr. Declet's services would therefore materially adversely affect our business and prospects. We have "key person" insurance in place for Mr. Declet but not for any other officers or employees. Our executive officers, senior management and key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason and without notice. The loss of any of our key management personnel could significantly delay or prevent the achievement of our development and strategic objectives and adversely affect our business.

**Conflicts of interest involving our management team and other parties could materially harm our business.**

Our management team on which we heavily depend are or may become involved in other endeavors giving rise to conflicts of interests that are adverse to the Company. For example, Brandon Torres Declet, our Chief Executive Officer has business interests in ventures that operate in the drone industry outside our Company. See "[Management and Board of Directors](#a_014)." These arrangements could cause Mr. Declet to be unable or decline to devote sufficient time and attention to our Company at the expense of these other ventures, and/or to face a conflict of interest, financial or otherwise, adverse to us and in favor of these other ventures. Accordingly, from time-to-time our management may not devote their full time and attention to our affairs, which could have a material adverse effect on our operating results, and there can be no assurance that other conflicts of interest will not arise from their other business ventures, any of which could materially and adversely impact our business. Other members of our management team and Mr. Jeffrey Thompson and Thomas Walker, members of our Board of Directors also have significant roles and interests in other drone companies, which pose similar threats to us as those described as to Mr. Declet.

In addition, the primary contract manufacturer for Fat Shark headsets is Shenzhen Fat Shark Co Ltd. (the "Supplier"), a company located in China which is majority-owned by Molly Mo, who is the wife of Greg French, founder and former owner of Fat Shark prior to its acquisition by Red Cat. These relationships could result in Mr. French diverting his time, resources and corporate opportunities to this other entity rather than the Company. The Company expects to procure Mr. French's services as a consultant of Fat Shark in connection with the Business Combination.

Finally, Rotor Riot offers a variety of drone products through its website, which includes a number of product offerings from competitors in the drone industry. While these relationships have enabled us to generate revenue, by virtue of their involvement in the sale of drones and drone-related products these customers also have interests that are adverse to ours, and may determine to reduce their expenditures on our products in the future and/or to vertically integrate their operations to reduce or eliminate their reliance on our products.

Any of the foregoing developments could result in materially adverse consequences to our Company, results of operations and financial condition.

**If we are unable to attract new customers or maintain and grow Fat Shark and Rotor Riot existing customer relationships in a manner that is cost-effective, our revenue growth could be slower than we expect and our business may be harmed.**

To increase our revenue following the acquisition of Fat Shark and Rotor Riot, we must add new customers, upsell to our existing customers, enhance our products with features that set us apart from our competitors, and effectively develop and market new products that enable us to maintain and expand our brand and market share. Demand for our products is affected by a number of factors, many of which are beyond our control. Additionally, the projections and estimates about the future success and growth of the drone industry and demand for drone-related products such as ours, including those referenced elsewhere in this Prospectus, could prove to be incorrect, in which case our results of operations and prospects will decline. For example, if a recession, we expect that consumer spending, particularly for non-essential goods such as our drone products which are largely focused on recreational uses, may decline, limiting our ability to attract or maintain a sufficient customer base to achieve or maintain the revenue we seek in the development and sale of our products. Even if we do attract customers, the cost of new customer acquisition may prove so high as to prevent us from achieving or sustaining profitability.

Our future success also depends on our ability to increase the use of our products and solutions within and across our existing customers and future customers. While we believe there is a significant opportunity to further expand within Fat Shark and Rotor Riot's existing customer base, including due to our planned employment of a "land-and-expand" business model in which we plan to establish relationships with new customers and grow those relationships over time by providing high quality products and services, our growth prospects depend on our ability to persuade customers to buy more product, and if we fail to do so, our business goals and prospects may not be achieved to the extent sought or anticipated or at all.

**Future operating results and key metrics may fluctuate significantly from period-to-period due to a wide range of factors, which makes our future results difficult to predict.**

Our operating results and key metrics could vary significantly from quarter-to-quarter as a result of various factors, some of which are outside of our control, including:

&nbsp;&nbsp;&nbsp;&nbsp;· the expansion or contraction of our customer
base and the amount of product ordered;

· the size, duration and terms of our contracts
with both existing and new customers, including distributors we contract with particularly as to Fat Shark's sale of FPV goggles;

· seasonality of sales at Rotor Riot which generally
has experienced higher sales volumes in October – December than in other three-month periods as a result of holiday purchases and
its e-commerce focus;

· sales cycles which fluctuate and often include
delays between the end of one product or solution's cycle and the launch of a new product or solution to replace or supplement the
prior offering, which for example significantly impacts Fat Shark's sales as it improves upon and launches new products and shifts
focus away from older products;

· the introduction of products and product enhancements
by competitors, and changes in pricing for products offered by us or our competitors;

· customers delaying purchasing decisions in anticipation
of new products or product enhancements by us or our competitors or otherwise;

· changes in customers' budgets;

· the amount and timing of payment for expenses,
including infrastructure, research and development, sales and marketing expenses, employee benefit and stock-based compensation expenses;

&nbsp;&nbsp;&nbsp;&nbsp;· costs related to the hiring, training and maintenance
of our employees;

· continued impact from COVID-19, including any
long-term or pervasive effects of the virus;

· supply chain issues particularly with the current
COVID-19 resurgence in China and Fat Shark's reliance on one related party Chinese supplier;

· political unrest affecting our relationship with
China and future tariffs;

· our lack of a long-term agreement with our suppliers
which can affect the availability of parts and future costs **;** 

· changes in laws and regulations or other regulatory
developments that impact our business;

· the timing and extent of the growth of our business;
and

· general economic and political conditions, both
domestically and internationally, as well as economic conditions specifically affecting industries in which our customers operate.

Any one of these or other factors discussed elsewhere in this Prospectus may result in fluctuations in our operating results, meaning that quarter-to-quarter comparisons may not necessarily be indicative of our future performance.

**Our failure to effectively manage our growth could harm our business.**

Other than our Agreement with Red Cat to acquire Fat Shark and Rotor Riot, we have no operating business. Businesses, including development stage companies such as ours which often grow rapidly, may have difficulty managing their growth. These challenges are exacerbated in circumstances such as ours following a recent acquisition of operating businesses. We intend to expand the number and types of products we sell as we grow, if and as capital becomes available. Further, because of our reliance on consumer spending which depends on novelty and social trends, and the rapid and constant technologically advancements that characterize our industry, we are subject to periodic sales cycles, and we will therefore need to replace and regularly introduce on a timely basis new products and technologies, enhance existing products, and effectively stimulate customer demand for new products and upgraded or enhanced versions of our existing products. Similarly, because our product offerings are largely dependent on others' drone-related products and activities, we may need to adjust or update as third parties advance or alter their technology and activities. If we are able to successfully develop, produce and market our products, we will likely need to incur additional expenditures and expand our personnel with additional employees and consultants who are capable of providing the necessary support. We cannot assure you that our management will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and your investment could be lost.

The replacement and expansion of our products is expected to place a significant strain on our management, operations and engineering resources. Specifically, the areas that are strained most by these activities include the following:

·  **<u>New Product Launches:</u>** With the changes in and growth of our product portfolio, we will experience increased complexity in coordinating product development, manufacturing, and shipping. As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effectively market to stimulate demand and market acceptance. We may experience delays in our operations or product development or production efforts. If we are unable to scale and improve our product launch coordination, we could frustrate our customers and reduce or delay product sales;

·  **<u>Existing Products Impacted by New Introductions</u>:** The introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction and may cause customers to defer purchasing our existing products in anticipation of the new products and potentially lead to challenges in managing inventory of existing products. We may also provide price protection to some of our retailers as a result of our new product introductions and reduce the prices of existing products. Granting these rights exposes us to greater risk of operational losses, as they limit our ability to react and adapt to changing economic conditions, such as rising costs caused by supply chain shortages. If we fail to effectively manage new product introductions, our revenue and ability to become profitable may be harmed; and

·  **<u>Forecasting, Planning and Supply Chain Logistics</u>:** With the changes in and growth of our product portfolio, we will experience increased complexity in forecasting customer demand, in planning for production, and in transportation and logistics management. If we are unable to scale and improve our forecasting, planning, production, and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory.

The drone industry relies on limited sources to supply certain components and materials used in the manufacturing of drones. Our intention is to purchase certain components from suppliers based in the United States, which may lead us to pay higher prices, or select parts from a more limited number of suppliers relative to our competitors, which would adversely impact our gross margin and operating results. Our operating results could be materially, adversely impacted if our suppliers do not provide the critical components used to assemble our products on a timely basis, at a reasonable price, and in sufficient quantities.

Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of components for our products. All of the components that go into the manufacturing are sourced from third-party suppliers.

Some of the key components used to manufacture our products come from a limited or single source of supply, or by a supplier that could potentially become a competitor. Our contract manufacturers generally purchase these components on our behalf from approved suppliers. We are subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules.

If we lose access to components from a particular supplier or experience a significant disruption in the supply of products and components from a current supplier, we may be unable to locate alternative suppliers of comparable quality at an acceptable price, or at all, and our business could be materially and adversely affected. In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity or elect not to meet our needs as they allocate components to other customers. Developing suitable alternate sources of supply for these components may be time-consuming, difficult and costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may adversely affect our ability to meet our development requirements or to fill our orders in a timely or cost-effective manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with the supplier's quality control, responsiveness and service, financial stability, labor and other ethical practices, and if we seek to source materials from new suppliers, there can be no assurance that we could do so in a manner that does not disrupt the manufacture and sale of our products.

Our reliance on single source, or a small number of suppliers involves a number of additional risks, including risks related to supplier capacity constraints, price increases, timely delivery, component quality, failure of a key supplier to remain in business and adjust to market conditions, delays in, or the inability to execute on, a supplier roadmap for components and technologies; and natural disasters, fire, acts of terrorism or other catastrophic events, including global pandemics.

We do not own or operate any manufacturing facilities. Certain components and services necessary for the manufacture of our products are available from only a limited number of sources, and other components and services are only available from a single source. Our relationship generally is on a purchase order basis and these firms do not have a contractual obligation to provide adequate supply or acceptable pricing to us on a long-term basis. These suppliers could discontinue sourcing merchandise for us at any time. If any of these suppliers were to discontinue its relationship with us, or discontinue providing specific products to us, and we are unable to contract with a new supplier that can meet our requirements, or if they or such other supplier were to suffer a disruption in their production, we could experience disruption of our inventory flow, a decrease in sales and the possible need to re-design our products. Any such event could disrupt our operations and have an adverse effect on our business, financial condition and results of operations. Several new and alternative suppliers have begun offering components suitable for use in our products. With new tooling and electronics, any one of these alternative components could be incorporated into our products but our costs could be higher, they may offer less performance, and, as a result, make our products too costly and less desirable.

**If we are unable to attract, integrate and retain additional qualified personnel, including top technical talent, our business could be adversely affected.**

Our future success depends in part on our ability to identify, attract, integrate and retain highly skilled technical, managerial, sales and other personnel, particularly as we attempt to expand our operations and further develop and market our products. We face intense competition for a limited number of qualified individuals with the requisite skills and experience from numerous other companies, including other software and technology companies, many of whom have greater financial and other resources than we do. These companies also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than those we have to offer. In addition, new hires often require significant training and, in many cases, take significant time before they achieve full productivity. We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees may not be or become as productive as we expect, as we may face challenges in adequately or appropriately integrating them into our workforce and culture. In addition, as we move into new geographies, we will need to attract and recruit skilled personnel in those areas. We have limited experience with recruiting in geographic areas outside of the United States, and may face additional challenges in attracting, integrating and retaining international employees. If we are unable to attract, integrate and retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, on a timely basis or at all, our business will be adversely affected. Additionally, the Company will operate out of multiple locations including Florida and Puerto Rico subjecting it to local labor market conditions.

**<u>Risks Related to Our Sale of Drone-Related Products and Operations in the Drone Industry.</u>**

**We operate in an emerging and rapidly evolving industry which makes it difficult to evaluate our business and future prospects.**

The drone industry is relatively new and is growing rapidly. As a result, it is difficult to evaluate our business and future prospects. We cannot accurately predict whether, and even when, demand for our products will increase, if at all. The risks, uncertainties and challenges encountered by companies operating in emerging and rapidly growing industries include:

&nbsp;&nbsp;&nbsp;&nbsp;· generating sufficient revenue to cover operating costs and sustain operations;

&nbsp;&nbsp;&nbsp;&nbsp;· acquiring and maintaining market share;

&nbsp;&nbsp;&nbsp;&nbsp;· attracting and retaining qualified personnel;

&nbsp;&nbsp;&nbsp;&nbsp;· successfully developing and commercially marketing new products;

&nbsp;&nbsp;&nbsp;&nbsp;· complying with development regulatory requirements;

&nbsp;&nbsp;&nbsp;&nbsp;· the possibility that favorable estimates or projections prove to be incorrect;

&nbsp;&nbsp;&nbsp;&nbsp;· responding effectively to changing technology, evolving industry standards,
and changing customer needs or requirements; and

&nbsp;&nbsp;&nbsp;&nbsp;· accessing the capital markets to raise additional capital, on reasonable
terms, if and when required to sustain operations or to grow the business.

As such, our current expectations and projects about future events and trends may be different from the actual results. Furthermore, if we are unable to address any of the above challenges successfully, our business, financial condition, results of operations, and prospectus may be adversely affected by such failure.

**We face competition from larger companies that have substantially greater resources which challenges our ability to establish market share, grow the business, and reach profitability.**

The drone industry is attracting a wide range of significantly larger companies which have substantially greater financial, management, research and marketing resources than we have. The drone hardware and parts and components spaces are dominated by larger Chinese companies such as SZ DJI Technology Company, Ltd and T-Motor. With respect to our FPV products, current and potential future competitors also include a variety of established, well-known diversified consumer electronics manufacturers such as Samsung, Sony, LG Electronics (LGE), HTC, Lenovo, Epson, Yuneec, Boscam, Eachine, Walkera, SkyZone, MicroLED and large software and other products companies such as Alphabet Inc. (Google), Microsoft, Facebook and Snap. The large number of smaller and/or private companies focused on drone solutions also have competitive advantages over us which we may struggle overcome, particularly as we seek to further establish and grow our customer base. Our competitors may be able to provide customers with different or greater capabilities than we can provide, including technical qualifications, pricing, and key technical support. Many of our competitors may utilize their greater resources to develop competing products and technologies, leverage their financial strength to utilize economies of scale and offer lower pricing, and hire more qualified personnel by offering more generous compensation packages. On the other hand, other small business competitors may be able to offer more cost competitive solutions or may be able to adapt more quickly to market developments due to lower overhead costs, leveraging of their professional relationships and networks, geographic or specialty focuses or greater flexibility inherent in smaller operations and a lower number of personnel.

Among product and service features that drive competition in our industry are breadth of product line, quality and durability of products, stability, reliability and reputation of the provider, along with cost. Quantity discounts, price erosion, and rapid product obsolescence due to technological improvements are therefore common in our industry as competitors strive to retain or expand market share. The Company's ability to compete effectively will depend on, among other things, the Company's pricing models, quality of customer service, development of new and enhanced products and services in response to customer demands and changing technology, reach and quality of sales and distribution channels and capital resources. Competition could lead to an inability to sustain sales levels, a reduction in the rate at which the Company adds new customers, a decrease in the size of the Company's market share and a decline in its customers and revenue. In order to secure sales, we may have to offer comparable products and services at lower pricing which could adversely affect our operating margins. Our inability to compete effectively against these larger companies could have a material adverse effect on our business, financial condition and operating results.

**The development and manufacture of FPV goggles encompasses several complex processes and several steps of our production processes are dependent upon third party vendors, supply chains, the availability of printed circuit boards (PCBs), optics, and certain chips. Any change in availability of these components, manufacturing or design partners could result in delivery interruptions, which could adversely affect our operating results.**

As we continue to develop our products, we must progress through the complex and challenging processes involved in the technology and designs on which Fat Shark and Rotor Riot products are founded. Fat Shark and Rotor Riot rely on third party suppliers for the resources needed to navigate these processes and expect to continue to rely on such parties when we reach the manufacturing and marketing stages. Our reliance on third-party manufacturers and service providers will entail risks to which we may not be subject if our future operations were more vertically integrated, including:

&nbsp;&nbsp;&nbsp;&nbsp;· the ongoing supply chain shortages, and any future supply chain and
logistics challenges that we or our vendors may face in the future, including due to the reliance on lithium-ion batteries and other materials
for our products;

· the inability to meet any product specifications and quality requirements consistently;

· a delay or inability to procure or expand sufficient manufacturing capacity;

· discontinuation or recall of products or component parts;

· manufacturing and product quality issues related to scale-up of manufacturing;

· costs and validation of new equipment and facilities required for scale-up;

· a failure to comply with applicable regulatory and safety standards in the U.S. and foreign markets in
which we or our collaborators operate;

· the inability to negotiate manufacturing and service agreements with third parties under commercially
reasonable terms;

· the possibility of breach or termination or nonrenewal of agreements with third parties in a manner that
is costly or damaging to us;

· we do not always execute definitive written agreements with our vendors, particularly those located in
China, which exposes us to possible disputes concerning the existence or terms of our agreements and our intellectual property rights;

· the reliance on a few sources, and sometimes, single sources for raw materials and components, such that
if we cannot secure a sufficient supply of these product components, we cannot manufacture and sell products in a timely fashion, in sufficient
quantities or under acceptable terms;

· the lack of qualified backup suppliers for any raw materials currently purchased from a small number of
source suppliers;

· operations of our third-party manufacturers, suppliers or service providers could be disrupted by conditions
unrelated to our business or operations, including the bankruptcy of the party;

· carrier disruptions or increased costs beyond our control;

· possible misappropriation of our proprietary technology; and

· failing to deliver products under specified storage conditions and in a timely manner.

Given our early stages, our product technology and manufacturing processes are evolving which can result in production challenges and difficulties. We may be unable to produce our products in sufficient quantity and quality to maintain existing customers and attract new customers. In addition, we may experience manufacturing problems which could result in delays in delivery of orders or product introductions. Any of these events could lead to production and marketing delays or failure or impact our ability to successfully commercialize our products. If we fail to contract with third parties on favorable terms, coordinate with and supervise their services and contributions to our processes, and leverage those relationships to deliver quality products in a timely manner to customers, we could experience reductions or delays in revenue, reputational harm and diminished brand recognition, higher than expected expenses, or other adverse developments that would materially harm our business.

**Several steps of our production processes are dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.**

Fat Shark currently has no equipment redundancy to manufacture our products, meaning we will rely on a limited number of machines to perform a large quantity of steps in the manufacturing and assembly processes. Rotor Riot is limited by the number of personnel it has on staff to assemble custom drones. This may, among other things, delay delivery timelines or reduce our revenue and accounts receivable, and/or force us to rely more heavily on third parties to meet customer deadlines or volume demands, either of which will adversely affect our results of operation and ability to achieve and maintain profitability. If we experience any significant disruption in manufacturing, a serious failure of a critical piece of equipment, or an inability to hire personnel, we may be unable to supply products to our customers in a timely manner. Interruptions in our manufacturing could be caused by us or our partners including but not limited to equipment problems, the introduction of new equipment into the manufacturing process or delays in the delivery of new manufacturing equipment. Lead-time for delivery, installation, testing, repair and maintenance of manufacturing equipment can be extensive. We can provide no assurances that we will not lose potential sales or be able to meet production orders due to future production interruptions in our manufacturing lines.

**We may not be able to procure necessary key components for our products or may produce or purchase too much inventory.**

The drone industry, and the electronics industry as a whole, can be subject to business cycles. During periods of growth and high demand for products, we may not have adequate supplies of inventory on hand to satisfy customers' needs. Furthermore, during these periods of growth, our suppliers may also experience high demand and, therefore, may not have adequate levels of the components and other materials that the Company requires to manufacture products so that it can meet customers' needs. Our inability to secure sufficient components to produce products for customers, or similar challenges faced by the drone manufactures we serve, could negatively impact our sales and operating results. We may choose to mitigate this risk by increasing the levels of inventory for certain key components assuming we have available cash resources. Increased inventory levels can increase the potential risk for excess and obsolescence should our forecasts fail to materialize or if there are negative factors impacting our customers' end markets. Such a risk becomes especially prevalent during a recession and market downturn. If we purchase too much inventory, we may have to record additional inventory reserves or write-off the inventory, which could have a material adverse effect on our gross margins and on its results of operations.

**We may not be able to keep pace with technological advances; and we depend on advances in technology by other companies.**

The drone industry in general, and the market for the sale of drone hardware and component parts in particular, continues to undergo significant changes, primarily due to technological developments. Because of the rapid growth and advancement of technology, shifting consumer tastes and the popularity and availability of other forms of activities, it is impossible to predict the overall effect these factors could have on potential revenue from, and profitability of the drone industry. The development of both drone-related software and hardware is a costly, complex and time-consuming process, and investments in product development often involve a long wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during the development and certification process. We anticipate making significant investments in research and development relating to our products and technology, but such investments are inherently speculative and require substantial capital expenditures. Any unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or the abandonment of product commercialization, may substantially increase development costs, and may negatively affect our results of operations. In the time it takes to develop or improve upon a product, that product may become obsolete.

It is impossible to predict the overall effect these factors could have on our ability to compete effectively in a changing market, and if we are not able to keep pace with these technological advances, then our revenues, profitability and results from operations may be materially adversely affected. It is impossible to predict the overall effect these factors could have on our ability to compete effectively in a changing market, and if we are not able to keep pace with these technological advances, then our revenues, profitability and results of operations may be materially adversely affected. However, if we struggle to adapt to an industry-shifting technological advancement or competitor offerings that render our products relatively less attractive or obsolete, including due to competitive pressures we face relative to other drone companies, it could have a material adverse effect on our business.

Further, we rely on and will continue to rely on components of our products that are developed and produced by other companies over which we have limited control. The commercial success of certain of our planned future products will depend in part on advances in these and other technologies by other companies, and our ability to procure them from such third parties in a timely manner and on economically feasible terms. We may, from time-to-time, contract with and support companies developing key technologies in order to accelerate the development of such products for our specific uses. Such activities might not result in useful technologies or components for us.

**Lack of long-term purchase orders and commitments from customers may lead to a rapid decline in sales.**

Customers issue purchase orders or use our e-commerce site solely at their own discretion, often shortly before the requested date of shipment. Both our distributor relationships through Fat Shark and our online sales through Rotor Riot entail short-term contracts under which customers are generally able to cancel orders (without penalty) or delay the delivery of products on relatively short notice, regardless of whether or not we are in default under our agreements. The online business involves retail customers who are not likely to be repeat customers unless a need arises for updated hardware or software solutions offered by us, which may not occur on a frequent basis, resulting in lack of reliable recurring revenue in that part of our business. In addition, current customers may decide not to purchase products for any reason. If those customers do not continue to purchase products, sales volume could decline rapidly with little or no warning.

We cannot rely on long-term purchase orders or commitments to protect from the negative financial effects of a decline in demand for products. Fat Shark and Rotor Riot typically plan production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. Fat Shark resellers issue purchase orders but they have options to reschedule or pay cancellation fees. The uncertainty of product orders makes it difficult to forecast sales and allocate resources in a manner consistent with actual sales. Moreover, expense levels and the amounts invested in capital equipment and new product development costs are based in part on expectations of future sales and, if expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. As a result of lack of long-term purchase orders and purchase commitments, and long product development lead times, we may experience a rapid decline in sales.

As a result of these and other factors, investors should not rely on revenues and operating results for any one quarter or year as an indication of future revenues or operating results. If quarterly revenues or results of operations fall below expectations of investors or public market analysts, the price of the common stock could fall substantially.

**Our products require ongoing research and development and may experience technical problems or delays, which could lead the business to fail.** 

Our future research and development efforts will remain subject to all of the risks associated with the development of new products based on emerging and innovative technologies, including, for example, unexpected technical problems or the possible insufficiency of funds for completing development of these products. If technical problems or delays arise, further improvements in products and the introduction of future products could be adversely impacted, and we could incur significant additional expenses and the business may fail. Additionally, we may deploy significant capital or human resources towards developing or improving upon a product, only for such efforts to fail to yield the results we hoped for or intended, which would materially adversely affect our financial condition. This is an acute risk given the relatively new and evolving nature of the drone industry, and constant entrance of new market participants attempting to compete with us. Similarly, if we invest in product research and development efforts and a competitor brings a similar product to market before us, or alleges an infringement of their intellectual property, our ability to market the product or compete effectively could be lost. Any such development could materially harm our business.

**If we are involved in litigation, it could harm our business or otherwise distract management.**

If we become a party to a substantial, complex or extended litigation, it could cause us to incur large expenditures and could distract management. For example, lawsuits by licensors, consumers, employees or stockholders or litigation with federal, state or local governments or regulatory bodies could be very costly and disrupt business. As described elsewhere in these Risk Factors, our operations and products, as well as those of our customers, collaborators and product end-users, come with the inherent possibility of lawsuits arising from product liability, property damage and personal injury, breach of contract and product warranty claims, intellectual property infringement, regulatory violations and sanctions, and data privacy issues, any of which can result in costly and time-consuming litigation which would divert our limited human and capital resources and could cause other adverse impacts on our business such as reputational harm and loss of future business. While disputes from time-to-time are not uncommon, we may not be able to resolve such disputes on terms favorable to us which could have a material adverse impact on our results of operations and financial condition.

Among other things, claims could be brought against us if use and misuse of our products causes, personal injury or death. If a consumer causes damage to a person or property using our drone, we as a reseller of the drone could be sued for selling an allegedly defective product. The possibility that the foregoing events occur from events involving our products is particularly high, because we supply technology used in the operation of drones which is relatively novel and are frequently operated at high speeds and altitudes, and often in densely populated areas and/or by individuals who lack a high level of experience operating them. These characteristics increase the probability that injury or damage to personal property might occur, even absent a defect. Additionally, because Fat Shark's products are used as ancillary or supplemental components of a drone's functions, we may become involved in disputes arising from a third party's actions or products that utilize its technology, even if we were not the direct cause of the issue. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources.

Product liability claims might be brought against us by customers, civilians or private entities or others using or otherwise coming into contact with our products. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. Regardless of merit or eventual outcome, product liability claims may cause:

&nbsp;&nbsp;&nbsp;&nbsp;· impairment of our business reputation;

· costs due to related litigation especially since
we do not have product liability insurance;

· distraction of management's attention from
our primary business;

· substantial monetary awards to claimants or civil
penalties imposed by governments;

· regulatory scrutiny and product recalls, withdrawals
or labeling, marketing or promotional restrictions; and

· decreased demand for our products.

We anticipate the risk of product liability and other claims related to our products and their uses will grow as our products begin to be used. We are unable to predict if we will be able to obtain or maintain insurance for such claims. Insurance coverage is becoming increasingly expensive. We do not have such insurance and we may not be able to obtain at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, would adversely affect our results of operations and business.

**Our business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation, including due to our high reliance on online and social media platforms, would likely adversely affect our business and operating results.**

We believe that maintaining and enhancing Fat Shark and Rotor Riot brand identity, and our reputation are critical to our relationships with customers and strategic partners and to our ability to attract new customers and strategic partners. We also believe that the importance of our brand recognition and reputation will continue to increase as competition in our market continues to develop. Our success in this area will depend on a wide range of factors, some of which are beyond our control, including the following:

&nbsp;&nbsp;&nbsp;&nbsp;· the efficacy of our marketing efforts;

· our ability to obtain new customers and retain and/or expand sales or upsell
to existing customers;

· our ability to maintain high customer satisfaction;

· the quality and perceived value of our products;

· our ability to obtain, maintain and enforce patents
and trademarks and other indicia of origin, including those we expect to obtain through the acquisition of Fat Shark and Rotor Riot, will
be critical to our business plan;

· our ability to successfully differentiate from competitors' products;

· actions of competitors and other third parties;

· our ability to provide customer support and professional services;

· positive or negative publicity;

· litigation or regulatory related developments.

Any of the foregoing developments or an inability to navigate these or other challenges to establish and grow our brand recognition and current and future product popularity could materially adversely affect us.

In addition, particularly with respect to Rotor Riot, we are highly dependent on online social media platforms such as Facebook, Instagram and YouTube to advertise our products, market our brand and develop and maintain customer loyalty. Each of these platforms requires that users adhere to strict terms and conditions governing content, communications and other activities on their platform, which are generally heightened for commercial uses such as ours. If we or third parties such as drone pilots who Rotor Riot uses to market our products online fail to adhere to these requirements, we could be limited, restricted or banned from some or all uses, which would materially adversely affect our business.

**Future growth and ability to generate and grow revenue and achieve or maintain profitability may be adversely affected if our marketing initiatives are not effective in generating sufficient levels of brand awareness.** 

Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our marketing efforts, including our ability to:

&nbsp;&nbsp;&nbsp;&nbsp;· create awareness of brands and products;

· convert awareness into actual product purchases;

· effectively manage marketing costs (including creative
 and media) in order to maintain acceptable operating margins and return on marketing investment; and

· successfully offer to sell products or license technology to third-party companies for sale.

Planned marketing expenditures are unknown and may not result in increased total sales or generate sufficient levels of product and brand name awareness. We may not be able to manage marketing expenditures on a cost-effective basis.

**Future acquisitions could disrupt our business and adversely affect our operating results, financial condition and cash flows.**

We may make acquisitions that could be material to our business, operating results, financial condition and cash flows. Our ability as an organization to successfully acquire and integrate technologies or businesses is unproven. Acquisitions involve many risks, including the following:

&nbsp;&nbsp;&nbsp;&nbsp;· an acquisition may negatively affect our operating
results, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities,
may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including
intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related
to the acquisition;

· We may incur substantial costs and deploy a significant
amount of time and other resources towards a prospective transaction that does not close, either of which could materially harm our financial
condition;

· we may encounter difficulties or unforeseen expenditures
in integrating the business, technologies, products, contracts, personnel or operations of any company that we acquire, particularly if
key personnel of the acquired company decide not to work for us;

· an acquisition may disrupt our ongoing business,
divert resources, increase our expenses and distract our management;

· an acquisition may result in a delay or reduction
of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service
from either company;

· we may encounter difficulties in, or may be unable
to, successfully sell any acquired products;

· an acquisition may involve the entry into geographic
or business markets in which we have little or no prior experience or where competitors have stronger market positions;

· the potential strain on our financial and managerial
controls and reporting systems and procedures;

· potential known and unknown liabilities associated
with an acquired company, including due to a non-disclosure or failure to identify such liabilities during the due diligence process prior
to closing an acquisition;

· if we incur debt to fund such acquisitions, such
debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants;

· the risk of impairment charges related to potential
write-downs of acquired assets or goodwill in future acquisitions;

· to the extent that we issue a significant amount
of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per
share may decrease; and

· managing the varying intellectual property protection strategies and other
activities of an acquired company.

We may not succeed in addressing these or other risks or any other problems encountered in connection with the integration of any acquired business. The inability to successfully integrate the business, technologies, products, personnel or operations of any acquired business, or any significant delay in achieving integration, could have a material adverse effect on our business, operating results, financial condition and cash flows.

**Product quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.**

The products that we sell could contain defects in design or manufacture. There can be no assurance we will be able to detect and remedy all defects in the hardware we sell, which could result in product recalls, product redesign efforts, loss of revenue, reputational damage and significant warranty and other remediation expenses. Similar to other mobile and consumer electronics, our products have a risk of overheating in the course of usage or upon malfunction. Any such defect could result in harm to property or in personal injury. If we determine that a product does not meet product quality standards or may contain a defect, the launch of such product could be delayed until we remedy the quality issue or defect. The costs associated with any protracted delay necessary to remedy a quality issue or defect in a new product could be substantial.

Fat Shark and Rotor Riot generally provide a one-year warranty on all of our products, except in certain European countries where it can be two years for some consumer-focused products. The occurrence of any material defects in our products could expose us to liability for damages and warranty claims in excess of our current reserves, and we could incur significant costs to correct any defects, warranty claims or other problems. In addition, if any of our product designs are defective or are alleged to be defective, we may be required to participate in a recall campaign. In part due to the terms of our warranty policy, any failure rate of our products that exceeds our expectations may result in unanticipated losses. Any negative publicity related to the perceived quality of our products could affect our brand image and decrease retailer, distributor and consumer confidence and demand, which could adversely affect our operating results and financial condition. Further, accidental damage coverage and extended warranties are regulated in the United States at the state level and are treated differently within each state. Additionally, outside of the United States, regulations for extended warranties and accidental damage vary from country-to-country. Changes in interpretation of the regulations concerning extended warranties and accidental damage coverage on a federal, state, local or international level may cause us to incur costs or have additional regulatory requirements to meet in the future in order to continue to offer our support services. Our failure to comply with past, present and future similar laws could result in reduced sales of our products, reputational damage, penalties and other sanctions, which could harm our business and financial condition.

Estimated future product warranty claims may be based on a variety of factors including the expected number of field failures over the warranty commitment period, the term of the product warranty period, and the costs for repair, replacement and other associated costs. Because of the foregoing or other contingencies, these estimates could prove to be incorrect, such that our warranty obligations are higher than anticipated. Our warranty obligations may be affected by product failure rates, claims levels, material usage and product re-integration and handling costs. Should actual product failure rates, claims levels, material usage, product re-integration and handling costs, defects, errors, bugs or other issues differ from original estimates, we could end up incurring materially higher warranty or recall expenses than we anticipate, which would materially adversely affect our business.

**<u>Risks Related to Intellectual Property Protection</u>**

**If third-party intellectual property infringement claims are asserted against us, it may prevent or delay our product development and commercialization efforts and have a material adverse effect on our business and future prospects.**

Companies in the consumer electronics, wireless communications, semiconductor, AI, IT, and display industries steadfastly pursue and protect intellectual property rights, often times resulting in considerable and costly litigation to determine the validity of patents and claims by third parties of infringement of patents or other intellectual property rights. Other companies may hold or obtain patents or inventions or other proprietary rights in technology necessary for our business. If we are forced to defend against infringement claims, we may face costly litigation, diversion of technical and management personnel, and product shipment delays, even if the allegations of infringement are unwarranted.

Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing product development and sales. As the consumer electronics and drone industries expand and more patents are issued, the risk increases that our current and future products may be subject to claims of infringement of the patent rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to inventions, materials, engineering designs, or methods of manufacture related to the design, use or manufacture of our products. Because patent applications can take many years to issue, there may be patent applications currently pending that may later result in patents that our products may infringe upon. Third parties may obtain patents in the future and claim that use of our technologies or those of third parties with which our technologies are integrated infringes on these patents. If any third-party patents were to be held by a court to cover the manufacturing process of any of our products, or any of the characteristics or related components thereof, the holders of any such patents may be able to block our ability to commercialize such product unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patents were to be held by a court to cover aspects of our or our customers' or strategic partners' products or processes, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.

Parties making intellectual property claims against us may obtain injunctive or other equitable relief, which could block our ability to further develop and commercialize one or more of our products. Defense of these claims, regardless of their merit, involves substantial litigation expense and diversion of our management's attention from our business.

If we are unsuccessful in defending against patent infringement claims in any jurisdiction where such a dispute arises, our products could be found to infringe on the intellectual property rights of others. If a claim of infringement against us succeeds, we may have to pay substantial damages, possibly including treble damages and attorneys' fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. The financial harm caused by any such development with respect to intellectual property disputes and litigation will be heightened to the extent we do not possess, acquire or maintain adequate insurance coverage for these contingencies now or in the future. Further, if there is a successful claim of infringement against us and we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, or if we are required to cease using one or more of our business or product names due to a successful trademark infringement claim against us, it could materially adversely affect our business.

**We may depend on intellectual property rights including patent rights that have not yet been and may not be obtained by us, and our intellectual property rights and proprietary rights may not adequately protect our products.**

Our commercial success will depend substantially on the ability to obtain patents and other intellectual property rights and maintain adequate legal protection for products in the United States and other countries. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that these assets are covered by valid and enforceable patents, trademarks, copyrights or other intellectual property rights, or are effectively maintained as trade secrets. With the closing of this Offering, 12 issued patents, including four issued in the United States, and nine pending patent Applications, including two pending in the United States will be assigned to the Company (directly or through its acquisition of Fat Shark and Rotor Riot) by UAV Patent Corp. ("UAV") a wholly-owned subsidiary of Red Cat, in each case with a non-exclusive, non-sublicensable royalty free perpetual license back to UAV for Red Cat and its present and future subsidiaries to make, use and sell products subject to such assigned patents and applications solely with respect to military and defense drone applications. See "Business - Intellectual Property" for more information.

We will apply for patents covering our products, services, technologies, and designs, as we deem appropriate. We may fail to apply for patents on important products, services, technologies or designs in a timely fashion, or at all. We do not know whether, and there can be no assurance that, any of our patent applications will result in the issuance of any patents. Even if patents are issued, they may not be sufficient to protect our products, technologies, or designs. Our existing and future patents may not be sufficiently broad to prevent others from developing competing products, technologies, or designs. Intellectual property protection and patent rights outside of the United States, particularly in China, are even less predictable. As a result, the validity and enforceability of patents cannot be predicted with certainty. Moreover, we cannot be certain whether:

&nbsp;&nbsp;&nbsp;&nbsp;· we were the first to conceive, reduce to practice, invent, or file the inventions covered by each of our issued patents and pending patent applications;

· others will independently develop similar or alternative products, technologies, services or designs or duplicate any of our products, technologies, services or designs;

· any patents issued to us will provide us with any competitive advantages, or will be challenged by third parties;

· we will develop additional proprietary products, services, technologies or designs that are patentable; or

· the patents of others will have an adverse effect on our business.

The patents we own or license and those that may be issued to us in the future may be challenged, invalidated, rendered unenforceable or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages. Moreover, third parties could practice our inventions in territories where we do not have patent protection or in territories where they could obtain a compulsory license to our technology where patented. Such third parties may then try to import products made using our inventions into the United States or other territories. We cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth, validity and enforceability of the claims upheld in our and other companies' patents. Further, patents have a limited lifespan. In the United States, the natural expiration of a patent is 20 years after it is filed, although various extensions may be available. The life of a patent, and the protection it affords, is limited. When the patent life has expired for a product, we will become vulnerable to competition from competitors attempting to replicate the technology that was formerly patent protected. Further, if we encounter delays such as due to regulatory approvals, the time during which we will be able to market and commercialize a product under patent protection could be reduced.

Unauthorized parties may attempt to copy or otherwise use aspects of our processes and products that we regard as proprietary. While we plan to enter into written agreements with certain of our employees and consultants with terms designed to protect our intellectual property rights, there cannot be any assurance that these provisions will provide us the protection sought. Further, any third parties with whom we do not execute such agreements, such as certain of our suppliers, could attempt to dispute our intellectual property rights or misappropriate our technology or trade secrets. Policing unauthorized use of our proprietary information and technology is difficult and can be costly, and our efforts to do so may not prevent misappropriation of our technologies. We may become engaged in litigation to protect or enforce our patent and other intellectual property rights or in International Trade Commission proceedings to abate the importation of goods that would compete unfairly with our products and, if unsuccessful, these actions could result in the loss of patent or other intellectual property rights protection for the key technologies on which our business strategy depends.

We also rely in part on unpatented proprietary technology, and others may independently develop the same or similar technology or otherwise obtain access to our unpatented technology. We plan to require employees, contractors, consultants, financial advisors, suppliers, and strategic partners to enter into confidentiality and intellectual property assignment agreements (as appropriate), but these agreements may not provide sufficient protection for our trade secrets, know-how or other proprietary information.

The laws of certain countries do not protect intellectual property and proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions including China, we may be unable to protect our products, services, technologies and designs adequately against unauthorized third-party copying, infringement or use, which could adversely affect our competitive position. To protect or enforce our intellectual property rights, we may initiate proceedings or litigation against third parties. Such proceedings or litigation may be necessary to protect our trade secrets or know-how, products, technologies, designs, brands, reputation, likeness, authorship works or other intellectual property rights. Such proceedings or litigation also may be necessary to determine the enforceability, scope and validity of the proprietary rights of others. Any proceedings or lawsuits that we initiate could be expensive, take significant time and divert management's attention from other business concerns. Additionally, we may provoke third parties to assert claims against us, which could invalidate or narrow the scope of our own intellectual property rights. We may not prevail in any proceedings or lawsuits that we initiate and the damages or other remedies awarded, if any, may be commercially valuable. The occurrence of any of these events may adversely affect our business, financial condition and operating results.

We will register for certain of our trademarks in several jurisdictions worldwide. In some jurisdictions where we will apply to register our trademarks, other applications or registrations may exist for the same, similar, or otherwise related products or services. If we are not successful in arguing that there is no likelihood of confusion between our marks and the marks that are the subject of the other applications or registrations owned by third parties, our applications may be denied, preventing us from obtaining trademark registrations and adequate protection for our marks in the relevant jurisdictions, which could impact our ability to build our brand identity and market our products and services in those jurisdictions. Whether or not our application is denied, third parties may claim that our trademarks infringe their rights. As a result, we could be forced to pay significant settlement costs or cease the use of these trademarks and associated elements of our brand in the United States or other jurisdictions.

Even in those jurisdictions where we are able to register our trademarks, competitors may adopt or apply to register similar trademarks to ours, may register domain names that mimic ours or incorporate our trademarks, or may purchase keywords that are identical or confusingly similar to our brand names as terms in Internet search engine advertising programs, which could impede our ability to build our brand identity and lead to confusion among potential customers of our products and services. If we are not successful in proving that we have prior rights in our marks and arguing that there is a likelihood of confusion between our marks and the marks of these third parties, our inability to prevent these third parties from using may negatively impact the strength, value and effectiveness of our brand names and our ability to market our products and prevent consumer confusion.

**If we lose our rights under our third-party technology licenses, our operations could be adversely affected.**

Our current or future products may depend in part on technology rights licensed from third parties. We could lose our exclusivity or other rights to use the technology under our licenses if we fail to comply with the terms and performance requirements of the licenses. In addition, certain licensors may terminate a license upon our breach and have the right to consent to sublicense arrangements. If we were to lose our rights under any of these licenses, or if we were unable to obtain required consents to future sublicenses, we could lose a competitive advantage in the market, and may even lose the ability to commercialize certain products or technologies completely. Either of these results could substantially decrease our revenues.

Further, to the extent we need to obtain licenses from third parties to advance our research and development efforts or commercialize or improve upon our products, we may fail to obtain these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize those products, which could harm our business significantly.

The licensing and acquisition of third-party intellectual property rights is a competitive practice, and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to develop and commercialize our products. More established companies may have a competitive advantage over us due to their larger size and cash resources or greater hardware or software development, production and commercialization capabilities. We may not be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding product candidates that we may seek to acquire, in which case our business could be harmed.

**Significant inflation could adversely affect our business and financial results.**

The high rate of inflation and resulting pressures on costs and pricing of business such as ours focused on the manufacture and sale of electronics products could adversely impact our business and financial results. While inflation has created some salary pressure with our employees who wish to mitigate the impact of inflation, we have not yet suffered inflationary pressures in procurement. A rise in inflation can adversely affect us by increasing our operating costs, including by increasing the costs of materials, freight and labor, which have already been under pressure due to supply chain constraints and the effects of the COVID-19 pandemic and the recent shortage of chips. The Company has not identified, planned or taken any actions as of the date of this Prospectus to mitigate inflationary pressures. Further, in the U.S. the Federal Reserve has responded by increasing interest rates to combat inflation, however such increases may result in a reduced demand for our products and/or an economic downturn. In a highly inflationary environment, or any recession or economic downturn that may result, we may be unable to adjust our business is a manner that adequately addresses these challenges, and these developments could materially adversely affect our business, results of operations and financial condition.

**<u>Risks Related to Government Regulation of Our Operations and Industry</u>**

**Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies by us, our customers, or others who use our products, or limitations put on the use of unmanned aircraft systems, or "UAS," in response to public privacy or safety concerns, may prevent us from expanding the sales of our drone solutions in the United States.**

The regulation of UAS and drone solutions and component parts such as those we offer is subject to substantial change, with regulators including potential alterations, enhancements and additions to existing laws and regulations, and the ultimate treatment is uncertain. A substantial majority of our products are subject to drone-related regulations enforced by the FAA, either directly or due to their inclusion in UAS offered by third parties. Further, even if some of our operations or products are not directly subject to such regulations, Fat Shark's customers' operations of UAS that includes our products and technology are subject to those regulations, and their failure to comply will adversely affect our ability to sell to them in the future. Further, adverse regulatory actions such as enforcement proceedings affecting customers and other third parties with which we do business can also adversely affect us, even if the violation or harm alleged did not arise from our conduct or products. Generally, under current FAA regulations the failure to register a UAS, including model aircraft, in accordance with these rules may result in regulatory and criminal sanctions. The FAA may assess civil penalties up to $33,333. Criminal penalties include fines of up to $250,000 and/or imprisonment for up to three years. However, the FAA and other government bodies and agencies are considering changes to address the drone industry, which is relatively new and rapidly evolving. For more information on the laws and regulations applicable to us and our industry, as well as recent developments involving such laws and regulations and their actual and potential impact on us, see "Business – Government Regulations." In addition, there exists public concern regarding the privacy and safety implications of the use of UAS. This concern has included calls to develop explicit written policies and procedures establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of UAS and related products and technologies in certain markets. These developments, and any additional regulatory or other burdens imposed on our business and industry due to public health and safety or other concerns presently faced by the drone industry, could harm us and our customers and suppliers by increasing compliance costs and restricting our operations and product offerings and uses, which could materially adversely affect us.

**Rising threats of international tariffs, including tariffs applied to goods between the U.S. and China, may materially and adversely affect our business.**

We are heavily dependent on Chinese imports for our products and operations. For example, a substantial majority of Rotor Riot's products are manufactured, directly and indirectly, using Chinese vendors. In addition, Fat Shark's principal contract manufacturer is located in China. We do not have any written agreements with our suppliers in China. We rely only on purchase orders. There are inherent risks and uncertainties regarding the enforcement of our rights with respect to our oral agreements and purchase orders. Should our suppliers in China fail to honor our oral agreements and purchasers orders we will not have any recourse against such suppliers under Chinese law. The legal system in China and the enforcement of laws, rules and regulations in China can change quickly and the Chinese government may intervene or influence the operations of our suppliers which would adversely impact our business insofar as we would have to seek other suppliers outside of China and such suppliers would most likely charge us more for our products. Rising threats of international tariffs, including tariffs applied to goods traded between the U.S. and China, could materially and adversely affect our business and results of operations. Since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding the possibility of instituting tariffs on the foreign imports of certain materials and products. During this trend, the U.S. and China imposed tariffs or announced proposed tariffs to be applied in the future to certain of each other's exports. Beginning in 2019, the former Trump administration imposed tariffs on imports of electronics products, including drones and component parts, of up to 25%. These tariffs apply to the vast majority of Rotor Riot's and Fat Shark's respective inventory, and Rotor Riot has in the past been, and either or both entities may in the future be, forced to implement price increases to adjust to the higher costs of production and sale, which imposes the risk of reduced demand for such products and lower sales and resulting revenue. Further, we do not know if the Biden administration will implement any, or alter current tariffs, in a manner adverse to us. These tariffs or any further costs or restrictions imposed on products that we import, could require us to raise our prices, which may result in the loss of customers and harm our business, particularly since we rely on consumer spending and our products a are typically considered non-essential, and purchases are therefore highly price sensitive.

In addition, changes in political conditions in China and changes in the state of China-U.S. relations, including any tensions relating to potential military conflict between China and Taiwan, are difficult to predict and could adversely affect the operations or financial condition of the Company. In addition, because of our involvement in the Chinese market, any deterioration in political or trade relations might cause a public perception in the U.S. or elsewhere that might cause our business to become less attractive. Such an impact could adversely affect our revenues and cash flows.

**We are or may become subject to governmental export and import controls, economic sanctions and other laws and regulations that could subject us to liability and impair our ability to compete in international markets.**

While we understand Fat Shark and/or Rotor Riot have had minimal sales outside of the U.S., we expect to seek to market our products outside of the U.S. The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies. Our products are subject to U.S. export controls, including the Commerce Department's Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department's Office of Foreign Assets Controls, and exports of our products must be made in compliance with these laws. Furthermore, U.S. export control laws and economic sanctions prohibit the provision of products and services to countries, governments, and persons targeted by U.S. sanctions. Even though we take precautions to prevent our products from being provided to targets of U.S. sanctions, our products, including our firmware updates, could be provided to those targets or provided by our customers despite such precautions.

Further, the manufacture and sale of our products in certain states and countries may subject us to environmental and other regulations. For example, many of Fat Shark and Rotor Riot's products rely on electricity generated by lithium-ion batteries, which implicate a variety of environmental and other regulations designed to control the production, use, and transportation of hazardous materials such as lithium and other components and minerals deployed in these batteries. In addition, the increasing global focus on climate change, including greenhouse gas ("GHG") emissions, has resulted in legislative and regulatory efforts to address the causes and impacts of climate change, and any new and more strict laws and regulations to reduce GHG emissions and address other aspects of climate change, including carbon taxes, cap and trade programs, GHG reduction requirements, requirements for the use of green energy, and changes in procurement requirements, may result in increased operational and compliance obligations, which could adversely affect our financial condition and results of operations.

Our failure to obtain required import or export approval or to comply with other applicable domestic or international laws and regulations for our products or operations could harm our international and domestic sales and adversely affect our revenue, or could subject us to costly proceedings, penalties or damages and negative publicity.

**If we fail to comply with U.S. and foreign laws related to privacy, data security, and data protection, it could adversely affect our operating results and financial condition.**

We, either directly or through our customers, collaborators or end-users of our products, are or may become subject to a variety of laws and regulations regarding privacy, data protection, and data security. This includes the European Union's ("EU") General Data Protection Regulation (the "GDPR") as a result of our sales in the EU. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. The application of these laws and regulations can arise from our e-commerce platform, social media activities, drone technology and applications, relationships with third parties and their operations, or from other activities we undertake now or that we may undertake in the future. Data privacy and protection regulations are frequently broad in terms of scope of the information protected, activities affected, and geographic reach.

In particular, there are numerous U.S. federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions. For example, the GDPR includes operational requirements for companies that receive or process personal data of residents of the European Union that are broader and more stringent than those previously in place in the European Union and in most other jurisdictions around the world. The GDPR includes significant penalties for non-compliance, including fines of up to €20 million or 4% of total worldwide revenue. Additionally, in June 2018, California enacted the California Consumer Privacy Act (the "CCPA"). The CCPA requires covered companies to provide California consumers with new disclosures and will expand the rights afforded consumers regarding their data. Fines for noncompliance may be up to $7,500 per violation. Since the CCPA was enacted, Nevada, Maine, Colorado and Virginia have enacted similar legislation designed to protect the personal information of consumers and penalize companies that fail to comply, and other states have proposed similar legislation. The costs of compliance with, and other burdens imposed by, the GDPR, CCPA, and similar laws may limit the use and adoption of our products and services and/or require us to incur substantial compliance costs, which could have an adverse impact on our business.

In the U.S., at least 35 states and the District of Columbia introduced or considered almost 200 consumer privacy bills in 2022. More and more states will continue to enact similar laws. Additionally, in June 2022 the American Data Privacy and Protection Act was introduced in the U.S. House of Representatives. As introduced this proposed legislation would establish requirements for how companies handle personal data by, among other things, limiting the collection, processing, and transfer of personal data to that which is reasonably necessary to provide a requested product or service, prohibiting companies from transferring individuals' personal data without their affirmative express consent, establishing a right to access, correct, and delete personal data, requiring companies to provide individuals with a means to "opt out" of advertising, requiring companies to implement security practices aimed at protecting personal data, and imposing enforcement actions and the possibility of civil proceedings for violations. Proposed federal legislation, like the American Data Privacy and Protection Act, will likely continue to be debated and, at some point, may be enacted in some form.

We intend to strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data security, and data protection. Our limited resources may adversely affect our compliance effort. Given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be in conflict across jurisdictions, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us, customers, or third-party vendors or end-users involved with our products to comply with our privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial condition.

Governments are continuing to focus on privacy and data security, and it is possible that new privacy or data security laws will be passed or existing laws will be amended in a way that is material to our business. Any significant change to applicable laws, regulations, or industry practices regarding the personal data of our employees, agents or customers could require us to modify our practices and may limit our ability to expand or sustain our salesforce or bring our products to market. Changes to applicable laws and regulations in this area could subject us to additional regulation and oversight, any of which could significantly increase our operating costs and materially affect our operating results and financial condition.

**Any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities or disruptions to our continuous operations, including the systems, facilities or operations of third parties with which we do business, such as resulting from cyber-attacks, could result in significant costs, reputational damage and limits on our ability to conduct our business activities.**

Our operations will depend on information technology infrastructure and computer systems, both internal and external, to, among other things, record and process customer and supplier data, marketing activities and other data and functions and to maintain that data and information securely. In recent years, several organizations have suffered successful cyber-attacks launched both domestically and from abroad, resulting in the disruption of services to customers, loss or misappropriation of sensitive or private data and reputational harm. If we are subject to a cyber-attack, we could suffer a similar breach or suspension in the future. Further, we may be unaware of a prior attack and the damage caused thereby until a future time when remedial actions cannot be taken. Cyber-threats are often sophisticated and are continually evolving. We may not implement effective systems and other measures to effectively identify, detect, prevent, mitigate, recover from or remediate the full diversity of cyber-threats or improve and adapt such systems and measures as such threats evolve and advance in their ability to avoid detection.

A cyber-security incident, or a failure to protect our technology infrastructure, systems and information and our customers, suppliers and others' information against cyber-security threats, could result in the theft, loss, unauthorized access to, disclosure, misuse or alteration of information, system failures or outages or loss of access to information. The expectations of our customers and regulators with respect to the resiliency of our systems and the adequacy of our control environment with respect to such systems may increase as the risk of cyber-attacks, which is presently elevated due to the recent work-from-home environment arising from the COVID-19 pandemic, and the consequences of those attacks become more pronounced. We may not be successful in meeting those expectations or in our efforts to identify, detect, prevent, mitigate and respond to such cyber-incidents or for our systems to recover in a manner that does not disrupt our ability to provide products and services to our customers or product personal, private or sensitive information about our business, customers or other third parties.

Further, in March 2022 the SEC proposed new rules designed to enhance and standardize disclosure requirements related to cybersecurity incident reporting and cybersecurity risk management, strategy, and governance. Specifically, the proposed rules would impose a new Form 8-K disclosure requirement about material cybersecurity incidents within four business days after a registrant determines that it has experienced such an incident, add requirements to Forms 10-Q and 10-K to require updates to previously disclosed cybersecurity incidents, require disclosure of previously undisclosed immaterial cybersecurity incidents that have become material in the aggregate; and require disclosure about the cybersecurity expertise, if any, of members of the Company's Board of Directors. Under the proposed rule, any unauthorized incident that has compromised the confidentiality, integrity, or availability of an information asset (data, system, or network); or violated the company's security policies or definitions of "cybersecurity incident" and "information systems" would be incorporated into the proposed rules. If the proposed rules are adopted as currently drafted or as may be modified, we expect to incur material additional compliance and reporting costs, including monitoring, collecting, and analyzing data concerning cyber-security incidents and evaluating and preparing the required disclosure.

The failure to maintain an adequate technology infrastructure and applications with effective cyber-security controls could impact operations, adversely affect our financial results, result in loss of business, damage our reputation or impact our ability to comply with regulatory obligations, leading to regulatory fines and sanctions. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from cyber-security threats. Failing to prevent or properly respond to a cyber-attack could expose us to regulatory fees or civil liability, cause us to lose customers or suppliers, prevent us from offering our products including due to resulting regulatory action, impair our ability to maintain continuous operations, and inhibit our ability to meet regulatory requirements.

**<u>Risks Related To Our Common Stock and this Offering</u>**

**Our management will have significant discretion over our use of the net proceeds from this Offering and we may use these proceeds in ways with which you may not agree.** 

Other than payments to Red Cat for the purchase of Fat Shark and Rotor Riot, and if the Red Cat Note is not converted, our management will have considerable discretion in deciding how to apply net proceeds of this Offering. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this Offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our stock price. See "[Use of Proceeds](#a_006)."

**Because the market price of shares of our common stock is subject to fluctuation, you may not be able to sell your common stock at the Offering price.**

The market prices of shares of our common stock may fluctuate significantly in response to factors, some of which are beyond our control, including:

&nbsp;&nbsp;&nbsp;&nbsp;· our ability to integrate the operations of Fat Shark and Red Cat;

· the announcement of new products by our competitors;

· our ability to obtain patents for our products and defend our intellectual
 property from misappropriation and competitive use;

· progress and publications of the commercial acceptance of similar technologies
 to those we utilize;

· our ability to grow the revenues of Fat Shark and Red Cat and achieve consistent
 profitability;

&nbsp;&nbsp;&nbsp;&nbsp;· our ability to execute our business plan;

· actual or anticipated variations in operating results;

· additions or departures of key personnel including our executive officers;

· business disruptions caused by natural disasters and uncontrollable events
 such as severe weather conditions or geopolitical turmoil;

· cyber security attacks or data privacy issues involving our products or
 operations;

· announcements by us or our competitors of significant
 acquisitions, strategic partnerships, joint ventures, capital commitments, significant contracts, or other material developments that
 may affect our prospects;

· adverse regulatory developments;

· the possibility of a recession or market
 down-turn; or

· general market conditions including factors unrelated to our operating performance

Recently, the stock market, in general, has experienced extreme price and volume fluctuations due to, among other factors, concerns involving inflation, the Federal Reserve interest rate increases, supply chain shortages, recession fears, and geopolitical turmoil including the war in Ukraine. Continued market fluctuations could result in extreme market volatility in the price of our common stock which could cause a decline in the value of our common stock below the Offering price.

**<u>Our stock price may be volatile, which could result in substantial losses to investors.</u>**

In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this "Risk Factors" section, the market price of and trading volume for our common stock (including any stock-run ups or price declines) may change for a variety of other reasons, not necessarily related to our actual operating performance. The capital markets have experienced extreme volatility particularly with small public companies with relatively smaller public floats that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility.

Factors that could cause the market price of our common stock to fluctuate significantly include:

&nbsp;&nbsp;&nbsp;&nbsp;· the
 results of operating and financial performance and prospects of other companies in our industry;

· strategic
 actions by us or our competitors, such as acquisitions or restructurings;

· announcements
 of innovations, increased service capabilities, new or terminated customers or new, amended
 or terminated contracts by our competitors;

· the
 public's reaction to our press releases, other public announcements, and filings with
 the SEC;

· lack
 of securities analyst coverage or speculation in the press or investment community about
 us or market opportunities in the smart glass industry;

· changes
 in government policies in the United States and, as our international business increases,
 in other foreign countries;

· changes
 in earnings estimates or recommendations by securities or research analysts who track our
 common stock or failure of our actual results of operations to meet those expectations;

· market
 and industry perception of our success, or lack thereof, in pursuing our growth strategy;

· changes
 in accounting standards, policies, guidance, interpretations or principles;

· any
 lawsuit involving us or our products;

· arrival
 and departure of key personnel;

· sales
 of common stock by us, our investors or members of our management team; and

· changes
 in general market, economic and political conditions in the United States and global economies
 or financial markets, including those resulting from natural or man-made disasters.

Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock (including stock run ups or price declines) and could seriously harm the market price of our common stock, regardless of our operating performance. This may prevent you from being able to sell your shares at or above the price you paid for your shares, if at all. In addition, following periods of volatility in the market price of a company's shares, shareholders often institute securities class action litigation against that company. Our involvement in any class action suit or other legal proceeding could divert our senior management's attention and could adversely affect our business, financial condition, results of operations and prospects.

**Because our public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.** 

If you purchase our common stock in this Offering, you will pay more for your common stock than the amount paid by our existing shareholders for their common stock on a per share basis. As a result, you will experience immediate and substantial dilution of approximately $3.49 per share, representing the difference between the assumed public Offering price of $4.25 per share, and our pro forma as adjusted net tangible book value per share as of December 31, 2022 immediately upon the completion of this Offering.

**Because our sole remedy under the Purchase Agreement in the event of any breaches of representations and warranties is to cancel some or all of the 450,000 shares of our common stock placed in escrow, the value of such shares maybe an insufficient remedy.** 

The Purchase Agreement contains representations and warranties made by Red Cat and Mr. Jeffrey Thompson, Red Cat's Chief Executive Officer. Based upon negotiations with Red Cat and its counsel, we agreed that Mr. Thompson, one of our founders, our largest stockholder and a member of our Board shall deposit 450,000 shares of our common stock in escrow (the "Escrow Shares") in order to be available in the event we claim Red Cat and/or Mr. Thompson have breached any of their respective representations and warranties contained in the Purchase Agreement. Red Cat has no liability for such breaches by it. That means if the value of the Escrow Shares is not at least equal to our damages, we will not have a remedy sufficient to permit us to recoup all of our damages. The only exception is fraud. Although we negotiated this limited remedy in good faith, it is possible that the Escrow Shares may not be sufficient in which case such breach may adversely and materially affect our common stock price.

**If we incur any future impairment in the carrying value of our goodwill asset or write-off our general intangibles, it could depress our stock price.**

On a combined pro forma basis, as of December 31, 2022, we had $11,841,723 of estimated goodwill and $1,302,667 of intangible assets on our balance sheet. Goodwill and intangible assets must be evaluated for impairment annually or more frequently if events indicate it is warranted. If the carrying value of a reporting unit asset exceeds its current fair value, the goodwill asset is considered impaired. Events and conditions that could result in impairment in the value of our goodwill and intangible assets include, but are not limited to, significant negative industry or economic trends, significant decline in the Company's stock price for a sustained period of time, significant decline in market capitalization relative to net book value, limited funding that could delay development efforts, significant changes in the manner of use of the assets or the strategy for the Company's overall business, or safety issues that surface during development efforts, or the end of our product life cycles that will result in impairment of good will. We may in the future be required to record impairment charges to write-off goodwill and intangible assets which is also related to our acquisition of Fat Shark and Rotor Riot. Our stock price could be negatively impacted should future impairments of our goodwill and/or intangible assets occur. On a combined pro forma basis, as of December 31, 2022, we also had $1,302,667 of estimated intangible assets, net on our balance sheet. A valuation will be performed upon closing of the Business Combination based on final assets acquired and liabilities assumed and final amounts of goodwill and other intangibles will be determined as a part of that valuation. To the extent that we may be required to write-off the value of our goodwill and/or our intangibles assets, our stock price could be adversely affected.

**We will incur significant additional costs as a result of being a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.**

Upon completion of this Offering, we expect to incur increased costs associated with corporate governance requirements that will become applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010, and the Exchange Act, as well as the rules of Nasdaq. These rules and regulations are expected to significantly increase our accounting, legal and financial compliance costs and make some activities more time consuming, including due to increased training of our current employees, additional hiring of new employees, and increased assistance from consultants. We also expect these rules and regulations to make it more expensive for us to maintain directors' and officers' liability insurance. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers. Furthermore, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs. In addition, our management team will need to devote substantial attention to interacting with the investment community and complying with the increasingly complex laws pertaining to public companies, which may divert attention away from the day-to-day management of our business, including operational, research and development and sales and marketing activities. Increases in costs incurred or diversion of management's attention as a result of becoming a publicly traded company may adversely affect our business, prospects, financial condition, results of operations, and cash flows.

**Our failure to maintain effective disclosure controls and internal controls over financial reporting could have an adverse impact on us**.

We will be required to establish and maintain appropriate disclosure controls and internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management's assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

**Because our common stock will be listed on Nasdaq, we will become subject to additional regulations and continued requirements.**

We will not proceed with this Offering unless our common stock is listed on Nasdaq. Following the Offering, we will be required to meet the continued listing standards for Nasdaq. If we fail to meet Nasdaq's listing standards, our common stock may be delisted. Nasdaq requires that the bid price of its listed common stock remain above $1.00 in order to remain listed. In addition, to maintain a listing on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders' equity, and certain corporate governance requirements. If we are unable to satisfy these requirements standards, our common stock could be subject to delisting. Delisting would have a negative effect on the price of our common stock and would impair your ability to sell our common stock when you wish to do so.

**Our Board of Directors may authorize and issue shares of new classes of stock that could be superior to or adversely affect current holders of our common stock.**

Our Board of Directors has the power to authorize and issue shares of classes of stock, including preferred stock that have voting powers, designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights without further shareholder approval which could adversely affect the rights of the holders of our common stock. In addition, our Board could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing common stockholders. In connection with the acquisition from Red Cat, we will issue it a Series A Convertible Preferred Stock which will have a liquidation preference over common stockholders of $4.00 and convert into 2,675,000 shares of common stock and may issue common stock or convertible securities in the future.

Any of these actions could significantly adversely affect the investment made by holders of our common stock. Holders of common stock could potentially not receive dividends that they might otherwise have received. In addition, holders of our common stock could receive less proceeds in connection with any future sale of the Company, in liquidation or on any other basis.

**If we raise capital in the future may dilute our existing stockholders' ownership and/or have other adverse effects on us, our securities or our operations.**

If we are required to raise additional capital by issuing equity securities, our existing stockholders' percentage ownership may decrease, and these stockholders may experience substantial dilution. Additionally, the issuance of additional shares of common stock or other securities could result in a decline in our stock price. Further, if we are required to raise additional funds by issuing debt instruments, these debt instruments could impose significant restrictions on our operations, including liens on our assets and negative covenants prohibiting us from engaging in certain transactions or corporate actions that may have the effect of limiting our ability to pursue our business strategy and growth objectives.

**Common stock eligible for future sale may adversely affect the market.**

The common stock sold in this Offering will be freely-tradable. Additionally, from time-to-time, certain of our stockholders may be eligible to sell all or some of their common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933 (the "Securities Act"), subject to certain limitations. In general, Rule 144 provides that any non-affiliate of the Company, who has held restricted common stock for at least 12 months, is entitled to sell their restricted stock freely, provided that the Company stays current in its SEC filings. Affiliates, which would include an officer, director or other person in control of the Company may sell after six months (beginning 90 days from the date of this Prospectus) with the following restrictions: (i) the Company is current in its SEC filings, (ii) certain manner of sale provisions, (iii) the filing of a Form 144, and (iv) volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed 1% of the total number of outstanding shares. A person who has ceased to be an affiliate at least three months immediately preceding the applicable sale and who has owned such shares of common stock for at least six months may sell the shares under Rule 144 without regard to any of the limitations described above except for the current public information requirement.

Future sales of substantial amounts of our common stock in the public market, or the anticipation of these sales, could materially and adversely affect market prices prevailing from time-to-time, and could impair our ability to raise capital through sales of equity or equity-related securities. In addition, the market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that these sales may occur.

**If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our common stock, the market price for our common stock and trading volume could decline.** 

The trading market for our common stock will be influenced by research or reports that industry or securities analysts publish about our business. As of the date of this Prospectus, no analysts publish research reports about us, and we cannot assure you that any will. If analysts do, and one or more analysts who cover us downgrade our common stock, the market price for our common stock would likely decline.

**We and our investors face the implications of our status as an emerging growth company under the federal securities laws and regulations.**

We qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company we have elected to take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include but are not limited to: reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least $1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this Offering; (c) the date on which we have, during the preceding three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act, which would occur as of the end of any fiscal year if the market value of our common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

**We have never paid dividends and we do not expect to pay dividends for the foreseeable future**

We intend to retain earnings, if any, to finance the growth and development of our business and do not intend to pay cash dividends on shares of our common stock in the foreseeable future. The payment of future cash dividends, if any, depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and other factors. As a result, capital appreciation, if any, of our common stock, will be your sole source of gain for the foreseeable future.

**USE OF PROCEEDS**

We estimate that the net proceeds from this Offering will be approximately $_________ after deducting estimated underwriting discounts and estimated offering expenses payable by us. If the underwriter exercises its over-allotment option in full, we estimate that the net proceeds will be approximately $_____________.

---

| | | |
|:---|:---|:---|
|  | Amount | Percent |
| **USE OF NET PROCEEDS<sup>1</sup>** |  |  |
| Payment for the Business Combination<sup>2</sup> | $5000000 | % |
| Working Capital and General Corporate Purposes<sup>3</sup> | $— | % |
| **TOTAL APPLICATION OF NET PROCEEDS** | $— | **100.00%** |

---

 

 

<sup>1</sup> Reflects estimated offering expenses, underwriting discounts, and commissions payable by us and assumes no exercise of the underwriters' option to purchase additional shares of our common stock.

<sup>2</sup> We intend to use $5,000,000, or approximately __% of the net proceeds of the Offering to pay Red Cat to consummate the Business Combination. See, "The Business Combination." In addition, we intend to issue Red Cat the Senior Note in the amount of $2.5 million.

<sup>3</sup> Includes approximately $231,000 that we owe to a related party for unfulfilled orders. See "Related Party Transactions" for more information. We intend to use approximately $_____, or _____% of the net Offering proceeds, for working capital and general corporate purposes.

The actual allocation of proceeds realized from this Offering will depend upon our operating revenues and cash position and our working capital requirements and may change.

Therefore, as of the date of this Prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this Offering. Accordingly, we will have discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the proceeds of this Offering.

Pending our use of the net proceeds from this Offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

**CAPITALIZATION**

The following table sets forth our capitalization as of December 31, 2022:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· on an actual basis;

· on a pro forma basis to give effect to the business combination as described above; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· a pro forma as adjusted basis to give effect to the business
 combination as described above and the issuance and sale of 2,352,941 shares of common stock by us in this Offering at an assumed
 public offering price of $4.25 per share, the midpoint of the assumed range of $4.00 and $4.50, after deducting the estimated
 underwriting commissions and estimated offering expenses.

The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the completion of this Offering is subject to adjustment based on the public offering price of our common stock. You should read this table in conjunction with "[Management's Discussion and Analysis of Financial Condition and Results of Operations](#a_013)" and our consolidated financial statements and related notes included elsewhere in this Prospectus. The following table assumes the issuance of 2,352,941 shares of our common stock at $4.25 per share (the midpoint of the anticipated range of between $4.00-$4.50) and excludes the exercise of the over-allotment option by the underwriters and the issuance of the warrants to the underwriters.

---

| | | | |
|:---|:---|:---|:---|
|  | **As of December 31, 2022**<br> **(Presented in $)** | **As of December 31, 2022**<br> **(Presented in $)** | **As of December 31, 2022**<br> **(Presented in $)** |
|  | **Actual** | **Pro forma** | **Pro forma as**<br> **adjusted (1)** |
| Long term debt | 0 | 2500000 | 2500000 |
| Par Value of preferred stock | 0.01 | 0.01 | 0.01 |
| Preferred stock, 140 shares issued and outstanding as of December 31, 2022; | 1 | 26251 | 26251 |
| Par Value of common stock | 0.01 | 0.01 | 0.01 |
| Common stock, 6,784,500 shares issued and outstanding as of December 31, 2022; pro forma without over-allotment reflects __________ shares issued and outstanding | 67845 | 67845 | 91374 |
| Additional paid in capital | 4680119 | 15153869 | 23592515 |
| Accumulated deficit | (1538591) | (1538591) | (1538591) |
| Total shareholders' equity | 3209374 | 13709374 | 22171549 |
| Total capitalization | 3209374 | 16209374 | 24671549 |

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________________

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Reflects the sale of common stock in this Offering at an assumed public offering price of $4.25 per share, and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, assuming the Underwriter's over-allotment option has not been exercised. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual public offering price and other terms of this Offering determined at pricing. Additional paid-in capital reflects the net proceeds we expect to receive, after deducting the underwriting discounts and estimated Offering expenses payable by us. We estimate that such net proceeds will be approximately $8,550,000 assuming the Underwriter has not exercised the over-allotment option. The net proceeds of $8,550,000 are calculated as follows: $10,000,000 gross offering proceeds, less underwriting discounts and commissions of $750,000, underwriter non-accountable expense allowance of $200,000 and estimated offering expenses of $500,000. The pro forma as adjusted total equity of $22,171,549 is the sum of the net proceeds of $8,500,000, 8,345,921 related to the business combination, and the actual equity of $5,325,628.

**MARKET FOR OUR COMMON STOCK**

Prior to this Offering, there has been no public market for our common stock. We expect that the initial public offering price will be between $____ and $_____ per Share. We intend to list the common stock on Nasdaq under the symbol "UMAC" However, there is no assurance that the Offering will be closed and our common stock will be trading on Nasdaq.

**Holders**

As of March 9, 2023, there were approximately 43 stockholders of record of our common stock.

**Dividend Policy** 

We have never paid our stockholders cash dividends, and we do not anticipate paying any cash dividends in the foreseeable future as we intend to retain any earnings for use in our business. Any future determination to pay dividends will be at the discretion of our Board of Directors.

**Shares Eligible for Future Sale**

Future sales of substantial amounts of shares of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, or upon conversion of convertible preferred stock or debt, or other securities which we have or may in the future issue, or the anticipation of these sales, could adversely affect market prices prevailing from time-to-time and could impair our ability to raise capital through sales of equity securities.

Upon completion of this Offering, we estimate that we will have _____ outstanding shares, calculated as of the date of this Prospectus by giving effect to the issuance of the shares hereunder, and assuming no exercise of the underwriter's option. As of the date of this Prospectus, there are approximately ______ shares of common stock which may be sold pursuant to Rule 144 under the Securities Act of 1933.

**DETERMINATION OF OFFERING PRICE**

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, and recent third-party financings consummated by the Company.

Our Board of Directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

&nbsp;&nbsp;&nbsp;&nbsp;· Our stage of development and material risks related to our business;

· Our business conditions and projections;

· Our financial position and our historical and forecasted performance and
operating results;

· The lack of an active public market for our common
stock;

· The prices of our common stock sold to or exchanged between outside investors
in arm's length transactions;

· The analysis of initial public offerings and
the market performance of similar companies in our industry;

· The likelihood of achieving a liquidity event,
such as an initial public offering or sale of our company in light of prevailing market conditions; and

· The hiring of key personnel and the experience
of management; and

· Following the closing of this Offering, our board of directors will determine
the fair market value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on
which our common stock is traded.

**DILUTION**

If you invest in our common stock in this Offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this Offering.

Our historical net tangible book value as of December 31, 2022 was $3,205,684, or $0.47 per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities. Historical net tangible book value (deficit) per share represents our historical net tangible book value (deficit) divided by the 6,784,500 shares of our common stock outstanding as of December 31, 2022.

Our pro forma net tangible book value as of December 31, 2022 was $458,816, or $0.05 per share of our common stock. Pro Forma net tangible book value represents the amount of our total tangible assets, less our total tangible liabilities, after giving effect to the closing referred to the closing of the Business Combination. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of December 31, after giving effect to the shares of common stock and Series A issued to Red Cat assuming a $4.00 conversion price.

After giving effect to our issuance and sale of 2,352,941 shares of common stock in this Offering at an assumed initial public offering price of $4.25 per share (the midpoint of the assumed range of $4.00 and $4.50), and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and after giving effect to the closing referred to the closing of the Business Combination, our pro forma as adjusted net tangible book value as of December 31, 2022 would have been $8,920,991, or $0.76 per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $0.71 to existing stockholders and immediate dilution of $3.49 in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this Offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this Offering from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

---

| | |
|:---|:---|
| Initial public offering price per share | $4.25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historical net tangible book value (deficit) per share as of December 31, 2022 | $0.47 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease per share attributable to the pro forma adjustments described above | $(0.42) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro forma net tangible book value (deficit) per share | $0.05 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing shares in this Offering | $0.71 |
| Pro forma as adjusted net tangible book value per share after this Offering | $0.76 |
| Dilution per share to new investors purchasing shares in this Offering | $3.49 |

---

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this Offering would be $_____ per share, representing an immediate increase in pro forma as adjusted net tangible book value per share of $____ to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $_____ to new investors purchasing common stock in this Offering, based on the initial public offering price of $_____ per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If any shares are issued upon exercise of outstanding options, you will experience further dilution.

The following table summarizes, on the pro forma as adjusted basis described above, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this Offering. The calculation below is based on the initial public offering price of $4.25 per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Shares Purchased** | **Shares Purchased** | **Total Consideration** | **Total Consideration** | **Average Price<br> Per Share** |
|  | **Number** | **Percent** | **Amount** | **Percent** | |
| Existing stockholders | 6934500 | 74.7% | $3898000 | 28.0% | $0.56 |
| New investors | 2352941 | 25.3% | $10000000 | 72.0% | $4.25 |
| Total | 9287441 | 100.0% | $13898000 | 100.0% | $1.50 |

---

The table above assumes no exercise of the underwriters' option to purchase additional shares in this Offering. If the underwriters' option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to ___% of the total number of shares of our common stock outstanding after this Offering, and the number of shares of common stock held by new investors participating in the offering would be increased to __% of the total number of shares of our common stock outstanding after this Offering.

The number of shares purchased from us by existing stockholders is based on 6,934,500 shares of our common stock outstanding as of March 3, 2022, excludes:

&nbsp;&nbsp;&nbsp;&nbsp;· 1,496,391 shares of our common
 stock available for future issuance under our 2022 Equity Incentive Plan; and

· The
 number of shares of common stock and Series A to be issued to Red Cat in the Business Combination
 and the shares of common stock issuable pursuant to conversion thereof, and the 140 outstanding
 shares of Series B and the 1,400,000 shares of common stock issuable upon conversion thereof.

**THE BUSINESS COMBINATION**

On November 21, 2022, the Company, Red Cat and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat, entered into the Purchase Agreement for the Company's purchase of Red Cat's consumer business consisting of recreational and hobbyist drones, first-person-view goggles, and as a licensed authorized reseller.

The execution and delivery of the Purchase Agreement followed an internal review by Red Cat of its military and enterprise opportunities to focus its efforts on its Made in America Class 1 ISR Drone development program and Red Cat's Golden Eagle I, Golden Eagle II, Four Ship and swarm software under development.

Under the terms of the Purchase Agreement, upon satisfaction of closing conditions including the closing of the Offering, the approval of our common stock for listing on Nasdaq, and the affirmative vote of a majority of the disinterested stockholders of Red Cat following Red Cat's filing with the SEC and mailing of its Proxy Statement in connection therewith, we will purchase Fat Shark and Rotor Riot, for $18 million in cash and securities of Unusual, as more fully-described below. Mr. Thompson, who holds approximately 24% of the voting power of Red Cat, shall abstain from the voting on approval of the Purchase Agreement.

The purchase price under the Purchase Agreement is equal to $5 million in cash (as increased for positive working capital and decreased for negative working capital at closing), $2.5 million in a convertible senior note of the Company (referred to in this Prospectus as the "Senior Note") and $10.5 million in Series A Convertible Preferred Stock of the Company (referred to in this Prospectus as the "Series A"), payable at closing. The Senior Note and the Series A shall have the rights, privileges and preferences as set forth in the form of Senior Note and form of Series A Certificate of Designation in such form and subject to terms and conditions as are agreed by the Company and Red Cat prior to closing. The Senior Note and Series A will be convertible into our common stock in this Offering at the lesser of $4.00 per share or the public offering price and shall be subject to a Senior Note and the Series A Certificate of Designation (the "Certificate of Designation") to be filed with the Secretary of State of Puerto Rico prior to closing. The Senior Note and Certificate of Designation shall contain beneficial ownership blockers under which conversion shall be limited to 4.99% and/or 9.99% of the total voting power of the Company, and further may be subject to limitations on voting and conversion required in order to conform with requirements of Nasdaq to the issuance of in excess of 19.99% of the outstanding Unusual Common Stock in accordance with Nasdaq Rule 5635(d). The Senior Note and Series A will include anti-dilution protection in the case of issuances by us at a price lower than the then applicable conversion price for so long as the Senior Note or Series A remains outstanding under which the conversion price will be reduced to such lower price as the Company shall issue or agree to issue any of its securities.

Under the terms of the Purchase Agreement Mr. Thompson and the Company have agreed to indemnification obligations, which shall survive for a period of nine months, subject to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of the escrow shares, other than in cases involving fraud. Mr. Thompson agreed to deposit 450,000 shares of our common stock owned by him in to escrow to secure any indemnification obligations, which stock is our sole remedy in the event of any claims, except for fraud. See "[Risk Factors](#a_005)" and "[Related Party Transactions](#a_016)."

As a condition to closing, the Company shall enter into an employment agreement with Mr. Brandon Torres Declet, our Chief Executive Officer, including non-compete provisions, which provisions cannot be amended or waived without the prior written consent of Red Cat. We, Fat Shark and Rotor Riot will also be subject to five-year non-competition agreements generally restricting activities involving Class I ISR drones for government and institutional customers and an agreement to refer government and institutional inquiries to Red Cat.

On November 21, 2022, the Company's Board approved the Purchase Agreement. On November 21, 2022, the Board of Directors of Red Cat approved the Purchase Agreement and submission of the Purchase Agreement to stockholders for approval. In addition, closing of the Purchase Agreement is subject to successful completion of the Offering, and approval by Nasdaq of listing of our common stock. The Purchase Agreement requires that Red Cat is required to cooperate with us in connection with the Offering and to prepare and deliver to us audited and unaudited financial statements prepared in accordance with U.S. generally accepted accounting principles of Fat Shark and Rotor Riot, in such form and for such periods as are required to be included in the Registration Statement of which this Prospectus forms a part. We have agreed to register all of the common stock for which the Senior Note is convertible pursuant to a registration rights agreement for resale by Red Cat, or in lieu of issuing the Senior Note, to pay $2.5 million in cash with proceeds of the Offering at closing at our election.

In addition, we have agreed to enter into a Registration Rights Agreement for 100% of the common stock for which the Series A may be converted and to use our best efforts to file and have declared effective such Registration Statement, on demand and in on a piggy-back basis with any other Registration Statements to be filed by us.

Red Cat and the Company have verbally agreed to extend the March 30, 2023 end date in the Purchase Agreement and lower the minimum amount of the Offering from $15 million to $10 million to be memorialized in an amendment to the Purchase Agreement.

**OUR BUSINESS**

**Overview**

We are a development stage technology company which intends to acquire Fat Shark and Rotor Riot, from Red Cat pursuant to the Purchase Agreement which will close simultaneously with the closing of this Offering. Fat Shark and Rotor Riot are in the business of developing, producing and selling drone solutions and technology, with an initial focus on first-person view, or FPV, drone technology. Fat Shark is a market leader in FPV, designing and manufacturing ultra-low latency video goggles for drone pilots. Rotor Riot's principal business is the operation of a drone-focused e-commerce marketplace, backed by one of the largest communities of FPV drone pilots in the world. Over the next two years, these businesses plan to continue to focus on leveraging and growing their market share in the retail purchase of drone products for use in entertainment, recreational and competitive racing purposes, which we refer to as "consumer" uses, in the drone technology market. We also plan to explore a potential expansion into new sub-markets, which we refer to as "enterprise" uses, such as public safety and drone delivery functions, organically and/or through strategic acquisitions. This is part of our vision to enable people to be part of the robotics revolution.

We were incorporated in Puerto Rico under the name "Red Cat Motor Corporation" on July 11, 2019, before changing our name to "AerocarveUS Corporation" on October 20, 2020 and then to "Unusual Machines, Inc." on July 5, 2022.

Headquartered in Puerto Rico, we intend to build both organically and through acquisitions in addition to our planned acquisition of Fat Shark and Rotor Riot, targeting companies within the highly fragmented drone industry that have valuable IP, revenue generating customers, and great teams.

**The Drone Industry**

The drone industry continues to expand beyond its military origin to become a powerful business tool and recreational activity. We expect both of these markets to continue to grow. According to a study by Insider Intelligence, total global drone shipments are estimated to reach 2.4 million in 2023 – increasing at a 66.8% compound annual growth rate or CAGR. Drone growth is expected to occur across all industries: direct to consumer or DTC, which is our current focus, and public safety, and drone delivery, sub-markets we intend to target for expansion in the future. The drone services market is expected to grow to over $60 billion by 2025, from approximately $4.4 billion in 2018. International Data Corporation Markets has projected that the small drone market will increase from 3.8 billion in 2022 to 6.2 billion by 2027, and a CAGR of 10.1% from to 2022 to 2027.The FAA has forecasted a 300% increase in commercial drones from 2019 to 2023 as per businessinsider.com.

We will also pursue potential acquisition targets in the FPV drone technology space that will improve our own hardware and software solutions, rapidly provide the potential to grow our revenues, expand to new industry verticals, and integrate best in class American IP and teams. We cannot assure you we will complete any acquisitions or, if we do, achieve these goals. See "[Risk Factors](#a_005)." We believe that very promising, private companies (such as those we will likely target) are in many instances grossly underfunded and missing out on the ability to go public and bring their innovative products and solutions to a larger set of customers globally. Unlocking this potential will be key to industry consolidation and breaking the dominance of China in the drone industry. We stand at the forefront of this important trend.

Our acquisition strategy will focus on private technology companies that are fundamentally changing the world at an unprecedented pace by making superior new products, establishing new markets, creating new experiences and generating revenue with a significant opportunity for growth. Key technological advances and practices, such as new drone designs, automation, cloud computing, data analytics and intelligence platforms, open-source software development, developer-focused software tools, and software-defined networking, storage and computing, are allowing these companies to rapidly effect change in every major sector of the global economy.

**Puerto Rico Advantages**

According to the Puerto Rico Department of Economic Development and Commerce ("DEDC"), Puerto Rico has become a magnet for some of the world's leading aviation and aerospace companies. With a long history of manufacturing experience and a strong cadre of engineering talent, the island has attracted multi-million-dollar investments from these and other major companies in recent years.

Puerto Rico is well positioned to capture much of the research, innovation, engineering, service and production activity related to the drone sector. Beyond industry incentives and federal tax programs, the island also offers the drone industry these benefits:

&nbsp;&nbsp;&nbsp;&nbsp;· Puerto Rico is home to two of the 35 largest
engineering programs in the country at the Polytechnic University of Puerto Rico and the University of Puerto Rico, Mayagüez Campus.
Every year, the island's universities award more than 20,000 degrees in science, engineering and technology.

&nbsp;&nbsp;&nbsp;&nbsp;· Puerto Rico has the lowest labor costs of any
state or territory in the U.S., the island's bilingual workforce is known for its high productivity with extensive experience in
process development, automation, control/warranty quality, storage and more.

· MRO Opportunities: Roosevelt Roads, Puerto Rico's former naval base, provides adequate runways
 and facilities for aircraft maintenance, repair and overhaul (MRO), training, and other services.

**Planned Acquisition**

As described under "The Business Combination," we plan to acquire Fat Shark and Rotor Riot simultaneously with the closing of this Offering. Because the Company is still its development stage and has limited operations on a pre-transaction basis, the following is an overview of these entities and each of their principal operations, products, development effort and marketing strategies, which will entail the Company's business focus following the acquisition. While each entity exists independently, their operations have been structured and developed to complement each other and operate largely in tandem, as the below discussions describes in greater detail.

**Fat Shark - First Person View Drone Goggles**

Fat Shark entered the market in 2007, when founder Greg French began working with camera-fitted aircraft and FPV headsets and decided to design and market his own version of these devices. Fifteen years later, Fat Shark is now a leading provider of drone racing FPV technology. Fat Shark aims to achieve optimal performance by investing time and resources to develop quality products, and consulting top drone pilots for feedback and improvement in its product development and design efforts. The result is a high-quality product offering which has gained significant popularity and brand recognition within the freestyle flight and drone racing culture, including more casual hobbyists and enthusiasts.

Fat Shark and Rotor Riot operate in the drone first-person view, or "FPV," market of the drone industry. This segment focuses on drones piloted with wearable display devices. These devices are head mounted displays, or "HMDs," or goggles for drone pilots. These goggles give pilots FPV perspective to control their drone in flight. This is a unique experience where the pilot is interacting with an aircraft through visual immersion. In this augmented reality (AR), the pilot sees only what the drone sees, as if sitting in the pilot seat. This experience is accomplished by live streaming footage from a camera mounted on the nose of the drone directly into specially designed goggles worn by the pilot. The image is transmitted via radio (traditionally analog but increasingly digital) to the pilot. The drone remote control unit, the drone, and the FPV goggles are all interconnected via radio. This effect requires sophisticated electronics that transmit visual information with sufficient speed and reliability to allow pilot control over the drone in real-time. Pilots routinely achieve speeds of over 90 mph in racing and other mission critical applications. Fat Shark's FPV drone goggles enable the user to operate a drone to be remotely flown for as far as 5-10 miles away.

There are three common categories of FPV flight – freestyle flight, racing, and aerial photography. In freestyle, the pilot navigates around obstacles focused on acrobatics and exploring the environment around the aircraft through the HMD. This type of flight can be used for recreational or commercial photography and videography, public and public safety as well as package delivery. FPV racing describes a growing spectator sport where pilots fly their drones in competitions through a series of obstacles, flags, and gates in a racetrack. Aerial photography is the process of viewing and recording a subject matter from the air from the viewpoint of the pilot.

**Rotor Riot – Drone-Focused E-commerce Platform and Digital Marketing** 

Rotor Riot is an e-commerce business focused on drones and drone-related parts, with a marketing strategy which emphasizes drone culture and the popularity of drone racing and pilots within that culture. Rotor Riot sells drones and starter kits, flight design cameras, video transmitters, and FPV goggles, as well as the mounts, airframes and accessories to build or operate drone aircraft. Rotor Riot in partnership with Fat Shark designs, develops, assembles, and sells each of these FPV components both individually and in packages containing competitor product offerings. These products have gained popularity in FPV racing, and Rotor Riot sponsors multiple drone racing pilots. The Fat Shark and Rotor Riot product portfolios combine for a total of over 400 SKUs, managed at its own state of the art fulfillment center in Orlando, FL. Rotor Riot also purchases and resells drones and components from leading manufacturers, including industry leader DJI, while custom designing and building its own line of branded products and accessories.

Rotor Riot also offers customer support services, repair services and replacement parts for upkeep and maintenance for drone flyers seeking to improve upon their drone system's hardware. These offerings are focused on capitalizing on the resulting need and enhancing customer experience long-term, in the hopes of achieving and maintaining customer loyalty and recurring revenue streams.

Rotor Riot markets through social media and attracts buyers to its e-commerce platforms through digital advertising aimed towards drone enthusiasts. Rotor Riot maintains a robust presence on Facebook and YouTube, and also sponsors real-world drone competitions and in-person educational experiences. As of February 16, 2023, Rotor Riot's YouTube account has 260,000 subscribers, and its Facebook page has 42,000 followers. In addition, sports networks, and sponsors such as NBC, Sky, Liberty Media, Fox Sports, MGM, Hearst, and Twitter broadcast and sponsor global events where professional drone pilots and amateurs compete for prizes and sponsorships. Drone racing is a global sport with chapters, leagues, and pilots and established guidelines, rules and regulations for participation adopted by organizations such as MultiGP, Drone Racing League ("DRL"), IUDRO, DR1 Racing, Rotomatch League, FPVR, and Freespace Drone Racing. Pilots specially design their custom-built aircraft, selecting and customizing frames, motors, propellors and controllers for speed and maneuverability from Rotor Riot. Rotor Riot sponsors five of the leading pilots on the competitive FPV racing circuit, including the 2019 and 2018 Drone Racing League champion. Drone pilots and spectators alike experience real-time flight through their own HMD. In addition, Fat Shark sponsored its first drone racing championship in 2015.

Rotor Riot also leverages the popularity of its products among competitive racing pilots by entering into agreements with the pilots to market its products. Under these agreements, each pilot agrees to represent the Rotor Riot brand to the public and periodically provide marketing materials, typically videos, that the Company can publish on its website and social media platforms, in exchange for cash payments. In addition, the Company pays the pilots a percentage of the proceeds from the sales of that pilot's "signature" products, and of sales generated from the pilot's online marketing materials.

**Products**

Set forth below are overviews of our principal product offerings and product development efforts.

<u>Fat Shark FPV Products</u>

&nbsp;&nbsp;&nbsp;&nbsp;· Dominator
 Headset (retail price $599 per unit). The Dominators are digital FPV goggles recently launched
 in May 2022 as the first digitally successor to the HDO2. The Dominator uses big 1280 x 960
 OLED panels to provide an improved image with a 46-degree field of view (FOV). Display customization
 is now possible using a new OSD with expanded controls. The Dominator can also be further
 personalized with adjustable focus, adjustable IPD, adjustable face plate curvature, selectable
 image ratio, and a configurable power button. The Dominator is designed for use by experienced
 pilots looking for an optimal flight experience.

· Recon HD Headset (retail price $279
 per unit). The ReconHD's offer enhanced image quality with a 1080p display viewed through
 Fat Shark's patented folded optical engine. The 3.5" panel delivers a crisp 44-degree
 FOV image at 60 fps with compatibility with WalkSnail transmitters. Recon retains a reputation
 as a high-performance goggle at an affordable price while maintaining anti-fog fan features,
 comfortable form factor, and glasses accommodating faceplate.

· Scout Headset (retail price $199 per
 unit). The Scout uses a patented panel goggle optical module to deliver a 50 degree FOV,
 1136 x 640 resolution and a 60 fps refresh rate in a comfortable to wear headset. In addition
 to an advanced display, the Scout has completely overhauled electronics performance. It has
 a diversity RX with an embedded 10 dB patch antenna to maximize reception, a new OSD, an
 updated DVR, and simple USB charging. The Scout is also designed to offer several user conveniences
 including an embedded fan, removable foam to allow for pilots to wear glasses while flying
 and an LED indicator on the antenna to provide channel notification.

· Attitude V6 Headset (retail price
 $349 per unit). The Attitude V6 focuses on high definition with 1280 x 960 LCOS panels and
 adjustable diopters. In addition to the 39-degree field of view, the Attitude V6 has a selectable
 image ratio, an expanded display control menu, and a configurable power button. The Attitude
 V6 ships with analog diversity receivers and is fully compatible with the Shark Byte HD module
 future-proofing your FPV experience.

· Fat Shark FPV Drone Starter Kit (retail price $799 per unit). The Fat Shark
starter kit comes with a fully built drone, goggles, a controller, batteries, a charger, and related tools, to enable first time drone
flyers to adopt the hobby quickly and easily. The kits all come with the ELRS receiver system to ensure users can easily add more drones
to their arsenal later with minimal effort.

<u>Rotor Riot Retail Sales</u>

In addition to marketing Fat Shark's products, Rotor Riot also resells a variety of drones and drone-related products, including competitor FPV goggles as well as competitor offerings, through its website. Rotor Riot had 95,356 unique visitors to its e-commerce website in October 2022 with 110,782 total sessions. Rotor Riot has 55,520 customers.

**Product Warranties**

Fat Shark provides a two-year warranty on its products.

Rotor Riot does not provide warranties for the products it sells. Rotor Riot has launched Kwad Care, a program that helps pilots cover damages to their Rotor Riot Built and Tuned Drones. Kwad Care is a monthly paid membership that grants customers that have bought built and tuned drones from Rotor Riot access to free repair labor, discounts on replacement parts, and VIP customer care. Current Rotor Riot customers are charged $19.99 per month which includes labor on repairs and 20% discount on replacement parts.

**Suppliers**

Rotor Riot purchases its inventory from over 60 suppliers. A majority of the inventory is purchased from the following vendors: T-Motor, ASI, Caddx, and Drone Nerds.

Fat Shark's primary contract manufacturer is Shenzhen Fat Shark Technology Ltd., referred to elsewhere in this Prospectus as the "Supplier", which is located in Shenzhen, China and provides product manufacturing services, including raw material procurement, under a requirements agreement with us. The majority owner of this entity is the wife of Fat Shark's founder. We do not have any written agreements with the Supplier and rely only on purchase orders. See "[Related Party Transactions](#a_016)" for more information. Also see the Risk Factor titled "[Rising threats of international tariffs](#s101), including tariffs applied to goods between the U.S. and China, may materially and adversely affect our business." on page 26 for more information.

<u>Tariffs</u>

Because we contract with foreign vendors to obtain our inventory, we are subject to tariffs and import/export regulations. In particular, because Fat Shark's principal manufacturer is located in China, and approximately 68% of Rotor Riot's inventory is purchased directly from China-based vendors, all of these items are subject to tariffs. Further, because of these tariffs and Rotor Riot's reliance on Chinese vendors, Rotor Riot has had to raise prices from some of the products it sells. See the Risk Factor titled "Rising threats of international tariffs, including tariffs applied to goods between the U.S. and China, may materially and adversely affect our business." on page 26 for more information.

**Customers**

Fat Shark's sales model is a "B2B2C" model, meaning it sells to retail distributors which in turn sell the products to end users. Rotor Riot is a principal customer of Fat Shark accounting for approximately 4% of Fat Shark's revenue in its fiscal year ended December 31, 2021. Rotor Riot's customers are therefore end users of the drones and drone products it sells to drone enthusiasts, hobbyists and competitive racers, which includes the Fat Shark FPV goggles as well as drones and drone components offered by third parties. Fat Shark's other customers are also competitors of Rotor Riot, as these customers purchase Fat Shark inventory and sell it to drone users. Because their products are presently focused on recreational drone uses, the end users who purchase these products are mainly enthusiasts, hobbyists, competitive droner racers, photographers and videographers.

The culture of FPV flight has and we believe will continue to inspire a new generation of pilots. These are the people and customers who enjoy exploring the world through a new and unique perspective, the people who find solace in the world of flight, and the people who innovate new technologies to enable the culture to thrive. The FPV community has taken the knowledge of 80 years of model aviation to the next level, allowing for a more immersive experience with new and emerging technologies.

**Sales and Marketing Strategy**

Following the planned acquisition, and assuming we can raise sufficient capital in this Offering or subsequent financings, we will deploy a robust sales and marketing strategy. We intend to sell and market our products in the following ways, in addition to Rotor Riot's existing marketing and sales channels described above:

&nbsp;&nbsp;&nbsp;&nbsp;· Direct to consumer via a best-in-class
 e-commerce platform prospecting globally with our own internal salespeople supported by a robust multichannel marketing approach.
 Our goal is to leverage the "right" channels. This can include websites, search engines, social media, email, mobile,
 promotional events, conventional storefronts, and direct mail. We plan to increase our reach thereby boosting brand awareness of
 Unusual Machines, Rotor Riot, and Fat Shark.

&nbsp;&nbsp;&nbsp;&nbsp;· Direct to system integrators that may derive
value combining Unusual Machine's products as part of a larger offering.

&nbsp;&nbsp;&nbsp;&nbsp;· Direct to original equipment managers prospects.

&nbsp;&nbsp;&nbsp;&nbsp;· To specialized FPV goggle resellers with previous
experience selling components and systems to the private sector.

In addition, as we strive to grow our operations, we intend to deploy a "land-and-expand" business model in which we plan to establish relationships with new customers and grow those relationships over time by providing high quality products and services. We believe the acquisition of Fat Shark and Rotor Riot, and the product quality and brand recognition they have developed, will be an important component of this strategy.

**Growth Strategy**

We plan to organically grow by building and selling best in class FPV drone technologies. In parallel, we are investing in the development of products, services and go-to-market strategies that serve a broader set of industries. Lastly, we will take a proactive approach to search for and acquire promising private companies with complementary businesses. Our business strategy includes the following:

&nbsp;&nbsp;&nbsp;&nbsp;· Increasing Our Overall Customer Base. We believe
the market for FPV drone technologies manufactured in the United States is large and underdeveloped, with further room for growth. As
the drone industry expands and drone technology is adopted by more consumers, businesses, and industries, we believe there is substantial
opportunity to add additional customers.

&nbsp;&nbsp;&nbsp;&nbsp;· Investing in Product Innovation for Growth. We
intend to invest in new products, features and functionality. In addition, we also plan to explore and pursue acquisitions of products,
teams and technologies that complement and expand the functionality of products, add to our technology expertise and bolster our position
by providing access to new customers and markets.

&nbsp;&nbsp;&nbsp;&nbsp;· Expand Our Base with Existing Customers. We believe
there is a significant opportunity to further expand within our existing customer base. As the drone industry grows, we intend to grow
with our customers.

&nbsp;&nbsp;&nbsp;&nbsp;· Strategic Partnerships with Leading Technology
Companies. We expect to partner with leading technology companies to leverage our drone industry expertise and our products to more markets
and customers. We intend to continue to seek strategic partnerships, investments, and acquisitions with companies that provide key building
blocks of the drone industry (computer vision, machine learning, and airspace) that weave into our vision of dominating the FPV drone
segment.

&nbsp;&nbsp;&nbsp;&nbsp;· Leverage Marketing Channels and Relationships
with Pilots and Other Industry Participants. Rotor Riot engages customers via its social media and online platforms. It has developed
a following on Facebook, Instagram and YouTube of drone racing and flying enthusiasts who could also be prospective customers in new product
launches. Rotor Riot also engages competitive drone racing pilots to serve as brand ambassadors and producers of advertising materials
in exchange for cash fees, royalties on product sales, and other benefits. The Company intends to leverage and grow this network to enable
further expansion of its market presence and brand strength.

**Competition**

While competition as described below is a concern, we believe that Brandon Torres Declet, our Chief Executive Officer, has a significant background in the drone business which we believe is a competitive advantage. See "[Management and Board of Directors](#a_014)."

Rotor Riot competes with a number of significantly larger, better capitalized companies. SZ DJI Technology Company, Ltd., commonly known as DJI, is a leader in the consumer drone segment with a global market share estimated at more than 70%, according to industry research firms. In addition to competing with DJI, Rotor Riot purchases and sells DJI products on its website. Other Rotor Riot competitors include GetFPV, Race Day Quads, PyroDrone, Parrot, and Lumenier. Race Day Quads is a larger, direct competitor in the FPV sector. We will compete against these companies by leveraging our visibility on the Internet through Rotor Riot's Facebook page which as of February 22, 2023 has more than 41,000 members and our Rotor Riot YouTube channel which as of February 22, 2023 has more than 260,000 subscribers. The Rotor Riot brand has been at the center of the racing and freestyle culture of drones since 2015. Rotor Riot sponsors five leading FPV pilots on the competitive racing circuit, including the Drone Racing League champion pilot in 2018 and 2019.

Fat Shark competes against DJI which is the dominant market leader in the consumer segment. Fat Shark also competes with other FPV headset companies that include Skyzone, Orqa, and HD Zero. The Fat Shark brand has been synonymous with FPV headsets to many industry participants since the emergence of the market in 2008. Fat Shark continues to compete through partnerships with other FPV companies and a focus on superior design, manufacturing and product quality.

There has also been a proliferation of startups in the drone industry, driving fragmentation and lowering prices. We believe that this fragmentation does little to address the needs of users of drones or our future customers. We expect that as the industry grows, customers will ultimately rely on companies and platforms that consolidate solutions to unify the key categories of the drone industry. As part of our acquisition strategy, the Company is engaging companies with industry-leading technology and intellectual property, or customers that can be brought together under our brand. We believe that this consolidation strategy will enable us to grow faster in the developing drone industry.

We expect competition in the drone industry, which is already intense, to increase as other companies enter the drone market, as customers' requirements evolve, and as new products and technologies are introduced. Several of our competitors have greater name recognition, much longer operating histories, greater financial resources, more and better-established customer relationships, larger sales forces and significantly greater resources. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than us, hampering our ability to successfully compete with respect to certain of these factors. Increased competition may lead to price cuts or the introduction of products available for free or a nominal price, fewer customer orders, reduced gross margins, longer sales cycles and loss of market share. We may not be able to compete successfully against current and future competitors, and our business, results of operations and financial condition maybe harmed if we fail to meet these competitive pressures.

**Government Regulation of Drones**

In the U.S., the FAA is responsible for the regulation and oversight of civil aviation within the U.S. Its primary mission is to ensure the safety of civil aviation. The FAA has adopted the name "unmanned aircraft" to describe aircraft systems without a flight crew on board. More common names include: drone, UAS, UAV, and remotely operated aircraft.

The FAA began issuing regulations governing drones in 2005 with their scope and frequency expanding in recent years with the significant increase in the number of drones sold. In December 2015, the FAA's UAS Registration Task Force, of which our CEO and Chairman Brandon Torres Declet was a member, announced that all drones weighing more than 250 grams, or 0.55 pounds, must be registered with the FAA. As of July 2022, the FAA reported the registration of 858,550 drones, of which 318,455 were commercial and 536,482 were recreational. In addition, more than 286,184 remote pilots were certified.

In December 2015, the FAA enacted the primary regulation governing the use of drones, 14 CFR Part 107 ("Part 107"), which governs the use of drones weighing less than 55 pounds, on takeoff, including everything that is on board or otherwise attached to the drone. Key provisions of Part 107 include the following: (1) the drone must remain within either the visual line of sight ("VLOS") of the remote pilot in command and the person manipulating the flight controls or the VLOS of a visual observer; (2) the drone must at all times remain close enough to the remote pilot and person manipulating the flight controls for these people to see it with unaided vision; (3) drones may only operate in daylight or civil twilight (30 minutes before official sunrise to 30 minutes after official sunset); (4) drones may not exceed a maximum groundspeed of 100 mph; (5) drones may not exceed a maximum altitude of 400 feet above ground level, or if they exceed this altitude, must remain within 400 feet of a structure; (6) drones cannot operate in Class B, C, D, and E airspace without permission; (7) the pilot in command must conduct a pre-flight inspection; (8) to operate a drone, the pilot must either hold a remote pilot airman certificate or be under the direct supervision of someone with such a certificate; (9) drone operators must register their drones with the FAA.

In January 2021, the FAA finalized rules requiring that drones be identifiable remotely. These rules became effective for drone manufacturers in September 2022 and for will be effective for drone pilots in September 2023. The FAA believes that remote ID technologies will enhance safety and security by allowing the FAA, law enforcement, and federal security agencies to identify drones flying in their jurisdiction. These efforts lay the foundation for more complex operations, such as those beyond visual line of sight at low altitudes, as the FAA and the drone industry move toward a traffic management ecosystem for Unmanned Aircraft System flights separate from, but complimentary to, the air traffic management system.

On March 10, 2022, the FAA's Unmanned Aircraft Systems Beyond Visual Line of Sight Aviation Rulemaking Committee ("ARC"), of which our CEO and Chairman Brandon Torres Declet was a member, issued its final report to the FAA. In terms of key recommendations, the ARC recommends that the FAA set an acceptable level of risk ("ALR") for UAS that is consistent across all types of operations being performed. The ARC envisions that this approach will allow the FAA to adopt a common and consistent set of regulations and guidance, giving operators the flexibility to meet the ALR through qualitative or quantitative methods, or a hybrid approach. Next, the ARC recommends a series of modifications to the right of way rules in Low Altitude Shielded Areas (within 100' of a structure or critical infrastructure as defined in 42 U.S.C. § 5195(c)(2) and in Low Altitude Non-Shielded Areas (below 400') to accommodate unmanned aircraft ("UA") operations.

We cannot assure you that any final legislation or rules enacted in furtherance of the FAA's or other regulatory bodies' announced proposals will result in the expanded use of our products, or that they will not limit or restrict their use or our market share.

The Company believes that the oversight of the FAA is beneficial to the drone industry generally, and the Company specifically. Approximately 10% of the drones sold by Rotor Riot are below the weight threshold required to register. The remaining 90% have more functionality, are more likely to be used for commercial purposes, and therefore, should be registered. Because Fat Shark only develops and produces FPV goggles and associated components, FAA regulations do not currently govern the sale, registration or operation of Fat Shark products.

**Environmental Considerations**

Compliance with applicable environmental laws since inception has not had a material effect upon our capital expenditures, earnings or competitive position. However, drones are battery operated which use electricity for charging. To that extent, except for users who use solar and other non-electrical power to charge drones, users of drones we sell burn carbon which negatively affects the environment. Further, the SEC's climate change rules, when passed will likely increase our compliance costs.

**Research and Development**

Research and development activities are part of Fat Shark's business, and we will follow a disciplined approach to investing our resources to create new drone technologies and solutions. In the years ending April 30, 2022 and 2021, Fat Shark's research and development costs were approximately 15.5% and 5.7%, respectively, of its revenues. A fundamental part of this approach is a well-defined screening process that helps us identify commercial opportunities that support desired technological capabilities in the markets we serve. Our research will include the enhancement of our goggle products for consumers that enjoy FPV flight and to enterprise customers whose problems could be solved via FPV flight.

**Employees and Human Capital Resources**

As of March 7, 2023, we had three full-time employees. We believe that we maintain good relations with our employees. However, with our acquisition of Fat Shark and Rotor Riot, we expect to add 11 employees and one consultant. We currently have one consultant who we pay $10,000 a month. Upon the consummation of the Business Combination, we intend to continue Fat Shark's relationship with Greg French and will pay Mr. French an annual consulting fee of $150,000 or $12,500 per month. We intend to evaluate how we attract and retain the best talent in the industry and create a world class culture. Since our business is new and evolving, we have not evaluated these factors historically.

**Legal Proceedings**

From time-to-time, we may become involved in various legal proceedings that arise in the ordinary course of business or otherwise. Legal proceedings are subject to inherent uncertainties as to timing, outcomes, costs, expenses and time expenditures by our management and others on our behalf. We are currently not a party to any litigation and have been advised Fat Shark and Rotor Riot are not included in any litigation.

**Facilities**

Our principal executive offices are located at 151 Calle De San Francisco Ste. 200 PMB 2106 San Juan, Puerto Rico 00901-1607. Rotor Riot also has a three-year lease for a 3,700 sq. foot facility in Orlando, FL. As the Company expands, we will seek to expand our facilities to support engineers, technical and support staff we intend to hire. There is a large pool of available properties in Florida and Puerto Rico. Specifically, we will also be looking for additional warehouse and office space in South Florida with immediate access to airports and multi-modal logistics (air, sea, land) for more rapid shipping of FPV products.

**Intellectual Property**

Our commercial success will depend substantially on the ability to obtain patents and other intellectual property rights and maintain adequate legal protection for products in the United States and other countries. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that these assets are covered by valid and enforceable patents, trademarks, copyrights or other intellectual property rights, or are effectively maintained as trade secrets.

We recently filed for a trademark on our logo. We expect to acquire from Red Cat the following patents and trademarks related to the Fat Shark and Rotor Riot brands and products following the acquisition of those entities:

The following table summarizes currently issued patents (indicated by "Issued") including the grant dates thereof, and patent applications (indicated by "Pending or Published"), currently held and/or used by Red Cat and its subsidiaries in connection with Fat Shark's and Rotor Riot's operations. As the chart indicates, some of these patents are in the U.S., where when issued the patent protection generally applies for 20 years from the date the patent application was made (subject to potential extension, if applied for and granted). In general, patent protection provides the patent holder with a monopoly on the invention within its scope for the duration of the patent.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Country** | **Status** | **Patent No** | **Application Date** | **Grant Date** | **Title** |
| United States | Issued | 29/610,543 | 7/13/2017 |  | UNMANNED AERIAL VEHICLE |
| Canada | Issued | 179088 | 1/11/2018 |  | UNMANNED AERIAL VEHICLE |
| China | Issued | 201830008387.4 | 1/11/2018 |  | UNMANNED AERIAL VEHICLE |
| EU | Issued | 4665040 | 1/12/2018 |  | UNMANNED AERIAL VEHICLE |
| Korea | Issued | 30-2018-1689 | 1/11/2018 |  | UNMANNED AERIAL VEHICLE |
| United States | Issued | 15/684,814 | 8/23/2017 |  | UNMANNED AERIAL VEHICLE |
| Canada | Abandoned | 3009413 | 6/26/2018 |  | UNMANNED AERIAL VEHICLE |
| China | Pending | 201810895541.3 | 8/8/2018 |  | UNMANNED AERIAL VEHICLE |
| EU | Pending | EP18179512.1 | 6/25/2018 |  | UNMANNED AERIAL VEHICLE |
| United States | Issued | 29/610,554 | 7/13/2017 |  | PRINTED CIRCUIT BOARD |
| Canada | Issued | 179089 | 1/11/2018 |  | PRINTED CIRCUIT BOARD |
| China | Issued | 201830008494.7 | 1/11/2018 |  | PRINTED CIRCUIT BOARD |
| EU | Issued | 4665032 | 1/12/2018 |  | PRINTED CIRCUIT BOARD |
| Korea | Issued | 30-2018-1690 | 1/11/2018 |  | PRINTED CIRCUIT BOARD |
| China | Pending | 201810324925.X | 4/12/2018 |  | SINGLE-PANEL HEAD-MOUNTED DISPLAY |
| EU | Pending | 19159958.8 | 3/4/2019 |  | SINGLE-PANEL HEAD-MOUNTED DISPLAY |
| United States | Issued | 16/002,200 | 6/7/2018 |  | SINGLE-PANEL HEAD-MOUNTED DISPLAY |
| China | Pending | 202010150301.8 | 3/6/2020 |  | APPARATUS FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET |
| United States | Published | 17/187,838 | 2/28/2021 |  | APPARATUS FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET |
| United States | Pending | 29/783,966 | 5/17/2021 |  | HEADSET |
| China | Pending | 202130741102.X | 11/11/2021 |  | VR GLASSES |
| Canada, European Union Countries, Japan, United Kingdom<br>| Pending | Not yet assigned | 11/12/2021 |  | HEADSET |

---

**Trademark Portfolio**

The following table summarizes current registered trademarks (indicated by "Registered") including the registration dates, held and/or used by Red Cat and its subsidiaries in connection with Fat Shark's and Rotor Riot's operations. As the chart indicates, these trademarks are registered in the U.S. and abroad.

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**Country** | <br>**Status** | <br>**Trademark** | <br> **Reg. No.** | <br>**Reg. Date.** | <br>**App. No.** | <br>**App. Date.** | <br> **Class** | <br> **Next Deadline** |
| US | Registered | **ROTOR RIOT** | 5175159 | 4/4/2017 | 87/074,341 | 6/16/2016 | 16, 25, 35, 41 | *AOU due 4/4/2023* |
| Australia | Registered | **ROTOR RIOT** | 1814854 | 4/18/2017 | 1814854 | 12/9/2016 | 16, 25, 35, 41 | Renewal due 12/9/2026 |
| Canada | Registered | **ROTOR RIOT** | TMA1013525 | 1/22/2019 | 1812182 | 12/8/2016 | 16, 25, 35, 41 | Renewal due 1/22/2034 |
| EU | Registered | **ROTOR RIOT** | 016152688 | 5/14/2017 | 016152688 | 12/12/2016 | 16, 25, 35, 41 | Renewal due 12/12/2026 |
| UK | Registered | **ROTOR RIOT** | UK00916152688 | 5/14/2017 | UK00916152688 | 12/12/2016 | 16, 25, 35, 41 | Renewal due 12/12/2026 |
| US | Registered | **Rotor Riot Logo** | 5175160 | 4/4/2017 | 87/074,378 | 6/16/2016 | 16, 25, 35, 41 | *AOU due 4/4/2023* |
| Australia | Registered | **Rotor Riot Logo** | 1814855 | 4/18/2017 | 1814855 | 12/9/2016 | 16, 25, 35, 41 | Renewal due 12/9/2026 |
| Canada | Registered | **Rotor Riot Logo** | TMA1013624 | 1/22/2019 | 1813183 | 12/8/2016 | 16, 25, 35, 41 | Renewal due 1/22/2034 |
| EU | Registered | **Rotor Riot Logo** | 016152837 | 5/14/2017 | 016152837 | 12/12/2016 | 16, 25, 35, 41 | Renewal due 12/12/2026 |
| UK | Registered | **Rotor Riot Logo** | UK00916152837 | 5/14/2017 | UK00916152837 | 12/12/2016 | 16, 25, 35, 41 | Renewal due 12/12/2026 |

---

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion and analysis of financial condition and results of operations should be read together with our financial statements and accompanying notes, and our appearing elsewhere in this Prospectus. This Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. Please see "Forward-Looking Statements" set forth in the beginning of this Prospectus and see "[Risk Factors](#a_005)" beginning on page 8 for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods. Please note that because we and Red Cat have different fiscal years, the period-to-period results are not comparable.

.

 ****

**Overview**

We are a Puerto Rico corporation organized in 2019. We are engaged in the commercial drone industry but to date have not generated any material revenues. Our current primary business objective is to consummate the Business Combination which we believe will accelerate our role in this industry. See "[The Business Combination](#a_011)".

Simultaneous with the closing of this Offering, we will acquire Fat Shark and Rotor Riot from Red Cat with a goal of becoming a first-person view, or "FPV," technology market leader. Fat Shark is a leader in FPV, designing and manufacturing ultra-low latency video goggles for drone pilots. Rotor Riot is an e-commerce marketplace, backed by the largest community of FPV drone pilots in the world. Over the next two years, our goal is to materially grow these businesses, while expanding into new enterprise verticals like public safety and drone delivery. This is part of our vision to enable people to be part of the robotics revolution. Red Cat acquired Rotor Riot in January 2020 and Fat Shark in November 2020.

The following management discussion and analysis includes the results of operations, cash flow activities and liquidity and capital resources for each Unusual Machines, Fat Shark and Rotor Riot and are marked accordingly below.

**<u>Unusual Machines Results of Operations</u>**

***Years Ended December 31, 2022 and 2021***

**<u>Revenue</u>**

During the year ended December 31, 2022, we did not generate any revenues compared to $4,989 revenues during the year ended December 31, 2021 representing a decrease of $4,989 or 100%. Revenues from 2021 related to limited sales to Rotor Riot which did not occur in 2022.

**Operating Expenses**

During the year ended December 31, 2022, we incurred research and development expenses totaling $91,325 compared to $0 for the year ended December 31, 2021 resulting in an increase of $91,325 or 100%. The increase relates to professional fees for product design work that was subsequently placed on hold given the proposed business combinations of Fat Shark and Rotor Riot.

During the year ended December 31, 2022, we incurred general and administrative expenses totaling $1,150,522 compared to $166,868 for the year ended December 31, 2021, resulting in an increase of $983,654 or 589.5%. The increase primarily relates to Unusual Machines building out its operations. This includes hiring an executive team, legal expenses related to the business combination, and professional fees for preparation of becoming a public company.

**<u>Net Loss</u>**

Net loss for the year ended December 31, 2022, totaled $1,242,584 compared to $161,876 for the year ended December 31, 2021, resulting in an increase of $1,080,708. The increase in net loss is almost entirely related to the increase in general and administrative expenses and research and development expenses as we start to build out our operations for the business combination and becoming a public company.

**<u>Fat Shark Results of Operations</u>**

***Six Months Ended October 31, 2022 and 2021***

**<u>Revenue</u>**

During the six months ended October 31, 2022 (or the "2022 period"), Fat Shark generated revenues totaling $1,983,871 compared to $1,894,496 revenues during the six months ended October 31, 2021 (or the "2021 period) representing an increase of $89,375 or 4.5%. Revenues can fluctuate from period to period and the modest difference between periods was not related to any specific reason but generally reflective of normal changes as the life cycles of our products mature. During the 2022 period, the Company launched its newest product, the Dominator while revenues during the 2021 period reflected the discounted sales of products at the end of their life cycle.

**<u>Cost of Goods Sold</u>**

During the six months ended October 31, 2022, Fat Shark incurred cost of goods sold of $1,727,121 compared to $1,887,766 during the six months ended October 31, 2021 resulting in a decrease of $160,645 or 9.3%. The entire decrease related to higher relative material costs during the 2021 period as the Company lowered prices to promote sales of products near the end of their life cycle. The lower sales prices required more materials in order to generate a relatively comparable level of sales.

**<u>Gross Margin</u>**

During the six months ended October 31, 2022, Fat Shark gross margin was $256,750 compared to $6,730 during the six months ended October 31, 2021, resulting in an increase of $250,020 or 97.4%. Fat Shark gross margin, as a percentage of sales, totaled 12.9% during the six months ended October 31, 2022 compared to 0.4% during the six months ended October 31, 2021. During the first quarter of the 2022 period, Fat Shark launched its newest product, the Dominator, which generated higher gross margins compared to the 2021 period when the promotional, discounted sales of outdated products resulted in significantly lower gross margins.

**<u>Operating Expenses</u>**

During the six months ended October 31, 2022, Fat Shark incurred operations expense totaling $135,030, compared to $141,834 during the six months ended October 31, 2021, resulting in a decrease of $6,804 or 5.0%. The decrease during the 2022 period reflects lower professional fees compared to the 2021 period, partially offset by higher payroll expense compared to the 2021 period.

During the six months ended October 31, 2022, Fat Shark incurred research and development expenses totaling $143,469 compared to $215,555 for the six months ended October 31, 2021 resulting in a decrease of $72,086 or 50.2%. The decrease primarily relates to the release of the new Dominator googles, which resulted in a lower need of research and development expenses during the 2022 period.

During the six months ended October 31, 2022, Fat Shark sales and marketing expenses totaled $9,726 compared to $31,853 for the six months ended October 31, 2021, resulting in a decrease of $22,127 or 227.5%. The decrease primarily relates to certain personnel working during the 2021 period who were not employed during the 2022 period.

During the six months ended October 31, 2022, Fat Shark incurred general and administrative expenses totaling $60,893 compared to $100,149 for the six months ended October 31, 2021, resulting in a decrease of $39,256 or 64.5%. The decrease primarily relates entirely to lower payroll and business travel costs compared to the 2021 period.

**<u>Net Loss</u>**

Fat Shark net loss for the six months ended October 31, 2022, totaled $139,728 compared to $530,782 for the six months ended October 31, 2021 resulting in a decrease of $391,054 or 279.9%. The decrease in Fat Shark net loss is primarily related to the increase in overall gross margin from the launch of the Dominator google combined with pricing discounts from the prior year. In addition, Fat Shark incurred less research and development expense due to the release of its new product.

**<u>Fat Shark Results of Operations</u>**

***Years Ended April 30, 2022 and 2021***

**Revenue**

During the year ended April 30, 2022 (or the "2022 period"), Fat Shark generated revenues totaling $2,627,792 compared to $2,887,475 during the year ended April 30, 2021 (or the "2021 period), representing a decrease of $259,683 or 9.0%. Revenues can fluctuate from period to period and are generally reflective of normal changes as the life cycles of our products mature. During the 2022 period, the Company's key products were in a later stage of their maturation which resulted in lower sales compared to the 2021 period.

**<u>Cost of Goods Sold</u>**

During the year ended April 30, 2022, Fat Shark incurred cost of goods sold of $2,569,307 compared to $2,361,342 during the year ended April 30, 2021 resulting in an increase of $207,965 or 8.8%. The increase relates to higher costs of products being sold including increases in material costs due to the global supply chain issues, and an increase in products sold during the year ended April 30, 2022.

**<u>Gross Margin</u>**

During the year ended April 30, 2022, Fat Shark gross margin was $58,485 compared to $526,133 during the year ended April 30, 2021, resulting in a decrease of $467,648 or 88.9%. Fat Shark's gross margin, as a percentage of sales, totaled 2.2% during the year ended April 30, 2022 compared to 18.2% during the year ended April 30, 2021. The lower level of gross margin primarily related to Fat Shark providing pricing discounts associated with the sales of products at the end of their life cycle in anticipation of the release of its new product, the Dominator.

**<u>Operating Expenses</u>**

During the year ended April 30, 2022, Fat Shark's operations expenses totaled $252,545 compared to $208,990 during the year ended April 30, 2021, resulting in an increase of $43,555 or 20.8%. The increase during the 2022 period reflects higher professional services fees compared to the 2021 period.

During the year ended April 30, 2022, Fat Shark incurred research and development expenses totaling $407,881 compared to $165,427 for the year ended April 30, 2021 resulting in an increase of $242,454 or 146.6%. The increase primarily relates to an increase in payroll and material costs for Fat Shark related to its next generation product release.

During the year ended April 30, 2022, Fat Shark's sales and marketing expenses totaled $60,616 compared to $27,110 for the year ended April 30, 2021, resulting in an increase of $33,506 or 123.6%. Sales and marketing expenses were higher during the 2022 period as the Company was preparing for the launch of the Dominator compared to the 2021 period when the Company's then existing key products had been previously launched and did not require extensive sales and marketing efforts.

During the year ended April 30, 2022, Fat Shark incurred general and administrative expenses totaling $169,096 compared to $121,053 for the year ended April 30, 2021, resulting in an increase of $48,043 or

39.7%. The increase primarily relates to higher payroll and business travel costs which increased by $21,147 and 14,552, respectively, compared to the 2021 period.

**<u>Net Loss</u>**

Fat Shark's net loss for the year ended April 30, 2022, totaled $910,723 compared to $27,890 for the year ended April 30, 2021 resulting in an increase of $882,833. The increase in Fat Shark's net loss is primarily related to lower gross margin for Fat Shark related to pricing discounts on end-of-life cycle products and higher research and development expenses related to the release of the new generation product, the Dominator.

**<u>Rotor Riot Results of Operations</u>**

***Six Months Ended October 31, 2022 and 2021***

**<u>Revenue</u>**

During the six months ended October 31, 2022 (or the "2022 period"), Rotor Riot generated revenues totaling $

1,624,947 compared to $914,460 during the six months ended October 31, 2021 (or the "2021 period"), representing an increase of $710,487 or 77.7%. The increase in revenues primarily related to the Company's newly launched strategic initiatives, primarily focused on increased digital marketing efforts results in a strong increase in sales compared to the 2021 period.

**<u>Cost of Goods Sold</u>**

During the six months ended October 31, 2022, Rotor Riot incurred cost of goods sold of $1,394,051 compared to $781,797 during the six months ended October 31, 2021 resulting in an increase of $612,254 or 78.3%. The increase relates to higher revenue as revenue increased by a consistent 77.7% during the same period.

**<u>Gross Margin</u>**

During the six months ended October 31, 2022, Rotor Riot's gross margin was $230,896 compared to $132,663 during the six months ended October 31, 2021, resulting in an increase of $98,233 or 74.0%. Gross margin, as a percentage of sales, totaled 14.2% during the six months ended October 31, 2022 compared to 14.5% during the six months ended October 31, 2021. Gross margin as a percentage of sales remained relatively consistent over the same period.

**<u>Operating Expenses</u>**

During the six months ended October 31, 2022, Rotor Riot incurred operations expenses totaling $197,808 compared to $148,203 during the six months ended October 31, 2021, resulting in an increase of $49,605 or 33.5%. The increase primarily relates to increased office and facilities expenses as well as meals, training, and travel.

During the six months ended October 31, 2022, Rotor Riot incurred research and development expenses totaling $27,295 compared to $23,849 for the six months ended October 31, 2021 resulting in an increase of $3,446 or 14.4%. The increase primarily relates to increased payroll costs.

During the six months ended October 31, 2022, Rotor Riot's sales and marketing expenses totaled $353,565 compared to $113,577 for the six months ended October 31, 2021, resulting in an increase of $239,988 or 211.3%. Sales and marketing expenses were significantly higher in the 2022 period as the Company launched new strategic initiatives, including an increase in the scope and breadth of its digital advertising programs. These initiatives resulted in significant increases in payroll, advertising, and video production costs.

During the six months ended October 31, 2022, Rotor Riot incurred general and administrative expenses totaling $98,591 compared to $99,150 for the six months ended October 31, 2021, resulting in a decrease of $559 or 0.6%.

**<u>Net Loss</u>**

Rotor Riot's net loss for the six months ended October 31, 2022, totaled $535,419 compared to $324,536 for the six months ended October 31, 2021 resulting in an increase of $210,883 or 65.0%. The increase in net loss is primarily related to increased sales and marketing expenses during the 2022 period. In the 2022 period, the Company launched new strategic initiatives, including an increase in the scope and breadth of its digital advertising programs. These initiatives resulted in significant increases in payroll, advertising, and video production costs.

**<u>Rotor Riot Results of Operations</u>**

***Year Ended April 30, 2022 and 2021***

**<u>Revenue</u>**

During the year ended April 30, 2022 (or the "2022 period"), Rotor Riot generated revenues totaling $2,028,149 compared to $2,194,503 during the year ended April 30, 2021 (or the "2021 period"), representing a decrease of $166,354 or 7.6%. Revenues can fluctuate from period to period and are generally reflective of normal changes through the life cycles of the products that we sell.

**<u>Cost of Goods Sold</u>**

During

the year ended April 30, 2022, Rotor Riot incurred cost of goods sold of $1,587,647 compared to $1,638,070 during the year ended April 30, 2021 resulting in a decrease of $50,396 or 3.1%. The decrease related to lower revenues during the 2022 period.

**<u>Gross Margin</u>**

During the year ended April 30, 2022, Rotor Riot's gross margin was $440,475 compared to $556,433 during the year ended April 30, 2021, resulting in a decrease of $115,958 or 20.8%. Gross margin, as a percentage of sales, totaled 21.7% during the year ended April 30, 2022 compared to 25.4% during the year ended April 30, 2021. The lower level of gross margin primarily related to higher costs of products being sold including increases in material costs due to the global supply chain issues.

**<u>Operating Expenses</u>**

During the year ended April 30, 2022, Rotor Riot incurred operations expense totaling $372,473 compared to $374,556 during the year ended April 30, 2021, resulting in a decrease of $2,083 or 0.6%.

During the year ended April 30, 2022, Rotor Riot incurred research and development expenses totaling $58,719 compared to $28,368 for the year ended April 30, 2021, resulting in an increase of $30,351 or 107.0%. The increase primarily relates to increased payroll costs.

During the year ended April 30, 2022, Rotor Riot incurred sales and marketing expenses totaling $220,007 compared to $81,449 for the year ended April 30, 2021, resulting in an increase of $138,558 or 170.1%. The increase primarily relates to an increase in payroll and advertising program costs for Rotor Riot.

During the year ended April 30, 2022, Rotor Riot incurred general and administrative expenses totaling $220,366 compared to $121,342 for the year ended April 30, 2021, resulting in an increase of $99,024 or 81.6%. The increase primarily related to increased information technology costs associated with the implementation of more sophisticated software systems. Additionally, office, meals, travel, and training expenses also increased.

**<u>Net Loss</u>**

Rotor Riot's net loss for the year ended April 30, 2022, totaled $596,878 compared to $69,609 for the year ended April 30, 2021 resulting in an increase of $527,269. The increase in net loss is primarily related to increased stock compensation, general and administrative, and sales and marketing expenses.

***Liquidity and Capital Resources***

**<u>Unusual Machines Cash Flows</u>**

***Year Ended December 31, 2022 and 2021***

**<u>Operating Activities</u>**

Net cash used in operating activities was $1,231,794 during the year ended December 31, 2022 compared to net cash used in operating activities of $162,821 during the year ended December 31, 2021, representing an increase of $1,068,973 or 656%. This increase in net cash used primarily resulted from our increase in net loss of $1,242,584 offset by non-cash expenses of $885 and changes in working capital of $9,905.

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**<u>Financing Activities</u>**

Net cash provided by financing activities totaled $549,900 during the year ended December 31, 2022 compared to $3,948,065 during the year ended December 31, 2022, resulting in a decrease in net cash provided by financing activities of $3,398,165 or 86.1%. The decrease is entirely related to proceeds received from exempt private offerings of our common stock.

**<u>Fat Shark Cash Flows</u>**

***Six Months Ended October 31, 2022 and 2021***

**<u>Operating Activities</u>**

Fat Shark net cash used in operating activities was $3,053,300 during the six months ended October 31, 2022 compared to net cash used in operating activities of $240,444 during the six months ended October 31, 2021 representing an increase of $2,830,472. This increase in net cash used primarily resulted from Fat Shark's increase in other assets, most of which is prepaid inventory of $2,146,775, increase in inventory of $670,560, increase in accounts receivable of $514,044, and net loss of $139,728. This was offset by non-cash expenses of $47,483 and changes in other working capital of $370,355.

**<u>Financing Activities</u>**

Fat Shark net cash provided by financing activities totaled $3,007,298 during the six months ended October 31, 2022 compared to $517,128 during the six months ended October 31, 2021, resulting in an increase of net cash provided by financing activities of $2,490,170. Cash provided by financing activities during the six months ended October 31, 2022 consisted of $3,007,298 of proceeds from a related party as compared to 2,137,928 of proceeds from a related party during the six months ended October 31, 2021. In addition, Fat Shark made payments of $1,620,800 related to debt obligations during the six months ended October 31, 2021. These debt obligations have been fully repaid and no payments were made during the six months ended October 31, 2022.

**<u>Fat Shark Cash Flows</u>**

***Year Ended December 31, 2022 and 2021***

**<u>Operating Activities</u>**

Fat Shark net cash used in operating activities was $783,810 during the year ended April 30, 2022 compared to net cash used in operating activities of $156,189 during the year ended April 30, 2021 representing an increase of $643,227 or 411.8%. This increase in net cash used primarily resulted from Fat Shark's increase in net loss of $882,833 offset by non-cash expenses of $29,867 and changes in working capital of $209,739.

**<u>Financing Activities</u>**

Fat Shark net cash provided by financing activities totaled $848,195 during the year ended April 30, 2022 compared to $201,027 during the year ended April 30, 2021. The cash provided by financing activities in 2022 consisted of $2,468,995 of proceeds from a related party offset by $1,620,800 payments on debt obligations. The cash provided by financing activities in 2021 consisted of $201,027 of cash acquired through Red Cat's acquisition of Fat Shark.

**<u>Rotor Riot Cash Flows</u>**

***Six Months Ended October 31, 2022 and 2021***

**<u>Operating Activities</u>**

Rotor Riot net cash used in operating activities was $953,367 during the six months ended October 31, 2022 compared to net cash used in operating activities of $480,015 during the six months ended October 31, 2021 representing an increase of $501,595 or 104.5%. This increase in net cash used primarily resulted from Rotor Riot's increase in net loss of $210,883 and changes in working capital of $290,712.

**<u>Financing Activities</u>**

Rotor Riot net cash provided by financing activities totaled $960,915 during the six months ended October 31, 2022 compared to $415,834 during the six months ended October 31, 2021. The cash provided by financing activities during the six months ended October 31, 2022 consisted of $960,915 of proceeds from a related party. Cash provided by financing activities during the six months ended October 31, 2021 consisted of $607,157 of proceeds from a related party offset by $191,323 from payments related to debt obligations. These debt obligations have been fully repaid and no payments were made during the six months ended October 31, 2022.

**<u>Rotor Riot Cash Flows</u>**

***Year Ended December 31, 2022 and 2021***

**<u>Operating Activities</u>**

Rotor Riot net cash used in operating activities was $678,206 during the year ended April 30, 2022 compared to net cash used in operating activities of $433,294 during the year ended April 30, 2021 representing an increase of $405,999 or 93.7%. This increase in net cash used primarily resulted from Rotor Riot's increase in net loss of $527,269 offset by changes in working capital of $121,270.

**<u>Financing Activities</u>**

Rotor Riot net cash provided by financing activities totaled $591,339 during the year ended April 30, 2022 compared to $488,723 during the year ended April 30, 2021. The cash provided by financing activities in 2022 consisted of $860,384 of proceeds from a related party offset by payments on debt obligations of $269,045. Cash provided by financing activities in 2021 consisted of proceeds of $338,449 and proceeds of $150,274 from debt obligations.

***Unusual Machines Liquidity and Capital Resources***

As of December 31, 2022, we had current assets totaling $3,326,622 primarily consisting of cash balances of $3,099,422. Our current liabilities as of December 31, 2022 totaled $120,938, consisting entirely of accounts payable and accrued expenses. Our net working capital as of December 31, 2022 was $3,205,684. Our cash balance as of March 3, 2023 was approximately $2,600,000.

To date, our operations and business development have been funded exclusively by exempt private offerings of our common stock. In the Fall of 2021, we closed a private offering of 4,552,000 shares of common stock at a price of $0.50 per share for total proceeds of $2,276,000. On December 31, 2021, we closed an additional private offering of 482,500 shares of common stock at a price of $4.00 per share for total gross proceeds of $1,930,000, of which we received net proceeds of $1,842,000 after fees and other expenses. On July 25, 2022, we closed an additional private offering of 150,000 shares of common stock at a price of $4.00 per share for total proceeds of $600,000. While we have sufficient cash resources to support our operations for the next 12 months, we cannot complete the acquisition of Fat Shark and Rotor Riot unless we close this Offering. Assuming we do acquire Fat Shark and Rotor Riot, we expect we will have sufficient working capital to support our operations for at least 12 months following the closing of this Offering.

**Going Concern**

The reports from the independent registered public accounting firm for the fiscal year ended April 30, 2022 for Fat Shark Holdings Ltd. and for the fiscal year ended April 30, 2022 for Rotor Riot, LLC, includes an explanatory paragraph stating each company has recurring net losses from operations, negative operating cash flows, does not yet generate revenue from operations and will need additional working capital for ongoing operations. These factors, among others, raise substantial doubt about each company's ability to continue as a going concern. If Fat Shark and Rotor Riot obtain sufficient funding, including advances from us with the proceeds of this Offering, we expect each will no longer operate as a going concern. With the closing of this Offering, we will not be a going concern, however, we note our continuing losses in the going concern risk factor on page 8.

***Critical Accounting Policies and Estimates***

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Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Property and equipment are stated at cost. Depreciation and amortization are computed using straight-line methods over the estimated useful lives of the related assets. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any resulting gain or loss on disposition is reflected in operations. Repairs and maintenance are expensed as incurred; expenditures for additions, improvements and replacements are capitalized. The various classes of fixed assets are depreciated over their estimated useful lives as follows:

Computer equipment – 3 years

Goodwill represents the excess of the purchase price of an acquisition over the estimated fair value of identifiable net assets acquired. The measurement periods for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes known, not to exceed 12 months. Adjustments in a purchase price allocation may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

***Off-Balance Sheet Arrangements***

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We have no off-balance sheet arrangements.

***Recently Issued Accounting Pronouncements***

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

**MANAGEMENT AND BOARD OF DIRECTORS**

**Board of Directors, Executive Officers and Significant Employees**

Set forth below are our executive officers and members of our Board of Directors (the "Board").

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| | | |
|:---|:---|:---|
| **<u>Name</u>** | **<u>Age</u>** | **<u>Position</u>** |
| Brandon Torres Declet | 47 | Chief Executive Officer, and Chairman of the Board of the Directors |
| Matthew Newman | 47 | President |
| Brian Hoff | 37 | Chief Financial Officer |
| Robert Lowry | 63 | Director |
| Thomas Walker | 54 | Director |
| Jeffrey Thompson | 58 | Director |
| Cristina A. Colón | 35 | Director |

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Our directors hold office until the next annual meeting of shareholders of the Company and until their successors have been elected and qualified. Our officers are elected by and serve at the discretion of the Board.

**Biographies**

***Brandon Torres Declet,*** *Chief Executive Officer, and Chairman of the Board of the Directors*

Brandon Torres Declet has served as the Chief Executive Officer and Chairman of the Board of the Company since April 2022. Prior to that, he provided strategic and fiduciary leadership at AgEagle Aerial Systems, Inc. (NYSE: UAVS), a leading commercial drone company, as Chief Executive Officer and Director from May 2021 to January 2022, and as Chief Operating Officer from April 2021 to May 2021. Previously, he founded Measure UAS, Inc. ("Measure") in May 2014 and served as its Chief Executive Officer from its founding until November 2019, where he built and grew this aerial intelligence company to the top 5% of drone firms by revenue – subsequently selling the Measure drone services business to the Aerodyne Group in November 2019, where he served as Chairman of Aerodyne Measure until April 2021. After his first successful exit, he founded and developed a drone SaaS platform Ground Control at Measure Global, Inc., which provides drone mission planning, data collection, processing, analysis, and intelligence reporting, he had his second successful exit selling that SaaS business to AgEagle for combination of cash and stock valued at $45 million less certain adjustments in April 2021.

Mr. Declet and his team at Measure earned a Technology and Engineering Emmy™ Award for technical work in drone cinematography and was recognized with the Frost & Sullivan Award for Growth Excellence. In public service, he was appointed Senior Advisor to Oxford University's Centre for Technology and Global Affairs and by the U.S. Secretary of Transportation to the FAA's Advanced Aviation Advisory Committee (AAAC). He has also served as Counsel to U.S. House of Representatives; Homeland Security Committee; Counsel on Capitol Hill to Senator Feinstein, Congresswoman Harman, and Counsel to the Senate Intelligence and Judiciary Committees.

As a global Chief Executive Officer, Chief Operating Officer, and Board Director with extensive operational experience, he has built, led, and advised public and private companies during complex business evolutions and exits through challenging turnarounds, disruptive transformations, scaling, and strategic pivots. Recognized and trusted by the Fortune 500 as a leading Latino and Puerto Rican drone industry entrepreneur and policy expert, he has 20+ years' experience intersecting top government agencies and corporate industry in highly regulated markets and has firsthand experience successfully navigating regulatory challenges.

A drone industry thought leader, Mr. Declet has been featured on CNN, CNBC, Fox News, and Commercial UAV News among others. In 2018 and 2019, he was named a Tech Titan by Washingtonian Magazine.

Mr. Declet's management and public company experience, his experience in the drone business and his role as President and Chief Executive Officer of the Company, led to his appointment as a director.

***Matthew Newman, President***

Mr. Newman has served as the Company's President since September 2020. From January 2014 to September 2019, he served as a Director of Sales at SRC Solutions Inc., a 5G test solutions company.

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***Brian Hoff, Chief Financial Officer***

Mr. Hoff has served as the Company's Chief Financial Officer since November 2022. Prior to that, he served as the Chief Financial Officer of Auddia, Inc. (Nasdaq: AUUD), a technology company focused on audio media, from April 2021 to October 2022. He served as Vice President and Controller at STACK Infrastructure, a digital infrastructure company, from October 2019 to April 2021, and as Controller at Coalfire, a cybersecurity company, from November 2011 until October 2019.

***Robert Lowry, Director***

Mr. Lowry has served as a director of the Company since August 2022. Mr. Lowry has been the owner of Sebring Assisted Living Facility since 1998, and the owner of Homestead Assisted Living Facility since 2007. Mr. Lowry's experience as a business entrepreneur and his experience in operational finance led to his appointment as a director.

***Thomas Walker, Director***

Mr. Walker has served as a director of the Company since November 2022. He has served as Chief Executive Officer of DroneUp LLC, a drone services and logistics company since November 2016. Mr. Walker's experience as an entrepreneur and Chief Executive Officer of a drone company led to his appointment as a director.

***Jeffrey Thompson, Director***

Mr. Thompson has served as a director of the Company since inception in 2019. He served as the Company's principal executive officer from inception until April 2022. Mr. Thompson has been President and Chief Executive Officer of Red Cat since May 15, 2019. Mr. Thompson was a director of Panacea Life Sciences Holdings, Inc. (OTCQB:PLSH), a producer and marketer of products made from industrial hemp (CBD), from January 2019 until April 2020. Mr. Thompson's management and public company experience, his experience in the drone business and his role as President and Chief Executive Officer of Red Cat, led to his appointment as a director.

***Cristina A. Colón, Director***

Ms. Colón has a served as a director of the Company since August 2022. Ms. Colón has been the owner of Cinmarc & Associates LLC, a public housing consulting firm, since 2018 and has served as its President since August 2021. Ms. Colón has also been the owner/operator Café de La Plaza, a restaurant located in Palmas del Mar, Puerto Rico, since 2009. From 2019 to 2021, Ms. Colón served as an investor relations specialist at OptimizeRX, a medical technology company. Ms. Colón's experience as an entrepreneur and her marketing and investor relations experience led to her appointment as a director.

**Composition of our Board of Directors**

Our Board of Directors currently consists of five members. Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. There are no family relationships among any of our directors or executive officers.

**Director Independence**

Our Board has determined that all of our present directors are independent, in accordance with standards under the Nasdaq Listing Rules, other than Mr. Declet and Mr. Thompson. Our Board determined that, under the Nasdaq Listing Rules, Mr. Declet is not an independent director because he is the Chief Executive Officer of the Company. It has also been determined that Mr. Thompson is not an independent director, having previously been Chief Executive Officer of the Company in the last three years.

Our Board has determined that Mr. Lowry, Mr. Walker, and Ms. Colón are independent under the Nasdaq Listing Rules' independence standards for Audit Committee members. Our Board has also determined that they are independent under the Nasdaq Listing Rules independence standards for Compensation Committee members and for Governance and Nominating committee members.

**Committees of the Board of Directors**

**Audit Committee**

The Audit Committee, which currently consists of Mr. Lowry (Chair), Mr. Walker, and Ms. Colón. Each member of the Audit Committee is an independent director as defined by the rules of the SEC and Nasdaq. The Audit Committee has the sole authority and responsibility to select, evaluate and engage independent auditors for the Company. The Audit Committee reviews with the auditors and with the Company's financial management all matters relating to the annual audit of the Company.

The Audit Committee monitors the integrity of our financial statements, monitors the independent registered public accounting firm's qualifications and independence, monitors the performance of our internal audit function and the auditors, and monitors our compliance with legal and regulatory requirements. The Audit Committee also meets with our auditors to review the results of their audit and review of our annual and interim financial statements.

The Audit Committee plans to meet at least on a quarterly basis to discuss with management the annual audited financial statements and quarterly financial statements and meets from time to time to discuss general corporate matters.

**Audit Committee Financial Expert**

Our Board determined that Mr. Lowry is qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC, in compliance with the Sarbanes-Oxley Act of 2002.

**Compensation Committee**

The Compensation Committee, which currently consists of Mr. Walker (Chair), Ms. Colón, and Mr. Lowry each of whom are independent directors. Among other things, the Compensation Committee reviews, recommends and approves salaries and other compensation of the Company's executive officers, and administers the Company's Equity Incentive Plan (including reviewing, recommending and approving stock option and other equity incentive grants to executive officers).

The Compensation Committee will meet in executive session to determine the compensation of the Chief Executive Officer of the Company. In determining the amount, form, and terms of such compensation, the Committee will consider the annual performance evaluation of the Chief Executive Officer conducted by the Board in light of company goals and objectives relevant to Chief Executive Officer compensation, competitive market data pertaining to Chief Executive Officer compensation at comparable companies, and such other factors as it deems relevant, and is guided by, and seeks to promote, the best interests of the Company and its shareholders.

In addition, subject to existing agreements, the Compensation Committee is authorized to determine the salaries, bonuses, and other matters relating to compensation of the executive officers of the Company using similar parameters. It may set performance targets for determining periodic bonuses payable to executive officers. It is also authorized to review and make recommendations to the Board regarding executive and employee compensation and benefit plans and programs generally, including employee bonus and retirement plans and programs (except to the extent specifically delegated to a Board appointed committee with authority to administer a particular plan). In addition, the Compensation Committee approves the compensation of non-employee directors and reports it to the full Board.

The Compensation Committee also reviews and makes recommendations with respect to shareholder proposals related to compensation matters.

The Compensation Committee may, in its sole discretion and at the Company's cost, retain or obtain the advice of a compensation consultant, legal counsel or other adviser. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the committee.

**Corporate Governance and Nominating Committee**

The Corporate Governance and Nominating Committee (the "Nominating Committee"), consists of Ms. Colón (Chair), Mr. Lowry, and Mr. Walker, each of whom meets the independence requirements of all other applicable laws, rules and regulations governing director independence, as determined by the Board.

The Nominating Committee has the authority to identify individuals qualified to become members of the Board, consistent with criteria approved by the Board; recommend to the Board the director nominees for the next annual meeting of shareholders at which directors are to be elected; recommend to the Board candidates to fill any vacancies on the Board; develops, recommend to the Board, and reviews the corporate governance guidelines applicable to the Company; and oversees the evaluation of the Board and management.

It is authorized to consider and recruit candidates to fill positions on the Board, including as a result of the removal, resignation or retirement of any director, an increase in the size of the Board or otherwise. The Nominating Committee has the authority to conduct, subject to applicable law, any and all inquiries into the background and qualifications of any candidate for the Board and such candidate's compliance with the independence and other qualification requirements established by the Nominating Committee.

In selecting and recommending candidates for election to the Board or appointment to any committee of the Board, the Nominating Committee does not believe that it is appropriate to select nominees through mechanical application of specified criteria. Rather, the Nominating Committee shall consider such factors at it deems appropriate, including, without limitation, the following: personal and professional integrity, ethics and values; experience in corporate management, such as serving as an officer or former officer of a publicly-held company; experience in the Company's industry; experience as a board member of another publicly-held company; diversity as required by the Nasdaq Rules; diversity of expertise and experience in substantive matters pertaining to the Company's business relative to other directors of the Company; practical and mature business judgment; and composition of the Board (including its size and structure).

The Nominating Committee will develop and recommend to the Board a policy regarding the consideration of director candidates recommended by the Company's shareholders and procedures for submission by shareholders of director nominee recommendations.

The Nominating Committee oversees the evaluation of the Board and management. It also develops and recommends to the Board a set of corporate governance guidelines applicable to the Company, which the Nominating Committee shall periodically review and revise as appropriate. In discharging its oversight role, the Nominating Committee is empowered to investigate any matter brought to its attention.

**Board and Committee Meetings in Fiscal Year 2022**

In the fiscal year ended December 31, 2022, the Board had three meetings and acted on 4 occasions by unanimous consent. We did not have any Committees during 2022.

There were no directors who attended fewer than 75 percent of the number of Board meetings during the fiscal year ended December 31, 2022.

**Board Diversity**

While we do not have a formal policy on diversity, the Board considers diversity to include race, ethnicity, gender as well as the skill set, background, reputation, type and length of business experience of the Board members as well as a particular nominee's contributions to that mix. The Board believes that diversity brings a variety of ideas, judgments and considerations that benefit the Company and its shareholders. Although there are many other factors, the Board seeks individuals with experience on operating and growing businesses.

Nasdaq's Board Diversity Rule, which will apply to us following this Offering, requires smaller reporting companies that are listed on Nasdaq to (i) publicly disclose board-level diversity statistics using a standardized template; and (ii) have, or explain why they do not have, at least two diverse directors. The Rule also provides additional flexibility for smaller reporting companies, which can meet the diversity objective by including two female directors, and for all companies with five or fewer directors, which can meet the diversity objective by including one diverse director.

The Nasdaq Diversity Rule provides that a newly listed company must provide a Board Diversity Matrix on its website within one year of its initial listing.

Because we presently have five directors, the Nasdaq Board Diversity Rule requires that we either have one diverse director or explain why we do not. The Company has two diverse directors, Mr. Declet who self identifies as Hispanic and Ms. Colón who self identifies as both female and Hispanic.

**Board Leadership Structure**

Brandon Torres Declet serves as the Chairman of the Board and actively interfaces with management, the Board and counsel regularly. We have chosen to combine the Chief Executive Officer and Board Chairman positions, as we believe that this Board leadership structure is the most appropriate for the Company. Because we are a small company, it is more efficient to have the leadership of the Board in the same hands as the Chief Executive Officer. The challenges faced by us at this stage – closing the acquisition of Fat Shark and Rotor Riot and this Offering as well as implementing our business and marketing plans, integrating the acquisitions, continuing and managing our growth– are most efficiently dealt with by one person who is familiar with both the operational aspects as well as the strategic aspects of our business.

**Board Risk Oversight**

The Company's risk management function is overseen by the Board. The Company's management keeps the Board apprised of material risks and provides its directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect us, and how management addresses those risks. Brandon Torres Declet, Chairman of the Board, works closely together with the other members of the Board when material risks are identified on how to best address such risks. If the identified risk poses an actual or potential conflict with management, the Company's independent directors may conduct the assessment. Presently, the primary risks affecting us are our liquidity and the lack of revenue.

**Family Relationships**

There are no family relationships among any of our officers or directors.

**Involvement in Legal Proceedings**

We are not aware of any of our directors or officers being involved in any legal proceedings in the past 10 years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401(f) of Regulation S-K of the SEC.

**Code of Ethics** 

The Board has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") that applies to all of the Company's employees, including the Company's Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to the Company's directors. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations and the prompt reporting of illegal or unethical behavior, and accountability for adherence to the Code of Ethics.

**EXECUTIVE AND DIRECTOR COMPENSATION** 

**Summary Compensation Table**

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our Chief Executive Officer, two most highly paid executive officers with compensation exceeding $100,000 during the fiscal years ended December 31, 2022 and 2021, and two additional individuals for whom the foregoing would apply but for the fact that they were not executive officers of the Company as of December 31, 2022 (each a "Named Executive Officer").

---

| | | | |
|:---|:---|:---|:---|
| **Name and Principal Position** | **Year** | **Salary<br> ($)** | **Total<br> ($)** |
| Jeffrey Thompson(1) | 2022 | 203000 | $203333 |
| Former Chief Executive Officer and President | 2021 | $66667 | $66667 |
| Brandon Torres Declet(2) | 2022 | $80000 | $80000 |
| Chief Executive Officer | 2021 | $– | $– |

---

(1) Mr. Thompson served as the Company's Chief Executive Officer from July 2019 to May 2022, when he replaced in such role by Brandon Torres Declet. Mr. Thompson is also the Chief Executive Officer and a director of Red Cat.

(2) Mr. Declet was appointed Chief Executive Officer in May 2022 and did not serve during the 2021 fiscal year.

**Fat Shark and Rotor Riot Summary Compensation Information**

Set forth below is summary compensation information similar to that set forth above, but reflecting amounts paid, payable or allocable to Fat Shark or Rotor Riot for executive officers of one or both of those entities who exceeded the enumerated threshold and which the Company anticipates hiring as an executive officer of the Company (directly or through Fat Shark or Rotor Riot) in connection with the acquisition of those entities in the Business Combination (the "Business Combination Officers"). See "[The Business Combination](#a_011)" for more information.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Name and Principal Position(1)** | **Year** | **Salary<br> ($)** | **Bonus<br> ($)** | **Option Awards<br> ($)** |  | **Total<br> ($)** |
| Andrew Camden | 2022 | $90000 | $6700 |  |  | $96700 |
| President of Rotor Riot | 2021 | $72500 | $– | $259483 | (2) | $331983 |

---

_________________

(1) Represents principal position(s) held at Red Cat, Fat Shark and/or Rotor Riot.

(2) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of 10-year options to purchase 100,000 shares of Red Cat common stock at an exercise price of $2.60, which become fully vested on June 7, 2024.

**2022 Equity Incentive Plan**

Effective October 1, 2022, the Board approved the Company's 2022 Equity Incentive Plan (the "Plan**)**. The Plan provides for the award of restricted stock units, stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees and consultants who provide services to the Company.

The Company has reserved 1,496,391 shares of common stock for issuance under the Plan, which represents approximately 10% of the outstanding common stock on a fully-diluted basis after giving effect to the exercise and conversion of all outstanding stock which may be issued outside of the Plan including preferred stock, the Senior Note, to the extent issued, and warrants and giving effect to this Offering and Business Combination, assuming no over-allotment option is exercised by the underwriter(s). This number will increase to the extent of any future issuances of common stock or derivative securities following this Offering. The Board may terminate the Plan at any time. Unless sooner terminated, the Plan will terminate ten years after the effective date of the Plan. The number of shares of common stock covered by each outstanding stock right, and the number of shares of common stock which have been authorized for issuance under the Plan as well as the price per share of common stock (or cash, as applicable) covered by each such outstanding option or SAR, shall be proportionately adjusted for any increases or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification, or any other increase or decrease in the number of issued shares of common stock effected without receipt of consideration by the Company.

**Employment Agreements**

<u>Employment Agreement with Brandon Torres Declet, Chief Executive Officer and Chairman</u>

The Employment Agreement with Mr. Declet effective January 1, 2023 provides that he will serve as our Chief Executive Officer of the Company, on an at will basis. Pursuant to his Employment Agreement, Mr. Declet receives an annual base salary of $250,000. In addition, Mr. Declet's Employment Agreement entitles him to the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· Eligibility to earn
 an annual bonus of 50% of his annual base salary based on key performance indicators, as set forth in a bonus plan that is to be
 established, approved, administered and determined by the Board.

· A cash and/or equity
 bonus of up to $125,000 upon the closing of each successful acquisition with the closing of this Offering, he will receive a $125,000
 bonus.

· A cash bonus and/or
 equity bonus equal to up to $125,000 upon the completion of a capital raise event, defined as a second offering on Nasdaq, a private
 placement offering, an at-the-market offering, a private investment in public equity offering.

· A grant of restricted
 stock units ("RSUs") equal to 1% of the outstanding common stock of the Company, vesting in for equal annual increments
 with the first vesting to occur on the 12-month anniversary of the effective date of the Employment Agreement, subject to continued
 employment upon each applicable vesting date. This grant becomes effective upon the earlier to occur of 30 days following (i) the
 closing of the Fat Shark and Rotor Riot acquisition and (ii) the date on which the Company reasonably determines not to proceed with
 the acquisition.

Additionally, under his Employment Agreement, if Mr. Declet is terminated by the Company without Cause or terminates his employment for Good Reason, he will be entitled to six months' annual base salary and COBRA premiums, as well as accelerated vesting of 50% of the then unvested RSUs, if applicable.

For this purpose, Good Reason is generally defined as (i) any reduction in his base salary, (ii) any material diminution of his authorities, titles or offices, (iii) being required to report to anyone other than the Board of Directors, (iv) a request by the Company to relocate, or (v) material breach of his Employment Agreement without cure after 30 days' written notice.

Cause is generally defined as (i) failure to perform his material duties under the Employment Agreement, following 30 days' written notice without cure, (ii) willful misconduct or gross negligence or breach of a fiduciary duty owed to the Company, (iii) conviction of our guilty pleas to a felony or other criminal offense involving moral turpitude, (iv) any act or omission involving dishonesty, disloyalty, or fraud causing or reasonably expected to cause significant economic harm to the Company, or (v) material breach of his Employment Agreement without cure after 30 days' written notice.

Mr. Declet's Employment Agreement will be reviewed by our Board of Directors upon the consummation of this Offering.

<u>Employment Agreement with Brian Hoff, Chief Financial Officer</u>

The Employment Agreement with Mr. Hoff effective November 1, 2022 provides that he will serve as the Chief Financial Officer of the Company on an at will basis. Pursuant to his Employment Agreement, Mr. Hoff receives an annual base salary of $250,000. In addition, Mr. Hoff's Employment Agreement entitles him to the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· Eligibility to earn an annual bonus of 50% of
his annual base salary based on key performance indicators, as set forth in a bonus plan that is to be established, approved, administered
and determined by the Board and the Chief Executive Officer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· A cash and/or equity bonus of up to $125,000
upon the closing of each successful acquisition with the closing of this Offering, he will receive a $125,000 bonus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· A cash bonus and/or equity bonus equal to up
to $125,000 upon the completion of a capital raise event, defined as a second offering on Nasdaq, a private placement offering, an at-the-market
offering, a private investment in public equity offering.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· A grant of restricted stock units ("RSUs")
equal to 1% of the outstanding common stock of the Company, vesting in for equal annual increments with the first vesting to occur on
the 12-month anniversary of the effective date of the Employment Agreement, subject to continued employment upon each applicable vesting
date. This grant becomes effective upon the earlier to occur of 30 days following (i) the closing of the Fat Shark and Rotor Riot acquisition
and (ii) the date on which the Company reasonably determines not to proceed with the acquisition.

Additionally, under his Employment Agreement, if Mr. Hoff is terminated by the Company without Cause or terminates his employment for Good Reason, he will be entitled to six months' annual base salary and COBRA premiums, as well as accelerated vesting of 50% of the then unvested RSUs, if applicable.

For this purpose, Good Reason is generally defined as (i) any reduction in his base salary, (ii) any material diminution of his authorities, titles or offices, (iii) being required to report to anyone other than the Chief Executive Officer, (iv) a request by the Company to relocate, or (v) material breach of his Employment Agreement without cure after 30 days' written notice.

Cause is generally defined as (i) failure to perform his material duties under the Employment Agreement, following 30 days' written notice without cure, (ii) willful misconduct or gross negligence or breach of a fiduciary duty owed to the Company, (iii) conviction of our guilty pleas to a felony or other criminal offense involving moral turpitude, (iv) any act or omission involving dishonesty, disloyalty, or fraud causing or reasonably expected to cause significant economic harm to the Company, or (v) material breach of his Employment Agreement without cure after 30 days' written notice.

**Director Compensation**

To date, we have not paid our non-employee directors any compensation for services on our Board. Following the Business Combination we anticipate granting our non-employee directors a quarterly grant cash and/or restricted stock units, or RSUs commencing upon the consummation of this Offering.

**Employee Benefit Plans**

The Company currently has a 2022 Equity Incentive Plan, a 401(k) plan, and will adopt the medical, dental, and vision coverage that is currently offered to Rotor Riot's employees for the Company's employees upon closing of the Business Combination.

**RELATED PARTY TRANSACTIONS**

The following is a description of transactions since January 1, 2020, to which we were a party or will be party, in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. As permitted by the SEC rules, discussion of employment relationships or transactions involving the Company's executive officers and directors, and compensation solely resulting from such employment relationships or transactions, or service as a director of the Company, as the case may be, has been omitted to the extent disclosed in the Executive Compensation or the Director Compensation section of this Prospectus, as applicable.

On September 10, 2021, our founder and former Chief Executive Officer Jeffrey Thompson subscribed for 2,400,000 shares of our common stock for a total subscription price of $24,000. For more information on the private offering to which this related, see "Recent Sales of Unregistered Securities." Mr. Thompson subsequently subscribed for an additional 52,000 shares of our common stock on September 14, 2021 for an additional $26,000.

In November 2022 we entered into the Purchase Agreement with Red Cat and Jeffrey Thompson, the Company's former Chief Executive Officer and President and current director, pursuant to which, among other things, Mr. Thompson and the Company have agreed to indemnification obligations, which shall survive for a period of nine months, subject to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of the Escrow Shares, other than in cases involving fraud. Mr. Thompson agreed to deposit 450,000 shares of our common stock owned by him, which we refer to herein as the "Escrow Shares," in to escrow to secure any indemnification obligations, which stock is our sole remedy, except for fraud.

In November 2020, Red Cat acquired Fat Shark Holdings for a total purchase price of $8.4 million. In January 2020, Red Cat acquired Rotor Riot for a total purchase price was $2.0 million.

Since July 2017, Fat Shark has used Shenzhen Fatshark Co, Ltd., referred to herein as the "Supplier," a drone manufacturing company located in Shenzhen, China, as its primary contract manufacturer for Fat Shark's drone products. In exchange for the Supplier's manufacturing services with respect to these products, Fat Shark pays the Supplier amounts equal to 115% of the sum of the bill of material and the labor costs for such production. Ms. Molly Mo, a majority owner of the Supplier is the wife of Greg French, the founder and a consultant of Fat Shark. Since January 1, 2020, Fat Shark has paid or accrued a total of $12,261,440 in purchase orders to the Supplier. As of January 31, 2023, Fat Shark owed the related party Supplier $231,000, which does not include unfilled purchase orders of approximately $1.2 million.

**PRINCIPAL STOCKHOLDERS**

The following table lists, based on amounts outstanding as of March 7, 2023 (before the Offering) and estimated amounts to be outstanding after the Offering (based on certain assumptions described below), the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Exchange Act) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our directors (iii) each of our named executive officers and the executive officers of Fat Shark and Rotor Riot as described under "Executive Compensation," and (iv) all executive officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each shareholder's address is c/o Unusual Machines, Inc., 151 Calle De San Francisco, Ste 200 PMB 2106, San Juan, PR 00901-1607.

Applicable percentage ownership before the Offering is based on 6,934,500 shares of common stock outstanding as of the date stated above and excludes for this purpose shares of common stock issuable upon conversion of the Series A and Senior Note to be issued by the Company to Red Cat upon the closing of the Business Combination which will occur simultaneously with or immediately prior to this Offering. The Series A and Senior Note are each subject to beneficial ownership limitations, as more fully described under "The Business Combination."

Applicable percentage ownership after the Offering is based on the issuance of _______ shares of common stock in this Offering (based on $___ per share (the mid –point of the range) and excludes ________ shares of common stock issuable if the underwriter exercises its option to purchase additional shares.

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| | | | |
|:---|:---|:---|:---|
| **Name and Address of Beneficial Owner** | **Amount of Shares Beneficially Owned Before Offering** | **Percentage of Beneficial Ownership Before Offering** | **Amount of Shares Beneficially Owned After Offering** |
| **Named Executive Officers and Directors:** |  |  |  |
| Brandon Torres Declet | 0 | \* | 0 \* |
| Brian Hoff | 0 | \* | 0 \* |
| Robert Lowry | 0 | \* | 0 \* |
| Thomas Walker | 0 | \* | 0 \* |
| Jeffrey Thompson(1) | 1557000 | 22.5% |  |
| Cristina A. Colón | 0 |  |  |
| All executive officers and directors as a group (6 persons) | 1557000 | 22.5% |  |
| **Other 5% Holders** |  |  |  |
| Gordon Holmes (2) | 725000 | 10.5% |  |
| Michael Laughlin (3) | 400000 | 5.8% |  |
| Eleven Ventures (4) | 500000 | 7.2% |  |

---

\*Less than 1%

(1) The amount of shares beneficially owned by Mr. Thompson before the Offering only includes shares of the Company's common stock personally owned by Mr. Thompson. Mr. Thompson is the Chief Executive Officer of Red Cat. Does not include the shares of common stock issuable upon conversion of the Series A and Senior Note to be issued to Red Cat in the Business Combination, which are subject to beneficial ownership limitations. We have been informed by Red Cat's counsel that Mr. Thompson is not deemed to be the beneficial owner of the shares beneficially owned by Red Cat. Address is 15 Ave. Munoz Rivera Ste 2200, San Juan, PR 00901.

(2) Address is 295 Palmas Inn Way, Ste 104 PMB 115, Humacao, PR 00791.

(3) Address is 145 Sandy Hook Rd N, Sarasota, FL 34242.

(4) Address is 463 Adams St, Denver, CO 80206. Jonathan Honig has the power to sell and vote common stock owned by Eleven Ventures.

**Change-in-Control Agreements**

The Company does not have any change-in-control agreements with any of its executive officers.

**DESCRIPTION OF SECURITIES**

Our authorized capital stock consists of 500,000,000 shares of common stock, par value $0.01 per share, of which 6,934,500 shares are outstanding as of March 7, 2023, and 10,000,000 shares of "blank check" preferred stock, par value $0.01 per share, of which no shares are outstanding, as of the date of this Prospectus.

The following description summarizes the material terms of our securities, which does not purport to be complete and is qualified in its entirety by reference to our Amended and Restated Articles of Incorporation, and the Certificate of Designation setting forth the terms of our authorized series of preferred stock, each of which are filed as an exhibit to the Registration Statement of which this Prospectus is a part, and to the applicable provisions of Puerto Rican law, including the Puerto Rico General Corporate Act.

**Common Stock**

The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of outstanding common stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to any voting rights of any preferred. Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends as may be declared by the Board out of funds legally available therefor. Upon the liquidation, dissolution or winding up of the Company, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. Our common stock has no redemption or sinking fund provisions. The rights, preferences and privileges of the holders of the common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that the Board may designate and issue in the future. All outstanding shares of common stock are fully paid and non-assessable.

**"Blank Check" Preferred Stock**

Pursuant to our Articles of Incorporation, our Board has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock, in one or more series. Our Articles of Incorporation provide that our Board has the authority, without further action by the shareholders, to designate and issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock. Preferred stock may be designated and issued without authorization of shareholders unless such authorization is required by applicable law, the rules of the principal market or other securities exchange on which our stock is then listed or admitted to trading.

Our Board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, under some circumstances, have the effect of delaying, deferring or preventing a change in control of the Company.

**Series A Convertible Preferred Stock**

We expect to issue 2,675,000 shares of Series A upon the closing of the Business Combination, which subject to the other closing conditions will occur simultaneously with this Offering. The material terms of the Series A are summarized elsewhere in this Prospectus under "[The Business Combination](#a_011)."

**Series B Convertible Preferred Stock**

We have 140 outstanding shares of Series B Convertible Preferred Stock (the "Series B"). Each share of Series B is convertible into 10,000 shares of our common stock at the election of the holder, subject to a 4.99% beneficial ownership limitation which may be increased to up to 9.99% upon 61 days' written notice from the holder. The Series B is non-voting and has no other special rights other than the conversion feature.

**Convertible Note**

We expect to issue the Senior Note upon the closing of the Business Combination, which subject to the other closing conditions will occur simultaneously with this Offering. The material terms of the Senior Note are summarized elsewhere in this Prospectus under "[The Business Combination](#a_011)."

**Anti-Takeover Effects of Provisions of our Articles of Incorporation, our Bylaws and Puerto Rico Law**

Certain provisions in our Amended and Restated Articles of Incorporation and Bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

"**Blank Check" Preferred Stock**.

Under our Articles of Incorporation the Board may authorize the issuance of one or more series of preferred stock with such rights, preferences and limitations as the Board may determine, including voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, under some circumstances, have the effect of delaying, deferring or preventing a change in control of the Company.

**Advance Notice Requirements for Stockholder Proposals and Director Nominations**.

Our Bylaws will provide that, stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice generally must be delivered to and received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, that, in the event that the date of such meeting is advanced more than 30 days prior to, or delayed by more than 60 days after, the anniversary of the preceding year's annual meeting of our stockholders, a stockholder's notice to be timely must be so delivered not earlier than the close of business on the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Our Bylaws also will specify certain requirements as to the form and content of a stockholder's notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.

**Special Meeting Limitations**

Under our Bylaws, special meetings of the stockholders may be called only by (i) our Board, or (ii) a holder of at least 20% of the shares entitled to vote at the meeting.

**Transfer Agent and Registrar**

The transfer agent and registrar for our common stock is Equity Stock Transfer.

**UNDERWRITING**

Subject to the terms and conditions set forth in the underwriting agreement, dated , 2023 between us and _________, as representative of the underwriters named below, or the "Representative," and the sole book-running manager of this offering, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the shares of common stock shown opposite its name below:

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| | |
|:---|:---|
| **Underwriter** | **Number of Shares** |
| __________ | [●] |
| __________ | [●] |
| &nbsp;&nbsp;&nbsp;Total | [●] |

---

Under the terms of the underwriting agreement, the underwriters are committed to purchase all of the shares offered by this prospectus (other than the shares subject to the underwriters' option to purchase additional shares), if the underwriters buy any of such shares. The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the underwriters of officers' certificates and legal opinions and approval of certain legal matters by their counsel. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

**Option to Purchase Additional Shares**

We have granted to the underwriters an option, exercisable for 45 days from the date of this Prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of _____ shares from us at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the underwriters exercise this option, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment as indicated in the table above.

**Commission and Expenses**

The underwriters have advised us that they propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of _____ per share of common stock. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of _____ per share of common stock to certain brokers and dealers. After the initial offering, the underwriters may change the offering price and other selling terms.

We have paid _________, a $50,000 advance upon the execution of the Letter of Engagement between us and _________, dated March 2, 2023 (as amended), to be credited against the accountable expenses actually incurred by _________ in connection with this Offering. To the extent that the accountable expenses actually incurred by _________ in connection with this Offering amount to less than $_____, the difference will be reimbursed to us in compliance with FINRA Rule 5110(g)(4)(A).

**Underwriter's Warrants**

We have agreed to issue warrants to _________ to purchase a number of shares equal to five percent (5%) of the total number of shares sold in this Offering at an exercise price equal to 125% of the public offering price of the shares sold in this Offering. Underwriter's Warrants will be exercisable 180 days from the commencement date of sales in this Offering, will have a cashless exercise provision and will terminate on the fifth anniversary of the commencement date of sales in this Offering. Underwriter's Warrants will provide for immediate "piggyback" registration rights with respect to the registration of the common stock underlying the Warrants. Underwriter's Warrants will also provide for customary anti-dilution provisions for stock dividends, splits, mergers, and any future issuance of ordinary shares or ordinary shares equivalents at prices (or with exercise and/or conversion prices) below the exercise price. Underwriter's Warrants shall also provide for automatic exercise immediately prior to expiration. Underwriter's Warrants shall not be callable or cancellable. We are registering the sale of Underwriter's Warrants and the shares underlying Underwriter's Warrants in this Offering.

Underwriter's Warrants and the underlying shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e)(1). In accordance with FINRA Rule 5110(e)(1), neither Underwriter's Warrants nor any of our ordinary shares issued upon exercise of Underwriter's Warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the commencement date of sales in this Offering, subject to certain exceptions. Underwriter's Warrants to be received by _________ and related persons in connection with this Offering: (i) fully comply with lock-up restrictions pursuant to FINRA Rule 5110(e)(1); and (ii) fully comply with transfer restrictions pursuant to FINRA Rule 5110(e)(2).

**Right of First Refusal**

For a period of twenty-four (24) months from the Closing, the Company will grant to _________ an irrevocable right of first refusal to act as sole investment banker, sole book-runner and/or sole placement agent, at _________'s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings, during such twenty-four (24) month period for the Company, or any successor to or any subsidiary of the Company, on terms customary to _________. _________, shall have the sole right to determine whether or not any other broker-dealer shall have the right to participate in any such offering and the economic terms of any such participation.

The following table shows the public offering price, the underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this Offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Per Share** | | **Total** | |
|  | **Without <br> Option to Purchase <br> Additional Shares** | **With <br> Option to Purchase <br> Additional Shares** | **Without <br> Option to Purchase <br> Additional Shares** | **With <br> Option to Purchase <br> Additional Shares** |
| Public offering price | $— | $— | $— | $— |
| Underwriting discounts and commissions | $— | $— | $— | $— |
| Proceeds to us, before <br> expenses | $— | $— | $— | $— |

---

We estimate expenses payable by us in connection with this Offering, other than the underwriting discounts and commissions referred to above, will be approximately $_____. To the extent that the accountable expenses actually incurred by the _________ in connection with this Offering amount to less than $_____, the difference will be reimbursed to us in compliance with FINRA Rule 5110(g)(4)(A). We have agreed to reimburse the _________ up to $125,000 for their fees and expenses of legal counsel and other out-of-pocket expenses, roadshow expenses and cost of background checks. We have also agreed to reimburse the _________ for certain of their expenses incurred in connection with the offering's settlement and closing in an amount not to exceed $30,000. Such reimbursed fees and expenses, as set forth in the underwriting agreement, are deemed underwriting compensation for this Offering by FINRA.

**Listing**

We have applied to list our common stock on the Nasdaq Capital Market under the symbol "UMAC." The approval of our common stock for listing on Nasdaq is a condition to the closing of this Offering.

**No Sales of Similar Securities**

We, our officers and our directors have agreed, subject to certain specified exceptions, not to directly or indirectly, for a period of 8 months after the date of the underwriting agreement, or 6 months in case of any other holder of outstanding securities, after the date of the underwriting agreement, in the case of our officers and directors:

&nbsp;&nbsp;&nbsp;&nbsp;· sell,
 offer, contract or grant any option to sell (including any short sale), pledge, transfer,
 establish an open "put equivalent position" within the meaning of Rule 16a-l(h) under
 the Securities Exchange Act of 1934, as amended, or otherwise dispose of,
 any shares of common stock, options or warrants to acquire shares of common stock, or securities
 exchangeable or exercisable for or convertible into shares of common stock currently or hereafter
 owned either of record or beneficially,

· enter into any swap, hedge other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of common
stock, or securities exchangeable or exercisable for or convertible into shares of common stock, or

· publicly announce an intention to do any of the foregoing for a period of 8
months for officers and directors, 6 months in case of any other holder of outstanding securities, after the date of this prospectus without
the prior written consent of the underwriters.

In addition, we and each such person agrees that, without the prior written consent of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.

The underwriters may, in their sole discretion and at any time or from time to time before the termination of the 8 months or 6 months periods release all or any portion of the securities subject to lock-up agreements.

Subject to compliance with the notification requirements under FINRA Rule 5131 applicable to lock-up agreements with our directors or officers, if the underwriters, with our prior consent, agree to release or waive the restrictions set forth in a lock-up agreement with one of our directors or officers and provides us with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, we agree to announce the impending release or waiver by a press release through a major news service at least two business days before the effective date of the release or waiver.

**Market Making, Stabilization and Other Transactions**

The underwriters may make a market in the common stock as permitted by applicable laws and regulations. However, the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for the common stock, that you will be able to sell any of the common stock held by you at a particular time or that the prices that you receive when you sell will be favorable.

The underwriters have advised us that they, pursuant to Regulation M under the Securities Exchange Act of 1934, as amended, and certain persons participating in the offering, may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either "covered" short sales or "naked" short sales.

"Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares of our common stock in this Offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares of our common stock or purchasing shares of our common stock in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares.

"Naked" short sales are sales in excess of the option to purchase additional shares of our common stock. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our common stock in the open market after pricing that could adversely affect investors who purchase in this Offering.

A stabilizing bid is a bid for the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A syndicate covering transaction is the bid for or the purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the common stock originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.

Neither we, nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. The underwriters are not obligated to engage in these activities and, if commenced, may end any of these activities at any time.

**Passive Market Making**

The underwriters may also engage in passive market making transactions in our common stock on the NASDAQ in accordance with Rule 103 of Regulation M during a period before the commencement of offers or sales of shares of our common stock in this Offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker's bid, that bid must then be lowered when specified purchase limits are exceeded. Passive market making may cause the price of our common stock to be higher than the price that otherwise would exist in the open market in the absence of those transactions. The underwriters are not required to engage in passive market making and, if commenced, may end passive market making activities at any time.

**Electronic Distribution**

A prospectus in electronic format may be made available by e-mail or on the web sites or through online services maintained by one or more of the underwriters, selling group members (if any) or their affiliates. The underwriters may agree with us to allocate a specific number of shares of common stock for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters' web sites and any information contained in any other web site maintained by any of the underwriters is not part of this prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.

**Other Activities and Relationships**

The underwriters and certain of their respective affiliates are full service financial institutions engaged in a wide range of activities for their own accounts and the accounts of customers, which may include, among other things, corporate finance, mergers and acquisitions, merchant banking, equity and fixed income sales, trading and research, derivatives, foreign exchange, futures, asset management, custody, clearance and securities lending. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.

In addition, in the ordinary course of its business, the underwriters and their respective affiliates may, directly or indirectly, hold long or short positions, trade and otherwise conduct such activities in or with respect to debt or equity securities and/or bank debt of, and/or derivative products. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

**Stamp Taxes**

If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

**LEGAL MATTERS**

The validity of the securities being offered by this Prospectus will be passed upon for us by Nason, Yeager, Gerson, Harris & Fumero, P.A., Palm Beach Gardens, Florida, Carmel, Milazzo & Feil LLP, New York, New York is acting as counsel to the underwriters.

**EXPERTS**

The consolidated financial statements of the Company as of December 31, 2022 and 2021, and as of April 30, 2022 and 2021 for Fat Shark and Rotor Riot, and for the years then ended, included in this Prospectus have been so included in reliance on the report of BF Borgers, CPA, PC an independent registered public accounting firm, which includes an explanatory paragraph about the Company's ability to continue as a going concern, given on the authority of said firm as experts in auditing and accounting.

**INTERESTS OF NAMED EXPERTS AND COUNSEL**

None.

**WHERE YOU CAN FIND MORE INFORMATION**

We have filed with the SEC this registration statement on Form S-1 under the Securities Act with respect to the shares of common stock being offered by this Prospectus. This Prospectus, which constitutes a part of this registration statement, does not contain all of the information in this registration statement and its exhibits. For further information with respect to us and the common stock offered by this Prospectus, you should refer to this registration statement and the exhibits filed as part of that document. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to this registration statement. Each of these statements is qualified in all respects by this reference.

Upon completion of this Offering, we will be subject to the informational requirements of the Exchange Act and will file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, at the SEC's website at *www.sec.gov.* We also maintain a website at https://*unusualmachines.com/investors* and upon completion of this Offering, you may access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Upon completion of this Offering, you may also request a copy of these filings, at no cost, by writing or telephoning us at: Unusual Machines, Inc., 151 Calle De San Francisco, Ste 200 PMB 2106 San Juan, Puerto Rico 00901-1607 or contacting us at +1 855-921-4600.

**UNUSUAL MACHINES, INC.**

**INDEX TO FINANCIAL STATEMENTS**

---

| | |
|:---|:---|
|  | **Page** |
| **Unaudited ProForma Condensed Combined Financial Statements** |  |
| &nbsp;&nbsp;&nbsp;[Explanatory Note](#a_026) | F-2 |
| &nbsp;&nbsp;&nbsp;[Balance Sheets at December 31, 2022](#a_027) | F-3 |
| &nbsp;&nbsp;&nbsp;[Statements of Operations for the twelve months ended December 31, 2022 and 2021](#a_028) | F-5 |
| &nbsp;&nbsp;&nbsp;[Notes to Unaudited ProForma Condensed Combined Financial Statements](#a_029) | F-7 |
| **Unusual Machines, Inc. Financial Statements** |  |
| &nbsp;&nbsp;&nbsp;[Report of Independent Registered Public Accounting Firm](#a_030) | F-12 |
| &nbsp;&nbsp;&nbsp;[Balance Sheets at December 31, 2022 and 2021](#a_031) | F-13 |
| &nbsp;&nbsp;&nbsp;[Statement of Operations for the years ended December 31, 2022 and 2021](#a_032) | F-14 |
| &nbsp;&nbsp;&nbsp;[Statement of Changes in Stockholders' Equity for the years ended December 31, 2022 and 2021](#a_033) | F-15 |
| &nbsp;&nbsp;&nbsp;[Statement of Cash Flows for the years ended December 31, 2022 and 2021](#a_034) | F-16 |
| &nbsp;&nbsp;&nbsp;[Notes to Financial Statements](#a_035) | F-17 |
| **Fat Shark Holdings, Ltd. Unaudited Interim Financial Statements** |  |
| &nbsp;&nbsp;&nbsp;[Balance Sheets at October 31, 2022 and April 30, 2022](#a_036) | F-21 |
| &nbsp;&nbsp;&nbsp;[Statements of Operations for the three and six months ended October 31, 2022 and 2021](#a_037) | F-22 |
| &nbsp;&nbsp;&nbsp;[Statement of Stockholders' Equity for the six months ended October 31, 2022 and 2021](#a_038) | F-23 |
| &nbsp;&nbsp;&nbsp;[Statement of Cash Flows for the six months ended October 31, 2022 and 2021](#a_039) | F-24 |
| &nbsp;&nbsp;&nbsp;[Notes to Financial Statements](#a_040) | F-25 |
| **Fat Shark Holdings, Ltd. Audited Financial Statements** |  |
| &nbsp;&nbsp;&nbsp;[Report of Independent Registered Public Accounting Firm](#a_041) | F-32 |
| &nbsp;&nbsp;&nbsp;[Balance Sheets at April 30, 2022 and 2021](#a_042) | F-33 |
| &nbsp;&nbsp;&nbsp;[Statements of Operations for the years ended April 30, 2022 and 2021](#a_043) | F-34 |
| &nbsp;&nbsp;&nbsp;[Statement of Stockholders' Equity for the years ended April 30, 2022](#a_044) | F-35 |
| &nbsp;&nbsp;&nbsp;[Statement of Cash Flows for the years ended April 30, 2022 and 2021](#a_045) | F-36 |
| &nbsp;&nbsp;&nbsp;[Notes to Financial Statements](#a_046) | F-37 |
| **Rotor Riot, LLC Unaudited Interim Financial Statements** |  |
| &nbsp;&nbsp;&nbsp;[Balance Sheets at October 31, 2022 and April 30, 2022](#a_060) | F-43 |
| &nbsp;&nbsp;&nbsp;[Statements of Operations for the three and six months ended October 31, 2022 and 2021](#a_061) | F-44 |
| &nbsp;&nbsp;&nbsp;[Statement of Stockholders' Equity for the six months ended October 31, 2022 and 2021](#a_062) | F-45 |
| &nbsp;&nbsp;&nbsp;[Statement of Cash Flows for the six months ended October 31, 2022 and 2021](#a_063) | F-46 |
| &nbsp;&nbsp;&nbsp;[Notes to Financial Statements](#a_064) | F-47 |
| **Rotor Riot, LLC Audited Financial Statements** |  |
| &nbsp;&nbsp;&nbsp;[Report of Independent Registered Public Accounting Firm](#a_047) | F-54 |
| &nbsp;&nbsp;&nbsp;[Balance Sheets at April 30, 2022 and 2021](#a_048) | F-55 |
| &nbsp;&nbsp;&nbsp;[Statements of Operations for the years ended April 30, 2022 and 2021](#a_049) | F-56 |
| &nbsp;&nbsp;&nbsp;[Statement of Members' Equity for the years ended April 30, 2022](#a_050) | F-57 |
| &nbsp;&nbsp;&nbsp;[Statement of Cash Flows for the years ended April 30, 2022 and 2021](#a_051) | F-58 |
| &nbsp;&nbsp;&nbsp;[Notes to Financial Statements](#a_052) | F-59 |

---

**UNAUDITED PRO FORMA**

**CONDENSED COMBINED FINANCIAL STATEMENTS**

The pro forma adjustments related to the Share Purchase Agreement are described in the notes to the unaudited pro forma combined financial information and principally include the following:

· Pro forma adjustment to eliminate intercompany transactions between Fat Shark and Rotor Riot

· Pro forma adjustment to eliminate the Fat Shark and Rotor Riot goodwill, liabilities and owners' equity not acquired as a part of the Share Purchase Agreement.

· Pro forma adjustment to record the share purchase

· Pro forma adjustment to record estimated proceeds and costs related to this Offering

The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed consolidated financial statements may be materially different from those reflected in the combined company's consolidated financial statements subsequent to the Share Purchase. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or results of operations of the combined companies. Reclassifications and adjustments may be required if changes to Fat Shark's and Rotor Riot's financial presentation are needed to conform Fat Shark's and Rotor Riot's accounting policies to the accounting policies of Unusual Machines, Inc.

These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the Share Purchase Agreement or Initial Public Offering. These financial statements also do not include any integration costs the companies may incur related to the transactions as part of combining the operations of the companies.

**UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS** 

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Unusual<br> Historical** | **Fat Shark<br> Historical** | **Rotor Riot Historical** | **Pro Forma Combining Adjustments** | **Pro Forma<br> Combined** |
|  | December 31,<br> 2022 | December 31,<br> 2022 | December 31,<br> 2022 | December 31,<br> 2022 | December 31,<br> 2022 |
| Assets |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;**Current Assets** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $3099422 | $35438 | $48732 | $3550000 A | $6733592 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net |  | 701764 |  | (699867) B | 1897 |
| &nbsp;&nbsp;&nbsp;Inventories, net |  | 1273843 | 1619186 | (156100) C | 2736929 |
| &nbsp;&nbsp;&nbsp;Deferred offering costs | 87825 |  |  | (87825) D |  |
| &nbsp;&nbsp;&nbsp;Other current assets | 139375 | 2352717 | 264161 | – | 2756253 |
| &nbsp;&nbsp;&nbsp;**Total Current Assets** | 3326622 | 4363762 | 1932079 | 2606208 | 12228671 |
| &nbsp;&nbsp;&nbsp;Right-of-use asset |  |  | 98625 |  | 98625 |
| &nbsp;&nbsp;&nbsp;Other non-current asset | 3690 |  | 3853 |  | 7543 |
| &nbsp;&nbsp;&nbsp;Goodwill |  | 6168260 |  | 5673463 E | 11841723 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | – | 1282667 | 20000 | – F | 1302667 |
| **Total Assets** | $3330312 | $11814689 | $2054557 | $8279671 | $25479229 |
| Liabilities and Stockholders' Equity (Deficit) |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | $120938 | $355865 | $763198 | $(699867) G | $540134 |
| &nbsp;&nbsp;&nbsp;Customer deposits |  | 47022 | 114198 |  | 161220 |
| &nbsp;&nbsp;&nbsp;Due to related party |  | 6086174 | 2846943 | (8933117) H |  |
| &nbsp;&nbsp;&nbsp;Convertible note payable |  |  |  | 2500000 I | 2500000 |
| &nbsp;&nbsp;&nbsp;Operating lease liability – current | – | – | 47185 | – | 47185 |
| &nbsp;&nbsp;&nbsp;Total Current Liabilities | 120938 | 6489061 | 3771524 | (7132984) | 3248539 |
| &nbsp;&nbsp;&nbsp;Operating lease liability - non-current | – | – | 59141 | – | 59141 |
| **Total Liabilities** | 120938 | 6489061 | 3830665 | (7132984) | 3307680 |
| **Stockholders' Equity (Deficit)** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Preferred stock | 1 |  |  | 26250 J | 26251 |
| &nbsp;&nbsp;&nbsp;Common stock | 67845 | 1 |  | 23528 K | 91374 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 4680119 | 6351076 |  | 12561320 L | 23592515 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (1538591) | (1025449) | (1776108) | 2801557 M | (1538591) |
| Total Stockholders' Equity (Deficit) | 3209374 | 5325628 | (1776108) | 15412655 | 22171549 |
| **Total Liabilities and Stockholders' Equity** | $3330312 | $11814689 | $2054557 | $8279671 | $25479229 |

---

Notes:

---

| | |
|:---|:---|
| A | Estimated cash proceeds of $10 million from this Offering, less estimated underwriter fee of $0.750 million, $0.2 million in underwriter non-accountable expense allowance, $0.5 million in other offering costs and $5 million cash payment related to the purchase of Fat Shark and Rotor Riot. |
| B | Eliminated intercompany accounts receivable between Fat Shark and Rotor Riot |
| C | Inventory cost adjustment related to intercompany sales between Fat Shark and Rotor Riot |
| D | Eliminate current deferred offering costs against additional paid in capital related to the anticipated closing of this Offering. |
| E | Goodwill recognized according to Accounting Standards Codification ("ASC") 805, *Business Combinations.* Adjustment eliminates non-acquired Fat Shark goodwill of $6,168,260 and recognizes goodwill on the share purchase agreement of $11,841,723. Goodwill is based on management's estimate and will be finalized upon closing of the share purchase agreement based on final assets acquired and liabilities assumed. Reference **Note 3 — Purchase Price Allocation and Goodwill** for management's estimation of goodwill. |
| F | Intangible assets, net recognized according to Accounting Standards Codification ("ASC") 805, *Business Combinations*. A valuation will be performed upon closing of the share purchase agreement based on final assets acquired and liabilities assumed. |
| G | Eliminated intercompany accounts payable between Fat Shark and Rotor Riot. |
| H<br>| Per the terms of the share purchase agreement, on or prior to the closing of the acquisition, Red Cat shall have eliminated any and all indebtedness, relating to the Target Companies. |
| I | Per the terms of the share purchase agreement and total consideration of the transaction, Unusual Machines will issue a senior secured convertible promissory note for $2.5 million. The Company has the option to repay the $2.5 million Senior Note in cash. The terms of the note payable are subject to 12 months interest free. |
| J | Per the terms of the share purchase agreement and total consideration of the transaction, Unusual Machines will issue $10.5 million in Unusual Series A Preferred Stock based on an estimated $4 per share price at closing of the transaction. |
| K | Common stock issued as a part of this Offering. Estimated $10 million in proceeds on an estimated $4.25 per share price, which estimates approximately 2.3 million common shares issued. |
| L | Unusual Series A Preferred Stock issued above par value as a part of the share purchase agreement and Unusual Common Stock issued above par value as a part of this Offering, offset by elimination of Fat Shark and Rotor Riot equity acquired and expenses related to this Offering. |
| M | Fat Shark and Rotor Riot accumulated deficit. |

---

**UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS** 

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **For the 12 months ended** | **Unusual Historical** | **Fat Shark<br> Historical** | **Rotor Riot Historical** | **Pro Forma<br> Adjustments** |  | **Pro Forma<br> Combined** |
|  | December 31,<br> 2022 | December 31,<br> 2022 | December 31,<br> 2022 |  |  | December 31,<br> 2022 |
| Revenue | $– | $3098494 | $2891347 | $(1100112) | N | $4889729 |
| &nbsp;&nbsp;&nbsp;Cost of revenues | – | 2723428 | 2326436 | (944012) | O | 4105852 |
| &nbsp;&nbsp;&nbsp;**Gross profit** | – | 375066 | 564911 | (156100) |  | 783877 |
| &nbsp;&nbsp;&nbsp;Gross margin | n/a | 12.1% | 19.5% |  |  | 16.0% |
| &nbsp;&nbsp;&nbsp;**Operating expenses:** |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Operations |  | 241145 | 408198 |  |  | 649343 |
| &nbsp;&nbsp;&nbsp;Research and development | 91325 | 303522 | 59866 |  |  | 454713 |
| &nbsp;&nbsp;&nbsp;Selling and marketing |  | 18909 | 561311 |  |  | 580220 |
| &nbsp;&nbsp;&nbsp;General and administrative | 1151407 | 92904 | 243056 |  |  | 1487367 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | – | 35232 | 219833 | – |  | 255065 |
| &nbsp;&nbsp;&nbsp;**Total operating expenses** | 1242732 | 691712 | 1492264 | – |  | 3426708 |
| &nbsp;&nbsp;&nbsp;**Operating loss** | (1242732) | (316646) | (927353) | (156100) |  | (2642831) |
| &nbsp;&nbsp;&nbsp;Other income (expenses) |  | (45085) | 8723 |  |  | (36362) |
| &nbsp;&nbsp;&nbsp;Interest income | 148 |  |  |  |  | 148 |
| &nbsp;&nbsp;&nbsp;Interest expense | – | – | – | – |  | – |
| &nbsp;&nbsp;&nbsp;**Loss before taxes** | (1242584) | (361731) | (918630) | (156100) |  | (2679045) |
| &nbsp;&nbsp;&nbsp;Provision for taxes | – | – | – | – |  | – |
| &nbsp;&nbsp;&nbsp;**Net loss** | $(1242584) | $(361731) | $(918630) | $(156100) |  | $(2679045) |

---

Notes:

---

| | |
|:---|:---|
| N | Elimination of intercompany revenues between Fat Shark and Rotor Riot. Fat Shark sells products to Rotor Riot, which is included in total revenue for Fat Shark and have been eliminated in the combined pro forma presentation. |

---

O Elimination of intercompany cost of revenues between Rotor Riot and Fat Shark. Rotor Riot purchases inventory from Fat Shark, which is included in total cost of revenues for Rotor Riot and have been eliminated in the combined pro forma presentation.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **For the 12 months ended** | **Unusual Historical** | **Fat Shark<br> Historical** | **Rotor Riot Historical** | **Pro Forma<br> Adjustments** |  | **Pro Forma<br> Combined** |
|  | December 31,<br> 2021 | December 31,<br> 2021 | December 31,<br> 2021 |  |  | December 31,<br> 2022 |
| Revenue | $4989 | $4446672 | $2124376 | $(144113) | P | $6431924 |
| Cost of revenues | – | 4056067 | 1656853 | (141409) | Q | 5571511 |
| **Gross profit** | 4989 | 390605 | 467523 | (2704) |  | 860413 |
| Gross margin | 100% | 8.8% | 22.0% |  |  | 13.4% |
| **Operating expenses:** |  |  |  |  |  |  |
| Operations |  | 344286 | 327982 |  |  | 672268 |
| Research and development |  | 396812 | 42900 |  |  | 439712 |
| Selling and marketing |  | 25623 | 173005 |  |  | 198628 |
| General and administrative | 166868 | 125825 | 186484 |  |  | 479177 |
| Stock based compensation | – | 4117 | 30293 | – |  | 34410 |
| **Total operating expenses** | 166868 | 896663 | 760664 | – |  | 1824195 |
| **Operating loss** | (161879) | (506058) | (293141) | (2704) |  | (963782) |
| Other income (expenses) |  | (44223) |  |  |  | (44223) |
| Interest income | 3 |  |  |  |  | 3 |
| Interest expense | – | – | (11783) | – |  | (11783) |
| **Loss before taxes** | (161876) | (550281) | (304924) | (2704) |  | (1019785) |
| Provision for taxes | – | – | – | – |  | – |
| **Net loss** | $(161876) | $(550281) | $(304924) | $(2704) |  | $(1019785) |

---

Notes:

---

| | |
|:---|:---|
| P | Elimination of intercompany revenues between Fat Shark and Rotor Riot. Fat Shark sells products to Rotor Riot, which is included in total revenue for Fat Shark and have been eliminated in the combined pro forma presentation. |

---

---

| | |
|:---|:---|
| Q | Elimination of intercompany cost of revenues between Rotor Riot and Fat Shark. Rotor Riot purchases inventory from Fat Shark, which is included in total cost of revenues for Rotor Riot and have been eliminated in the combined pro forma presentation. |

---

**Notes to Unaudited Pro Forma**

**Condensed Combined Financial Statements** 

**Note 1 — Basis of Presentation** 

On November 21, 2021, Unusual Machines, Inc. (the "Company") entered into a Share Purchase Agreement (the "Agreement") with Red Cat Holdings, Inc., a Nevada Corporation ("Red Cat") for the purchase and sale of Fat Shark Holdings, Ltd., a Nevada Corporation ("Fat Shark") and Rotor Riot, LLC, an Ohio limited liability Company ("Rotor Riot").

The Agreement provides that the Company will acquire all of the outstanding shares of capital stock of Fat Shark and Rotor Riot in exchange for a purchase price of $18.0 million ("Purchase Price") consisting of (a) $5.0 million in cash, (b) a $2.5 million Senior Secured Convertible Promissory Note convertible into shares of the Company's common stock, and (c) $10.5 million convertible into shares of the Company's Series A Convertible Preferred Stock. The Purchase Price is subject to potential adjustments. The consummation of the transactions contemplated by the Agreement are subject to certain closing conditions including, without limitation, the Company completing a public offering (the "Offering"), the related S-1 registration statement being declared effective by the Securities and Exchange Commission, the approval by Nasdaq Capital Market ("Nasdaq") of the Company's listing application and the commencement of trading on Nasdaq simultaneously with the consummation of the Offering (collectively, the "Closing Conditions").

Accounting Standards Codification ("ASC") 805, *Business Combinations*, reflects the overall principle that when an entity (the "Acquirer") takes control of another entity (the "Target"), the fair value of the underlying exchange transaction should be used to establish a new accounting basis of the acquired entity. In accordance with this ASC, the Share Purchase Agreement will be accounted for as an acquisition of Fat Shark and Rotor Riot by the Company. In addition, because obtaining control leaves the acquirer responsible and accountable for all of the acquiree's assets, liabilities, and operations, the acquirer should recognize and measure the assets acquired and liabilities assumed at their full fair values with limited exceptions as of the date control is obtained.

**<u>Authoritative guidance</u>**

1. ASC 805, *Business Combinations* ("ASC 805")

2. ASC 820, *Fair Value Measurements and Disclosures* ("ASC 820")

3. ASC 350, *Intangibles — Goodwill and Other* ("ASC 350")

4. ASC 360, *Property, Plant, and Equipment* ("ASC 360")

The unaudited pro forma condensed combined financial statements are based on the Company's audited and unaudited interim historical consolidated financial statements and Fat Shark and Rotor Riot's audited and unaudited interim historical combined financial statements as adjusted to give effect to the Company's acquisition by Unusual Machines.

The allocation of the purchase price used in the unaudited pro forma financial statements is based upon management's estimate of the fair values of the assets and liabilities determined. A final allocation of the purchase price will be determined upon closing of the Share Purchase Agreement with the assistance of a third-party valuation firm. The Unaudited Pro Forma Condensed Combined Financial Statements are provided for informational purpose only and are not necessarily indicative of what the combined company's financial position and results of operations would have actually been had the transactions been completed on the dates used to prepare these pro forma financial statements. The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed combined financial statements may be materially different from those reflected in the combined company's consolidated financial statements subsequent to the transactions. In addition, the Unaudited Pro Forma Condensed Combined Financial Statements do not purport to project the future financial position or results of operations of the combined companies.

These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the transactions. These financial statements also do not include any integration costs the companies may incur related to the transactions as part of combining the operations of the companies.

**Note 2 — Summary of Significant Accounting Policies**

The unaudited pro forma condensed combined balance sheet as of December 31, 2022, gives pro forma effect to both the business combination and this Offering as if they had been consummated as of December 31, 2022. The unaudited proforma condensed combined statements of operations for the twelve months ended December 31, 2022 give pro forma effect to both the business combination and this Offering as if they had been consummated as of December 31, 2022. The unaudited pro forma condensed combined financial statements have been prepared in a manner consistent with the accounting policies adopted by the Company. The accounting policies followed for financial reporting on a pro forma basis are the same as those disclosed in the audited financial statements included in this Prospectus. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies among the Company and Fat Shark and Rotor Riot.

**Note 3 — Purchase Price Allocation and Goodwill**

In November 2021, the Company entered into the Agreement with Red Cat to acquire all of the capital stock of Fat Shark and Rotor Riot, subject to the satisfaction of the Closing Conditions. Closing of the Agreement would occur in conjunction with the closing of the Offering as described in this Prospectus.

A summary of management's estimated purchase price and related allocation was as follows as of December 31, 2022. Per the Agreement, the final purchase price allocation will be agreed upon after closing. In addition, final fair values of assets acquired, including the valuation of any intangible assets, and liabilities assumed will be determined after closing.

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;Series A Preferred Stock | $10500000 |
| &nbsp;&nbsp;&nbsp;Promissory note issued | 2500000 |
| &nbsp;&nbsp;&nbsp;Cash | 5000000 |
| **Total Purchase Price** | $**18000000** |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fat Shark** | **Rotor Riot** | **Adjustments** | **Combined** |
| **Estimated purchase price allocation** | $**13000000** | **5000000** | **–** | $**18000000** |
| Estimated assets acquired |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash | 35438 | 48732 |  | 84170 |
| &nbsp;&nbsp;&nbsp;Accounts receivable | 701764 |  | (699867) | 1897 |
| &nbsp;&nbsp;&nbsp;Inventory | 1273843 | 1619186 | (156100) | 2736929 |
| &nbsp;&nbsp;&nbsp;Other current assets | 2352717 | 264161 |  | 2616878 |
| &nbsp;&nbsp;&nbsp;Estimated intangible assets | 1282667 | 20000 |  | 1302667 |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets |  | 98625 |  | 98625 |
| &nbsp;&nbsp;&nbsp;Other assets | – | 3853 |  | 3853 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total estimated assets acquired | 5646429 | 2054557 | (855967) | 6845019 |
| Estimated liabilities assumed |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | 355865 | 763198 | (699867) | 419196 |
| &nbsp;&nbsp;&nbsp;Customer deposits | 47022 | 114198 |  | 161220 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities | – | 106326 |  | 106326 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total estimated liabilities assumed | 402887 | 983722 | (699867) | 686742 |
| Total estimated fair value of net assets acquired | 5243542 | 1070835 | (156100) | 6158277 |
| **Estimated goodwill** | $**7756458** | **3929165** | **156100** | $**11841723** |

---

The Company will engage a valuation services firm to value the intangible assets acquired once the transactions contemplated by the Agreement have closed and final balances as of the closing date for the target companies are provided. The allocation of the purchase price used in the unaudited pro forma financial statements is based upon management's estimate of the fair values of the assets and liabilities determined. To the extent that the parties do not agree on the final allocation of the purchase price, a final allocation of the purchase price will be determined in accordance with Section 2.01 of Agreement with the assistance of a nationally-recognized accounting firm that is reasonably acceptable to Unusual and Red Cat. The Unaudited Pro Forma Condensed Combined Financial Statements and estimated goodwill are provided for informational purpose only and are not necessarily indicative of what the combined company's financial position and results of operations would have actually been had the transactions been completed on the dates used to prepare these pro forma financial statements.

**Note 4 — Pro Forma Transaction Accounting Adjustments**

The pro forma transaction accounting adjustments are based on the Company's preliminary estimates, valuations, and assumptions that are subject to change.

**Note 5 – Related Party Transactions**

Fat Shark Ltd. sells products to Rotor Riot, LLC which is included in revenue for Fat Shark and cost of goods sold for Rotor Riot. Sales totaled $1,100,112 and $144,113 during the pro forma fiscal years ended December 31, 2022 and 2021, respectively. Cost of goods sold totaled $944,012 and $141,409 during the pro forma fiscal years ended December 31, 2022 and 2021, respectively. These transactions have been eliminated as a part of the unaudited pro forma condensed combined statements of operations.

**Note 6 – Reconciliation of Target Company Interim Statement of Operations to Pro Forma Statement of Operations**

The following statement of operations provides a reconciliation between the Fat Shark unaudited statement of operations for the six months ended October 31, 2022 to the Fat Shark unaudited pro forma statement of operations for the year ended December 31, 2022 to conform the target company's fiscal year end to the Company's fiscal year end.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fat Shark Interim Financials** | **Fat Shark<br> Adjustment Period 1** | **Fat Shark<br> Adjustment Period 2** | **Fat Shark Pro Forma<br> Financials** |
| (unaudited) | Six Months Ended October 31, 2022 | Add: January through April 2022 | Add: November through December 2022 | 12 Months Ended December 31, 2022 |
| Revenue | $1983871 | $381121 | $733502 | $3098494 |
| &nbsp;&nbsp;&nbsp;Cost of revenues | 1727121 | 416507 | 579800 | 2723428 |
| &nbsp;&nbsp;&nbsp;**Gross profit** | 256750 | (35386) | 153702 | 375066 |
| &nbsp;&nbsp;&nbsp;Gross margin | 12.9% | (9.3%) | 21.0% | 12.1% |
| &nbsp;&nbsp;&nbsp;**Operating expenses:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Operations | 135030 | 92394 | 13721 | 241145 |
| &nbsp;&nbsp;&nbsp;Research and development | 143469 | 109071 | 50982 | 303522 |
| &nbsp;&nbsp;&nbsp;Selling and marketing | 9726 | 6604 | 2579 | 18909 |
| &nbsp;&nbsp;&nbsp;General and administrative | 60893 | 28351 | 3660 | 92904 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 17616 | 11744 | 5872 | 35232 |
| &nbsp;&nbsp;&nbsp;**Total operating expenses** | 366734 | 248164 | 76814 | 691712 |
| &nbsp;&nbsp;&nbsp;**Operating income (loss)** | (109984) | (283550) | 76888 | (316646) |
| &nbsp;&nbsp;&nbsp;Other income (expenses) | (29744) | (5385) | (9.956) | (45085) |
| &nbsp;&nbsp;&nbsp;Interest income |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | – | – | – | – |
| &nbsp;&nbsp;&nbsp;**Income (loss) before taxes** | (139728) | (288935) | 66932 | (361731) |
| &nbsp;&nbsp;&nbsp;Provision for taxes | – | – | – | – |
| &nbsp;&nbsp;&nbsp;**Net income (loss)** | $(139728) | $(288935) | $66932 | $(361731) |

---

The following statement of operations provides a reconciliation between the Rotor Riot unaudited statement of operations for the six months ended October 31, 2022 to the Rotor Riot unaudited pro forma statement of operations for the year ended December 31, 2022 to conform the target company's fiscal year end to the Company's fiscal year end.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Rotor Riot Interim Financials** | **Rotor Riot<br> Adjustment Period 1** | **Rotor Riot<br> Adjustment Period 2** | **Rotor Riot Pro Forma<br> Financials** |
| (unaudited) | Six Months Ended October 31, 2022 | Add: January through April 2022 | Add: November through December 2022 | 12 Months Ended December 31, 2022 |
| Revenue | $1624947 | $717393 | $549007 | $2891347 |
| &nbsp;&nbsp;&nbsp;Cost of revenues | 1394051 | 526145 | 406240 | 2326436 |
| &nbsp;&nbsp;&nbsp;**Gross profit** | 230896 | 191248 | 142767 | 564911 |
| &nbsp;&nbsp;&nbsp;Gross margin | 14.2% | 26.7% | 26.0% | 19.5% |
| &nbsp;&nbsp;&nbsp;**Operating expenses:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Operations | 197808 | 163841 | 46549 | 408198 |
| &nbsp;&nbsp;&nbsp;Research and development | 27295 | 25030 | 7541 | 59866 |
| &nbsp;&nbsp;&nbsp;Selling and marketing | 353565 | 92347 | 115399 | 561311 |
| &nbsp;&nbsp;&nbsp;General and administrative | 98591 | 81932 | 62533 | 243056 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 97107 | 61363 | 61363 | 219833 |
| &nbsp;&nbsp;&nbsp;**Total operating expenses** | 774366 | 424513 | 293385 | 1492264 |
| &nbsp;&nbsp;&nbsp;**Operating loss** | (543470) | (233265) | (150618) | (927353) |
| &nbsp;&nbsp;&nbsp;Other income (expenses) | 8051 | 672 |  | 8723 |
| &nbsp;&nbsp;&nbsp;Interest income |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | – | – | – | – |
| &nbsp;&nbsp;&nbsp;**Loss before taxes** | (535419) | (232593) | (150618) | (918630) |
| &nbsp;&nbsp;&nbsp;Provision for taxes | – | – | – | – |
| &nbsp;&nbsp;&nbsp;**Net loss** | $(535419) | $(232593) | $(150618) | $(918630) |

---

**Report of Independent Registered Public Accounting Firm**

To the shareholders and the board of directors of Unusual Machines, Inc.

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of Unusual Machines, Inc. as of December 31, 2022 and 2021, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/S/ BF Borgers CPA PC

**BF Borgers CPA PC (PCAOB ID 5041)**

We have served as the Company's auditor since 2022

Lakewood, CO

March 14, 2023

**Unusual Machines, Inc.**

**Balance Sheets**

---

| | | |
|:---|:---|:---|
|  | December 31, | December 31, |
|  | 2022 | 2021 |
| **<u>ASSETS</u>** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $3099422 | $3785891 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net |  | 945 |
| &nbsp;&nbsp;&nbsp;Deferred offering costs | 87825 |  |
| &nbsp;&nbsp;&nbsp;Other current assets | 139375 | 115222 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 3326622 | 3902058 |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | 3690 | – |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-current assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $3330312 | $3902058 |
| **<u>LIABILITIES AND STOCKHOLDERS' EQUITY</u>** |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | $120938 | $– |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 120938 | – |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;Series B preferred stock - $0.01 par value, 10,000,000 authorized and 140 and 0 shares issued and outstanding at December 31, 2022 and 2021, respectively | 1 |  |
| &nbsp;&nbsp;&nbsp;Common stock - $0.01 par value, 90,000,000 authorized and 6,784,500 and 7,552,000 shares issued and outstanding at December 31, 2022 and 2021, respectively | 67845 | 75520 |
| &nbsp;&nbsp;&nbsp;Additional paid in capital | 4680119 | 2230480 |
| &nbsp;&nbsp;&nbsp;Stocks to be issued |  | 1892065 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (1538591) | (296007) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 3209374 | 3902058 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $3330312 | $3902058 |

---

See accompanying independent auditor's report and notes to the financial statements.

**Unusual Machines, Inc.**

**Statement of Operations**

**For the Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | **2021** |
| Revenue | $– | $4989 |
| Cost of goods sold | – | – |
| Gross margin |  | 4989 |
| Operating expenses: |  |  |
| &nbsp;&nbsp;&nbsp;Research and development | 91325 |  |
| &nbsp;&nbsp;&nbsp;General and administrative | 1150522 | 166868 |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 885 | – |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 1242732 | 166868 |
| Loss from operations | (1242732) | (161879) |
| Other income: |  |  |
| Interest income | 148 | 3 |
| Total other income | 148 | 3 |
| Net loss before income tax | (1242584) | (161876) |
| Income tax benefit (expense) | – | – |
| Net loss | $(1242584) | $(161876) |
| Net loss per share attributable to common stockholders |  |  |
| &nbsp;&nbsp;&nbsp;Basic and diluted | $(0.16) | $(0.09) |
| Weighted average common shares outstanding |  |  |
| &nbsp;&nbsp;&nbsp;Basic and diluted | 8012014 | 1867242 |

---

See accompanying independent auditor's report and notes to financial statements.

**Unusual Machines, Inc.**

**Statement of Changes in Stockholders' Equity**

**For the Years Ended December 31, 2022 and 2021**

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Series B, Preferred Stock | Series B, Preferred Stock | Common Stock | Common Stock | | | | |
|  | Shares | Value | Shares | Value | Additional Paid-In<br>Capital | Stocks to be<br>Issued | Accumulated<br>Deficit |<br>Total |
| Balance, December 31, 2020 | – | $– | – | $– | $– | $250000 | $(134131) | $115869 |
| Issuance of common stock |  |  | 7552000 | 75520 | 2230480 | (250000) |  | 2056000 |
| Stocks to be issued |  |  |  |  |  | 1892065 |  | 1892065 |
| Net loss | – | – | – | – | – | – | (161876) | (161876) |
| Balance, December 31, 2021 | – | $– | 7552000 | $75520 | $2230480 | $1892065 | $(296007) | $3902058 |
| Issuance of common shares |  |  | 632500 | 6325 | 2435640 | (1892065) |  | 549900 |
| Conversion to preferred shares | 140 | 1 | (1400000) | (14000) | 13999 |  |  |  |
| Net loss | – | – | – | – | – | – | (1242584) | (1242584) |
| Balance, December 31, 2021 | 140 | $1 | 6784500 | $67845 | $4680119 | $– | $(1538591) | $3209374 |

---

See accompanying independent auditor's report and notes to financial statements.

**Unusual Machines, Inc.**

**Statement of Cash Flows**

**For the Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | **2021** |
| Cash flows from operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(1242584) | $(161876) |
| &nbsp;&nbsp;&nbsp;Depreciation | 885 |  |
| &nbsp;&nbsp;&nbsp;Change in assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 945 | (945) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred offering costs | (87825) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current assets | (24153) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | 120938 | – |
| Net cash used in operating activities | (1231794) | (162821) |
| Cash flows from investing activities |  |  |
| &nbsp;&nbsp;&nbsp;Purchases of property and equipment | (4575) | – |
| Net cash used in investing activities | (4575) | – |
| Cash flows from financing activities: |  |  |
| &nbsp;&nbsp;&nbsp;Issuance of common stock | 549900 | 2056000 |
| &nbsp;&nbsp;&nbsp;Proceeds from stocks to be issued | – | 1892065 |
| Net cash provided by financing activities | 549900 | 3948065 |
| Net increase (decrease) in cash | (686469) | 3785244 |
| Cash, beginning of year | 3785891 | 647 |
| Cash, end of year | $3099422 | $3785891 |
| Supplemental disclosures of cash flow information: |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $– | $– |
| &nbsp;&nbsp;&nbsp;Cash paid for income tax | $– | $– |

---

See accompanying independent auditor's report and notes to financial statements.

**Unusual Machines, Inc.**

**Notes to Financial Statements**

**For the Year Ended December 31, 2022**

**<u>Note 1 – Organization and nature of business</u>**

Unusual Machines, Inc., formerly AerocarveUS Corporation, ("The Company) is a corporation engaged in the commercial drone industry. AerocarveUS Corporation was originally formed as a limited liability company registered with the Department of State under the laws of the Commonwealth of Puerto Rico on July 11, 2019.

**<u>Note 2 – Summary of significant accounting policies</u>**

*<u>Basis of Accounting</u>*

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

*<u>Use of Estimates</u>*

 

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.

*<u>Cash</u>*

 

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2022 or December 31, 2021.

The Company maintains cash deposits at a financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company's cash balance may at times exceed these limits. At December 31, 2022 and December 31, 2021, the Company had approximately $2.8 million and $3.5 million, respectively, in excess of federally insured limits. The Company continually monitors its positions with, and the credit quality of the financial institutions with which it invests.

*<u>Accounts Receivable, net</u>*

 

The Company carries its accounts receivable. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on a history of past write-offs and collections and current credit conditions. Accounts are written-off as uncollectible at the discretion of management. At December 31, 2022 and 2021, the Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established.

*<u>Deferred offering costs</u>*

 

The Company deferred direct incremental costs associated with its ongoing initial public offering ("IPO"). The Company capitalized $87,825 during the year ended December 31, 2022. These deferred offering costs will be netted against IPO proceeds upon successful completion of the IPO. Deferred offering costs consist of primarily legal, advisory, and consulting fees incurred in connection with the formation and preparation of the IPO.

*<u>Note Receivable</u>*

 

During the fiscal year ended December 31, 2021 and 2020, the Company made multiple unsecured and demand loans to Rotor Riot, LLC for a total of $115,222 to be used for general operating expenses. The notes do not bear interest. The note receivable was fully repaid during the year ended December 31, 2022.

*<u>Property and equipment, net</u>*

 

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.

 

*<u>Revenue Recognition</u>*

 

The Company recognizes revenue in accordance with ASC 606, "Revenue from Contracts with Customers", issued by the Financial Accounting Standards Board ("FASB"). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including:

Step 1: Identify the contract with a customer;

Step 2: Identify the performance obligations in the contract;

Step 3: Determine the transaction price;

Step 4: Allocate the transaction price to the performance obligations in the contract; and

Step 5: Recognize revenue when (or as) the Company satisfies a performance obligation at a point in time.

The Company receives revenues from the sale of products. Sales revenue is recognized when the products are shipped and the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Revenue is recognized when the title to the products has been passed to the customer, which is the date the products are delivered to the designated locations and the previously discussed requirements are met.

*<u>Income Taxes</u>*

 

The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realizable in the future.

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense.

The Company's current provision for the years ending December 31, 2022 and 2021 consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. Since the Company has not generated an operating profit since inception, there are no deferred tax assets as of December 31, 2022 and 2021.

*<u>Net Loss per Share</u>*

 

Basic and diluted net loss per share is calculated based on the weighted-average of common shares outstanding in accordance with FASB ASC Topic 260, *Earnings per Share*. Diluted net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive.

Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive include 1,400,000 shares of Series B Preferred Stock, as converted as of December 31, 2022. There were not any shares not included in the computation of diluted loss per share as of December 31, 2021.

**<u>Note 3 – Other Current Assets</u>**

Other current assets at December 31 included:

---

| | | |
|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2021** |
| Deposit related to Rotor Riot, LLC and Fat Shark, Ltd. acquisitions | $100000 | $– |
| Prepaid insurance | 39375 |  |
| Note receivable from Rotor Riot, LLC | – | 115222 |
| &nbsp;&nbsp;&nbsp;Total other current assets | $139375 | $115222 |

---

**<u>Note 4 – Property and equipment, net</u>**

Property and equipment consist of assets with an estimated useful life greater than one year. Property and equipment are reported net of accumulated depreciation, and the reported values are periodically assessed for impairment. Property and equipment as of December 31 was as follows:

---

| | | |
|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2021** |
| Computer equipment | $4575 | $– |
| Accumulated depreciation | (885) | – |
| &nbsp;&nbsp;&nbsp;Total property and equipment, net | $3690 | $– |

---

Depreciation expense totaled $885 and $0 for the year ended December 31, 2022 and 2021, respectively.

**<u>Note 5 – Common Stock</u>**

The Company issued 632,500 shares of common stock during the year ended December 31, 2022 for gross proceeds of $2,530,000, of which the Company received net proceeds of $2,442,000, due to fees and other expenses. The Company received $1,892,065 of these proceeds in advance of the shares being issued during the year ended December 31, 2021 and recorded stocks to be issued for these proceeds received in advance.

The Company issued 7,552,000 shares of common stock during the year ended December 31, 2021 for total proceeds of $2,306,000. $250,000 of proceeds were received in advance and recorded as stocks to be issued.

On December 13, 2022, the Company cancelled 1,400,000 common shares and converted these shares into Series B preferred stock.

On December 14, 2022, the Company amended its Articles of Incorporation to, among other things, increase the number of authorized shares of common stock from 90,000,000 to 500,000,000.

The common stock par value is $0.01.

**<u>Note 6 – Preferred Stock</u>**

On December 13, 2022, the Company issued 140 Series B preferred shares in connection with the cancellation of 1,400,000 shares of common stock. The Series B preferred stock is convertible into common stock at a ratio of 10,000 shares of common stock for each share of Series B stock held, subject to certain limitations. Series B preferred shares are not entitled to vote on any matters submitted to shareholders of the Company.

Shares outstanding at December 31, 2022 totaled 140 which are convertible into 1,400,000 shares of common stock. The preferred stock par value is $0.01.

**<u>Note 7 – Business Combination</u>**

On November 21, 2022 the Company entered into a Share Purchase Agreement ("Purchase Agreement") with Red Cat Holdings, Inc. to purchase 100% of Rotor Riot, LLC and Fat Shark Ltd. for total consideration of $18 million. The purchase price consists of $5.0 million in cash, $2.5 million in a Senior Secured Convertible Promissory Note ("Senior Note"), and $10.5 million in the Company's Series A Convertible Preferred Stock ("Series A Stock"). The Senior Note and Series A Stock will be convertible into Common Stock at the lesser of $4.00 per share or the IPO price of the Company. The Senior Note and Series A Stock shall contain beneficial ownership blockers under which conversion shall be limited to 4.99% and/or 9.99% of the total voting power of the Company, and may be further subject to limitations on voting and conversion required in order to conform with requirements of NASDAQ related to the issuance of more than 19.99% of the outstanding Common Stock in accordance with NASDAQ Rule 5635(d). The Senior Note and Series A Stock will include anti-dilution protection in the case of issuances by the Company at a price lower than the then applicable conversion price for so long as the Senior Note or Series A Stock remains outstanding under which the conversion price will be reduced to such lower price as the Company shall issue or agree to issue any of its securities. The consummation of the transactions contemplated by the Purchase Agreement are subject to certain closing conditions including, without limitation, the Company completing a public offering (the "Offering"), the related S-1 registration statement being declared effective by the Securities and Exchange Commission, the approval by Nasdaq Capital market ("Nasdaq") of the Company's listing application and the commencement of trading on Nasdaq simultaneously with the consummation of the Offering.

**<u>Note 8 – Subsequent Events</u>**

The Company has evaluated events through March 14, 2023, which is the date the financial statements were available to be issued. There were no material subsequent events that require recognition or disclosure in these financial statements.

**Fat Shark Holdings, Ltd.**

**Balance Sheets**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **October 31,**<br>**2022** | **April 30,**<br>**2022** |
| **ASSETS** |  |  |
| &nbsp;&nbsp;&nbsp;Current assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | $63221 | $109223 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net | 578685 | 64630 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | 988116 | 317556 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 2432923 | 286148 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 4062945 | 777557 |
| Goodwill | 6168260 | 6168260 |
| Intangible assets, net | 1312534 | 1342401 |
| **TOTAL ASSETS** | $**11543739** | $**8288218** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| &nbsp;&nbsp;&nbsp;Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $378040 | $49035 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | 68973 | 83000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | 64476 | 9119 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to related party | 5759514 | 2734600 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 6271003 | 2875754 |
| Commitments and contingencies |  |  |
| Stockholders' equity |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock | 1 | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 6351076 | 6351076 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit | (1078341) | (938613) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 5272736 | 5412464 |
| **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | $**11543739** | $**8288218** |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Statements Of Operations**

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended October 31,** | **Three months ended October 31,** | **Six months ended October 31,** | **Six months ended October 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Revenues | $617342 | $898929 | $1983871 | $1894496 |
| Cost of goods sold | 579987 | 1014264 | 1727121 | 1887766 |
| Gross Margin | 37355 | (115335) | 256750 | 6730 |
| Operating Expenses |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Operations | 71508 | 68966 | 135030 | 141834 |
| &nbsp;&nbsp;&nbsp;Research and development | 73431 | 108402 | 143469 | 215555 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 5035 | 14649 | 9726 | 31853 |
| &nbsp;&nbsp;&nbsp;General and administrative | 49964 | 49296 | 60893 | 100149 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 8808 | – | 17616 | – |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 208746 | 241313 | 366734 | 489391 |
| Operating loss | (171391) | (356648) | (109984) | (482661) |
| Other Expense (Income) |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense |  | 7060 |  | 19338 |
| &nbsp;&nbsp;&nbsp;Other, net | 14935 | 14867 | 29744 | 28783 |
| **Other Expense (Income)** | **14935** | **21927** | **29744** | **48121** |
| **Net loss** | $**(186326)** | $**(378575)** | $**(139728)** | $**(530782)** |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Statements of Stockholders' Equity**

**(Unaudited)**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | | | |
|  | **Shares** | **Amount** | **Additional Paid-in**<br>**Capital** | **Accumulated**<br>**Deficit** | **Total**<br>**Equity** |
| **Balances, April 30, 2021** | **1000** | $**1** | $**6351076** | $**(27890)** | $**6323187** |
| Net Income (loss) | – | – | – | (530782) | **(530782)** |
| **Balances, October 31, 2021** | **1000** | **1** | **6351076** | **(558672)** | **5792405** |
| **Balances, April 30, 2022** | **1000** | $**1** | $**6351076** | $**(938613)** | $**5412464** |
| Net Income (loss) | – | – | – | (139728) | $**(139728)** |
| **Balances, October 31, 2022** | **1000** | $**1** | $**6351076** | $**(1078341)** | $**5272736** |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Cash Flows Statements**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Six months ended October 31,** | **Six months ended October 31,** |
|  | **2022** | **2021** |
| Cash flows from operating activities |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(139728) | $(530782) |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 17616 |  |
| &nbsp;&nbsp;&nbsp;Amortization of intangible assets | 29867 | 29867 |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities, net of acquisition |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (514055) | 312453 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | (670560) | (83930) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | (2146775) | (23299) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | 55357 | 24233 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 329005 | 57258 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | (14027) | (26244) |
| Net cash used in operating activities | (3053300) | (240444) |
| Cash flows from financing activities |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from related party obligations | 3007298 | 2137928 |
| &nbsp;&nbsp;&nbsp;Payments under debt obligations | – | (1620800) |
| Net cash provided by financing activities | 3007298 | 517128 |
| Net (decrease) increase in Cash | (46002) | 276684 |
| Cash, beginning of period | 109223 | 44838 |
| Cash, end of period | $**63221** | $**321522** |
| Cash paid for interest | $– | $45129 |
| Cash paid for income taxes | $– | $– |
| Non-cash transactions |  |  |
| Indirect payment of debt obligation | $– | $132200 |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**NOTES TO FINANCIAL STATEMENTS**

**October 31, 2022 and 2021**

**Note 1 – The Business**

Originally founded in September 2020 as FS Acquisition Corp. ("FSA" or the "Company"), the company was formed by Red Cat Holdings, Inc., its wholly owned parent, to complete the acquisition of Fat Shark Holdings, LTD ("Holdings"). As further described in Note 3, the acquisition closed on November 2, 2020. In April 2022, the Company re-incorporated in Nevada, United States and formally changed its name to Fat Shark Holdings, Ltd. The Company sells consumer electronics products to the first-person view ("FPV") sector of the drone industry.

**Note 2 – Basis of Accounting and Going Concern**

These financial statements reflect the operating results of the Company for the two years ended October 31, 2022, including the financial support received from its Parent. These financial statements may not be indicative of the company's operating results if it had operated without financial support from its Parent.

The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the financial statements, the Company has incurred net losses totaling $1,078,341 since its inception, and reported negative working capital of $2,208,058 at October 31, 2022. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern.

**Note 3 – Acquisition of Fat Shark Holdings, LTD**

In September 2020, the Company entered into a share purchase agreement ("Share Purchase Agreement") with Greg French ("French"), the founder and sole shareholder of Holdings to acquire all of the issued and outstanding shares of Holdings and its wholly owned subsidiaries, Fat Shark Tech, LTD and Fat Shark Technology SEZC. The transaction closed on November 2, 2020. At closing, the Parent delivered to the Seller, on behalf of the Company, 5,227,273 shares of the Parent's common stock with a fair value of $6,351,076. The Company recognized the shares issued on its behalf by the Parent as an additional capital investment. In addition, a senior secured promissory note was issued to the Seller which was recorded on the Company's balance sheet. Finally, the Seller received a cash payment of $250,000, which was funded by the Parent, and recognized by the Company due to related party.

A summary of the purchase price and its related allocation was as follows:

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;Shares issued | $6351076 |
| &nbsp;&nbsp;&nbsp;Promissory note issued | 1753000 |
| &nbsp;&nbsp;&nbsp;Cash | 250000 |
| **Total Purchase Price** | $**8354076** |
| **Assets acquired** |  |
| &nbsp;&nbsp;&nbsp;Cash | 201632 |
| &nbsp;&nbsp;&nbsp;Accounts receivable | 249159 |
| &nbsp;&nbsp;&nbsp;Other assets | 384232 |
| &nbsp;&nbsp;&nbsp;Inventory | 223380 |
| &nbsp;&nbsp;&nbsp;Brand name | 1144000 |
| &nbsp;&nbsp;&nbsp;Proprietary technology | 272000 |
| &nbsp;&nbsp;&nbsp;Non-compete agreement | 16000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total assets acquired** | **2490403** |
| **Liabilities assumed** |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | 279393 |
| &nbsp;&nbsp;&nbsp;Customer deposits | 25194 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities assumed** | **304587** |
| **Total fair value of net assets acquired** | **2185816** |
| **Goodwill** | $**6168260** |

---

The Company engaged a valuation services firm to value the intangible assets acquired and the purchase price allocation is now complete. Intangible assets included proprietary technology and a non-compete agreement which are being amortized over 5 and 3 years, respectively. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end. The excess of the purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end.

**Note 4 – Summary of Significant Accounting Policies**

**Basis of Accounting** – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Certain prior period amounts have been restated to conform to the current year presentation.

**Use of Estimates** – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation and (ii) complete purchase price accounting for acquisitions.

**Cash and Cash Equivalents** – At October 31, 2022, we held cash of $63,221, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk.

**Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures** – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The guidance establishes three levels of the fair value hierarchy as follows:

*Level 1*: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

*Level 2*: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

*Level 3*: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

*Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis*

The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments.

**Revenue Recognition** – The Company recognizes revenue in accordance with ASC 606, "Revenue from Contracts with Customers", issued by the Financial Accounting Standards Board ("FASB"). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company's revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $64,476 and $9,119 at October 31, 2022 and April 30, 2022, respectively.

**Research and Development** – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.

**Income Taxes** – Deferred taxes are provided on the liability method; whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

**Recent Accounting Pronouncements** – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

**Stock-Based Compensation** – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term.

**Related Parties** – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12.

**Note 5 – Inventories**

Inventories, consisting solely of finished goods, totaled $988,116 and $317,556 at October 31, 2022 and April 30, 2022, respectively.

**Note 6 – Other Assets**

Other assets, short term, included.

---

| | | |
|:---|:---|:---|
|  | **October 31, 2022** | **April 30, 2022** |
| Prepaid inventory | $2431694 | $271500 |
| Prepaid expenses | 1229 | 14648 |
| &nbsp;&nbsp;&nbsp;Total | $2432923 | $286148 |

---

**Note 7 – Intangible Assets**

Intangible assets relate to acquisitions completed by the Company, including those described in Note 3. Intangible assets as of April 30 were as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **October 31, 2022** | **October 31, 2022** | **October 31, 2022** | **April 30, 2022** | **April 30, 2022** | **April 30, 2022** |
|  | **Gross Carrying Amount** | **Accumulated Amortization** | **Net Carrying Value** | **Gross Carrying Amount** | **Accumulated Amortization** | **Net Carrying Value** |
| Proprietary technology | $272000 | $(108800) | $163200 | $272000 | $(81600) | $190400 |
| Non-compete agreements | 16000 | (10666) | 5334 | 16000 | (7999) | 8001 |
| Total finite-lived | 288000 | (119466) | 168534 | 288000 | (89599) | 198401 |
| Indefinite-lived– Brand name | 1144000 | – | 1144000 | 1144000 | – | 1144000 |
| Total, net | $1432000 | $(119466) | $1312534 | $1432000 | $(89599) | $1342401 |

---

As of October 31, 2022, expected amortization expense for the next five years is as follows:

---

| | |
|:---|:---|
| Fiscal Year Ended: |  |
| 2023 | $29867 |
| 2024 | 57067 |
| 2025 | 54400 |
| 2026 | 27200 |
| Total | $168534 |

---

Proprietary technology and non-compete agreements are being amortized over 5 and 3 years, respectively. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis.

Goodwill is a separately stated intangible asset and represents the excess of the purchase price of acquisitions above the net assets acquired. The balance was $6,168,260 as of October 31, 2022 and April 30, 2022.

**Note 8 – Debt Obligations**

In connection with the acquisition of Holdings in November 2020, the Company issued a secured promissory note in the amount of $1,753,000 to the seller. The note bore interest at 3% annually and was scheduled to mature in full in November 2023. In May 2021, the Company made an initial payment of $132,200 by directing a refund from a vendor based in China to the noteholder who is also based in China. The remaining balance of $1,620,800 plus accrued interest totaling $45,129 was paid in September 2021.

**Note 9 – Income Taxes**

The Company was originally founded in November 2020 as an entity based in the Cayman Islands. While based in the Cayman Islands, the Company qualified as a Caymans Island Exempted Company which qualified it as a tax exempt entity. In April 2022, the Company changed its name to Fat Shark Holdings, Ltd. and reincorporated in Nevada, United States. Since incorporating in the United States, the Company has incurred net losses through October 31, 2022. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since incorporating in the United States, we have applied a full valuation allowance against our deferred tax assets at October 31, 2022.

**Note 10 – Share Based Awards**

Red Cat has established the 2019 Equity Incentive Plan (the "Plan") to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the "Awards"). The Company recognized stock based compensation expense in connect with Awards to its employees.

*Options*

A summary of options activity under the Plan since April 30, 2021 is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| Options | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value |
| Outstanding as of April 30, 2021 |  |  |  |  |
| Granted | 45000 | $2.52 |  |  |
| Exercised |  |  |  |  |
| Forfeited or expired | – | – |  |  |
| Outstanding as of April 30, 2022 | 45000 | $2.52 | 9.56 | $– |
| Granted |  |  |  |  |
| Exercised |  |  |  |  |
| Forfeited or expired | – | – |  |  |
| Outstanding as of October 31, 2022 | 45000 | 2.52 | 9.05 | – |
| Exercisable as of October 31, 2022 | 11250 | $2.52 | 9.56 | $– |

---

The aggregate intrinsic value of outstanding options at October 31, 2022 was zero as the exercise price of each option was higher than the stock price at October 31, 2022 of $1.35. As of October 31, 2022, there was $71,616 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 2.3 years.

 

 

 

 

 

*Stock Compensation*

Stock compensation expense by functional operating expense was as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended**<br> **October 31,** | **Three months ended**<br> **October 31,** | **Six months ended**<br> **October 31,** | **Six months ended**<br> **October 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Operations | $4404 | $– | $8808 | $– |
| Research and development | 4404 |  | 8808 |  |
| Sales and marketing |  |  |  |  |
| General and administrative | – | – | – | – |
| &nbsp;&nbsp;&nbsp;Total | $8808 | $– | $17616 | $– |

---

**Note 11 – Statement of Stockholders' Equity**

The Company is authorized to issue 3,000 shares of common stock having a par value of $0.001 per share. Upon its formation, the Company issued 1,000 shares of common stock to its Parent for $1.00.

In connection with its acquisition of Holdings in November 2020, the Company's parent, Red Cat Holdings, issued 5,227,273 of its shares with a fair value of $6,351,076 to the seller of Holdings. The Company recognized the fair value of the capital provided as additional paid in capital.

In April 2022, the Company sold Fat Shark Technology SEZC to French for $1. SEZC was a duly registered company in the Cayman Islands but had no assets or liabilities and was basically a dormant entity.

**Note 12 - Related-Party Transactions**

The Company sells product to Rotor Riot LLC ("Rotor Riot") which is also wholly owned by Red Cat. Sales totaled $810,470 and $98,473 during the six months ended October 31, 2022, and 2021, respectively.

Since its founding in November 2020, the Company has received funding from its Parent to support its operations. The Company received net funding of $3,024,914 during the six months ended October 31, 2022, primarily related to deposits on inventory totaling $2,160,194, and a net loss of $378,575. The balance due to Red Cat at October 31, 2022 totaled $5,759,514. The Company received net funding of $2,137,928 during the six months ended October 31, 2021. The balance due to Red Cat at October 31, 2021 totaled $2,387,927, primarily related to payments of debt obligations totaling $1,620,800.

**Note 13 – Subsequent Events**

Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure except as set forth below:

***Sale of Consumer Segment***

On November 21, 2022, the Company's sole shareholder, Red Cat Holdings, Inc. ("Red Cat") entered into a Stock Purchase Agreement (the "SPA") with Unusual Machines, Inc. ("UM") and Jeffrey Thompson, the founder and Chief Executive Officer of the Company (the "Principal Stockholder"), related to the sale of Red Cat's consumer business consisting of Rotor Riot, ("RR"), and Fat Shark Holdings ("FS"), for $18 million in cash and securities of UM.

The purchase price consists of (i) $5 million in cash (as increased for positive working capital and decreased for negative working capital at closing) plus (ii) $2.5 million in a convertible senior note of UM (the "Senior Note") plus (iii) $10.5 million in Series A convertible preferred stock of UM (the "Series A Stock"). The Senior Note and Series A Stock will be convertible into Common Stock at the lesser of $4.00 per share or the IPO price of UM. The Senior Note and Series A Stock shall contain beneficial ownership blockers under which conversion shall be limited to 4.99% and/or 9.99% of the total voting power of UM, and may be further subject to limitations on voting and conversion required in order to conform with requirements of NASDAQ related to the issuance of more than 19.99% of the outstanding Common Stock in accordance with NASDAQ Rule 5635(d). The Senior Note and Series A Stock will include anti-dilution protection in the case of issuances by UM at a price lower than the then applicable conversion price for so long as the Senior Note or Series A Stock remains outstanding under which the conversion price will be reduced to such lower price as UM shall issue or agree to issue any of its securities.

Under the terms of the SPA the Principal Stockholder and UM have agreed to indemnification obligations, which shall survive for a period of 9 months, subject to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of the escrow shares, other than in cases involving fraud. The Principal Stockholder agreed to deposit 450,000 shares of UM common stock owned to secure any indemnification obligations.

As a condition to closing, UM shall enter into an employment agreement with its Chief Executive Officer including non-compete provisions, which cannot be amended or waived without the prior written consent of the Company. UM, RR and FS will also be subject to non-competition agreements restricting activities involving Class I ISR drones, and for military, government, and enterprise customers.

The closing of the SPA is subject to customary closing conditions which include shareholder approval by Red Cat's shareholders following filing with the SEC and mailing of Red Cat's Proxy Statement on Schedule 14A and the approval of the transactions by a majority of the disinterested shareholders of Red Cat. The Principal Stockholder, who holds approximately 24% of the voting power of Red Cat, shall abstain from the vote on approval of the SPA. On November 21, 2022, the Board of Directors of Red Cat approved the SPA and its submission to shareholders for approval. In addition, closing of the SPA is subject to successful completion of an initial public offering (the "IPO") by UM in the minimum amount of $15 million, and the listing of UM's common stock on NASDAQ. The SPA requires Red Cat to cooperate with UM in connection with the IPO and to deliver audited financial statements of RR and FS. UM has agreed to register all of the common stock for which the Senior Note is convertible in the IPO for resale by the Company, or to pay the note in full with proceeds of the offering at closing, at UM's election. In addition, UM has agreed to enter into a registration rights agreement for 100% of the common stock for which the Series A Stock may be converted and to use its best efforts to file and have declared effective such registration statement, on demand and on a piggy-back basis in connection with any other registration statements filed by UM. Red Cat and UM have verbally agreed to lower the minimum amount of the Offering from $15 million to $10 million to be memorialized in an amendment to the SPA.

**Report of Independent Registered Public Accounting Firm**

To the shareholders and the board of directors of Fat Shark Holdings, Ltd.

**Opinion on the Financial Statements**

We have audited the accompanying balance sheets of Fat Shark Holdings, Ltd. as of April 30, 2022 and April 30, 2021, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2022 and April 30, 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

**Substantial Doubt about the Company's Ability to Continue as a Going Concern**

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/S/ BF Borgers CPA PC

**BF Borgers CPA PC (PCAOB ID 5041)**

We have served as the Company's auditor since 2020

Lakewood, CO

December 14, 2022

**Fat Shark Holdings, Ltd.**

**Balance Sheets**

---

| | | |
|:---|:---|:---|
|  | **April 30,**<br>**2022** | **April 30,**<br>**2021** |
| **ASSETS** |  |  |
| &nbsp;&nbsp;&nbsp;Current assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | $109223 | $44838 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net | 64630 | 328408 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | 317556 | 160959 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 286148 | 570294 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 777557 | 1104499 |
| &nbsp;&nbsp;&nbsp;Goodwill | 6168260 | 6168260 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | 1342401 | 1402134 |
| **TOTAL ASSETS** | $**8288218** | $**8674893** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| &nbsp;&nbsp;&nbsp;Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $49035 | $229735 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | 83000 | 101303 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | 9119 | 17669 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt obligations |  | 1753000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to related party | 2734600 | 249999 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 2875754 | 2351706 |
| Commitments and contingencies |  |  |
| Stockholders' equity |  |  |
| &nbsp;&nbsp;&nbsp;Common stock | 1 | 1 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 6351076 | 6351076 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (938613) | (27890) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 5412464 | 6323187 |
| **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | $**8288218** | $**8674893** |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Statements of Operations**

---

| | | |
|:---|:---|:---|
|  | **Year ended April 30,** | **Year ended April 30,** |
|  | **2022** | **2021** |
| Revenues | $2627792 | $2887475 |
| Cost of goods sold | 2569307 | 2361342 |
| Gross margin | 58485 | 526133 |
| Operating expenses |  |  |
| &nbsp;&nbsp;&nbsp;Operations | 252545 | 208990 |
| &nbsp;&nbsp;&nbsp;Research and development | 407881 | 165427 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 60616 | 27110 |
| &nbsp;&nbsp;&nbsp;General and administrative | 169096 | 121053 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 15606 | – |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 905744 | 522580 |
| Operating (loss) income | (847259) | 3553 |
| Other expense |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | 19338 | 25791 |
| &nbsp;&nbsp;&nbsp;Other, net | 44126 | 5652 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other expense | 63464 | 31443 |
| Net loss | $(910723) | $(27890) |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Statements of Stockholders' Equity**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | | | |
|  | **Shares** | **Amount** | **Additional Paid-in**<br>**Capital** | **Accumulated**<br>**Deficit** | **Total**<br>**Equity** |
| **Balances, November 2, 2020** | 1000 | $1 | $– | $– | $1 |
| Capital provided by Parent on behalf of Company |  |  | 6351076 |  | 6351076 |
| Net loss | – | – | – | (27890) | (27890) |
| **Balances, April 30, 2021** | 1000 | $1 | $6351076 | $(27890) | $6323187 |
| Net loss | – | – | – | (910723) | (910723) |
| **Balances, April 30, 2022** | 1000 | $1 | $6351076 | $(938613) | $5412464 |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Cash Flows Statements**

---

| | | |
|:---|:---|:---|
|  | **Year ended April 30,** | **Year ended April 30,** |
|  | **2022** | **2021** |
| Cash flows from operating activities |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(910723) | $(27890) |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 15606 |  |
| &nbsp;&nbsp;&nbsp;Amortization of intangible assets | 59733 | 29866 |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities, net of acquisition |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | (156597) | 74589 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 263778 | (89974) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 151946 | (186425) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | (8550) | (7525) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | (180700) | (49776) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | (18303) | 100946 |
| Net cash used in operating activities | (783810) | (156189) |
| Cash flows from financing activities |  |  |
| &nbsp;&nbsp;&nbsp;Cash acquired through acquisition |  | 201027 |
| &nbsp;&nbsp;&nbsp;Proceeds from related party obligations | 2468995 |  |
| &nbsp;&nbsp;&nbsp;Payments under debt obligations | (1620800) | – |
| Net cash provided by financing activities | 848195 | 201027 |
| Net increase in Cash | 64385 | 44838 |
| Cash, beginning of period | 44838 | – |
| Cash, end of period | $109223 | $44838 |
| Cash paid for interest | $45129 | $– |
| Cash paid for income taxes | $– | $– |
| Non-cash transactions |  |  |
| &nbsp;&nbsp;&nbsp;Indirect payment of debt obligation | $132200 | $– |

---

**See accompanying notes.**

**Fat Shark Holdings, Ltd.**

**Notes to the Financial Statements**

**April 30, 2022 and 2021**

 **<br> Note 1 – The Business**

Originally founded in September 2020 as FS Acquisition Corp. ("FSA" or the "Company"), the company was formed by Red Cat Holdings, Inc., its wholly owned parent, to complete the acquisition of Fat Shark Holdings, LTD ("Holdings"). As further described in Note 3, the acquisition closed on November 2, 2020. In April 2022, the Company re-incorporated in Nevada, United States and formally changed its name to Fat Shark Holdings, Ltd. The Company sells consumer electronics products to the first-person view ("FPV") sector of the drone industry.

**Note 2 – Basis of Accounting and Going Concern**

These financial statements reflect the operating results of the Company for the two years ended April 30, 2022, including the financial support received from its Parent. These financial statements may not be indicative of the company's operating results if it had operated without financial support from its Parent.

The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the financial statements, the Company has incurred net losses totaling $938,613 since its inception, and reported negative working capital of $2,098,197 at April 30, 2022. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern.

**Note 3 – Acquisition of Fat Shark Holdings, LTD**

In September 2020, the Company entered into a share purchase agreement ("Share Purchase Agreement") with Greg French ("French"), the founder and sole shareholder of Holdings to acquire all of the issued and outstanding shares of Holdings and its wholly owned subsidiaries, Fat Shark Tech, LTD and Fat Shark Technology SEZC. The transaction closed on November 2, 2020. At closing, the Parent delivered to the Seller, on behalf of the Company, 5,227,273 shares of the Parent's common stock with a fair value of $6,351,076. The Company recognized the shares issued on its behalf by the Parent as an additional capital investment. In addition, a senior secured promissory note was issued to the Seller which was recorded on the Company's balance sheet. Finally, the Seller received a cash payment of $250,000, which was funded by the Parent, and recognized by the Company due to related party.

A summary of the purchase price and its related allocation was as follows:

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;Shares issued | $6351076 |
| &nbsp;&nbsp;&nbsp;Promissory note issued | 1753000 |
| &nbsp;&nbsp;&nbsp;Cash | 250000 |
| **Total Purchase Price** | $**8354076** |

---

---

| | |
|:---|:---|
| **Assets acquired** | |
| &nbsp;&nbsp;&nbsp;Cash | 201632 |
| &nbsp;&nbsp;&nbsp;Accounts receivable | 249159 |
| &nbsp;&nbsp;&nbsp;Other assets | 384232 |
| &nbsp;&nbsp;&nbsp;Inventory | 223380 |
| &nbsp;&nbsp;&nbsp;Brand name | 1144000 |
| &nbsp;&nbsp;&nbsp;Proprietary technology | 272000 |
| &nbsp;&nbsp;&nbsp;Non-compete agreement | 16000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total assets acquired** | **2490403** |
| **Liabilities assumed** |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | 279393 |
| &nbsp;&nbsp;&nbsp;Customer deposits | 25194 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities assumed** | **304587** |
| **Total fair value of net assets acquired** | **2185816** |
| **Goodwill** | $**6168260** |

---

The Company engaged a valuation services firm to value the intangible assets acquired and the purchase price allocation is now complete. Intangible assets included proprietary technology and a non-compete agreement which are being amortized over 5 and 3 years, respectively. The carrying value of brand name is not being amortized but is reviewed quarterly and formally evaluated at year end. The excess of the purchase price above the net assets acquired was recorded as goodwill which is reviewed quarterly and formally evaluated at year end.

**Note 4 – Summary of Significant Accounting Policies**

**Basis of Accounting** – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Certain prior period amounts have been restated to conform to the current year presentation.

**Use of Estimates** – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives.

**Cash and Cash Equivalents** – At April 30, 2022 and 2021, we held cash of $109,223 and $44,838, respectively, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk.

**Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures** – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The guidance establishes three levels of the fair value hierarchy as follows:

*Level 1*: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

*Level 2*: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

*Level 3*: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

*Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis*

The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments.

**Revenue Recognition** – The Company recognizes revenue in accordance with ASC 606, "Revenue from Contracts with Customers", issued by the Financial Accounting Standards Board ("FASB"). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company's revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $9,119 and $17,669 at April 30, 2022 and 2021, respectively.

**Research and Development** – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.

**Income Taxes** – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

**Recent Accounting Pronouncements** – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

**Stock-Based Compensation** – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term.

**Related Parties** – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12.

**Note 5 – Inventories**

Inventories, consisting solely of finished goods, totaled $317,556 and $160,959 at April 30, 2022 and 2021, respectively.

**Note 6 – Other Assets**

Other assets, short term, included.

---

| | | |
|:---|:---|:---|
|  | **April 30, 2022** | **April 30, 2021** |
| Prepaid inventory | $271500 | $478939 |
| Due from related party |  | 75000 |
| Prepaid expenses | 14648 | 6983 |
| Security deposits | – | 9372 |
| &nbsp;&nbsp;&nbsp;Total | $286148 | $570294 |

---

Due from related party at April 30, 2021 represents funds advanced to Skypersonic, Inc., prior to its acquisition by the Company's parent, Red Cat Holdings. This amount was repaid in May 2021.

**Note 7 – Intangible Assets**

Intangible assets relate to acquisitions completed by the Company, including those described in Note 3. Intangible assets as of April 30 were as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **April 30, 2022** | **April 30, 2022** | **April 30, 2022** | **April 30, 2021** | **April 30, 2021** | **April 30, 2021** |
|  | **Gross Carrying Amount** | **Accumulated Amortization** | **Net Carrying Value** | **Gross Carrying Amount** | **Accumulated Amortization** | **Net Carrying Value** |
| Proprietary technology | $272000 | $(81600) | $190400 | $272000 | $(27200) | $244800 |
| Non-compete agreements | 16000 | (7999) | 8001 | 16000 | (2666) | 13334 |
| Total finite-lived | 288000 | (89599) | 198401 | 288000 | (29866) | 258134 |
| Indefinite-lived– Brand name | 1144000 | – | 1144000 | 1144000 | – | 1144000 |
| Total, net | $1432000 | $(89599) | $1342401 | $1432000 | $(29866) | $1402134 |

---

As of April 30, 2022, expected amortization expense for the next five years is as follows:

---

| | |
|:---|:---|
| Fiscal Year Ended: |  |
| 2023 | $59734 |
| 2024 | 57067 |
| 2025 | 54400 |
| 2026 | 27200 |
| Total | $198401 |

---

Proprietary technology and non-compete agreements are being amortized over 5 and 3 years, respectively. Goodwill and Brand name are not amortized but evaluated for impairment on a quarterly basis.

Goodwill is a separately stated intangible asset and represents the excess of the purchase price of acquisitions above the net assets acquired. The balance was $6,168,260 as of April 30, 2022 and 2021.

**Note 8 – Debt Obligations**

In connection with the acquisition of Holdings in November 2020, the Company issued a secured promissory note in the amount of $1,753,000 to the seller. The note bore interest at 3% annually and was scheduled to mature in full in November 2023. In May 2021, the Company made an initial payment of $132,200 by directing a refund from a vendor based in China to the noteholder who is also based in China. The remaining balance of $1,620,800 plus accrued interest totaling $45,129 was paid in September 2021.

**Note 9 – Income Taxes**

The Company was originally founded in November 2020 as an entity based in the Cayman Islands. While based in the Cayman Islands, the Company qualified as a Caymans Island Exempted Company which qualified it as a tax exempt entity. In April 2022, the Company changed its name to Fat Shark Holdings, Ltd. and reincorporated in Nevada, United States. Since incorporating in the United States, the Company has incurred net losses through April 30, 2022. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since incorporating in the United States, we have applied a full valuation allowance against our deferred tax assets at April 30, 2022.

**Note 10 – Share Based Awards**

Red Cat has established the 2019 Equity Incentive Plan (the "Plan") to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the "Awards"). The Company recognized stock-based compensation expense in connect with Awards to its employees.

*Options*

The table below sets forth the assumptions used to calculate the fair value of options granted during the fiscal year ended April 30, 2022:

---

| | | |
|:---|:---|:---|
| Exercise price | $| 2.52 |
| Stock price on date of grant |  | 2.52 |
| Risk-free interest rate |  | 1.50% |
| Dividend yield |  |  |
| Expected term (years) |  | 8.25 |
| Volatility |  | 270.30% |

---

A summary of options activity under the Plan since April 30, 2021 is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| Options | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value |
| Outstanding as of April 30, 2021 |  |  |  |  |
| Granted | 45000 | $2.52 |  |  |
| Exercised |  |  |  |  |
| Forfeited or expired | – | – |  |  |
| Outstanding as of April 30, 2022 | 45000 | $2.52 | 9.56 | $– |
| Exercisable as of April 30, 2022 | 3750 | $2.52 | 9.56 | $– |

---

The aggregate intrinsic value of outstanding options at April 30, 2022 was zero as the exercise price of each option was higher than the stock price at April 30, 2022 of $2.03. As of April 30, 2022, there was $89,233 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 2.56 years.

 

*Stock Compensation*

Stock compensation expense for the year ended April 30, 2022 was as follows:

---

| | |
|:---|:---|
| General and administrative | $– |
| Research and development | 7803 |
| Operations | 7803 |
| Sales and marketing | – |
| &nbsp;&nbsp;&nbsp;Total | $15606 |

---

Stock compensation expense totaled $0 for the year ended April 30, 2021.

**Note 11 – Statement of Stockholders' Equity**

The Company is authorized to issue 3,000 shares of common stock having a par value of $0.001 per share. Upon its formation, the Company issued 1,000 shares of common stock to its Parent for $1.00.

In connection with its acquisition of Holdings in November 2020, the Company's parent, Red Cat Holdings, issued 5,227,273 of its shares with a fair value of $6,351,076 to the seller of Holdings. The Company recognized the fair value of the capital provided as additional paid in capital.

In April 2022 the Company sold Fat Shark Technology SEZC to French for $1. SEZC was a duly registered company in the Cayman Islands but had no assets or liabilities and was basically a dormant entity.

**Note 12 - Related-Party Transactions**

The Company sells products to Rotor Riot LLC ("Rotor Riot") which is also wholly owned by Red Cat. Sales totaled $104,961 and $82,456 during the fiscal years ended April 30, 2022 and 2021, respectively.

Since its founding in November 2020, the Company has received funding from its Parent to support its operations. The Company received net funding of $249,999 during the fiscal year ended April 30, 2021. The balance due to Red Cat at April 30, 2021 totaled $249,999. The Company received net funding of $2,484,601 during the fiscal year ended April 30, 2022, primarily related to payments of debt obligations and accrued interest totaling $1,665,929 and a net loss of $936,514. The balance due to Red Cat at April 30, 2022 totaled $2,734,600.

**Note 13 – Subsequent Events**

On November 21, 2022 the Company entered into a Share Purchase Agreement ("Purchase Agreement") with Unusual Machines, Inc. ("Unusual Machines") to purchase 100% of Rotor Riot, LLC and Fat Shark Ltd. for total consideration of $18 million. The purchase price consists of $5.0 million in cash, $2.5 million in a Senior Secured Convertible Promissory Note, and $10.5 million in the Company's Series A Convertible Preferred Stock. The consummation of the transactions contemplated by the Purchase Agreement are subject to certain closing conditions including, without limitation, Unusual Machines completing a public offering (the "Offering"), the related S-1 registration statement being declared effective by the Securities and Exchange Commission, the approval by Nasdaq Capital market ("Nasdaq") of Unusual Machine's listing application and the commencement of trading on Nasdaq simultaneously with the consummation of the Offering.

The Company has evaluated events through December 14, 2022, which is the date the financial statements were available to be issued. There were no additional material subsequent events that require recognition or disclosure in these financial statements other than those described above.

**Rotor Riot, LLC**

**Balance Sheets (Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **October 31,**<br>**2022** | **April 30,**<br>**2022** |
| **ASSETS** |  |  |
| &nbsp;&nbsp;&nbsp;Current assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | $27589 | $20041 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net | 42500 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | 839133 | 375570 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 109275 | 245341 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 1018497 | 640952 |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets | 105461 | 133293 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | 20000 | 20000 |
| &nbsp;&nbsp;&nbsp;Other | 3853 | 3853 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total long term assets | 129314 | 157146 |
| **TOTAL ASSETS** | $**1147811** | $**798098** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| &nbsp;&nbsp;&nbsp;Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $22775 | $11965 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | 35393 | 68266 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to related party | 2587393 | 1529371 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | 14234 | 136197 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease liabilities | 46090 | 51095 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 2705885 | 1796894 |
| Operating lease liabilities – long term | 67416 | 91275 |
| Commitments and contingencies |  |  |
| Members' equity |  |  |
| &nbsp;&nbsp;&nbsp;Cumulative contributions | 151000 | 151000 |
| &nbsp;&nbsp;&nbsp;Cumulative deficit | (1376167) | (840748) |
| &nbsp;&nbsp;&nbsp;Cumulative distributions | (400323) | (400323) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total members' equity | (1625490) | (1090071) |
| **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | $**1147811** | $**798098** |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**Statements Of Operations**

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended October 31,** | **Three months ended October 31,** | **Six months ended October 31,** | **Six months ended October 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Revenues | $736528 | $407261 | $1624947 | $914460 |
| Cost of goods sold | 653055 | 404675 | 1394051 | 781797 |
| Gross Margin | 83473 | 2586 | 230896 | 132663 |
| Operating Expenses |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Operations | 99547 | 77621 | 197808 | 148203 |
| &nbsp;&nbsp;&nbsp;Research and development | 14527 | 9295 | 27295 | 23849 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 162978 | 68848 | 353565 | 113577 |
| &nbsp;&nbsp;&nbsp;General and administrative | 54359 | 53074 | 98591 | 99150 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 49627 | 43393 | 97107 | 68864 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 381038 | 252231 | 774366 | 453643 |
| Operating loss | (297565) | (249645) | (543470) | (320980) |
| Other Expense (Income) |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense |  | 1935 |  | 3556 |
| &nbsp;&nbsp;&nbsp;Other, net | (8051) | – | (8051) | – |
| **Other Expense (Income)** | **(8051)** | **1935** | **(8051)** | **3556** |
| **Net loss** | $**(289514)** | $**(251580)** | $**(535419)** | $**(324536)** |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**Statements of Members' Equity**

**(Unaudited)** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Cumulative Contributions** | **Cumulative Deficit** | **Cumulative Distributions** | **Total Members' Equity** |
| **Balances, April 30, 2020** | $**151000** | $**(243870)** | $**(400323)** | $**(493193)** |
| Net loss | – | (324536) | – | (324536) |
| **Balances, October 31, 2021** | **151000** | **(568406)** | **(400323)** | **(817729)** |
| **Balances, April 30, 2022** | $**151000** | $**(840748)** | $**(400323)** | $**(1090071)** |
| Net loss | – | (535419) | – | (535419) |
| **Balances, October 31, 2022** | $**151000** | $**(1376167)** | $**(400323)** | $**(1625490)** |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**Cash Flows Statements**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Six months ended October 31,** | **Six months ended October 31,** |
|  | **2022** | **2021** |
| Cash flows from operating activities |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(535419) | $(324536) |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 97107 | 68864 |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (42500) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | (463563) | (234852) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 136066 | (5285) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease right-of-use assets and liabilities | (1032) | 9833 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | (121963) | 8180 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 10810 | (5070) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | (32873) | 2851 |
| Net cash used in operating activities | (953367) | (480015) |
| Cash flows from financing activities |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from related party obligations | 960915 | 607157 |
| &nbsp;&nbsp;&nbsp;Payments under debt obligations | – | (191323) |
| Net cash provided by financing activities | 960915 | 415834 |
| Net increase (decrease) in Cash | 7548 | (64181) |
| Cash, beginning of period | 20041 | 106908 |
| Cash, end of period | $**27589** | $**42727** |
| Cash paid for interest |  | 5861 |
| Cash paid for income taxes |  |  |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**October 31, 2022 and 2021**

**Note 1 – The Business**

Originally founded in 2016, Rotor Riot, LLC ("Rotor Riot" or the "Company") was acquired by and became a wholly owned subsidiary of Red Cat Holdings ("Red Cat" or the "Parent") in January 2020. The Company sells drones, parts and related equipment to the consumer marketplace through its digital storefront located at www.rotorriot.com.

**Note 2 – Going Concern**

The Company has incurred net losses since its acquisition by Red Cat which has provided funding to enable the company to continue to operate. These financial statements reflect the operating results of the Company for the two years ended October 31, 2022, including the financial support received from its Parent. These financial statements may not be indicative of the company's operating results if it had operated without financial support from its Parent.

The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying financial statements, we had negative working capital of $1,687,388 at October 31, 2022 and have accumulated losses totaling $1,376,167 through October 31, 2022. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern.

**Note 3 – Summary of Significant Accounting Policies**

**Basis of Accounting** – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Certain prior period amounts have been restated to conform to the current year presentation.

**Use of Estimates** – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation and (ii) complete purchase price accounting for acquisitions.

**Cash and Cash Equivalents** – At October 31, 2022, we held cash of $27,589 in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk.

**Leases –** Effective August 1, 2021, the Company adopted Accounting Standards Codification (ASC) 842 titled "Leases" which requires the recognition of assets and liabilities associated with lease agreements. The Company adopted ASC 842 on a modified retrospective transition basis which means that it did not restate financial information for any periods prior to August 1, 2021. Upon adoption, the Company recognized a lease liability obligation of $260,305 and a right-of-use asset for the same amount.

The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its last debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.

**Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures** – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The guidance establishes three levels of the fair value hierarchy as follows:

*Level 1*: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

*Level 2*: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

*Level 3*: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

*Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis*

The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments.

**Revenue Recognition** – The Company recognizes revenue in accordance with ASC 606, "Revenue from Contracts with Customers", issued by the Financial Accounting Standards Board ("FASB"). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company's revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $14,234 and $136,197 at October 31, 2022 and April 30, 2022, respectively.

**Research and Development** – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.

**Income Taxes** – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

**Recent Accounting Pronouncements** – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

**Stock-Based Compensation** – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term.

**Related Parties** – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12.

**Note 4 – Inventories**

Inventories, consisting solely of finished goods, totaled $839,133 and $375,570 at October 31, 2022 and April 30, 2022, respectively.

**Note 5 – Other Assets**

Other assets, short term, included.

---

| | | |
|:---|:---|:---|
|  | **October 31, 2022** | **April 30, 2022** |
| Prepaid inventory | $109275 | $231467 |
| Prepaid expenses | – | 13874 |
| &nbsp;&nbsp;&nbsp;Total | $109275 | $245341 |

---

Other assets, long term, represented security deposits at October 31, 2022 and April 30, 2022.

**Note 6 – Intangible Assets**

Intangible assets relate solely to trademarks acquired in an acquisition completed in 2016.

**Note 7 – Operating Leases** 

As of October 31, 2022, the Company had operating type leases for real estate and no finance type leases. The Company's leases have remaining lease terms of up to 2.25 years. Operating lease expense totaled $30,499 for the six months ended October 31, 2022.

Leases on which the Company made payments during the reporting period included:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | | | **\|----Future Lease Payments----\|** | **\|----Future Lease Payments----\|** | **\|----Future Lease Payments----\|** | |
| <br>**Location** |<br>**Monthly Rent** |<br>**Expiration** | **Fiscal**<br> **2023** | **Fiscal**<br> **2024**  | **Fiscal** <br> **2025** |<br>**Total** |
| Orlando, Florida | $4692 | January 2025 | $28433 | $57716 | $43933 | $130082 |
| Orlando, Florida | $1690 | September 2022 | – | – | – | – |
|  |  | Total | $28433 | $57716 | $43933 | $130082 |

---

---

| | |
|:---|:---|
| <br>**Supplemental Information** | **Six Months Ended**<br>**October 31, 2022** |
| Operating cash paid to settle lease liabilities | $31531 |
| Right of use asset additions in exchange for lease liabilities | $– |
| Weighted average remaining lease term (in years) | 2.25 |
| Weighted average discount rate | 12% |

---

**Note 8 – Debt Obligations** 

**A.** **Shopify Capital** 

Shopify Capital is an affiliate of Shopify, Inc. which provides sales software and services to the Company. The Company processes customer transactions ordered on the e-commerce site for Rotor Riot through Shopify. Shopify Capital has entered into multiple agreements with the Company in which it has "purchased receivables" at a discount. Shopify retains a portion of the Company's daily receipts until the purchased receivables have been paid. The Company recognizes the discount as a transaction fee, in full, in the month in which the agreement is executed. Agreements with activity during the two years ended October 31, 2022 included:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Date of Transaction** | **Purchased Receivables** | **Payment to Company** | **Transaction Fees** | **Withholding Rate** | **Fully Repaid In** |
| May 2020 | $158200 | $140000 | $18200 | 17% | October 2020 |
| September 2020 | $209050 | $185000 | $24050 | 17% | May 2021 |
| April 2021 | $236500 | $215000 | $21500 | 17% | January 2022 |

---

**B.** **PayPal** 

PayPal is an electronic commerce company that facilitates payments between parties through online funds transfers. The Company processes certain customer payments ordered on its e-commerce site through PayPal. The Company has entered into multiple agreements under which PayPal provides an advance on customer payments, and then retains a portion of customer payments until the advance is repaid. PayPal charges a fee which the Company recognizes in full upon entering an agreement. A November 2019 agreement under which PayPal advanced $100,000 and charged a transaction fee of $6,900 was completed in January 2021. A January 2021 agreement under which PayPal advanced $75,444 and charged a transaction fee of $2,444 was completed in August 2021.

**Note 9 – Income Taxes**

Rotor Riot is an LLC based in the United States and files its annual income tax return on a Form 1120. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods.

At October 31, 2022 and April 30, 2022, we had accumulated deficits of approximately $1,376,000 and $841,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $206,400 and $126,150, respectively, calculated using the minimum U.S. corporate tax rate of 15%. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at October 31, 2022 and April 30, 2022.

**Note 10 – Members' Equity**

In January 2020, Red Cat Holdings acquired 8,000,001 Membership Interests, representing 100% ownership of the Company.

**Note 11 – Share Based Awards**

Red Cat has established the 2019 Equity Incentive Plan (the "Plan") to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the "Awards"). The Company recognized stock based compensation expense in connect with Awards to its employees.

*Options*

The table below sets forth the range of assumptions used to calculate the fair value of options granted during the six months ended October 31, 2022:

---

| | |
|:---|:---|
| Exercise price | $2.38 |
| Stock price on date of grant | 2.38 |
| Risk-free interest rate | 3.34% |
| Dividend yield |  |
| Expected term (years) | 8.25 |
| Volatility | 260.06% |

---

A summary of options activity under the Plan since April 30, 2021 is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| Options | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value |
| Outstanding as of April 30, 2021 | 147475 | $0.82 | 8.99 | $474870 |
| Granted | 221000 | 2.58 |  |  |
| Exercised |  |  |  |  |
| Forfeited or expired | (1000) | 2.60 |  |  |
| Outstanding as of April 30, 2022 | 367475 | 1.88 | 8.59 | 178445 |
| Granted | 10000 | 2.38 |  |  |
| Exercised |  |  |  |  |
| Forfeited or expired |  |  |  |  |
| Outstanding as of October 31, 2022 | 377475 | 1.89 | 8.13 | 78162 |
| Exercisable as of October 31, 2022 | 236309 | $1.49 | 7.77 | $78162 |

---

The aggregate intrinsic value of outstanding options represents the excess of the stock price at the indicated date over the exercise price of each option. As of October 31, 2022 and October 31, 2021, there was $332,460 and $542,435 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 1.18 and 1.49 years, respectively.

*Stock Compensation*

Stock compensation expense by functional operating expense was as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended**<br> **October 31,** | **Three months ended**<br> **October 31,** | **Six months ended**<br> **October 31,** | **Six months ended**<br> **October 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Operations | $34901 | $31838 | $67657 | $50526 |
| Research and development | 5575 | 4753 | 11150 | 7543 |
| Sales and marketing | 6188 | 4622 | 12376 | 7335 |
| General and administrative | 2963 | 2180 | 5924 | 3460 |
| &nbsp;&nbsp;&nbsp;Total | $49627 | $43393 | $97107 | $68864 |

---

**Note 12 - Related-Party Transactions**

The Company purchases drones from Fat Shark Holdings, Ltd, which is also wholly owned by Red Cat Holdings. Purchases from Fat Shark totaled $810,470 and $98,473 during the six months ended October 31, 2022 and 2021, respectively.

Since becoming a wholly owned subsidiary of Red Cat, the Company has received funding from its Parent to support its operations. During the six months ended October 31, 2022, the Company received net funding of $1,058,022 primarily related to increased inventory purchases of $463,563, and a net loss of $535,419. The balance due to Red Cat at October 31, 2022 totaled $2,587,393. During the six months ended October 31, 2021, the Company received net funding of $676,021 primarily related to inventory which increased $234,852, and a net loss of $324,536. The balance due to Red Cat at October 31, 2021 totaled $1,183,921.

**Note 13 – Subsequent Events**

Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure except as set forth below:

***Sale of Consumer Segment***

On November 21, 2022, the Company's sole shareholder, Red Cat Holdings, Inc. ("Red Cat") entered into a Stock Purchase Agreement (the "SPA") with Unusual Machines, Inc. ("UM") and Jeffrey Thompson, the founder and Chief Executive Officer of the Company (the "Principal Stockholder"), related to the sale of Red Cat's consumer business consisting of Rotor Riot, ("RR"), and Fat Shark Holdings ("FS"), for $18 million in cash and securities of UM.

The purchase price consists of (i) $5 million in cash (as increased for positive working capital and decreased for negative working capital at closing) plus (ii) $2.5 million in a convertible senior note of UM (the "Senior Note") plus (iii) $10.5 million in Series A convertible preferred stock of UM (the "Series A Stock"). The Senior Note and Series A Stock will be convertible into Common Stock at the lesser of $4.00 per share or the IPO price of UM. The Senior Note and Series A Stock shall contain beneficial ownership blockers under which conversion shall be limited to 4.99% and/or 9.99% of the total voting power of UM, and may be further subject to limitations on voting and conversion required in order to conform with requirements of NASDAQ related to the issuance of more than 19.99% of the outstanding Common Stock in accordance with NASDAQ Rule 5635(d). The Senior Note and Series A Stock will include anti-dilution protection in the case of issuances by UM at a price lower than the then applicable conversion price for so long as the Senior Note or Series A Stock remains outstanding under which the conversion price will be reduced to such lower price as UM shall issue or agree to issue any of its securities.

Under the terms of the SPA the Principal Stockholder and UM have agreed to indemnification obligations, which shall survive for a period of 9 months, subject to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of the escrow shares, other than in cases involving fraud. The Principal Stockholder agreed to deposit 450,000 shares of UM common stock owned to secure any indemnification obligations.

As a condition to closing, UM shall enter into an employment agreement with its Chief Executive Officer including non-compete provisions, which cannot be amended or waived without the prior written consent of the Company. UM, RR and FS will also be subject to non-competition agreements restricting activities involving Class I ISR drones, and for military, government, and enterprise customers.

The closing of the SPA is subject to customary closing conditions which include shareholder approval by Red Cat's shareholders following filing with the SEC and mailing of Red Cat's Proxy Statement on Schedule 14A and the approval of the transactions by a majority of the disinterested shareholders of Red Cat. The Principal Stockholder, who holds approximately 24% of the voting power of Red Cat, shall abstain from the vote on approval of the SPA. On November 21, 2022, the Board of Directors of Red Cat approved the SPA and its submission to shareholders for approval. In addition, closing of the SPA is subject to successful completion of an initial public offering (the "IPO") by UM in the minimum amount of $15 million, and the listing of UM's common stock on NASDAQ. The SPA requires Red Cat to cooperate with UM in connection with the IPO and to deliver audited financial statements of RR and FS. UM has agreed to register all of the common stock for which the Senior Note is convertible in the IPO for resale by the Company, or to pay the note in full with proceeds of the offering at closing, at UM's election. In addition, UM has agreed to enter into a registration rights agreement for 100% of the common stock for which the Series A Stock may be converted and to use its best efforts to file and have declared effective such registration statement, on demand and on a piggy-back basis in connection with any other registration statements filed by UM. Red Cat and UM have verbally agreed to lower the minimum amount of the Offering from $15 million to $10 million to be memorialized in an amendment to the SPA.

**Report of Independent Registered Public Accounting Firm**

To the shareholders and the board of directors of Rotor Riot, LLC

**Opinion on the Financial Statements**

We have audited the accompanying balance sheets of Rotor Riot, LLC as of April 30, 2022 and April 30, 2021, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2022 and April 30, 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

**Substantial Doubt about the Company's Ability to Continue as a Going Concern**

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/S/ BF Borgers CPA PC

**BF Borgers CPA PC (PCAOB ID 5041)**

We have served as the Company's auditor since 2020

Lakewood, CO

December 14, 2022

**Rotor Riot, LLC**

**Balance Sheets**

---

| | | |
|:---|:---|:---|
|  | **April 30,**<br>**2022** | **April 30,**<br>**2021** |
| **ASSETS** |  |  |
| &nbsp;&nbsp;&nbsp;Current assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | $20041 | $106908 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | 375570 | 213989 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 245341 | 8604 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 640952 | 329501 |
| Operating lease right-of-use assets | 133293 |  |
| Intangible assets, net | 20000 | 20000 |
| Other | 3853 | 3853 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total long term assets | 157146 | 23583 |
| **TOTAL ASSETS** | $**798098** | $**353354** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $11965 | $7820 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 68266 | 33355 |
| &nbsp;&nbsp;&nbsp;Debt obligations |  | 269045 |
| &nbsp;&nbsp;&nbsp;Due to related party | 1529371 | 507900 |
| &nbsp;&nbsp;&nbsp;Customer deposits | 136197 | 28427 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities | 51095 | – |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 1796894 | 846547 |
| Operating lease liabilities – long term | 91275 |  |
| Commitments and contingencies |  |  |
| Members' equity |  |  |
| &nbsp;&nbsp;&nbsp;Cumulative contributions | 151000 | 151000 |
| &nbsp;&nbsp;&nbsp;Cumulative deficit | (840748) | (243870) |
| &nbsp;&nbsp;&nbsp;Cumulative distributions | (400323) | (400323) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total members' equity | (1090071) | (493193) |
| **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | $**798098** | $**353354** |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**Statements of Operations**

---

| | | |
|:---|:---|:---|
|  | **Year ended April 30,** | **Year ended April 30,** |
|  | **2022** | **2021** |
| Revenues | $2028149 | $2194503 |
| Cost of goods sold | 1587674 | 1638070 |
| Gross margin | 440475 | 556433 |
| Operating expenses |  |  |
| &nbsp;&nbsp;&nbsp;Operations | 372473 | 374556 |
| &nbsp;&nbsp;&nbsp;Research and development | 58719 | 28368 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 220007 | 81449 |
| &nbsp;&nbsp;&nbsp;General and administrative | 220366 | 121342 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 161087 | – |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 1032652 | 605715 |
| Operating loss | (592177) | (49282) |
| Other expense (income) |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | 4701 | 20327 |
| Net loss | $**(596878)** | $**(69609)** |

---

**See accompanying notes.** 

**Rotor Riot, LLC**

**Statements of Members' Equity** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Cumulative Contributions** | **Cumulative Deficit** | **Cumulative Distributions** | **Total Members' Equity** |
| **Balances, April 30, 2020** | $**151000** | $**(174261)** | $**(400323)** | $**(423584)** |
| Net Loss |  | (69609) |  | (69609) |
| **Balances, April 30, 2021** | $**151000** | $**(243870)** | $**(400323)** | $**(493193)** |
| Net Loss |  | (596878) |  | (596878) |
| **Balances, April 30, 2022** | $**151000** | $**(840748)** | $**(400323)** | $**(1090071)** |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**Cash Flows Statements**

---

| | | |
|:---|:---|:---|
|  | **Year ended April 30,** | **Year ended April 30,** |
|  | **2022** | **2021** |
| Cash Flows from Operating Activities |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(596878) | $(69609) |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 161087 |  |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | (161581) | (135339) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | (236737) | (8604) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease right-of-use assets and liabilities | 9077 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer deposits | 107770 | (9992) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 4145 | (190809) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | 34911 | (18941) |
| Net cash used in operating activities | (678206) | (433294) |
| Cash Flows from Financing Activities |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from related party obligations | 860384 | 338449 |
| &nbsp;&nbsp;&nbsp;Payments under debt obligations | (269045) | 150274 |
| Net cash provided by financing activities | 591339 | 488723 |
| Net (decrease) increase in Cash | (86867) | 55429 |
| Cash, beginning of period | 106908 | 51479 |
| Cash, end of period | **20041** | **106908** |
| Cash paid for interest | $4701 | $17956 |
| Cash paid for income taxes | $– | $– |

---

**See accompanying notes.**

**Rotor Riot, LLC**

**Notes to the Financial Statements**

**April 30, 2022 and 2021**

 **<br> Note 1 – The Business**

Originally founded in 2016, Rotor Riot, LLC ("Rotor Riot" or the "Company") was acquired by and became a wholly owned subsidiary of Red Cat Holdings ("Red Cat" or the "Parent") in January 2020. The Company sells drones, parts and related equipment to the consumer marketplace through its digital storefront located at www.rotorriot.com.

**Note 2 – Going Concern**

The Company has incurred net losses since its acquisition by Red Cat which has provided funding to enable the company to continue to operate. These financial statements reflect the operating results of the Company for the two years ended April 30, 2022, including the financial support received from its Parent. These financial statements may not be indicative of the company's operating results if it had operated without financial support from its Parent.

The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying financial statements, we had negative working capital of $1,155,942 at April 30, 2022 and have accumulated losses totaling $840,748 through April 30, 2022. Management recognizes that these operating results and our financial position raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should we be unable to continue as a going concern.

**Note 3 – Summary of Significant Accounting Policies**

**Basis of Accounting** – The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Certain prior period amounts have been restated to conform to the current year presentation.

**Use of Estimates** – The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, and (iii) accounting for derivatives.

**Cash and Cash Equivalents** – At April 30, 2022 and 2021, we held cash of $20,041 and $106,908, respectively, in multiple commercial banks and financial services companies. We have not experienced any loss on these cash balances and believe they are not exposed to any significant credit risk.

**Leases –** Effective August 1, 2021, the Company adopted Accounting Standards Codification (ASC) 842 titled "Leases" which requires the recognition of assets and liabilities associated with lease agreements. The Company adopted ASC 842 on a modified retrospective transition basis which means that it did not restate financial information for any periods prior to August 1, 2021. Upon adoption, the Company recognized a lease liability obligation of $260,305 and a right-of-use asset for the same amount.

The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company uses an effective discount rate of 12% based on its last debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. Lease terms may include options to extend or terminate a lease when they are reasonably certain to occur.

**Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures** – The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The guidance establishes three levels of the fair value hierarchy as follows:

*Level 1*: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

*Level 2*: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

*Level 3*: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

*Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis*

The Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt. The carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature of these instruments.

**Revenue Recognition** – The Company recognizes revenue in accordance with ASC 606, "Revenue from Contracts with Customers", issued by the Financial Accounting Standards Board ("FASB"). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company's revenue transactions include a single component, specifically, the shipment of goods to customers as orders are fulfilled. The Company recognizes revenue upon shipment. The timing of the shipment of orders can vary considerably depending upon whether an order is for an item normally maintained in inventory or an order that requires assembly or unique parts. Customer deposits totaled $136,197 and $28,427 at April 30, 2022 and 2021, respectively.

**Research and Development** – Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, as well as a proportionate share of overhead costs such as rent. Costs related to software development are included in research and development expense until technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products.

**Income Taxes** – Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

**Recent Accounting Pronouncements** – Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

**Stock-Based Compensation** – For stock options, we use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. We recognize forfeitures as they occur. For restricted stock, we determine the fair value based on our stock price on the date of grant. For both stock options and restricted stock, we recognize compensation costs on a straight-line basis over the service period which is the vesting term.

**Related Parties** – Parties are considered to be related to us if they have control or significant influence, directly or indirectly, over us, including key management personnel and members of the Board of Directors. Related Party transactions are disclosed in Note 12.

**Note 4 – Inventories**

Inventories, consisting solely of finished goods, totaled $375,570 and $213,989 at April 30, 2022 and 2021, respectively.

**Note 5 – Other Assets**

Other assets, short term, included.

---

| | | |
|:---|:---|:---|
|  | **April 30, 2022** | **April 30, 2021** |
| Prepaid inventory | $231467 | $– |
| Prepaid expenses | 13874 | 8604 |
| &nbsp;&nbsp;&nbsp;Total | $245341 | $8604 |

---

Other assets, long term, represented security deposits at April 30, 2022 and 2021.

**Note 6 – Intangible Assets**

Intangible assets relate solely to trademarks acquired in an acquisition completed in 2016.

**Note 7 – Operating Leases** 

As of April 30, 2022, the Company had operating type leases for real estate and no finance type leases. The Company's leases have remaining lease terms of up to 2.75 years. Operating lease expense totaled $74,518 for the fiscal year ended April 30, 2022.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Location** | **Monthly Rent** | **Expiration** | **Fiscal**<br> **2023** | **Fiscal**<br> **2024** | **Fiscal** <br> **2025** | <br> **Total** |
| Orlando, Florida | $4692 | January 2025 | $56584 | $57716 | $43933 | $158233 |
| Orlando, Florida | $1690 | September 2022 | $8450 | – | – | $8450 |
|  |  | Total | $65034 | $57716 | $43933 | $166683 |

---

---

| | |
|:---|:---|
| <br>**Supplemental Information** | **Year Ended**<br>**April 30, 2022** |
| Operating cash paid to settle lease liabilities | $75423 |
| Right of use asset additions in exchange for lease liabilities | $260305 |
| Weighted average remaining lease term (in years) | 2.61 |
| Weighted average discount rate | 12% |

---

**Note 8 – Debt Obligations** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A.** **Shopify Capital** 

Shopify Capital is an affiliate of Shopify, Inc. which provides sales software and services to the Company. The Company processes customer transactions ordered on the e-commerce site for Rotor Riot through Shopify. Shopify Capital has entered into multiple agreements with the Company in which it has "purchased receivables" at a discount. Shopify retains a portion of the Company's daily receipts until the purchased receivables have been paid. The Company recognizes the discount as a transaction fee, in full, in the month in which the agreement is executed. Agreements with activity during the two years ended April 30, 2022 included:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Date of Transaction** | **Purchased Receivables** | **Payment to Company** | **Transaction Fees** | **Withholding Rate** | **Fully Repaid In** |
| May 2020 | $158200 | $140000 | $18200 | 17% | October 2020 |
| September 2020 | $209050 | $185000 | $24050 | 17% | May 2021 |
| April 2021 | $236500 | $215000 | $21500 | 17% | January 2022 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B.** **PayPal** 

PayPal is an electronic commerce company that facilitates payments between parties through online funds transfers. The Company processes certain customer payments ordered on its e-commerce site through PayPal. The Company has entered into multiple agreements under which PayPal provides an advance on customer payments, and then retains a portion of customer payments until the advance is repaid. PayPal charges a fee which the Company recognizes in full upon entering an agreement. A November 2019 agreement under which PayPal advanced $100,000 and charged a transaction fee of $6,900 was completed in January 2021. A January 2021 agreement under which PayPal advanced $75,444 and charged a transaction fee of $2,444 was completed in August 2021.

---

| | |
|:---|:---|
| **Balances outstanding at April 30, 2021 were:** | |
| Shopify Capital | $236584 |
| PayPal | 32461 |
| &nbsp;&nbsp;&nbsp;Total | $269045 |

---

**Note 9 – Income Taxes**

Rotor Riot is an LLC based in the United States and files its annual income tax return on a Form 1120. Since inception, we have incurred net losses in each year of operations. Our current provision for the reporting periods presented in these financial statements consisted of a tax benefit against which we applied a full valuation allowance, resulting in no current provision for income taxes. In addition, there was no deferred provision for any of these reporting periods.

At April 30, 2022 and 2021, we had accumulated deficits of approximately $841,000 and $244,000, respectively. Deferred tax assets related to the future benefit of these net operating losses for tax purposes totaled approximately $126,150 and $36,600, respectively, calculated using the minimum U.S. corporate tax rate of 15%. Currently, we focus on projected future taxable income in evaluating whether it is more likely than not that these deferred assets will be realized. Based on the fact that we have not generated an operating profit since inception, we have applied a full valuation allowance against our deferred tax assets at April 30, 2022 and 2021.

**Note 10 – Members' Equity**

In January 2020, Red Cat Holdings acquired 8,000,001 Membership Interests, representing 100% ownership of the Company.

**Note 11 – Share Based Awards**

Red Cat has established the 2019 Equity Incentive Plan (the "Plan") to incentive key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the "Awards"). The Company recognized stock-based compensation expense in connect with Awards to its employees.

*Options*

The table below sets forth the range of assumptions used to calculate the fair value of options granted during the fiscal year ended April 30, 2022:

---

| | |
|:---|:---|
| Exercise Price | $2.52 – 2.60 |
| Stock price on date of grant | 2.52 – 2.60 |
| Risk-free interest rate | 1.32 – 1.57% |
| Dividend yield |  |
| Expected term (years) | 8.25 – 10.00 |
| Volatility | 214.53 – 270.30% |

---

A summary of options activity under the Plan since April 30, 2021 is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| Options | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value |
| Outstanding as of April 30, 2021 | 147475 | $0.82 | 8.99 | $474870 |
| Granted | 221000 | 2.58 |  |  |
| Exercised |  |  |  |  |
| Forfeited or expired | (1000) | 2.60 |  |  |
| Outstanding as of April 30, 2022 | 367475 | 1.88 | 8.59 | 178445 |
| Exercisable as of April 30, 2022 | 198808 | $1.28 | 8.10 | $178445 |

---

The aggregate intrinsic value of outstanding options at April 30, 2022 and 2021 represents the excess of the stock price at April 30, 2022 and 2021 of $2.03 and $4.04, respectively, over the exercise price of each option. As of April 30, 2022 and April 30, 2021, there was $405,863 and $0 of unrecognized stock-based compensation expense related to unvested stock options which is expected to be recognized over the weighted average periods of 1.44 and 0 years, respectively.

 

*Stock Compensation*

Stock compensation expense for the year ended April 30, 2022 was as follows:

---

| | |
|:---|:---|
| General and administrative | $9136 |
| Research and development | 18349 |
| Operations | 108487 |
| Sales and marketing | 25115 |
| &nbsp;&nbsp;&nbsp;Total | $161087 |

---

Stock compensation expense totaled $0 for the year ended April 30, 2021.

**Note 12 - Related-Party Transactions**

The Company purchases drones from Fat Shark Holdings, Ltd, which is also wholly owned by Red Cat Holdings. Purchases from Fat Shark totaled $104,961 and $82,456 during the fiscal years ended April 30, 2022 and 2021, respectively.

Since becoming a wholly owned subsidiary of Red Cat, the Company has received funding from its Parent to support its operations. During the fiscal year ended April 30, 2021, the Company received net funding of $338,449 primarily related to inventory which increased $135,339, payments of accounts payable and accrued expenses of $209,750, and a net loss of $69,609. The balance due to Red Cat at April 30, 2021 totaled $338,449. During the fiscal year ended April 30, 2022, the Company received net funding of $1,021,471 primarily related to increased inventory purchases of $398,318, payments of notes payable of $269,045, and a net loss of $596,878. The balance due to Red Cat at April 30, 2022 totaled $1,529,371.

**Note 13 – Subsequent Events**

On November 21, 2022 the Company entered into a Share Purchase Agreement ("Purchase Agreement") with Unusual Machines, Inc. ("Unusual Machines") to purchase 100% of Rotor Riot, LLC and Fat Shark Ltd. for total consideration of $18 million. The purchase price consists of $5.0 million in cash, $2.5 million in a Senior Secured Convertible Promissory Note, and $10.5 million in the Company's Series A Convertible Preferred Stock. The consummation of the transactions contemplated by the Purchase Agreement are subject to certain closing conditions including, without limitation, Unusual Machines completing a public offering (the "Offering"), the related S-1 registration statement being declared effective by the Securities and Exchange Commission, the approval by Nasdaq Capital market ("Nasdaq") of Unusual Machine's listing application and the commencement of trading on Nasdaq simultaneously with the consummation of the Offering.

The Company has evaluated events through December 14, 2022, which is the date the financial statements were available to be issued. There were no additional material subsequent events that require recognition or disclosure in these financial statements other than those described above.

**Unusual Machines, Inc.**

**PRELIMINARY PROSPECTUS**

*Sole Book Running Manager*

**_________**

*Co-Manager*

_____________________

The date of this Prospectus is ________, 2023.

Through and including , 2023 (the 25<sup>th</sup> day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

**INFORMATION NOT REQUIRED IN A PROSPECTUS**

**Other Expenses of Issuance and Distribution.** 

The following table sets forth an itemization of the various expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of securities being registered. All amounts are estimates except for the SEC registration fee, the FINRA filing fee and the Nasdaq initial listing fee.

---

| | |
|:---|:---|
| **Item** | **Amount**<br> **to be paid** |
| SEC registration fee | $2218 |
| FINRA filing fee | 2000 |
| Nasdaq initial listing fee | 5000 |
| Legal fees and expenses | 250000 |
| Accounting fees and expenses | 195000 |
| Transfer agent and registrar fees and expenses | 4200 |
| Underwriter's Non-Accountable Expense Allowance | 200000 |
| Miscellaneous expenses | 5000 |
| Total | $663418 |

---

**Indemnification of Directors and Officers.** 

The law of the Commonwealth of Puerto Rico provides for discretionary indemnification for each person who serves as or at our request as an officer or director. We may indemnify such individual against all costs, expenses, and liabilities incurred in a threatened, pending or completed action, suit, or proceeding brought because such individual is a director or officer. Such individual must have conducted himself in good faith and reasonably believed that his conduct was in, or not opposed to, our best interests. In a criminal action, he/she must not have had a reasonable cause to believe his conduct was unlawful.

Our Bylaws provide that our Company shall indemnify its officers and directors to the fullest extent permitted by the Commonwealth of Puerto Rico General Corporation Act, and as provided for in the Company's Articles of Incorporation and our Bylaws.

Our Bylaws provide that each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or other entity, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent authorized by the Commonwealth of Puerto Rico General Corporation Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), against all expense, liability and loss actually and reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 3 of the bylaws, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company.

The right to indemnification conferred in our bylaws is a contract right and shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Commonwealth of Puerto Rico Corporation Act requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under the bylaws. The Company may, by action of its Board of Directors, provide indemnification to employees and agents of the Company with the same scope and effect as the foregoing indemnification of directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and controlling persons pursuant to the foregoing, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

**Recent Sales of Unregistered Securities**

The following is a summary of all securities that we have sold during the last three years without registration under the Securities Act of 1933, as amended (the "Securities Act").

On September 10, 2021, we closed a private offering pursuant to Rule 506(b) under the Securities Act. Our founders purchased 3,000,000 shares of common stock at a price of $0.01 per share for total proceeds of $30,000.

On September 14, 2021, we closed a private offering pursuant to Rule 506(b) under the Securities Act of 4,552,000 shares of common stock at a price of $0.50 per share for total proceeds of $3,276,000.

On January 12, 2022, we closed a private offering pursuant to Rule 506(b) under the Securities Act of 482,500 shares of common stock at a price of $4.00 per share for total proceeds of $1,930,000.

On July 27, 2022, we closed a private offering pursuant to Rule 506(b) under the Securities Act of 150,000 shares of common stock at a price of $4.00 per share for total proceeds of $600,000.

On March 7, 2023, we issued 150,000 shares of our common stock to the investors in the July 27, 2022 private placement. The shares were issued at the request of _________ as partial consideration for its agreement to modify its engagement letter with the Company. The shares were exempt from registration under Rule 506(b) under the Securities Act.

**EXHIBIT INDEX**

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| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| 1.1 | Form of Underwriting Agreement\*+ |
| 3.1 | Articles of Incorporation\* |
| 3.2 | Bylaws\* |
| 4.1 | [Senior Secured Convertible Promissory Note](unusual_ex0401.htm) Filed |
| 4.2 | [Certificate of Designation of Series A Convertible Preferred Stock](unusual_ex0402.htm) Filed |
| 4.3 | [Certificate of Designation of Series B Convertible Preferred Stock](unusual_ex0403.htm) Filed |
| 5.1 | Opinion of Nason, Yeager, Harris & Fumero, P.A.\* |
| 10.1 | [Share Purchase Agreement](unusual_ex1001.htm)+ Filed |
| 10.2 | [Registration Rights Agreement](unusual_ex1002.htm)+ Filed |
| 10.3 | [Security Agreement](unusual_ex1003.htm) Filed |
| 10.4 | [2022 Equity Incentive Plan](unusual_ex1004.htm)# Filed |
| 10.5 | Employment Agreement Brandon Torres Declet #+\* |
| 10.6 | [Employment Agreement with Brian Hoff](unusual_ex1006.htm)#+ Filed |
| 10.7 | Form of Lock-up Agreement\* |
| 23.1 | [Consent of Borgers CPA PC](unusual_ex2301.htm) Filed |
| 23.2 | Consent of Nason, Yeager, Gerson, Harris & Fumero, P.A.<sup>(1)</sup> |
| 107 | [Filing fee table](unusual_ex107.htm) Filed |

---

____________

---

| | |
|:---|:---|
| (1) | Contained in Exhibit 5.1 |
| \* | To be filed by amendment. |
| # | Indicates management contract or compensatory plan, contract or agreement. |
| + | Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC Staff upon request. |

---

**UNDERTAKINGS**

The undersigned registrant hereby undertakes:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

(i) If the registrant is relying on Rule 430B:

(A) Each Prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed Prospectus was deemed part of and included in the registration statement; and

(B) Each Prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of Prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the Prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that Prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Any preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(7) The undersigned registrant hereby undertakes that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

**SIGNATURES**

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in San Juan, Puerto Rico on March 14, 2023.

---

| | |
|:---|:---|
| **UNUSUAL MACHINES, INC.** | **UNUSUAL MACHINES, INC.** |
| By: | <u>/s/ Brandon Torres Declet</u> |
|  | Brandon Torres Declet |
|  | Chief Executive Officer<br> (Principal Executive Officer) |

---

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | <br> **Title** | <br> **Date** |
| */s/ Brandon Torres Declet*<br>| Chief Executive Officer and Director | March 14, 2023 |
| Brandon Torres Declet | (Principal executive officer) |  |
| */s/ Brian Hoff* | Chief Financial Officer | March 14, 2023 |
| Brian Hoff | (Principal financial and accounting officer) |  |
| */s/ Cristina Colón*<br>| Director | March 14, 2023 |
| Cristina Colón |  |  |
| */s/ Jeffrey Thompson*<br>| Director | March 14, 2023 |
| Jeffrey Thompson |  |  |
| */s/ Robert Lowry*<br>| Director | March 14, 2023 |
| Robert Lowry |  |  |
| */s/ Thomas Walker*<br>| Director | March 14, 2023 |
| Thomas Walker |  |  |

---

## Exhibit 4.1

**Exhibit 4.1**

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

---

| | |
|:---|:---|
| Original Issue Date: _______ ___ , 2023 | $2500000 |

---

**8% SENIOR SECURED Convertible PRoMISsORY NOTE**

**DUE _____ __, 2026**

THIS 8% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE (this "<u>Note</u>") duly authorized and validly issued on the Original Issue Date above by Unusual Machines Inc., a Puerto Rico corporation (the "<u>Company</u>").

FOR VALUE RECEIVED, the Company promises to pay to Red Cat Holdings, Inc. or its registered assigns (the "<u>Holder</u>"), pursuant to the terms hereunder, the principal sum of two million five hundred thousand dollars ($2,500,000.00) on __________ __, 2026 (the "<u>Maturity Date</u>") or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:

<u>Section 1</u>. <u>Definitions</u>. For the purposes hereof, (a) capitalized words and terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined herein) and (b) the following terms shall have the following meanings:

"<u>Alternate Consideration</u>" shall have the meaning set forth in Section 5(e).

"<u>Bankruptcy Event</u>" means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

"<u>Base Conversion Price</u>" shall have the meaning set forth in Section 5(b<u>)</u>.

"<u>Beneficial Ownership Limitation</u>" shall have the meaning set forth in Section 4(e).

"<u>Black Scholes Value</u>" means the value of the outstanding principal amount of this Note, plus all accrued and unpaid interest hereon based on the Black and Scholes Option Pricing Model obtained from the "OV" function on Bloomberg, L.P. ("<u>Bloomberg</u>") determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Maturity Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Business Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Maturity Date.

"<u>Bloomberg</u>" shall have the meaning set forth in the definition of Black Scholes Value.

"<u>Business Day</u>" shall have the same meaning as in the Purchase Agreement.

"<u>Buy-In</u>" shall have the meaning set forth in Section 4(d)(v).

"<u>Change of Control Transaction</u>" means the occurrence after the Original Issue Date of any of (a) an acquisition after the Original Issue Date by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion, exercise or exchange of the Notes or the Securities issued together with the Notes), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the shareholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the Successor Entity (as hereinafter defined) of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the shareholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

"<u>Company</u>" shall have the meaning set forth in the preamble.

"<u>Conversion</u>" shall have the meaning ascribed to such term in Section 4(a).

"<u>Conversion Date</u>" shall have the meaning set forth in Section 4(a).

"<u>Conversion Notice</u>" shall have the meaning set forth in Section 4(a).

"<u>Conversion Price</u>" shall have the meaning set forth in Section 4(c).

"<u>Conversion Schedule</u>" means the Conversion Schedule in the form of <u>Schedule 1</u> attached hereto.

"<u>Conversion Shares</u>" means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.

"<u>Default Conversion Price</u>" shall have the meaning set forth in Section 4(c).

"<u>Default Interest Rate</u>" shall have the meaning set forth in Section 2(a).

"<u>Dilutive Issuance</u>" shall have the meaning set forth in Section 5(b).

"<u>Dilutive Issuance Notice</u>" shall have the meaning set forth in Section 5(b).

"<u>Distribution</u>" shall have the meaning set forth in Section 5(d).

"<u>Event of Default</u>" shall have the meaning set forth in Section 7(a).

"<u>Exempt Issuance</u>" means (i) shares of Common Stock, restricted stock units or options to purchase Common Stock issued to directors, officers, employees, or consultants of the Company for services rendered to the Company in their capacity as such pursuant to an Equity Incentive Plan or similar plan approved by the stockholders of the Company issued at fair market value, (ii) shares of Common Stock issued upon the conversion or exercise of convertible securities (other than standard options to purchase Common Stock issued pursuant to an Equity Incentive Plan that are covered by clause (i) above) which are outstanding as of the date of issuance of this Note, (iii) the shares of Common Stock issuable upon conversion of this Senior Secured Convertible Promissory Note pursuant to the terms of this instrument (other than anti-dilution adjustments pursuant to the terms thereof in effect as of the date of execution) and adjustments to the conversion price under that certain Series A Convertible Preferred Stock Certificate of Designation and Series A Convertible Preferred Stock issued to the holder of this 8% Senior Note on the date hereof, (iv) securities issued to any placement agent or other registered broker-dealers as reasonable commissions or fees in connection with any financing transactions which must be (A) at least 120% above the price of the common stock or conversion price of the common stock equivalent sold in the financing transaction (and if there is a unit of different securities sold the lowest price of the common stock or the conversion price used in the financing transaction), or (B) such lower or higher price which is approved by the Financial Industry Regulatory Authority as reasonable compensation, (v) securities issued pursuant to a merger, acquisition or similar transaction; provided that (A) the primary purpose of such issuance is not to raise capital, (B) the purchaser or acquirer of such securities in such issuance solely consists of either (1) the actual participants in such transactions, (2) the actual owners of such assets or securities acquired in such merger, acquisition or similar transaction, (3) the shareholders, partners or members of the foregoing persons and (4) persons whose primary business does not consist of investing in securities, and (C) the number or amount (as the case may be) of such shares of Common Stock issued to such person by the Company shall not be disproportionate to such person's actual ownership of such assets or securities to be acquired by the Company (as applicable), or (vi) a strategic transaction approved by a majority of the disinterested directors of the Company, provided that (A) any such issuance shall only be to a person which is, itself or through its subsidiaries, an operating Company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, (B) the primary purpose of such issuance is not to raise capital, (C) the purchaser or acquirer of such securities in such issuance solely consists of either (1) the actual participants in such strategic transactions, (2) the actual owners of such strategic assets or securities acquired, and (3) the shareholders, partners or members of the foregoing persons, and (D) the number or amount (as the case may be) of such shares of Common Stock issued to such person by the Company shall not be disproportionate to such person's actual participation in such strategic licensing or development transactions or ownership of such strategic assets or securities to be acquired by the Company (as applicable).

"<u>Force Majeure</u>" means the Company shall be excused from any delay in performance or for non-performance of any of the terms and conditions of this Note caused by any Force Majeure event. Force Majeure shall mean strikes, labor disputes, freight embargoes, interruption or failure in the Internet, telephone or other telecommunications service or related equipment, material interruption in the mail service or other means of communication within the United States or its territories, if the Company shall have sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious act, whether or not such loss shall have been insured, acts of God, outbreak or material escalation of hostilities or civil disturbances, national emergency or war (whether or not declared), or other calamity or crises including a terrorist act or acts affecting the United States, future laws, rules, regulations or acts of any government including any orders, rules or regulations issued by any official or agency of such government and including any Covid lock down or disruption of commercial activity within the United States or its territories, or any cause beyond the reasonable control of the Company.

"<u>Fundamental Transaction</u>" shall have the meaning set forth in Section 5(e).

"<u>Holder</u>" shall have the meaning set forth in the preamble.

"<u>Mandatory Default Amount</u>" means the sum of (a) 100% of the outstanding principal amount of this Note, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

"<u>Maturity Date</u>" shall have the meaning set forth in the preamble.

"<u>Note</u>" or "<u>Notes</u>" shall have the meaning set forth in the preamble.

"<u>Note Register</u>" shall mean the Company's records regarding the ownership of the Note.

"<u>Option Value</u>" means the value of a Common Stock Equivalent based on the Black Scholes Option Pricing model obtained from the "OV" function on Bloomberg determined as of (A) the Trading Day prior to the public announcement of the issuance of the applicable Common Stock Equivalent, if the issuance of such Common Stock Equivalent is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is not publicly announced, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Common Stock Equivalent as of the applicable date of determination, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of (A) the Trading Day immediately following the public announcement of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is not publicly announced, (iii) the underlying price per share used in such calculation shall be the highest VWAP of the Common Stock during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the issuance of the applicable Common Stock Equivalent and ending on (A) the Trading Day immediately following the public announcement of such issuance, if the issuance of such Common Stock Equivalent is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is not publicly announced, (iv) a zero cost of borrow and (v) a 360 day annualization factor.

"<u>Original Issue Date</u>" is the date set forth on page 1 hereto.

"<u>Permitted Indebtedness</u>" means (a) the Indebtedness evidenced by the Notes, (b) Indebtedness not to exceed $1,000,000, and (c) capital lease obligations and purchase money Indebtedness incurred in connection with the acquisition of machinery and equipment.

"<u>Permitted Lien</u>" means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company's business, such as carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and other similar Liens arising in the ordinary course of the Company's business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, and (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) through (b) thereunder.

"<u>Purchase Agreement</u>" shall mean that certain Share Purchase Agreement by and between the Company and the Holder, dated as of the Original Issue Date.

"<u>Purchase Rights</u>" shall have the meaning set forth in the Section 5(c).

"<u>Securities Act</u>" shall have the same meaning as in the Purchase Agreement.

"<u>Share Delivery Date</u>" shall have the meaning set forth in Section 4(d)(ii).

"<u>Successor Entity</u>" shall have the meaning set forth in Section 5(e).

"<u>VWAP</u>" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Business Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), or other reliable service or (b) in all other cases, the fair market value of a share of Common Stock as determined by the Board of Directors of the Company.

<u>Section 2</u>. <u>Interest; Amortization Payments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Interest</u>. Interest shall accrue to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 8% per annum, calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal (or conversion to the extent applicable), together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Following an Event of Default, regardless of whether such Event of Default has been cured or remains ongoing, interest shall accrue at the lesser of (i) the rate of 15% per annum, or (ii) the maximum amount permitted by law (the lesser of clause (i) or (ii), the "<u>Default Interest Rate</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Security</u>. The obligations of the Company under this Note are secured by the terms of the Security Agreement by and between the Company and the Holder, dated as of the Original Issue Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Payment in Cash</u>. All payments of interest due hereunder shall be made quarterly in arrears on each of the last day of the calendar quarter ended March, June, September and December in cash until paid in full on the Maturity Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Reserved.</u>

<u>Section 3</u>. <u>Registration of Transfers and Exchanges</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Different Denominations</u>. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Investor Representations</u>. This Note has been issued subject to certain investment representations as set forth in the Purchase Agreement, and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) This Note may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Reliance on Note Register</u>. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

<u>Section 4.</u> <u>Conversion</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Voluntary Conversion</u>. After the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, including any accrued and unpaid interest, in whole or in part, at any time, and from time to time, into shares of Common Stock at the option of the Holder ("<u>Conversion</u>"). The Holder shall effect conversions by delivering to the Company a Conversion Notice, the form of which is attached hereto as <u>Annex A</u> (each, a "<u>Conversion Notice</u>"), specifying therein the principal amount and interest on this Note to be converted and the date on which such conversion shall be effected (such date, the "<u>Conversion Date</u>"). If no Conversion Date is specified in a Conversion Notice, the Conversion Date shall be the date that such Conversion Notice is deemed delivered hereunder. No ink-original Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Conversion Notice form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted in each conversion, the date of each conversion, and the Conversion Price in effect at the time of each conversion. The Company may deliver an objection to any Conversion Notice within one Business Day of delivery of such Conversion Notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. **The Holder, and any registered assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Reserved</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Conversion Price</u>. The "<u>Conversion Price</u>" in effect on any Conversion Date means, as of any Conversion Date or other date of determination, $_____ per share (subject to adjustment as provided herein), <u>provided, however</u>, that in the event of reduction in the conversion price of the Company's Series A Convertible Preferred Stock issued under the Share Purchase Agreement, the Conversion Price of the Note shall be adjusted in the same fashion to such adjusted conversion price.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Mechanics of Conversion</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Conversion Shares Issuable Upon Conversion of Principal Amount</u>. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note and accrued interest and other amounts due and owing under this Note to be converted by (y) the Conversion Price in effect at the time of such conversion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <u>Reserved.</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <u>Failure to Deliver Certificates</u>. If, in the case of any Conversion Notice, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) <u>Obligation Absolute; Partial Liquidated Damages</u>. The Company's obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof is absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; <u>provided</u>, <u>however</u>, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Business Day (increasing to $20 per Business Day on the fifth Business Day after such Conversion Date) for each Business Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof for the Company's failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <u>Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion</u>. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a "<u>Buy-In</u>"), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) <u>Reservation of Shares Issuable Upon Conversion</u>. The Company covenants that it will reserve and keep available out of its authorized and unissued shares of Common Stock for the purpose of issuances upon conversion of this Note (and other purposes further detailed in the Purchase Agreement), free from preemptive rights or any other actual contingent purchase rights of Persons other than the holder (and the other holders of the Notes), an amount of shares at least equal to the greater of: (i) one times the number of shares of Common Stock necessary to allow the Holder to convert this Note and accrued interest thereon to maturity in full; or (ii) 19.9% of the current shares of Common Stock outstanding, if such restriction is required under Rule 5635 of the Nasdaq listing rules. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) <u>Fractional Shares</u>. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) <u>Transfer Taxes and Expenses</u>. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) <u>Reserved.</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Holder's Conversion Limitations</u>. The Company shall not affect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Conversion Notice, the Holder (together with the Holder's Affiliates, and any Persons acting as a group together with the Holder or any of the Holder's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(e) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder's determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Conversion Notice that such Conversion Notice has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(e), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company's most recent periodic or annual report filed with the SEC, if any, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The "<u>Beneficial Ownership Limitation</u>" shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder, upon not less than 61 days' prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 4(e) solely with respect to the Holder's Note. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Holder may also decrease the Beneficial Ownership Limitation provisions of this Section 4(e) solely with respect to the Holder's Note at any time, which decrease shall be effective immediately upon delivery of notice to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.

<u>Section 5</u>. <u>Certain Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Stock Dividends and Stock Splits</u>. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Notes or pursuant to any of the other Transaction Documents), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Subsequent Equity Sales</u>. If, at any time, for so long as the Note or any amounts accrued and payable thereunder remain outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues, any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the Conversion Price then in effect (such lower price, the "<u>Base Conversion Price</u>" and each such issuance a "<u>Dilutive Issuance</u>"), then the Conversion Price shall be immediately reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.

If the price per share for which shares of Common Stock are sold, or may be issuable pursuant to any such Common Stock Equivalent, is less than the Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the Conversion Price in effect at the time of such amendment or adjustment, then the Conversion Price shall be adjusted upon each such issuance or amendment as provided in this Section 5(b). In case any Common Stock Equivalent is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction, (x) the Common Stock Equivalents will be deemed to have been issued for the Option Value of such Common Stock Equivalents and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been issued or sold for the difference of (I) the aggregate consideration received by the Company less any consideration paid or payable by the Company pursuant to the terms of such other securities of the Company, less (II) the Option Value. If any shares of Common Stock or Common Stock Equivalents are issued or sold or deemed to have been issued or sold for cash, the amount of such consideration received by the Company will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock or Common Stock Equivalents are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company will be the VWAP of such public traded securities on the date of receipt. If any shares of Common Stock or Common Stock Equivalents are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be.

If any holder of Common Stock or Common Stock Equivalents outstanding on the Original Issue Date or issued thereafter shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price then in effect, such issuance shall be deemed to have occurred for less than the Conversion Price on such date and such issuance shall be deemed to be a Dilutive Issuance.

The Company shall notify the Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the "<u>Dilutive Issuance Notice</u>"). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Conversion Notice.

The provisions of this Section 5(b) shall apply each time a Dilutive Issuance occurs after the Original Issue Date for so long as the Note or any amounts accrued and payable thereunder remain outstanding, but any adjustment of the Conversion Price pursuant to this Section 5(b) shall be downward only.

Notwithstanding all of the foregoing in this Section 5(b), no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Subsequent Rights Offerings</u>. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock, Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "<u>Purchase Rights</u>"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (<u>provided</u>, <u>however</u>, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Pro Rata Distributions</u>. During such time as this Note is outstanding, if the Company shall declare or make any dividend or other distribution of its assets or rights or warrants to acquire its assets, or subscribe for or purchase any security other than Common Stock, to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "<u>Distribution</u>"), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (<u>provided</u>, <u>however</u>, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation with respect to the Company or any other publicly-traded corporation subject to Section 13(d) of the Exchange Act, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of common stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation with respect to the Company or any other publicly-traded corporation subject to Section 13(d) of the Exchange Act).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Fundamental Transaction</u>. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "<u>Fundamental Transaction</u>"), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "<u>Alternate Consideration</u>") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange or trading market (with such exchange or market including, without limitation, the Nasdaq Global Select Trading Market, the Nasdaq Global Market, or the Nasdaq Capital Market, The New York Stock Exchange, Inc., the NYSE American, LLC or the OTCQB), the Company or any Successor Entity shall, at the Holder's option, exercisable concurrently with the consummation of the Fundamental Transaction, purchase this Note from the Holder by paying to the Holder the higher of (i) an amount of cash equal to the Black Scholes Value of the outstanding principal of this Note, accrued interest on this Note and all other amounts due and payable under this Note, on the date of the consummation of such Fundamental Transaction, or (ii) the product of (a) the number of Conversion Shares issuable upon full conversion of this Note (without regard to any limitation on conversion of this Note) and (b) the positive difference between the cash per share paid in such Fundamental Transaction minus the then in effect Conversion Price. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "<u>Successor Entity</u>") to assume in writing all of the obligations of the Company under this Note and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the Conversion Price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Notwithstanding anything in this Section 5(e), an Exempt Issuance shall not be deemed a Fundamental Transaction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Calculations</u>. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Notice to the Holder</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Adjustment to Conversion Price</u>. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <u>Notice to Allow Conversion by Holder</u>. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries (as determined in good faith by the Company), the Company or its successor shall simultaneously file such notice with the SEC pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

<u>Section 6</u>. <u>Negative Covenants</u>. As long as any portion of this Note remains outstanding, unless the holders of 100% in principal amount of the then outstanding Notes shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) amend its charter documents, including, without limitation, its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder (provided, however, the consent of the Holder shall not be required in connection with the first clause of the first sentence of Section 4(d)(vi) above);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than: (a) as to the Conversion Shares as permitted or required under the Transaction Documents, or (b) in connection with the repurchasing of certain existing shareholders' equity;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness other than Permitted Indebtedness or the Notes if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default shall exist or occur;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) pay cash dividends or distributions on any equity securities of the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the SEC assuming that the Company is subject to the Securities Act or the Exchange Act, unless such transaction is made on an arm's-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) enter into any agreement with respect to any of the foregoing.

<u>Section 7</u>. <u>Events of Default</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) "<u>Event of Default</u>" means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) any default in the payment of (A) the principal amount of any Note or (B) interest, late fees, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the Company shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below or any Transaction Document which failure is not cur%ed, if possible to cure, within the earlier to occur of (A) five Business Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Business Days after the Company has become aware of such failure, unless a longer cure period exists n an applicable agreement in which such longer cure period shall apply;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) any representation or warranty made in this Note, any other Transaction Document, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $125,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable and such default is not cured within five Business Days;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) the Common Stock shall not be eligible for listing or quotation for trading on any Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Business Days unless a Force Majure event has occurred;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company's intention to not honor requests for conversions of any Notes in accordance with the terms hereof; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) any monetary judgment, writ or similar final process shall be entered or filed against the Company, any Subsidiary or any of their respective property or other assets for more than $125,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 10 calendar days.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Remedies Upon Event of Default</u>. If any Event of Default occurs and is not cured within 10 days after the giving of written notice, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder's election, immediately due and payable in cash at the Mandatory Default Amount. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 7(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Interest Rate Upon Event of Default</u>. Commencing on the occurrence of any Event of Default and until such Event of Default is cured, this Note shall accrue interest at an interest rate equal to the Default Interest Rate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Conversion Price Upon Event of Default</u>. Commencing on the occurrence of any Event of Default and until such Event of Default is cured, this Note shall be convertible at the Default Conversion Price.

<u>Section 8</u>. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>No Rights as Stockholder Until Conversion</u>. This Note does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the conversion hereof other than as explicitly set forth in Section 8.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Notices</u>. All notices, offers, acceptance and any other acts under this Note (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipted next business day delivery, as follows:

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| | |
|:---|:---|
| If to the Company: | Unusual Machines, Inc.<br> 151 Calle de San Francisco<br> STE 200 PMB 2106<br> San Juan, PR 00901-1607<br> Attention: Brandon Torres Declet, CEO<br> Email: brandon@unusualmachines.com<br>|
| With a copy to (which shall not constitute notice to Unusual):<br>If to Holder:<br>With a copy to (which shall not constitute notice to Red Cat): | Nason Yeager Gerson White & Lioce, P.A.<br> 3001 PGA Boulevard, Suite 305<br> Palm Beach Gardens, FL 33410<br> Attention: Michael D. Harris, Esq.<br> Email: mharris@nasonyeager.com<br>Red Cat Holdings, Inc.<br> 15 Ave Munoz Rivera, Suite 2200<br> San Juan, Puerto Rico 00901<br> Attention: Joe Freedman, Co-Chair of the Special Committee<br> Email: Jf@redcat.red<br>Law Office of Harvey Kesner<br> 500 Fifth Avenue<br> New York, NY 10036<br> 646-678-2543<br> Harvey@hkesnerlaw.com<br> Attention: Harvey Kesner, Esq.<br>|

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or to such other address as any of them, by notice to the other may designate from time to time. Time shall be counted to, or from, as the case may be, the date of delivery.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Absolute Obligation</u>. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest and late fees, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks <u>pari passu</u> with all other Notes now or hereafter issued under the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Lost or Mutilated Note</u>. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Exclusive Jurisdiction; Governing Law</u>. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with Section 10 of the Purchase Agreement. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall only be commenced in the state and federal courts specified in Section 5.8 of the Purchase Agreement. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the courts set forth in Section 5.8 of the Purchase Agreement for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Waiver</u>. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by the Company or the Holder must be in writing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Severability</u>. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.</u> The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach would be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company's compliance with the terms and conditions of this Note.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Next Business Day</u>. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Headings</u>. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

\*\* Signature Pages Follow \*\*

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the Original Issue Date.

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| |
|:---|
| **UNUSUAL MACHINES INC.**<br>|
| By:__________________________________________<br> Name: Brandon Torres Declet<br> Title: Chief Executive Officer<br>|

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**ANNEX A**

**CONVERSION NOTICE**

The undersigned hereby elects to convert principal under the 8% Senior Secured Convertible Promissory Note due ____________ __, 2026 of Unusual Machines Inc., a Puerto Rico corporation (the "Company"), into shares of common stock (the "Common Stock"), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Note to be Converted:

Payment of Interest in Common Stock __ yes __ no

If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

Number of shares of Common Stock to be issued:

Signature:

Name:

DWAC Instructions:

Broker No:<u> </u>

Account No:<u> </u>

**Schedule 1**

**CONVERSION SCHEDULE**

The 8% Senior Secured Convertible Promissory Note due on ________ __, 2026 in the original principal amount of $2,500,000 is issued by Unusual Machines Inc., a Puerto Rico corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.

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| | | | | |
|:---|:---|:---|:---|:---|
| <br> Date of Conversion<br> (or for first entry, Original Issue Date) | <br> Amount of Converted Principal | Aggregate Principal Amount Remaining Subsequent to Conversion<br> (or original Principal Amount) | <br> Applicable<br> Conversion Price | <br> Company Attest |

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## Exhibit 4.2

**Exhibit 4.2**

**CERTIFICATE OF DESIGNATION OF PREFERENCES,** 

**RIGHTS AND LIMITATIONS**

**OF**

**SERIES A CONVERTIBLE PREFERRED STOCK**

PURSUANT TO SECTION 3682 OF THE

PUERTO RICO GENERAL CORPORATIONS ACT OF 2009, AS AMENDED

The undersigned, Chief Executive Officer of Unusual Machines, Inc. a Puerto Rico corporation (the "<u>Corporation</u>"), DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors of the Corporation by unanimous written consent on ____ __, 2023.

WHEREAS, the Board of Directors is authorized within the limitations and restrictions stated in the Amended and Restated Certificate of Incorporation of the Corporation to provide by resolution or resolutions for the issuance of __ shares of Preferred Stock, par value $0.01 per share, of the Corporation, in such series and with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as the Corporation's Board of Directors shall fix by resolution or resolutions providing for the issuance thereof duly adopted by the Board of Directors; and

WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of a series of Preferred Stock and the number of shares constituting such series;

NOW, THEREFORE, BE IT RESOLVED:

Section 1. <u>Designation and Authorized Shares</u>. The Corporation shall be authorized to issue one million fifty thousand (1,050,000) shares of Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock").

Section 2. <u>Stated Value</u>. Each share of Series A Preferred Stock shall have a stated value of $10.00 per share (the "Stated Value").

Section 3. <u>Liquidation</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Upon the liquidation, dissolution or winding up of the business of the Corporation, whether voluntary or involuntary, each holder of Series A Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Corporation legally available therefor, a preferential amount in cash equal to (and not more than) the Stated Value. All preferential amounts to be paid to the holders of Series A Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to the holders of (i) any other class or series of capital stock whose terms expressly provide that the holders of Series A Preferred Stock should receive preferential payment with respect to such distribution (to the extent of such preference) and (ii) the Corporation's Common Stock. If upon any such distribution the assets of the Corporation shall be insufficient to pay the holders of the outstanding shares of Series A Preferred Stock (or the holders of any class or series of capital stock ranking on a parity with the Series A Preferred Stock as to distributions in the event of a liquidation, dissolution or winding up of the Corporation) the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any distribution in connection with the liquidation, dissolution or winding up of the Corporation, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.

Section 4. <u>Voting and Dividends</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Voting. Except as otherwise expressly required by law, each holder of Series A Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Corporation and shall be entitled to the number of votes for each share of Series A Preferred Stock owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, equal to the number of shares of Common Stock such shares of Series A Preferred Stock are convertible into at such time. Except as otherwise required by law, the holders of shares of Series A Preferred Stock shall vote together with the holders of Common Stock on all matters and shall not vote as a separate class.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Dividends. The holders of Series A Preferred Stock will be entitled to dividends, if and when declared and paid, on an as-converted basis with the Common Stock.

Section 5. <u>Conversion</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Conversion Right.* Each share of Series A Preferred Stock may, from time to time, be converted into shares of fully paid and nonassessable shares of Common Stock (the "Conversion Shares") at a rate determined by dividing the Stated Value by the Conversion Price. The "Conversion Price" will be equal to $_______ per share, subject to adjustment in accordance with Section 8.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Conversion Procedure.* In order to exercise the conversion privilege under Section 5, the holder of any shares of Series A Preferred Stock to be converted shall give written notice to the Corporation at its principal office that such holder elects to convert such shares of Series A Preferred Stock or a specified portion thereof into shares of Common Stock as set forth in such notice. At such time as the certificate or certificates representing the Series A Preferred Stock which has been converted are surrendered to the Corporation, the Corporation shall issue and deliver a certificate or certificates representing the number of shares of Common Stock determined pursuant to Section 5. In case of conversion under Section 5 of only a part of the shares of Series A Preferred Stock represented by a certificate surrendered to the Corporation, the Corporation shall issue and deliver a new certificate for the number of shares of Series A Preferred Stock which have not been converted. Until such time as the certificate or certificates representing Series A Preferred Stock which has been converted are surrendered to the Corporation and a certificate or certificates representing the Common Stock into which such Series A Preferred Stock has been converted have been issued and delivered, the certificate or certificates representing the Series A Preferred Stock which have been converted shall represent the shares of Common Stock into which such shares of Series A Preferred Stock have been converted. The Corporation shall pay all documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock issuable upon conversion of the Series A Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Maximum Conversion*. (i) Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may all or a portion of the Series A Preferred Stock be converted if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by the holder at such time, the number of shares of Common Stock which would result in the holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules thereunder) more than 4.99% of all of the Common Stock outstanding at such time; <u>provided</u>, <u>however</u>, that upon the holder providing the Corporation with sixty-one (61) days' advance notice (the "4.99% Waiver Notice") that the holder would like to waive this Section 5(c)(i) with regard to any or all shares of Common Stock issuable upon conversion of the Series A Preferred Stock, this Section 5(c)(i) will be of no force or effect with regard to all or a portion of the Series A Preferred Stock referenced in the 4.99% Waiver Notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may all or a portion of the Series A Preferred Stock be converted if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by the holder at such time, would result in the holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock outstanding at such time; <u>provided</u>, <u>however</u>, that upon the holder providing the Corporation with sixty-one (61) days' advance notice (the "9.99% Waiver Notice") that the holder would like to waive this Section 5(c)(ii) with regard to any or all shares of Common Stock issuable upon conversion of the Series A Preferred Stock, this Section 5(c)(ii) will be of no force or effect with regard to all or a portion of the Series A Preferred Stock referenced in the 9.99% Waiver Notice.

Section 6. <u>Other Provisions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Reservation of Common Stock*. The Corporation shall at all times reserve from its authorized Common Stock a sufficient number of shares to provide for conversion of all Series A Preferred Stock from time to time outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Record Holders*. The Corporation and its transfer agent, if any, for the Series A Preferred Stock may deem and treat the record holder of any shares of Series A Preferred Stock as reflected on the books and records of the Corporation as the sole true and lawful owner thereof for all purposes, and neither the Corporation nor any such transfer agent shall be affected by any notice to the contrary.

Section 7. <u>Restriction and Limitations</u>. Except as expressly provided herein or as required by law so long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent of the holders of at least a majority of the then outstanding shares of the Series A Preferred Stock, take any action which would adversely and materially affect any of the preferences, limitations or relative rights of the Series A Preferred Stock.

Section 8. <u>Certain Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Stock Dividends and Stock Splits*. If the Corporation, at any time while the Series A Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to the Series A Preferred Stock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, each share of Series A Preferred Stock shall receive such consideration as if such number of shares of Series A Preferred had been, immediately prior to such foregoing dividend, distribution, subdivision, combination or reclassification, the holder of the number of shares of Common Stock into which it could convert at such time. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Fundamental Transaction*. If, at any time while the Series A Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person, (B) the Corporation effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "<u>Fundamental Transaction</u>"), then, upon any subsequent conversion of this Series A Preferred Stock, the holders shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of such shares of Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Subsequent Equity Sales*. If, at any time while the Series A Preferred Stock is outstanding, other than in connection with any Exempt Issuance (as defined below), in the event that the Corporation sells or enters into an agreement to sell Common Stock (including any securities convertible or exchangeable into Common Stock) for consideration lower than the Conversion Price then in effect (or sells or enters into an agreement to sell securities convertible or exercisable into common stock at a conversion or exercise lower than the Conversion Price then in effect), then the Conversion Price will be reduced to such lower price. "Exempt Issuance" means (i) shares of Common Stock, restricted stock units or options to purchase Common Stock issued to directors, officers, employees, or consultants of the Corporation for services rendered to the Corporation in their capacity as such pursuant to an Equity Incentive Plan or similar plan approved by the stockholders of the Corporation issued at fair market value, (ii) shares of Common Stock issued upon the conversion or exercise of convertible securities (other than standard options to purchase Common Stock issued pursuant to an Equity Incentive Plan that are covered by clause (i) above) which are outstanding as of the date of issuance of the Series A Preferred Stock, (iii) the shares of Common Stock issuable upon conversion of the Series A Preferred Stock or pursuant to the terms of this Certificate of Designation (other than anti-dilution adjustments pursuant to the terms thereof in effect as of the date of execution) and adjustments to the conversion price under that certain Senior Secured Convertible Note issued to the holder of Series A Preferred Stock on the date hereof, (iv) securities issued to any placement agent or other registered broker-dealers as reasonable commissions or fees in connection with any financing transactions which must be (A) at least 120% above the price of the common stock or conversion price of the common stock equivalent sold in the financing transaction (and if there is a unit of different securities sold the lowest price of the common stock or the conversion price used in the financing transaction), or (B) such lower or higher price which is approved by the Financial Industry Regulatory Authority as reasonable compensation, (v) securities issued pursuant to a merger, acquisition or similar transaction; provided that (A) the primary purpose of such issuance is not to raise capital, (B) the purchaser or acquirer of such securities in such issuance solely consists of either (1) the actual participants in such transactions, (2) the actual owners of such assets or securities acquired in such merger, acquisition or similar transaction, (3) the shareholders, partners or members of the foregoing persons and (4) persons whose primary business does not consist of investing in securities, and (C) the number or amount (as the case may be) of such shares of Common Stock issued to such person by the Corporation shall not be disproportionate to such person's actual ownership of such assets or securities to be acquired by the Corporation (as applicable), or (vi) a strategic transaction approved by a majority of the disinterested directors of the Corporation, provided that (A) any such issuance shall only be to a person which is, itself or through its subsidiaries, an operating Corporation in a business synergistic with the business of the Corporation and in which the Corporation receives benefits in addition to the investment of funds, (B) the primary purpose of such issuance is not to raise capital, (C) the purchaser or acquirer of such securities in such issuance solely consists of either (1) the actual participants in such strategic transactions, (2) the actual owners of such strategic assets or securities acquired, and (3) the shareholders, partners or members of the foregoing persons, and (D) the number or amount (as the case may be) of such shares of Common Stock issued to such person by the Corporation shall not be disproportionate to such person's actual participation in such strategic licensing or development transactions or ownership of such strategic assets or securities to be acquired by the Corporation (as applicable).

IN WITNESS WHEREOF, the undersigned has executed this Certificate this ____day of _____2023.

By:________________________

Name:

Title:

## Exhibit 4.3

**Exhibit 4.3**

**CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS**

**OF**

**SERIES B CONVERTIBLE PREFERRED STOCK**

PURSUANT TO SECTION 3581 OF THE

GENERAL CORPORATION LAW OF THE COMMONWEALTH OF PUERTO RICO

The undersigned, Chief Executive Officer of Unusual Machines, Inc. a Puerto Rican corporation (the "<u>Corporation</u>"), DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors of the Corporation by unanimous written consent on December 14, 2022;

WHEREAS, the Board of Directors is authorized within the limitations and restrictions stated in the Certificate of Incorporation of the Corporation, as amended, to provide by resolution or resolutions for the issuance of 1,000 shares of Preferred Stock, par value $0.01 per share, of the Corporation, in such Series B and with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as the Corporation's Board of Directors shall fix by resolution or resolutions providing for the issuance thereof duly adopted by the Board of Directors; and

WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of a series of Preferred Stock and the number of shares constituting such series;

NOW, THEREFORE, BE IT RESOLVED:

Section 1. Designation and Authorized Shares. The Corporation shall be authorized to issue 1,000 shares of Series B Convertible Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock").

Section 2. <u>No Voting Right</u>. Except as otherwise expressly required by law, the Series B Preferred Stock shall not be entitled to vote on any matters submitted to shareholders of the Corporation.

Section 3. <u>Conversion</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Conversion Right.* Each holder of Series B Preferred Stock may, from time to time, convert any or all of such holder's shares of Series B Preferred Stock into fully paid and non-assessable shares of Common Stock in an amount equal to 10,000 shares of Common Stock for each share of Series B Preferred Stock converted in accordance with the provisions of this Certificate of Designation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Conversion Procedure.* In order to exercise the conversion privilege hereunder, the holder of any shares of Series B Preferred Stock to be converted shall give written notice to the Corporation at its principal office that such holder elects to convert such shares of Series B Preferred Stock or a specified portion thereof into shares of Common Stock as set forth in such notice. Within three business days following the Corporation's receipt of a written notice of conversion setting forth the number of shares of Series B Preferred Stock being converted (the "Conversion Notice") is delivered by the holder to the Corporation, the Corporation shall issue the number of shares of Common Stock determined pursuant to this Section 4, which shares of Common Stock may be certificated or in book entry form as the Corporation may elect. In case of conversion hereunder of only a part of the shares of Series B Preferred Stock held by the holder, the Corporation shall update its stock ledger for the Series B Preferred Stock to reflect the holders' shares of Series B Preferred Stock which have not been converted. The Corporation shall pay all documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock issuable upon conversion of the Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Maximum Conversion*. (i) Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may all or a portion of the Series B Preferred Stock be converted as to a holder if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock beneficially owned by such holder at such time, the number of shares of Common Stock which would result in the holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules thereunder) more than 4.99% of all of the Common Stock outstanding at such time (the "Blocker"); <u>provided</u>, <u>however</u>, that the holder may, upon the holder providing the Corporation with sixty-one (61) days' advance written notice (the "4.99% Waiver Notice"), amend this Section 5(c)(i) to increase the Blocker to up to 9.99%.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Notwithstanding anything to the contrary set forth in this Certificate of Designation, and for the avoidance of doubt, at no time may all or a portion of the Series B Preferred Stock be converted if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by the holder at such time, would result in the holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock outstanding at such time.

Section 4. <u>Other Provisions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Reservation of Common Stock*. The Corporation shall at all times reserve from its authorized Common Stock a sufficient number of shares to provide for conversion of all Series B Preferred Stock from time to time outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Record Holders*. The Corporation and its transfer agent, if any, for the Series B Preferred Stock may deem and treat the record holder of any shares of Series B Preferred Stock as reflected on the books and records of the Corporation as the sole true and lawful owner thereof for all purposes, and neither the Corporation nor any such transfer agent shall be affected by any notice to the contrary.

Section 5. <u>Restriction and Limitations</u>. Except as expressly provided herein or as required by law so long as any shares of Series B Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent of the holders of at least a majority of the then outstanding shares of the Series B Preferred Stock, take any action which would adversely and materially affect any of the preferences, limitations or relative rights of the Series B Preferred Stock.

Section 6. <u>Certain Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Stock Dividends and Stock Splits*. If the Corporation, at any time while the Series B Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to the Series B Preferred Stock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, each share of Series B Preferred Stock and the conversion ratio therefore shall be proportionately adjusted, such that the holder be entitled to receive such consideration as if such number of shares of Series B Preferred had been, immediately prior to such foregoing dividend, distribution, subdivision, combination or reclassification, the holder of the number of shares of Common Stock into which it could convert at such time. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

Section 7. <u>Equal Treatment of Holders</u>. No consideration (including any modification of this Certificate of Designation or related transaction document) shall be offered or paid to any person or entity to amend or consent to a waiver or modification of any provision of this Certificate of Designation or related transaction document unless the same consideration is also offered to all of holders of the outstanding shares of Series B Preferred Stock. For clarification purposes, this provision constitutes a separate right granted to each holder by the Corporation and negotiated separately by each holder, and is intended for the Corporation to treat all holders of the Series B Preferred Stock as a class and shall not in any way be construed as such holders acting in concert or as a group with respect to the purchase, disposition or voting of the Series B Preferred Stock or otherwise.

*[Signature page follows]*

IN WITNESS WHEREOF, the undersigned has executed this Certificate this 13th day of December 2022.

By: <u>/s/ Brandon Torres Declet</u> 

Name: Brandon Torres Declet

Title: Chief Executive Officer

## Exhibit 10.1

**Exhibit 10.1**

**<u>SHARE PURCHASE AGREEMENT</u>**

**THIS SHARE PURCHASE AGREEMENT** (this "**Agreement**") is entered into as of November 21, 2022 (the "**Effective Date**") among **Unusual Machines, Inc.**, a Puerto Rico corporation ("**Unusual**"), **Red Cat Holdings, Inc.**, a Nevada corporation ("**Red Cat**"), and **Jeffrey Thompson**, an individual, (the "**Principal Stockholder**") for the purchase and sale of **Rotor Riot, LLC**, an Ohio limited liability company ("**Rotor Riot**") and **Fat Shark Holdings, Ltd**, a Nevada corporation ("**Acquisition**" and together with Rotor Riot, each, a "**Target Company**" and collectively, the "**Target Companies**"). Unusual, Red Cat, and the Principal Stockholder are sometimes referred to herein individually as a "**Party**" and collectively as the "**Parties**". As used in this Agreement, references to any Party other than the Principal Stockholder includes their respective Subsidiaries. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed to such terms in Article I.

**WHEREAS**, Red Cat owns 100% of the issued and outstanding equity interests of the Target Companies (the "**Target Companies' Capital Stock**");

**WHEREAS**, the Board of Directors of Red Cat (the "**Red Cat Board**"), in its capacity as the sole holder of the Target Companies' Capital Stock, has: (a) determined that it is in the best interests of Red Cat to enter into this Agreement with Unusual and the Principal Stockholder whereby Unusual will acquire 100% of the Target Companies' Capital Stock in accordance with the terms and conditions set forth in this Agreement; (b) approved the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby; and (c) resolved, subject to the terms and conditions set forth in this Agreement, to recommend approval of the sale of the Target Companies' Capital Stock (the "**Purchase and Sale**") by a majority of the disinterested stockholders of Red Cat, in accordance with the Nevada Revised Statutes (the "**NRS**");

**WHEREAS**, the Board of Directors of Unusual (the "**Unusual Board**") has approved this Agreement and the Purchase and Sale; and

**WHEREAS**, the Parties desire to make certain representations, warranties, covenants, and agreements in connection with the Purchase and Sale and the other transactions contemplated by this Agreement and also to prescribe certain terms and conditions to the Purchase and Sale.

**NOW, THEREFORE**, in consideration of the foregoing and of the representations, warranties, covenants, and agreements contained in this Agreement, the Parties, intending to be legally bound, agree as follows:

**ARTICLE I<br> <u>DEFINITIONS</u>**

**Section 1.01 <u>Certain Definitions</u>**. For purposes of this Agreement, the following capitalized words and terms have the following meanings in the Agreement, the Escrow Agreement or they are generic terms referring to names such as the names of particular agreement:

"**Acceptable Confidentiality Agreement**" has the meaning set forth in Section 8.07(b).

"**Accredited Investor**" has the meaning set forth in Section 4.12.

"**Acquisition Agreement**" has the meaning set forth in Section 8.07(a).

"**Acquisition Proposal**" has the meaning set forth in Section 11.07.

"**Affiliate**" of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such Person. With respect to this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. When used in this Agreement with respect to Red Cat or a Target Company, Affiliate includes the Principal Stockholder.

"**Agreement**" has the meaning set forth in the Preamble.

"**Agreed Working Capital**" shall mean $0.

"**Anti-Takeover Statues**" has the meaning set forth in Section 4.01(e).

"**Audited Financial Statements**" has the meaning set forth in Section 8.23.

"**Basket Amount**" has the meaning set forth in Section 7.04(b).

"**Business Day(s)**" means any day except Saturday, Sunday or any other day on which commercial banks located in New York are authorized or required by Law to be closed for business.

"**Cash Consideration**" has the meaning set forth in Section 2.01 of this Agreement.

"**Charter Documents**" means: (a) with respect to a corporation, the articles or certificate of incorporation, as applicable, and bylaws thereto; (b) with respect to a limited liability company, the certificate of formation or organization, as applicable, and the operating or limited liability company agreement, as applicable, thereto; (c) with respect to a partnership, the certificate of formation and the partnership agreement, as applicable, thereto; and (d) with respect to any other Person, the organizational, constituent and/or governing documents and/or instruments of such Person.

"**Claim(s)**" has the meaning set forth in Section 7.03(e)(i).

"**Closing**" has the meaning set forth in Section 2.02.

"**Closing Conditions**" has the meaning set forth in 10.01.

"**Closing Date**" has the meaning set forth in Section 2.02.

"**Closing Date Balance Sheet**" has the meaning set forth in Section 2.04(b).

"**Closing Date Working Capital**" has the meaning set forth in Section 2.04(b).

"**Closing Trial Balance Sheet**" has the meaning set forth in Section 2.04(a).

"**Code**" means the Internal Revenue Code of 1986, as amended.

"**Confidentiality Agreement**" has the meaning set forth in Section 8.06.

"**Company Covered Person**" has the meaning set forth in Section 3.11.

"**Consideration**" has the meaning specified in Section 2.01.

"**Control**" has the meaning set forth in Section 11.07.

"**Corporate Minute Books**" has the meaning set forth in Section 5.06.

"**COVID-19**" means the COVID-19 virus.

"**COVID-19 Measures**" means any measures taken by applicable Governmental Authorities to combat the COVID-19 virus.

"**Customs Import Duties and Impositions**" has the meaning set forth in Section 5.16(d).

"**Dispute Amounts**" has the meaning set forth in Section 2.04(d).

"**Disqualification Event**" has the meaning set forth in Section 3.11.

"**EDGAR**" means Electronic Data Gathering, Analysis, and Retrieval system.

"**End Date**" has the meaning set forth in Section 11.02(a).

"**Effective Date**" has the meaning set forth in the Preamble.

"**Escrow**" means all the Escrow Shares or other funds or property deposited by the Principal Stockholder with the Escrow Agent under the Escrow Agreement.

"**Escrow Agent**" means the escrow agent specified in the Escrow Agreement.

"**Escrow Agreement**" means the Escrow Agreement to be entered into as of the Closing Date among the Red Cat, Unusual and the Escrow Agent, which shall be in form and substance mutually acceptable to the Parties and the Escrow Agent.

"**Escrow Shares**" is defined in Section 2.03(a).

"**EST**" means Eastern Standard Time.

"**Estimated Working Capital**" has the meaning set forth in Section 2.04(a).

"**Estimated Working Capital Deficiency Amount**" has the meaning set forth in Section 2.04(a).

"**Estimated Working Capital Excess Amount**" has the meaning set forth in Section 2.04(a).

"**Estimated Working Capital Statement**" has the meaning set forth in Section 2.04(a).

"**Exchange Act**" has the meaning set forth in Section 4.01(c).

"**Expenses**" means, with respect to any Person, all reasonable and documented out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors, and investment bankers of such Person and its Affiliates), incurred by such Person or on its behalf in connection with or related to the authorization, preparation, negotiation, execution, and performance of this Agreement and any transactions related thereto, any litigation with respect thereto, the preparation, printing, filing, and mailing of the Proxy Statement, or in connection with other Regulatory Approvals, and all other matters related to the Purchase and Sale, and the other transactions contemplated by this Agreement.

"**Final Working Capital**" has the meaning set forth in Section 2.04(b).

"**Final Working Capital Deficiency Amount**" has the meaning set forth in Section 2.04(b).

"**Final Working Capital Excess Amount**" has the meaning set forth in Section 2.04(b).

"**GAAP**" has the meaning set forth in Section 4.07.

"**Government bid**" means any bid that, if accepted or awarded, reasonably would be expected to lead to a Government Contract between Unusual and/or any of its Subsidiaries, on the one hand, and any Governmental Authority, on the other hand.

"**Government Contract**" means any prime contract, subcontract, facility contract, purchase order, task order, delivery order, teaming agreement or arrangement, joint venture agreement, strategic alliance agreement, basic ordering agreement, pricing agreement, blanket purchase agreement, letter contract, grant, cooperative agreement or other similar arrangement, commitment or funding vehicle of any kind that is currently active in performance, or that has been active in performance at any time in the five year period prior to the date of the Agreement and for which final payment has not yet been made (or has not been finally closed by the relevant Government Authority) with: (a) any Governmental Authority; (b) any prime contractor of a Governmental Authority in its capacity as a prime contractor; or (c) any subcontractor at any tier with respect to any contract of a type described in the foregoing clause (a) or clause (b) above. A task, purchase or delivery order under a Government Contract shall not constitute a separate Government Contract, for purposes of this definition, but shall be part of the Government Contract to which it relates.

"**Governmental Authority**" means any national, state, municipal, local, or foreign government, any instrumentality, subdivision, court, administrative agency or commission, or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority.

"**Governmental Consents**" has the meaning set forth in Section 3.03(c).

"**Hazardous Substance**" means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral, or gas, in each case, whether naturally occurring or man-made, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

"**Indebtedness**" has the meaning set forth in Section 4.06.

"**Indemnified Losses**" has the meaning set forth in Section 7.03(a)(i)(A).

"**Independent Accounting Firm**" has the meaning set forth in Section 2.01.

"**Indemnified Party**" has the meaning set forth in Section 7.04(c).

"**Indemnifying Party**" has the meaning set forth in Section 7.04(c).

"**Intellectual Property**" means all intellectual property rights and assets, and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor's certificates, petty patents and patent utility models); and (f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation.

"**IP Assignments**" has the meaning set forth in Section 8.18.

"**IRS**" means the United States Internal Revenue Service.

"**Knowledge**" means (a) the actual knowledge or constructible knowledge of each officer, director or manager of a Party.

"**Law(s)**" means any federal, state, local, municipal, foreign, multi-national or other Laws, common law, statutes, constitutions, ordinances, rules, regulations, codes, Orders, or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered, or applied by any Governmental Authority.

"**Lease**" means all leases, subleases, licenses, concessions, and other agreements (written or oral) under which a Party or any of its Subsidiaries holds any Leased Real Estate, including the right to all security deposits and other amounts and instruments deposited by or on behalf of any Party to this Agreement or any of its Subsidiaries thereunder.

"**Leased Real Estate**" means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in Real Property held by each of the Target Companies or any of their respective Subsidiaries.

"**Legal Proceeding**" means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative or appellate proceeding), investigation or preliminary inquiry regardless of what terms a Governmental Authority may use, hearing, claim, audit, examination commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel.

"**Liability**" means any liability, Indebtedness, or obligation of any kind (whether accrued, absolute, contingent, matured, unmatured, determined, determinable, or otherwise, and whether or not required to be recorded or reflected on a balance sheet under GAAP).

"**Liens**" means, with respect to any property or asset, all pledges, liens, mortgages, charges, encumbrances, hypothecations, options, rights of first refusal, rights of first offer, and security interests of any kind or nature whatsoever including statutory liens.

"**Lock Up Agreements**" has the meaning set forth in Section 8.19.

"**Material Adverse Effect**" means any event, occurrence, fact, condition or change that is materially adverse to (a) the business, results of operations, condition (financial or otherwise) prospects or assets of any Party, or (b) the ability of any Party to consummate the transactions contemplated hereby.

"**Material Contracts**" means any contract where the consideration to be paid or consideration has been accrued in the 12 months prior to the date of this Agreement and in either case is in excess of $100,000 including through purchase orders.

"**Material Permits**" has the meaning set forth in Section 5.04.

"**Nasdaq**" has the meaning set forth in Section 8.11(a).

"**Nasdaq Listing Application**" has the meaning set forth in Section 8.11(a).

"**Offering**" has the meaning set forth in Section 8.01.

"**Order**" has the meaning set forth in Section 8.23.

"**Other Covered Person**" has the meaning set forth in Section 3.11.

"**Party**" has the meaning set forth in the preamble.

"**Parties**" has the meaning set forth in the preamble.

"**PCAOB**" has the meaning set forth in Section 8.23.

"**Permitted Liens**" means: (a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (b) mechanics', carriers', workers', repairers', and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (c) zoning, entitlement, building, and other land use regulations imposed by Governmental Authority having jurisdiction over such Person's owned or leased Real Property, which are not violated by the current use and operation of such Real Property; (d) covenants, conditions, restrictions, easements, and other similar non-monetary matters of record affecting title to such Person's owned or leased Real Property, which do not materially impair the occupancy or use of such Real Property for the purposes for which it is currently used in connection with such Person's businesses; (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such Real Property for the purposes for which it is currently used in connection with such Person's businesses; and (f) Liens arising under workers' compensation, unemployment insurance, social security, retirement, and similar legislation.

"**Person**" means any individual, corporation, limited or general partnership, limited liability company, limited liability partnership, trust, association, joint venture, Governmental Authority, or other entity or group (which term will include a "group" as such term is defined in Section 13(d)(3) of the Exchange Act).

"**Personal Data**" means: (a) information that can be used to identify an individual either alone or when combined with other personal or identifying information that is linked or linkable to a specific individual, and (b) any other information covered by any applicable data privacy or security Law, each in connection with the operation of the applicable Party's business.

"**Personally Identifiable Information**" means information pertaining to an individual that is regulated by one or more information privacy or security Laws.

"**Preliminary Unaudited Profit & Loss Statements**" has the meaning set forth in Section 2.04(a).

"**Principal Stockholder**" has the meaning set forth in the preamble.

"**Privacy Policies**" means all published privacy policies and internal privacy policies and guidelines maintained or published by the Target Company or privacy policies required by applicable Laws.

"**Product Data**" has the meaning set forth in Section 5.12(d).

"**Product Inventory**" has the meaning set forth in Section 5.12(g).

"**Proxy Statement**" has the meaning set forth in Section 4.01(c).

"**Purchase and Sale**" means the sale of the Target Companies' Capital Stock in exchange for the consideration specified in Section 2.01.

"**Purchase Price**" has the meaning set forth in Section 2.01.

"**Purchase Price Allocation**" has the meaning set forth in Section 2.01.

"**Real Property**" means the real property owned, leased or subleased, together with all buildings, structures and facilities located thereon.

"**Red Cat**" has the meaning set forth in the preamble.

"**Red Cat Adverse Recommendation Change**" has the meaning set forth in Section 8.07(a).

"**Red Cat Board**" has the meaning set forth in the preamble.

"**Red Cat Board Recommendation**" has the meaning set forth in Section 4.01(d).

"**Red Cat Common Stock**" has the meaning set forth in Section 4.01(a).

"**Red Cat Financial Statements**" has the meaning set forth in Section 4.07.

"**Red Cat Preferred Stock**" has the meaning set forth in 4.01(a).

"**Red Cat Stockholders**" has the meaning set forth in the preamble.

"**Red Cat Stockholder Proposals**" has the meaning set forth in Section 4.01(c).

"**Red Cat Stockholders Meeting**" has the meaning set forth in Section 4.01(d).

"**Registration Rights Agreement**" has the meaning set forth in Section 8.20.

"**Registration Statement**" has the meaning set forth in Section 8.01.

"**Regulatory Approvals**" has the meaning set forth in Section 5.12(c).

"**Representative(s)**" means, with respect to any Person, such Person's directors, officers, employees, stockholders, investment bankers, attorneys, accountants, consultants, or other agents or advisors.

"**Requisite Red Cat Vote**" has the meaning set forth in Section 4.01.

"**Schedule Update**" has the meaning set forth in Section 12.01(b).

"**Schedules**" has the meaning set forth in Section 12.01(a).

"**SEC**" has the meaning set forth in Section 4.01(c).

"**SEC Reports**" has the meaning set forth in Section 4.07.

"**Securities Act**" has the meaning set forth in Section 4.07.

"**Special Economic Zone**" has the meaning set forth in Section 5.16(d).

"**Statement of Disputed Amounts**" has the meaning set forth in Section 2.04(d).

"**Straddle Period**" has the meaning set forth in Section 9.04.

"**Subsidiary**" of a Person means a corporation, partnership, limited liability company, or other business entity of which a majority of the shares of voting securities is at the time beneficially owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person.

"**Superior Proposal**" means a bona fide written proposal with respect to either or both of the Target Companies or its Subsidiaries that such Party's board determines in good faith (after consultation with outside legal counsel and such Party's financial advisor) is more favorable to the holders of such Party's common stock than the transactions contemplated by this Agreement, including without limitation from a financial point of view, taking into account: (a) all financial considerations; (b) the identity of the third party making such Takeover Proposal; (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such Takeover Proposal; (d) the other terms and conditions of such Takeover Proposal and the implications thereof on such Party, including relevant legal, regulatory, and other aspects of such Takeover Proposal deemed relevant by such Party (including any conditions relating to financing, stockholder approval, Regulatory Approvals, or other events or circumstances beyond the control of the Party invoking the conditions). For the absence of doubt a Superior Proposal may arise from any offer for either or both of the Target Companies that is lower than the Consideration or for such an offer that includes a larger cash payment at closing or thereafter than as provided in this Agreement.

"**Superior Proposal Notice Period**" has the meaning set forth in Section 8.07(d).

"**Takeover Proposal**" means with respect to either or both of the Target Companies or its Subsidiaries, as the case may be, an inquiry, proposal, or offer from, or indication of interest in making a proposal or offer by, any Person or group relating to any transaction or series of related transactions (other than the transactions contemplated by this Agreement), involving any: (a) direct or indirect acquisition of assets of such Party hereto or its Subsidiaries (including any voting equity interests of Subsidiaries, but excluding sales of assets in the ordinary course of business) equal to 15% or more of the fair market value of such Party and its Subsidiaries' consolidated assets or to which 15% or more of such Party's and its Subsidiaries' net revenues or net income on a consolidated basis are attributable; (b) direct or indirect acquisition of 15% or more of the voting equity interests of such Party hereto or any of its Subsidiaries whose business constitutes 15% or more of the consolidated net revenues, net income, or assets of such Party and its Subsidiaries, taken as a whole; (c) tender offer or exchange offer that if consummated would result in any Person or group (as defined in Section 13(d) of the Exchange Act) beneficially owning (within the meaning of Section 13(d) of the Exchange Act) 15% or more of the voting power of such Party hereto; (d) merger, consolidation, other business combination, or similar transaction involving such Party hereto or any of its Subsidiaries, pursuant to which such Person or group (as defined in Section 13(d) of the Exchange Act) would own 15% or more of the consolidated net revenues, net income, or assets of such Party and its Subsidiaries, taken as a whole; (e) liquidation, dissolution (or the adoption of a plan of liquidation or dissolution), or recapitalization or other significant corporate reorganization of such Party hereto or one or more of its Subsidiaries which, individually or in the aggregate, generate or constitute 15% or more of the consolidated net revenues, net income, or assets of such Party and its Subsidiaries, taken as a whole; or (f) any combination of the foregoing.

"**Target Company**" has the meaning set forth in the preamble.

"**Target Companies**" has the meaning set forth in the preamble.

"**Target Company Contracts**" has the meaning set forth in Section 5.20.

"**Target Companies' Capital Stock**" has the meaning set forth in the preamble.

"**Target Company Plans**" has the meaning set forth in Section 5.18(c).

"**Target Company Product(s)**" has the meaning set forth in Section 5.12(b).

"**Taxes**" means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), Real Property gains, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

"**Tax Claim**" has the meaning set forth in Section 9.07.

"**Tax Liability**" has the meaning set forth in Section 8.02(b)(xvi).

"**Tax Returns**" means any return, declaration, report, claim for refund, information return or statement, or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

"**Trading Market**" means any of the New York Stock Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Select Market, or the Nasdaq Global Market, or any successors of any of these exchanges on which the common stock is listed.

"**Transaction Documents**" has the meaning set forth in Section 5.02.

"**Transition Services Agreement**" has the meaning set forth in Section 11.01(i).

"**Treasury Regulations**" means the Treasury regulations promulgated under the Code.

"**UAV**" means an unmanned aerial vehicle.

"**Unaudited Preliminary Balance Sheet**" has the meaning set forth in Section 2.04(a).

"**Unusual Board**" has the meaning set forth in the preamble.

"**Unusual Board Approval**" has the meaning set forth in Section 3.03(d).

"**Unusual Capital Stock**" has the meaning defined in Section 2.01.

"**Unusual Common Stock**" has the meaning set forth in Section 2.01.

"**Unusual Disclosure Schedules**" has the meaning set forth in Article III.

"**Unusual Equity Award Plan**" has the meaning set forth in Section 3.01(b).

"**Unusual Equity Awards**" has the meaning set forth in Section 8.03(c).

"**Unusual Financial Statements**" has the meaning set forth in Section 3.06.

"**Unusual Indemnitee(s)**" has the meaning set forth in Section 7.03(a).

"**Unusual Note**" has the meaning set forth in Section 2.01.

"**Unusual Preferred Stock**" has the meaning set forth in Section 2.01.

"**Unusual Subsidiary Securities**" has the meaning set forth in Section 8.03(b).

"**Unusual Stockholders**" has the meaning set forth in Section 3.03(d).

"**Unusual Subsidiaries**" has the meaning set forth in Section 3.01(c).

"**VWAP**" means, for any date, the price determined by the first of the following clauses that applies: (a) if the common stock are then listed or quoted on a Trading Market, the daily volume weighted average price of the common stock for such date (or the nearest preceding date) on the Trading Market on which the common stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. to 4:02 p.m. (EST), "**Trading Day**"), (b) if the common stock are traded on OTCQB or OTCQX, the volume weighted average sales price of the common stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the common stock are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the common stock are then reported in the "Pink Open Market" or successor operated by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the common stock so reported, or (d) in all other cases, the fair market value of a share of common stock as determined by an independent broker-dealer selected in good faith by the Principal Stockholder and reasonably acceptable to Unusual, the fees and expenses of which shall be paid by the Principal Stockholder.

"**Working Capital**" has the meaning set forth in 2.4(b).

"**Working Capital Calculations**" has the meaning set forth in Section 2.04(b)

**ARTICLE II<br> <u>PURCHASE AND SALE</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Section 2.01 <u>Purchase and Sale</u>**. At the Closing, Red Cat agrees to sell to Unusual 100% of the Target Companies' Capital Stock owned by Red Cat in exchange for a Purchase Price of $18.0 million (the "**Purchase Price**") consisting of (a) $5.0 million in cash plus the amount of any Agreed Working Capital, if any (the "**Cash Consideration**") at the Closing (subject to adjustment as provided in Section 2.04(c) for the amount of working capital balance, if any, on the Closing Date) (the "**Final Working Capital**") and a $2.5 million Unusual Senior Secured Convertible Promissory Note (the "**Unusual Note**") which shall be in form and substance mutually acceptable to the Parties, and (b) $10.5 million of shares of Unusual's Series A Convertible Preferred Stock (the "**Unusual Preferred Stock**") (the common stock issuable upon conversion of the Unusual Note or the Unusual Preferred Stock and the Unusual Preferred Stock (the "**Unusual Capital Stock**"). The Cash Consideration, Unusual Note and the Unusual Preferred Stock are collectively referred to herein as the "**Consideration**". The Certificate of Designation of the Unusual Preferred Stock shall be in form and substance mutually acceptable to the Parties. The Unusual Note and the Unusual Preferred Stock shall be convertible into Unusual Common Stock, par value $0.01 per share (the "**Unusual Common Stock**") at the lower of (A) $4.00 (subject to adjustment for stock splits, stock dividends or similar events) or (B) the Offering price. The Unusual Note and the Unusual Preferred Stock will contain 4.99/9.99% beneficial ownership blockers and other usual and customary provisions, including price protection for lower priced issuances for so long as the Unusual Note or the Unusual Preferred Stock remain outstanding. The allocation of the Purchase Price as between the acquisition of Fat Shark Holdings, Ltd and the acquisition of Rotor Riot (the "**Purchase Price Allocation**") shall be mutually agreed upon prior to the Closing (as defined below) in accordance with the following procedures. Within 45 days following the Closing, Red Cat shall provide Unusual with a detailed written statement with its proposed calculation of the Purchase Price Allocation. Unusual shall have 15 days after its receipt of the proposed Purchase Price Allocation to agree or disagree with such calculation. If Unusual disagrees with such calculation and Unusual and Red Cat are unable to finally resolve such dispute within 30 days after Unusual's receipt of the Purchase Price Calucation, then the dispute shall be resolved by a nationally-recognized accounting firm that is reasonably acceptable to Unusual and Red Cat (the "**Independent Accounting Firm**").

**Section 2.02 <u>Closing</u>**. Upon the terms and subject to the conditions set forth herein, the closing of the Purchase and Sale (the "**C** **losing**") will take place at 11:30 a.m. EST, or as soon as commercially practicable unless this Agreement has been terminated pursuant to its terms or unless another time or date is agreed to in writing by the Parties hereto. The Closing shall take place at the offices of Nason, Yeager, Gerson, Harris & Fumero, P.A., or remotely by exchange of documents and signatures (or their electronic counterparts), unless another place is agreed to in writing by the Parties. The actual date of the Closing is referred to as the "**Closing Date**." At the Closing, Red Cat shall sell to Unusual 100% of the Target Companies' Capital Stock, free and clear of all Liens, in return for the Consideration. In addition, as of the Closing, the officers and directors or manager of the Target Companies shall be as reflected on **<u>Schedule 2.02</u>**.

**Section 2.03 <u>Escrow Shares</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) At the Closing, the Principal Stockholder shall deliver to the Escrow Agent, 450,000 shares of Unusual Common Stock with an agreed upon value of $1.8 million (the "**Escrow Shares**"). The Escrow Shares shall provide security for Red Cat's and the Principal Stockholder's indemnification obligations in Article VII including, without limitation, in connection with a breach of any representation and warranty made by Red Cat or the Principal Stockholder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Any claim against the Escrow must be made within 9 months following Closing. If a claim is timely made the Escrow Agent shall continue to hold the Escrow Shares as provided in the Escrow Agreement.

**Section 2.04 <u>Post Closing Audit; Purchase Price Adjustment; Dispute</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) No more than 10 and no later than 3 business days prior to the Closing Date, Red Cat shall prepare and deliver to Unusual (i) unaudited preliminary balance sheets of the Target Companies (the "**Unaudited Preliminary Balance Sheets**") as of the Closing Date and a preliminary unaudited profit and loss statement for the period ending on the Closing Date (the "**Preliminary Unaudited Profit & Loss Statements**"), in accordance GAAP (collectively, the "**Closing Trial Balance**"), (ii) a statement (the "**Estimated Working Capital Statement**") setting forth Red Cat's reasonable and good faith estimate of the Closing Date Working Capital and the components and calculations thereof in reasonable detail, by reference to the foregoing Closing Trial Balance and (iii) a statement setting forth the calculation of the amount by which the estimated Closing Date Working Capital as shown on the Estimated Working Capital Statement (the "**Estimated Working Capital**") either exceeds the Agreed Working Capital (such amount, the "**Estimated Working Capital Excess Amount**") or is less than the Agreed Working Capital (such amount, the "**Estimated Working Capital Deficiency Amount**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If there was an Estimated Working Capital Excess Amount or an Estimated Working Capital Deficiency Amount, at the Closing the aggregate Consideration shall be adjusted upward or downward dollar-for-dollar as appropriate. If there is an Estimated Working Capital Excess Amount, the amount shall be paid to Red Cat as additional Cash Consideration at the Closing. If there is an Estimated Working Capital Deficiency Amount, the amount shall first be credited to the Unusual Note amount and any additional amount applied as a reduction in the Cash Consideration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Within 45 days after the Closing Date or as soon thereafter as is reasonably practical using commercially reasonable efforts, Unusual will prepare and deliver to Red Cat (i) closing balance sheets of each of the Target Companies as of the Closing Date in accordance with GAAP (the "**Closing Date Balance Sheets**"), (ii) the calculations (the "**Working Capital Calculations**") of the Working Capital of each of the Target Companies (the "**Working Capital**") as of the Closing Date, and (iii) a statement setting forth the calculation of the actual Closing Date Working Capital of both Target Companies. The same procedure outlined in Section 2.04(a) shall be followed in paying Red Cat the actual excess of the Closing Date Working Capital over the Estimated Closing Date Working Capital or in crediting Unusual the amount by which the actual Closing Date Working Capital deficiency exceeds the Estimated Working Capital.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) If Red Cat disputes the Closing Date Balance Sheets or the Closing Date Working Capital as set forth in the Working Capital Calculations, then, within 45 days following receipt of the deliverables specified in Section 2.04(c), Red Cat shall give Unusual a detailed written statement identifying all disputed items (collectively, the "**Disputed Amounts**") (the "**Statement of Disputed Amounts**"). Unusual and Red Cat shall use reasonable efforts to resolve any such dispute. If Unusual and Red Cat are unable to finally resolve such dispute within 30 days after Unusual's receipt of Red Cat's Statement of Disputed Amounts, then the dispute shall be resolved by the Independent Accounting Firm. Unusual and Red Cat shall retain the Independent Accounting Firm within 30 days of the end of the 30 day period for Unusual and Red Cat to resolve their dispute. The determination of the Independent Accounting Firm shall be made as promptly as practicable and shall be final and binding on Unusual and Red Cat. The fees and expenses of the Independent Accounting Firm shall be allocated 50% to Unusual and Red Cat, provided that if the disputed amount as finally determined by the Independent Accounting Firm equals or exceeds 25% of the Closing Date Balance Sheets amount prepared by Unusual, Unusual shall be responsible for 100% of the Independent Accounting Firm fees.

**ARTICLE III<br> <u>REPRESENTATIONS AND WARRANTIES OF UNUSUAL</u>**

In order to induce Red Cat to enter into this Agreement and to consummate the transactions contemplated hereby, Unusual makes the representations and warranties set forth below to Red Cat and the Principal Stockholder which representations and warranties shall be true and correct on the Effective Date and as of the Closing Date, except as set forth in a Disclosure Schedule delivered by Unusual to Red Cat and the Principal Stockholder:

**Section 3.01 <u>Organization</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Organization; Standing and Power</u>. Unusual and each of its Subsidiaries is a corporation, limited liability company, or other legal entity duly organized, validly existing, and in good standing (to the extent that the concept of "good standing" is applicable in the case of any jurisdiction outside the United States) under the Laws of its jurisdiction of organization, and has the requisite corporate, limited liability company, or other organizational, as applicable, power and authority to own, lease, and operate its assets and to carry on its business as now conducted. Each of Unusual and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability company, or other legal entity and is in good standing (to the extent that the concept of "good standing" is applicable in the case of any jurisdiction outside the United States) in each jurisdiction where the character of the assets and properties owned, leased, or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so qualified or licensed or to be in good standing, would not reasonably be expected to have, individually or in the aggregate, an Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Charter Documents</u>. The Certificate of Incorporation and By-Laws of Unusual as most recently provided to Red Cat are true, correct, and complete copies of such documents as in effect as of the Effective Date. Unusual has delivered or made available to Red Cat a true and correct copy of the Charter Documents of each of Unusual's Subsidiaries. Neither Unusual nor any of Unusual's Subsidiaries is in violation of any of the provisions of its Charter Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Subsidiaries</u>. **<u>Schedule 3.01(c)</u>** lists each of Unusual's Subsidiaries as of the Effective Date and its place of organization. **<u>Schedule 3.01(c)</u>** sets forth, for each Subsidiary that is not, directly or indirectly, wholly-owned by Unusual: (i) the number and type of any capital stock of, or other equity or voting interests in, such Subsidiary that is outstanding as of the Effective Date; and (ii) the number and type of shares of capital stock of, or other equity or voting interests in, such Subsidiary that, as of the Effective Date, are owned, directly or indirectly, by Unusual. All of the outstanding shares of capital stock of, or other equity or voting interests in, each of Unusual's Subsidiaries that is owned directly or indirectly by Unusual have been validly issued, were issued free of pre-emptive rights, are fully paid and non-assessable, and are free and clear of all Liens and restrictions, including any restriction on the right to vote, sell, or otherwise dispose of such capital stock or other equity or voting interests, except for any Liens: (A) imposed by applicable securities Laws; or (B) arising pursuant to the Charter Documents of any non-wholly-owned Subsidiary of Unusual. Except for the capital stock of, or other equity or voting interests in, its Subsidiaries, Unusual does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.

**Section 3.02 <u>Capital Structure</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Capital Stock</u>. The authorized capital stock of Unusual consists of: (i) 90,000,000 shares of Unusual Common Stock; and (ii) 10,000,000 shares of preferred stock, $0.01 par value per share, of Unusual (the "**Unusual Preferred Stock**", and together with the Unusual Preferred Stock, the "Unusual Capital Stock"). (A) 8,184,500 shares of Unusual Common Stock were issued and outstanding; (B) no shares of Unusual Common Stock were issued and held by Unusual in its treasury; and (C) no shares of Unusual Preferred Stock are issued and outstanding. All of the outstanding shares of capital stock of Unusual are, and all shares of capital stock of Unusual which may be issued as contemplated or permitted by this Agreement will be, when issued, duly authorized, validly issued, fully paid, and non-assessable, and not subject to any pre-emptive rights. None of Unusual's Subsidiaries own any shares of Unusual Common Stock. The Unusual Common Stock and Unusual Preferred Stock represents One Hundred Percent (100%) of the issued and outstanding shares of capital stock of Unusual. Unusual has no investment or equity interest in any other Person. None of the Unusual Capital Stock has been, or will be, issued in violation of any law, preemptive right, right of first refusal or similar agreement. Neither the Unusual Notes nor the Unusual Preferred Stock to be issued to Red Cat has been, or will be, issued in violation of any federal or state law, rule, regulation or order, preemptive right, right of first refusal or similar agreement. No written or oral agreement or understanding with respect to the disposition of the Unusual Capital Stock, or the Unusual Notes, or any rights therein, other than this Agreement, exists.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Rights, Warrants, Options.</u> Except as set forth on Schedule 3.02(b), and as contemplated to be issued or sold pursuant to the Registration Statement, there are no options, warrants or other rights, arrangements or commitments of any character to which Unusual is a party or by which Unusual is bound relating to Unusual's Capital Stock, or obligating Unusual to issue or sell any shares of Unusual Capital Stock, or other equity interests in, Unusual or any of its Subsidiaries.

**Section 3.03 <u>Authority; Non-Contravention; Governmental Consents; Board Approval</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Authorization</u>. Unusual has all requisite right, power and authority to execute and deliver this Agreement, the Transaction Documents to which it is a party and consummate the transactions contemplated thereby. As used in this Agreement, "**Transaction Documents**" means this Agreement, the Unusual Notes, the Unusual Preferred Stock, Registration Rights Agreement, the Escrow Agreement, the Transition Services Agreement and the Non-Competition Agreement. The execution and delivery of this Agreement, the Transaction Documents to which it is a party by Unusual and the consummation by Unusual of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate or other action. This Agreement and has been duly executed and delivered by Unusual and constitutes the legal, valid and binding obligation of Unusual, enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws affecting creditors' rights generally and subject to the effect of general principles of equity, whether considered in a proceeding in equity or at law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Non-Contravention</u>. The execution, delivery, and performance of this Agreement by Unusual, and the consummation by Unusual of the transactions contemplated by this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Unusual Notes and the Unusual Preferred Stock, including the Purchase and Sale, do not and will not: (i) contravene or conflict with, or result in any violation or breach of Unusual's Charter Documents; (ii) assuming that all Governmental Consents have been obtained or made, conflict with or violate any Law applicable to Unusual, any Unusual's Subsidiaries, any of Unusual's stockholders or any of their respective properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in Unusual's or any of Unusual's Subsidiaries' loss of any benefit or the imposition of any additional payment or other Liability under, or alter the rights or obligations of any third party under, or give to any third party any rights of termination, amendment, acceleration, or cancellation, or require any Governmental Consent under, any Material Contract to which Unusual or any of Unusual's Subsidiaries or Unusual's stockholders is a party or otherwise bound as of the Effective Date; or (iv) result in the creation of a Lien (other than Permitted Liens) on any of the properties or assets of Unusual or any of Unusual's Subsidiaries, except, in the case of each of clauses (ii), (iii), and (iv), for any conflicts, violations, breaches, defaults, loss of benefits, additional payments or other Liabilities, alterations, terminations, amendments, accelerations, cancellations, or Liens that, or where the failure to obtain any Governmental Consents, in each case, would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Governmental Consents</u>. No consent, approval, order, or authorization of, or registration, declaration, or filing with, or notice to (any of the foregoing being a "**Governmental Consent**"), any Governmental Authority is required to be obtained or made by Unusual in connection with the execution, delivery, and performance by Unusual of this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Unusual Notes and the Unusual Preferred Stock, or the consummation by Unusual of the Purchase and Sale and other transactions contemplated hereby, (excluding the Offering, as hereinafter defined, the Nasdaq listing), except for such other Consents which if not obtained or made would not have, individually or in the aggregate, a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Unusual Board Approval</u>. The Unusual Board, by resolutions duly adopted by a unanimous vote at a meeting of the Unusual Board duly called and held and, not subsequently rescinded or modified in any way, has: (i) determined that this Agreement and the transactions contemplated hereby, including the Purchase and Sale, upon the terms and subject to the conditions set forth herein, are in the best interests of Unusual; (ii) approved this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Purchase and Sale, the Offering, the Registration Rights Agreement, the Escrow Agreement, the Unusual Notes and the Unusual Preferred Stock, upon the terms and subject to the conditions set forth herein ("**Unusual Board Approval**").

**Section 3.04 <u>Brokers</u>**. Unusual has not employed any financial advisor, broker or finder and has not incurred and will not incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement which would be payable by Red Cat. Unusual will pay the discounts and other expenses of the Offering.

**Section 3.05 <u>Legal Proceedings</u>**. There is no action, claim, dispute, suit, investigation or proceeding pending or, to Unusual's knowledge, threatened against Unusual or any of its properties or rights, nor any judgment, order, injunction or decree before any court, arbitrator or administrative or governmental body which might adversely affect or restrict the ability of Unusual to consummate the transactions contemplated by this Agreement including the Purchase and Sale or to perform its obligations thereunder.

**Section 3.06 <u>Financial Statements</u>**. Unusual has delivered to the other Parties a true and complete copy of the audited balance sheet of Unusual and each of Unusual's Subsidiaries as of December 31, 2021 and 2020, and the audited consolidated profit and loss statement, statement of cash flow and statement of changes in stockholders' equity of Unusual and each of Unusual's Subsidiaries for the period ending on such dates and unaudited financials for the three and nine months periods ended September 30, 2022, certified by Unusual's chief executive officer, without giving effect to any of the transactions contemplated by this Agreement (collectively, the "**Unusual Financial Statements**"). The Unusual Financial Statements: (a) have been prepared in accordance with the books of account and records of Unusual; (b) fairly present, and are true, correct and complete statements in all material respects of the consolidated financial condition of Unusual and the results of its operations at the dates and for the periods specified in those statements; and (c) have been prepared in accordance with GAAP consistently applied with prior periods. The Unusual Financial Statements have been prepared in accordance with the books of account and records of Unusual in accordance with GAAP and fairly present and are true and correct in all material respects of the consolidated financial condition of Unusual as the Closing Date.

**Section 3.07 <u>Absence of Undisclosed Liabilities</u>**. Other than Liabilities incurred in the ordinary course of business consistent with past practice, Unusual has no debts, claims, Liabilities, commitments or obligations of any nature whatsoever, whether accrued, absolute, contingent or otherwise, other than as provided for in this Agreement or disclosed and accrued for or reserved against in the Unusual Financial Statements. There is no basis for assertion against Unusual of any such debt, claim, Liability, commitment, obligation or loss.

**Section 3.08 <u>Registration Statement</u>**. The Registration Statement has been prepared by Unusual and does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

**Section 3.09 <u>Employment Compliance</u>**. In the last 5 years:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) to the Knowledge of Unusual, no allegations of sexual harassment, sexual misconduct, sexual, gender, racial, religious other discrimination which is in violation of applicable Laws, o retaliation or policy violations have been made involving any current or former director, officer, manager, employee or independent contractor of Unusual;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Unusual has not entered into any settlement agreement related to allegations referred to in Section 3.09(a); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) no Legal Proceedings are pending or, to the Knowledge of Unusual, threatened related to allegations referred to in Section 3.09(a) against Unusual.

**Section 3.10 <u>Accuracy of Information Furnished.</u>** No representation, statement or information contained in this Agreement (including the various exhibits attached hereto) or any agreement executed in connection herewith or in any certificate or other document delivered pursuant hereto or thereto or made or furnished to Red Cat or Principal Stockholder or its representatives by Unusual, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained herein and therein, in the light of the circumstances under which they were made, not misleading. Copies of all documents listed or described in the various exhibits attached hereto and provided by Unusual to Red Cat and Principal Stockholder are true, accurate and complete.

**Section 3.11 <u>Rule 506(d) Bad Actor Disqualification Representations and Covenants</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>No Disqualification Events</u>. Neither Unusual, nor any of its predecessors, Affiliates, any manager, executive officer, other officer of the Unusual or any Subsidiary participating in the offering, any beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of Unusual's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with Unusual in any capacity as of the date of this Agreement and on the Closing Date (each, a "**Company Covered Person**" and, together, "**Company Covered Persons**") is or has prior to the Effective Date been subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a "**Disqualification Event**"), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). Unusual has exercised reasonable care to determine: (i) the identity of each person that is a Company Covered Person; and (ii) whether any Company Covered Person is subject to a Disqualification Event. Unusual has complied with its disclosure obligations under Rule 506(e).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Other Covered Persons</u>. Unusual is not aware of any person (other than any Company Covered Person) who has been or will be paid (directly or indirectly) remuneration in connection with the sale of the Unusual Capital Stock who is subject to a Disqualification Event (each, an "**Other Covered Person**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Reasonable Notification Procedures</u>. With respect to each Company Covered Person, Unusual has established procedures reasonably designed to ensure that Unusual receives notice from each such Company Covered Person of (A) any Disqualification Event relating to that Company Covered Person, and (B) any event that would, with the passage of time, become a Disqualification Event relating to that Company Covered Person; in each case occurring up to and including the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Notice of Disqualification Events</u>. Unusual will notify Red Cat immediately in writing upon becoming aware of (A) any Disqualification Event relating to any Company Covered Person and (B) any event that would, with the passage of time, become a Disqualification Event relating to any Company Covered Person and/or Other Covered Person.

**Section 3.12 <u>The Offering</u>.** Unusual has entered into a non-binding letter of intent with an underwriter which has agreed to underwrite the Offering. A copy of the letter of intent is annexed as <u>Schedule 3.12 hereto</u>.

**ARTICLE IV<br> <u>REPRESENTATIONS AND WARRANTIES REGARDING RED CAT</u>**

In order to induce Unusual to enter into this Agreement and to consummate the transactions contemplated hereby, Red Cat and the Principal Stockholder, jointly and severally, make the representations and warranties set forth below to Unusual which representations and warranties shall be true and correct as of the Effective Date and the Closing Date, except as set forth in a Disclosure Schedule attached to this Agreement. All references in this Article IV to either Target Company shall include any Subsidiaries of such Target Company.

**Section 4.01 <u>Authority; Non-Contravention; Governmental Consents; Board Approval; Anti-Takeover Statutes</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Authority</u>. Red Cat has all requisite corporate power and authority to enter into and to perform its obligations under this Agreement, subject to approval of this Agreement by the affirmative vote or consent of the holders of a majority of the outstanding disinterested shares of Red Cat common stock (the "**Red Cat Common Stock**") (including the shares of Red Cat Preferred Stock ("**Red Cat Preferred Stock**") voting on an as-converted basis) (the "**Requisite Red Cat Vote**"), to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Red Cat and the consummation by Red Cat a of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Red Cat and no other corporate proceedings on the part of Red Cat are necessary to authorize the execution and delivery of this Agreement or to consummate the Purchase and Sale and the other transactions contemplated hereby, subject only, in the case of consummation of the Purchase and Sale, to the receipt of the Requisite Red Cat Vote. The Requisite Red Cat Vote is the only vote or consent of the holders of any class or series of Red Cat's capital stock necessary to approve this Agreement and consummate the Purchase and Sale and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by Red Cat and, assuming due execution and delivery by Unusual and Principal Stockholder, constitutes the legal, valid, and binding obligation of Red Cat, enforceable against Red Cat in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, and other similar Laws affecting creditors' rights generally and by general principles of equity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Non-Contravention</u>. The execution, delivery, and performance of this Agreement by Red Cat, and the consummation by Red Cat of the transactions contemplated by this Agreement, including the Purchase and Sale, do not and will not: (i) contravene or conflict with, or result in any violation or breach of, the Charter Documents of Red Cat or any of the Target Companies; (ii) assuming that all Governmental Consents have been obtained or made and, in the case of the consummation of the Purchase and Sale, obtaining the Requisite Red Cat Vote and assuming the absence of a Superior Proposal, conflict with or violate any Law applicable to Red Cat, any of its Subsidiaries, or any of their respective properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in any of Red Cat's or the Target Companies' loss of any benefit or the imposition of any additional payment or other Liability under, or alter the rights or obligations of any third party under, or give to any third party any rights of termination, amendment, acceleration, or cancellation, or require any Governmental Consent under, any Material Contract to which any of the Target Companies are a party or otherwise bound as of the Effective Date; or (iv) result in the creation of a Lien (other than Permitted Liens) on any of the properties or assets of any of the Target Companies, except, in the case of each of clauses (ii), (iii), and (iv), for any conflicts, violations, breaches, defaults, loss of benefits, additional payments or other liabilities, alterations, terminations, amendments, accelerations, cancellations, or Liens that, or where the failure to obtain any Consents, in each case, would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Governmental Consents</u>. No Go**v**ernmental Consent by any Governmental Authority is required to be obtained or made by Red Cat or any of the Target Companies in connection with the execution, delivery, and performance by Red Cat of this Agreement or the consummation by Red Cat of the Purchase and Sale and other transactions contemplated hereby (excluding any implementation of the Red Cat Vote and assuming the absence of a Superior Proposal, other than the Closing of the Purchase and Sale), except for: (i) the filing with the Securities and Exchange Commission ("**SEC**") of (A) the Proxy Statement in preliminary and definitive form ("**Proxy Statement**") in accordance with the Securities Exchange Act of 1934, as amended (the "**Exchange Act**"), (B) other filings required by applicable securities Laws, and (C) such reports under the Exchange Act as may be required in connection with this Agreement, and the other transactions contemplated by this Agreement; and (ii) such other Governmental Consents which if not obtained or made would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Red Cat Board Approval</u>. The Red Cat Board, by resolutions duly adopted by a unanimous vote (exclusive of the Principal Stockholder who shall have abstained) at a meeting of the Red Cat Board duly called and held and, not subsequently rescinded or modified in any way, has: (i) determined that this Agreement and the transactions contemplated hereby, including the Purchase and Sale, upon the terms and subject to the conditions set forth herein, are in the best interests of, Red Cat and its stockholders ("**Red Cat Stockholders**"); (ii) approved this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Purchase and Sale, upon the terms and subject to the conditions set forth herein; (iii) directed that this Agreement be submitted to a vote of the disinterested Red Cat Stockholders for adoption at the Red Cat Stockholders Meeting (the "**Red Cat Stockholders Meeting**"); and (iv) resolved to recommend that the Red Cat Stockholders vote in favor of adoption of this Agreement and the Purchase and Sale in accordance with the NRS (collectively, the "**Red Cat Board Recommendation**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Anti-Takeover Statutes</u>. No "fair price," "moratorium," "control share acquisition," "supermajority," "affiliate transactions," "business combination," or other similar anti-takeover statute or regulation enacted under any Laws applicable to Red Cat is applicable to Red Cat, or any of the other transactions contemplated by this Agreement ("**Anti-Takeover Statues**").

**Section 4.02 <u>Brokers</u>**. Neither Red Cat, the Target Companies nor the Principal Stockholder has employed any financial advisor, broker or finder and each has not incurred and will not incur any broker's, finder's, investment banking or similar fees, commissions or expenses, in connection with the transactions contemplated by this Agreement.

**Section 4.03 <u>Capitalization</u>**. Red Cat is and will immediately prior to the Closing be the legal, record and beneficial owner of 100% of the Target Companies' Capital Stock, and such Target Companies' Capital Stock is and will immediately prior to the Closing be owned free and clear of any Liens, whatsoever, claims or rights under any voting trust agreements, proxies, stockholder agreements or other agreements. At the Closing, Red Cat will transfer and convey and Unusual will acquire good and valid title to the Target Companies' Capital Stock free and clear of all Liens. No written or oral agreement or understanding with respect to the disposition of the Target Companies' Capital Stock or any rights therein, other than this Agreement, exists.

**Section 4.04 <u>Rights, Warrants, and Options</u>**. Other than this Agreement, there are no options, warrants or other rights, arrangements or commitments of any character to which Red Cat is a party or by which Red Cat is bound relating to the Target Companies' Capital Stock or obligating Red Cat to sell, pledge or otherwise dispose of any shares, or other equity interests in either of the Target Companies.

**Section 4.05 <u>Legal Proceedings</u>**. There is no Legal Proceeding pending or, to Red Cat's Knowledge, threatened against Red Cat, the Target Companies or any of their respective properties or rights, nor any judgment, order, injunction or decree before any Governmental Authority which would (i)adversely affect or restrict the ability of Red Cat to consummate the transactions contemplated by this Agreement, including the Purchase and Sale or to perform their respective obligations thereunder, or (ii) could reasonably be expected to result in Material Adverse Effect on either of the Target Companies.

**Section 4.06 <u>Intentionally omitted</u>.**

**Section 4.07 <u>SEC Reports; Financial Statements</u>**. Since April 1, 2021, Red Cat has filed all reports, schedules, forms, Registration Statements and other documents required to be filed by Red Cat under the Securities Act of 1933, as amended (the "**Securities Act**") and the Exchange Act including pursuant to Section 13(a) for the 2 years preceding the Effective Date and as the Closing Date (or such shorter period as Red Cat was required by Law to file such documents) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the "**SEC Reports**"). As of their respective dates, the Target Company information in the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the Target Company Information statements contained therein, in the light of the circumstances under which they were made, not misleading. Except as disclosed on **<u>Schedule 4.07</u>**, the financial statements of Red Cat (the "**Red Cat Financial Statements**") included in the SEC Reports comply in all material respects with the applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing. The Target Company information contained in the Red Cat Financial Statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved ("**GAAP**"), except as may be otherwise specified in the Red Cat Financial Statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of Red Cat and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

**Section 4.08 <u>Intentionally Omitted</u>**.

**Section 4.09 <u>Intentionally Omitted</u>**.

**Section 4.10 <u>Investment Intent</u>**. The Consideration consisting of the Unusual Note and Unusual Preferred Stock to be received by Red Cat hereunder will be acquired for investment and only for Red Cat's own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act, and Red Cat has no present intention of publicly selling, granting any participation in, or otherwise distributing the same, other than as contemplated in the Registration Rights Agreement, the Registration Statement, the Offering and in connection with any distribution of the Unusual Note or the Unusual Capital Stock to the stockholders of Red Cat by dividend or distribution; <u>provided</u>, <u>that</u>, by making the representations herein, other than as set forth herein, Red Cat does not agree to hold any of the Unusual Note or the Unusual Capital Stock for any minimum period of time and reserves the right at all times to sell or otherwise dispose of all or any part of such Unusual Note or the Unusual Capital Stock pursuant to an effective Registration Statement under the Securities Act or under an exemption from such registration (<u>provided that</u> Red Cat complies with the conditions thereof) and in compliance with applicable federal and state securities Laws.

**Section 4.11 <u>Investment Experience</u>**. Red Cat is an experienced investor and acknowledges and represents that: (a) it is able to fend for itself; (b) can bear the economic risk of its investment in the Unusual Note or the Unusual Capital Stock; and (c) has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risk of its investment in the Unusual Note or the Unusual Capital Stock.

**Section 4.12 <u>Accredited Investor Status</u>**. Red Cat is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act ("**Accredited Investor**"), as amended.

**Section 4.13 <u>Status of the Unusual Note and the Unusual Capital Stock</u>**. Red Cat understands and agrees as follows: (a) the Unusual Note and the Unusual Capital Stock constitute "restricted securities" under the Securities Act inasmuch as they are being acquired from Unusual in a transaction not involving a public offering; (b) subject to limited exceptions, the Unusual Note and Unusual Capital Stock may not be resold, disposed of or transferred, in whole or in part, without registration under the Securities Act; and (c) it must bear the economic risk of this investment indefinitely unless the Unusual Note and Unusual Capital Stock are registered pursuant to the Securities Act, or an exemption from registration is available. Red Cat understands that the Unusual Common Stock underlying the Unusual Note shall be registered for public sale in the Offering and it is receiving demand registration rights from the Unusual Common Stock underlying the Unusual Preferred Stock.

**Section 4.14 <u>Legend</u>**. Red Cat acknowledges that all certificates or other instruments representing the Unusual Note and Unusual Capital Stock subject to this Agreement may, at the option of Unusual, bear a restrictive legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND SUCH SECURITIES MAY NOT BE SOLD, OTHERWISE DISPOSED OF OR TRANSFERRED, IN WHOLE OR IN PART, EXCEPT PURSUANT TO A REGISTRATION STATEMENT RELATING THERETO UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS OR SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

**Section 4.15 <u>Information Supplied</u>**. None of the information supplied or to be supplied by or on behalf of Red Cat for inclusion in the Registration Statement (exclusive of information concerning the Target Companies) or any final prospectus with respect to the Offering shall, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act, or in the case of any final prospectus, filed with the SEC, at the time it is filed with the SEC, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

**ARTICLE V<br> <u>REPRESENTATIONS AND WARRANTIES REGARDING THE TARGET COMPANIES</u>**

In order to induce Unusual to enter into this Agreement and to consummate the transactions contemplated hereby, the Principal Stockholder makes the representations and warranties set forth below to Unusual which representations and warranties shall be true and correct as of the Effective Date and the Closing Date, except as otherwise noted herein or as set forth in the attached Disclosure Schedules. All references in this Article V to either Target Company shall include any Subsidiaries of such Target Company.

**Section 5.01 <u>Organization</u>**. Acquisition is a corporation duly organized and validly existing under the Laws of the State of Nevada. Rotor Riot is a limited liability company duly organized and validly existing under the Laws of the State of Ohio. Each Target Company is duly qualified or licensed to do business in each jurisdiction where the character of the properties owned or operated by it or the nature of its business makes such qualification or licensing necessary. Each Target Company has all requisite right, power and authority to (a) own and operate its properties, (b) conduct its business as presently conducted in accordance with local business practices and (c) engage in and consummate the transactions contemplated hereby. Each Target Company is not in default under, or breach of, its Charter Documents.

**Section 5.02 <u>Authorization; Enforceability</u>**. Each Target Company has all requisite right, power and authority to execute and deliver this Agreement, the Transaction Documents to which it is a party and consummate the transactions contemplated thereby. The execution and delivery of this Agreement, the Transaction Documents to which it is a party by each Target Company and the consummation by each Target Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate or other action. This Agreement has been duly executed and delivered by each Target Company and constitutes the legal, valid and binding obligation of such Party, enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws affecting creditors' rights generally and subject to the effect of general principles of equity, whether considered in a proceeding in equity or at law.

**Section 5.03 <u>No Consent, Violation or Conflict</u>**. With respect to each Target Company, the execution and delivery of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, and compliance by each Target Company with the provisions hereof, (a) do not and will not violate or, if applicable, conflict with any provision of Law, or any provision of such Target Company's Charter Documents, and (b) do not and will not, with or without the passage of time or the giving of notice, result in the breach of, cause the acceleration of performance or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of such Target Company pursuant to any instrument or agreement to which such Target Company is a party or by which such Target Company's properties may be bound or affected.

**Section 5.04 <u>Regulatory Permits</u>**. Each Target Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate Governmental Authority necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect ("**Material Permits**"), and neither Target Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. Neither Target Company is in conflict with, or in default or violation of any Material Permit.

**Section 5.05 <u>Brokers</u>**. No Target Company has incurred or will incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement.

**Section 5.06 <u>Organizational Documents and Corporate Records</u>**. A true and complete copy of the Charter Documents of each Target Company, as amended, will be delivered to Unusual prior to the Closing Date. The minute book of each Target Company (the "**Corporate Minute Books**") will also be delivered to Unusual prior to the Closing Date. Such Corporate Minute Books contain complete and accurate records of all meetings and other corporate actions of the board of directors and/or the stockholders or members, as applicable, of each Target Company from the date of its incorporation or formation to the Effective Date. All matters requiring the authorization or approval of the board of directors and/or the stockholders or members of each Target Company have been duly and validly authorized and approved by them.

**Section 5.07 <u>Capitalization</u>**. Set forth on **<u>Schedule 5.07</u>** is the capital structure of each Target Company. All of the Target Companies' Capital Stock issued prior to the Closing Date has been and will be duly authorized and are and will be validly issued, fully paid and non-assessable. Red Cat is and immediately prior to the Closing will, directly or indirectly, be the legal, record and beneficial owner of 100% of the Target Companies' Capital Stock, and such Target Companies' Capital Stock is and immediately prior to the Closing will be owned free and clear of any Liens whatsoever, including, without limitation, claims or rights under any voting trust agreements, stockholder agreements, limited liability company agreements or other agreements. The Target Companies' Capital Stock represents 100% of the issued and outstanding shares and/or equity interests of each Target Company. Each Target Company has no investment or equity interest in any other Person. None of the Target Companies' Capital Stock was or will be issued in violation of any law, preemptive right, right of first refusal or similar agreement. No written or oral agreement or understanding with respect to the disposition of the Target Companies' Capital Stock or any rights therein, other than this Agreement, exists.

**Section 5.08 <u>Rights, Warrants, and Options</u>**. There are no options, warrants or other rights, arrangements or commitments of any character to which either Target Company is a party or by which either Target Company is bound relating to the issued or unissued securities of such Target Company or obligating such Target Company to issue or sell any shares of common stock or other equity interests of, such Target Company. There are no outstanding obligations of either Target Company to redeem or otherwise acquire any of the Target Companies Capital Stock and there are no outstanding contractual obligations of either Target Company to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person.

**Section 5.09 <u>Financial Statements</u>**. Red Cat has delivered to Unusual a true and complete copy of the audited consolidated balance sheet of the Target Companies as of April 30, 2021 and 2022, and the audited consolidated profit and loss statement, statement of cash flow and statement of changes in stockholders' equity of the Target Companies for the period ending on such dates together with the same financial statements for the three and six months ended July 31 and October 31, 2021 and 2022 which interim financial statements have been reviewed by Red Cat's auditors (collectively, the "**Target Companies' Financial Statements**"). Each of the consolidated Target Companies' Financial Statements (including, in each case, any notes and schedules thereto) : (i) have been prepared in accordance with the books of accounts and records of the Target Companies; (ii) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (iii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q); (iv) reflected the effects of COVID-19 and COVID-19 Measures on the Target Companies and include adequate provisions to reflect the material effects of COVID-19 and COVID-19; and (v) fairly presented in all material respects the consolidated financial position and the results of operations, changes in stockholders' equity, and cash flows of the Target Companies and its consolidated Subsidiaries as of the respective dates of and for the periods referred to in such financial statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by the applicable rules and regulations of the SEC (but only if the effect of such adjustments would not, individually or in the aggregate, be material). The Target Companies' Financial Statements will (a) be prepared in accordance with the books of account and records of each Target Company for the six months ended October 31, 2021 and 2022 and will be true, correct and complete statements in all material respects of the consolidated financial condition of each Target Company as the Closing Date.

**Section 5.10 <u>Absence of Undisclosed Liabilities</u>**. As of the Closing Date, each Target Company has no Liabilities, of any nature whatsoever, whether accrued, absolute, contingent or otherwise, other than as provided for in this Agreement or disclosed and accrued for or reserved against in the Financial Statements or in the Closing Trial Balance. There is no basis for assertion against either Target Company of any such debt, claim, Liability. For the avoidance of doubt, the Red Cat acknowledges that Unusual is not assuming any such Liabilities, not disclosed and accrued for or reserved against in the Closing Trial Balance, and Unusual will be indemnified for such pursuant to Section 7.04.

**Section 5.11 <u>Compliance with Laws</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) In addition to the representations and warranties set forth in Sections 5.12 and 5.13, each Target Company is in compliance with all Laws applicable to it or its properties or has made all necessary filings to be in compliance with all such Laws, including, without limitation, those relating to (i) the development, testing, manufacture, packaging and labeling of Target Company Products, (ii) employment, occupational safety and employee health, (iii) sexual or other harassment and discriminatory practices in violation of any constitution or Laws, (iv) building, zoning and land use; and (v) the Foreign Corrupt Practices Act and all applicable anti-bribery, anti-kickback and related Laws and regulations. No Target Company has received notification from any Governmental Authority asserting that it is not in compliance with or has violated any of the Laws which such Governmental Authority enforces, or threatening to revoke any authorization, consent, approval, franchise, license, or permit, and each Target Company is not subject to any agreement or consent decree with any Governmental Authority arising out of previously asserted violations, except such non-compliance which is not reasonably expected to result in a Material Adverse Effect on such Target Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each Target Company has at all times been in compliance all Laws applicable to it relating to export control, trade embargoes, and anti-boycott prohibitions. No Target Company Product sold or services provided by any Target Company during the last 5 years has been, directly or indirectly, sold to or performed on behalf of any country subject to the restricted list of the Office of Foreign Assets Control Regulations (OFAC), or International Traffic In Arms Regulations (ITAE), or similar restrictions of the United States, including Cuba, Iraq, Iran, Libya or North Korea or customers in such countries.

**Section 5.12 <u>Regulatory Compliance; UAV</u>.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each Target Company is in compliance with all applicable Laws, and policies administered or enforced by any Governmental Authority that regulates Target Company Products or services and any other Governmental Authority that regulates the development of UAV or educational products in any jurisdiction, including, without limitation, relating to state or federal anti-kickback sales and marketing practices, insurance and bonding, advertising and promotion, pre- and post-marketing reporting, and all other pre- and post-marketing reporting requirements, as applicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **<u>Schedule 5.12(b</u>)** lists each product developed, manufactured, licensed, distributed or sold by each Target Company (collectively, the "**Target Company Product(s)**"). Each Target Company Product manufactured by or on behalf of each Target Company has been manufactured in accordance with (i) the product registration applicable to such Target Company Product, (ii) the specifications under which the Target Company Product is normally and has normally been manufactured, (iii) the applicable provisions of current "**CE**" or "**UL**" good manufacturing practices or other Governmental Authority and (iv) without limiting the generality of Section 5.24, the provisions of all applicable Laws.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each Target Company has obtained all registrations or submissions and all FAA permits required for the Target Company Products and all amendments and supplements thereto, and all other Material Permits required by any Governmental Authority to conduct the business as it is currently conducted (the "**Regulatory Approvals**"). All of the Regulatory Approvals have been duly and validly issued and are in full force and effect, and each Target Company is in compliance with each FAA permit and Material Permit held by or issued to it. Except as listed on **<u>Schedule 5.12(c)</u>**, each Target Company is the sole and exclusive owner of the Regulatory Approvals and holds all right, title and interest in and to all such Regulatory Approvals. Neither Target Company has granted any third party any right or license to use, access or reference any of the Regulatory Approvals, including without limitation, any of the know-how contained in any of the Regulatory Approvals nor rights (including any regulatory exclusivities) associated with each such Regulatory Approvals.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) There is no action or proceeding by any Governmental Authority pending or, to the Knowledge of each Target Company, Red Cat or any of their Affiliates, threatened seeking the recall of any of the Target Company Products or the revocation or suspension of any Regulatory Approval. Each Target Company has made available to Unusual its complete and correct copies of all Regulatory Approvals. In addition, (i) each Target Company has made available to Unusual a complete and correct copy of the Target Company Products' Data ("**Product Data**"); (ii) to the Knowledge of the Target Companies, or any of their Affiliates, Red Cat, all Laws applicable to the preparation and submission of the Regulatory Approvals to the relevant regulatory authorities have been complied with; (iii) to the Knowledge of the Target Companies, Red Cat or any of their Affiliates, each Target Company has filed with the relevant Governmental Authority all required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect to the Regulatory Approvals.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) There exist no set of facts: (i) which could furnish a basis for the recall, withdrawal or suspension of any Target Company Product registration, Target Company Product license, manufacturing license, wholesale dealers license, export license or other license, approval or consent of any Governmental Authority with respect to either Target Company or any of the Target Company Products; or (ii) which could furnish a basis for the recall, withdrawal or suspension of any Target Company Product from the market, the termination or suspension of any testing of any Product, or the change in marketing classification of any Target Company Product.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Except as set forth on **<u>Schedule 5.12(h)</u>**, all Target Company Products have been merchantable and free from defects in material or workmanship for the term of any applicable warranties and under the conditions of any express or implied specifications and warranties arising under Law and as set forth in the specific order. Except as disclosed on **<u>Schedule 5.12(h)</u>** hereto, neither Target Company has received any claims based on alleged failure to meet the specifications or breach of product warranty arising from any applicable manufacture or sale of Target Company Products.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) As of the Closing Date, all inventory ("**Product Inventory**") will conform to the specifications therefor contained in the Regulatory Approvals and to the Regulatory Approvals and with the requirements of all applicable Regulatory Approvals and is capable of maintaining such until the expiration date therefor.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Each Target Company is and has been in compliance with all Laws requiring the maintenance or submission of reports or records under requirements administered by the FAA or any other Governmental Authority. No Target Company, nor any of their respective employees or agents, have made an untrue or fraudulent statement to the FAA or any other applicable Governmental Authority, or in any records and documentation prepared or maintained to comply with the applicable Laws, or failed to disclose a fact required to be disclosed to the FAA or any other similar Governmental Authority.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) No Target Company nor Red Cat has been convicted of any crime or engaged in any conduct that could result or resulted in debarment, exclusion or disqualification by the FAA or any other Governmental Authority and there are no Legal Proceedings pending or, to the Knowledge of either Target Company, Red Cat or any of their Affiliates, threatened that reasonably might be expected to result in criminal or civil liability or debarment, exclusion or disqualification by the FAA or any other Governmental Authority. No Target Company has received written notice of or been subject to any other enforcement action involving the FAA or any other Governmental Authority, including any suspension, consent decree, notice of criminal investigation, indictment, sentencing memorandum, plea agreement, court order or target or no-target letter, and none of the foregoing are pending or, to any Target Company's, Red Cat's or any of their Affiliates, Knowledge, threatened in writing against any Target Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) Each Target Company has security measures and safeguards in place to protect Personally Identifiable Information it collects from customers and other parties from illegal or unauthorized access or use by its personnel or third parties or access or use by its personnel or third parties in a manner that violates the privacy rights of third parties. To the Knowledge of Red Cat, the Target Company or any of their Affiliates, the Target Companies have complied in all material respects with all applicable Laws relating to privacy and consumer protection and neither has collected, received, stored, disclosed, transferred, used, misused or permitted unauthorized access to any information protected by applicable Laws related to privacy, whether collected directly or from third parties, in an unlawful manner. The Target Companies have taken all reasonable steps to protect Personally Identifiable Information against loss or theft and against unauthorized access, copying, use, modification, disclosure or other misuse.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) Neither Target Company is party to any corporate integrity agreements, monitoring agreements, consent decrees, settlement orders or similar agreements with or imposed by any Governmental Authority.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) True and complete copies of all information, data, protocols, study reports, safety reports and/or other relevant documents and materials have been made available to Unusual.

**Section 5.13 <u>Compliance with Environmental Laws</u>**. Each Target Company is in compliance with all applicable Environmental Laws. Except as set forth on **<u>Schedule 5.13</u>**, there have been no governmental claims, citations, notices of violation, judgments, decrees or orders issued against either Target Company for impairment or damage, injury or adverse effect to the environment or public health and there have been no private complaints with respect to any such matters. There is no condition relating to any properties of either Target Company that would require any type of remediation, clean-up, response or other action under applicable Environmental Laws and each Target Company has complied with Environmental Laws in the generation, treatment, storage and disposal of Hazardous Substances.

**Section 5.14 <u>Legal Proceedings</u>**. (a) No Target Company is a party to any pending or threatened Legal, Proceeding, and (b) no Person who is or was within the last 5 years a director or officer of either Target Company is a party to any pending, or threatened, Legal Proceeding in such Person's capacity as a director or officer (or the equivalent managerial authority) of such Target Company, which might adversely affect such Target Company to consummate the transactions contemplated by this Agreement, including the Purchase and Sale or to perform their respective obligations thereunder, or might reasonably be expected to result in Material Adverse Effect on either of the Target Companies.

**Section 5.15 <u>Title to and Condition of Personal Property</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each Target Company has and will have good and marketable title or leasehold interest to each item of equipment and other personal property worth more than $10,000 included as an asset in the Closing Trial Balance and/or used in connection with the operation of its business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The buildings, structures, appurtenances, leasehold improvements, equipment, machinery, rolling stock and other tangible property owned or used by each Target Company (i) are not, and as of the Closing Date, will not be in need of substantial maintenance or repairs (except for ordinary or routine maintenance or repairs), (ii) are, and as of the Closing Date will be, free of structural or non-structural defects, and (iii) have access to adequate water, sewer, gas, telephone, high speed Internet service needed for the business of each Target Company and electric utilities which are in good working order; in each instance as is sufficient to conduct the business of such Target Company as currently conducted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each item of equipment, personal property and asset of each Target Company, which will be included as an asset in the Closing Trial Balance and/or used in connection with the operation of its business shall remain with such Target Company. **<u>Schedule 5.15(c)</u>** sets forth the full and complete list of all assets owned by each Target Company as of the Effective Date which will be updated as of the Effective Date. Except as set forth on such **<u>Schedule 5.15(c)</u>**, none of the items of equipment, personal property and assets included therein was imported under a temporary import or similar regulatory regime that would restrict the transfer, or would cause either Target Company to owe additional Taxes as a result of the transfer, of such property.

**Section 5.16 <u>Real Property</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **<u>Schedule 5.16(a)</u>** sets forth the street address of each parcel of Real Property leased by each Target Company. Unusual has been delivered true and complete copies of all of the lease agreements relating to the Real Property. Each Target Company enjoys peaceful and undisturbed possession of the Real Property.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) No Target Company owns any Real Property.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) All construction and improvements made on the Real Property are and, as of the Closing Date, will not be in need of substantial repairs except for ordinary or routine maintenance or repairs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Acquisition's Subsidiary, Fat Shark Holdings, Ltd, a Cayman Islands exempted company, is exempted from "Customs Import Duties and Impositions" and operates in the Special Economic Zone pursuant to the Special Economic Zones Law of the Caymans Island under Identification No. 101259659, which is in full force and effect. There is no action or proceeding by any Governmental Authority pending or, to the Knowledge of Red Cat or the Principal Stockholder threatened seeking the revoke or suspend the exemption from Customs Import Duties and Impositions.

**Section 5.17 Intentionally Omitted**.

**Section 5.18 <u>Employment Matters</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) There are no employment, consulting, severance or indemnification arrangements, arrangements which contain change of control provisions, agreements, or understandings between either Target Company and any officer, director, manager, consultant or employee. **<u>Schedule 5.18(a</u>)** contains the names, job descriptions and annual salary rates and other compensation of all officers, directors, employees and consultants of each Target Company (including compensation paid or payable by such Target Company under the Target Company Plans (as defined)), and a list of all employee policies (written or otherwise), employee manuals or other written statements of rules or policies concerning employment or providing services, including working conditions, vacation and sick leave (or paid time off), a complete copy of each of which (or a description, if unwritten) has been delivered to Unusual.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each Target Company has complied with all applicable employment Laws, including payroll and related obligations, benefits, and social security, and does not have any obligation in respect of any amount due to employees of such Target Company or Governmental Authorities, other than normal salary, other fringe benefits and contributions accrued but not payable on the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **<u>Schedule 5.18(c)</u>** sets forth a complete list of all pension, retirement, 401-K, share purchase, share bonus, share ownership, share option, profit sharing, savings, medical, disability, hospitalization, insurance, deferred compensation, bonus, incentive, welfare or any other material employee benefit plan, policy, agreement, commitment, arrangement or practice currently or previously maintained by each Target Company for any of its directors, officers, consultants, employees or former employees (the "**Target Company Plan(s)**").

Without limiting the generality of Section 5.18, each Target Company Plan has been administered in accordance with its terms and applicable Law. With respect to the Target Company Plans, (i) no event has occurred and there exists no condition, facts or circumstances, which could give rise to any liability of either Target Company under the terms of such Target Company Plans or any applicable Laws, (ii) each Target Company has paid or accrued all amounts required under applicable Laws and any Target Company Plan to be paid as a contribution to each Target Company Plan through the Effective Date, (iii) each Target Company has set aside adequate reserves to meet contributions which are not yet due under any Target Company Plan, (iv) the fair market value of the assets of each funded Target Company Plan, the liability of each insurer for any Target Company Plan funded through insurance or the book reserve established for any Target Company Plan, together with accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Closing Date, with respect to all current and former participants in such Target Company Plan according to the actuarial assumptions and valuations most recently used to determine employee contributions to such Target Company Plan and no transaction contemplated by this Agreement shall cause such assets or insurance obligations to be less than such benefit obligations, and (v) each Target Company Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.

On or after the Effective Date, no Target Company Plan has been, or will be, (i) terminated, (ii) amended in any manner which would directly or indirectly increase the benefits accrued, or which may be accrued, by any participant thereunder or (iii) amended in any manner which would materially increase the cost to either Target Company or Unusual of maintaining such Target Company Plan. No Target Company Plan provides retiree medical or retiree insurance benefits to any Person. Except as disclosed or noted in the Financial Statements, there are no amounts due or owing to any employee of either Target Company for any accrued salary, remuneration, compensation and/or benefit, including, without limitation, amounts due for accrued vacation, sick leave or commissions.

**Section 5.19 <u>Labor Relations</u>**. There is no strike or dispute pending or threatened involving any employees of either Target Company. None of the employees of either Target Company is a member of any labor union and neither Target Company is a party to, otherwise bound by, or threatened with any labor or collective bargaining agreement. None of the employees of either Target Company are known to be engaged in organizing any labor union or other employee group that is seeking recognition as a bargaining unit. Without limiting the generality of Section 5.18, (a) no unfair labor practice complaints are pending or threatened against either Target Company, and (b) no Person has made any claim, and there is no basis for any claim, against either Target Company under any statute, regulation or ordinance relating to employees or employment practices, including without limitation those relating to age, sex, gender, racial or other types of discrimination, conditions of employment, and wages and hours.

**Section 5.20 <u>Contracts</u>. <u>Schedule 5.20</u>** sets forth a list of all Material Contract to which each Target Company is a party (all such contracts, agreements, arrangements or commitments as are required to be set forth on **<u>Schedule 5.20</u>** being referred to herein collectively as the "**Target Company Contracts**"), including, without limitation with respect to each Target Company:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) each partnership, joint venture or similar agreement of such Target Company with another Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) each contract or agreement under which such Target Company has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) Indebtedness or under which such Target Company has imposed (or may impose) a Lien on any of its assets, whether tangible or intangible securing;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) each contract or agreement which involves or contributes to such Target Company, aggregate annual remuneration which exceeds 5% of such Target Company's consolidated annual net revenues for the 12 months ended April 30, 2021 or 2022;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) all leases and subleases from any third Person to such Target Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) each contract or agreement to which such Target Company or any of its Affiliates is a party limiting the right of such Target Company (i) to engage in, or to compete with any Person in, any business, including each contract or agreement containing exclusivity provisions restricting the geographical area in which, or the method by which, any business may be conducted by such Target Company or (ii) to solicit any customer or client;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) fire, casualty, liability, title, worker's compensation and all other insurance policies and binders maintained by such Target Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) all collective bargaining or other labor union contracts or agreements to which such Target Company is a party or applicable to Persons employed by such Target Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) all licenses, licensing agreements and other agreements providing in whole or part for the use of any Intellectual Property of such Target Company; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) all other contracts or agreements which individually or in the aggregate are material to such Target Company or the conduct of its business, other than those which are terminable upon no more than 30 days' notice by such Target Company without penalty or other adverse consequence.

**<u>Schedule 5.20</u>** further identifies each of the Target Companies' Material Contracts which contain anti-assignment, change of control or notice of assignment provisions. The Target Companies Material Contracts are each in full force and effect and are the valid and legally binding obligations of each Target Company which is a party thereto and are valid and binding obligations of the other parties thereto. To the Knowledge of the Red Cat and the Target Companies, no Target Company is a party to, nor is its business or any of its assets bound by, any oral agreement. No Target Company is in default under its Charter Documents or in default under any Material Contract to which it is a party, and no event has occurred which with the giving of notice or lapse of time or both would constitute such a default.

**Section 5.21 <u>Tax Matters</u>**. Except as set forth on **<u>Schedule 5.21</u>**:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All Tax Returns required to be filed on or before the Closing Date by or with respect to the Target Companies and their Subsidiaries (which for this Section 5.21 shall exclude any Cayman Island Subsidiaries) have (or by the Closing Date will have) been duly filed or the time for filing such Tax Returns shall have been validly extended to a date after the Closing Date. Such Tax Returns are true, correct, and complete in all respects. Except for Taxes reflected or reserved against in the Target Companies' Financial Statements, the Target Companies and their Subsidiaries have paid all Taxes due and with respect to Taxes not yet due, all such Taxes not yet paid have been appropriately reserved against in accordance with GAAP. Neither the Target Companies nor their Subsidiaries is subject to any joint venture, partnership, or other arrangement or Target Company Contract which is treated as a partnership for federal income tax purposes. Neither of the Target Companies nor any of their respective Subsidiaries is a party to any Tax indemnity, Tax sharing or Tax allocation agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) As of the Effective Date, there is no agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes of any of the Target Companies or any of their respective Subsidiaries, and no power of attorney with respect to any such Taxes, has been executed or filed with the IRS or any other taxing authority that remains in force.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) During the last 5 years there has been no and as of the Effective Date (and will not be as of the Closing Date) there are no presently pending audits or Legal Proceedings with respect to any Taxes of the Target Companies or their Subsidiaries. No claim has ever been made by a Governmental Authority in a jurisdiction where a Target Company does not file a Tax Return that any of the Target Companies is or may be subject to taxation by that jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) All Taxes required to be withheld by the Target Companies or their Subsidiaries have been duly and timely withheld, and such withheld Taxes have been duly and timely paid to the appropriate governmental entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) There are no Tax Liens upon the assets of the Target Companies or their Subsidiaries except Liens for current Taxes not yet due and payable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The Target Companies and their Subsidiaries do not have any potential Liability for any Taxes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into or issued by any taxing authority with respect to the Target Companies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) No Target Company, nor any of their respective Subsidiaries, will be required to include any item of income in, or exclude any item or deduction from, taxable income for any taxable period or portion thereof ending after the Closing Date as a result of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) any change in a method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) an installment sale or open transaction occurring on or prior to the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) a prepaid amount received on or before the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) any closing agreement under Section 7121 of the Code, or similar provision of state, local or foreign Law; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) any election under Section 108(i) of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) There are no foreign jurisdictions in which any Target Company is subject to Tax, is engaged in business or has a permanent establishment. No Target Company, nor any of their respective Subsidiaries, has entered into a gain recognition agreement pursuant to Treasury Regulations Section 1.367(a)-8. No Target Company, nor any of their respective Subsidiaries, has transferred an intangible asset, the transfer of which would be subject to the rules of Section 367(d) of the Code.

**Section 5.22 <u>Guaranties</u>**. No Target Company is a party to any guaranty, and no Person is a party to any guaranty for the benefit of either Target Company.

**Section 5.23 <u>Insurance</u>**. Set forth on **<u>Schedule 5.23</u>** is a list of all insurance policies providing insurance coverage of any nature to each Target Company. Each Target Company has previously delivered to Unusual a true and complete copy of all of such insurance policies as amended. Such policies are sufficient for the compliance by each Target Company with all requirements of Law and all Target Company Contracts. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and each Target Company has complied with all terms and conditions of such policies, including the payment of premium payments. None of the insurance carriers has indicated to any Target Company an intention to cancel any such policy. No Target Company has any claim pending or anticipated against any of the insurance carriers under any of such policies and there has been no actual or alleged occurrence of any kind which may give rise to any such claim.

**Section 5.24 <u>Inventories</u>**. The inventories of each Target Company shown on the balance sheets included in the Target Companies' Financial Statements and the inventories of each Target Company are stated and will be stated at not more than the lower of cost (on a first-in first-out basis) or market, and are fit for their particular use, do not and will not include any items below standard quality, defective, damaged or spoiled, obsolete or of a quality or quantity not usable or salable in the ordinary course of the business of each Target Company as currently conducted or any items whose expiration date has passed or will pass within 12 months of the Effective Date hereof and as of the Closing Date (which, with respect to items which do not have an expiration date, shall in any event not include quantities of items not usable or salable within 12 months from the Effective Date and as of the Closing Date), the value of which has not been fully written down or reserved against in the Financial Statements. Each Target Company has and will continue to have adequate quantities and types of inventory to enable it to conduct its business consistent with past practices and anticipated operations. **<u>Schedule 5.24</u>** sets forth a list of all of each Target Company's inventory as of the Closing Date.

**Section 5.25 <u>Intellectual Property Rights</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **<u>Schedule 5.25</u>** sets forth a complete and correct list of all Intellectual Property that is owned by each Target Company and the Intellectual Property that each Target Company has a license, sublicense or other permission to use. Except as set forth on **<u>Schedule 5.25</u>**, each Target Company owns all right, title and interest in and to, or has a license, sublicense or other permission to use, all of the Intellectual Property, free and clear of all Liens or other encumbrances. All necessary registration, maintenance and renewal fees in connection with such Intellectual Property have been paid and all necessary documents and certificates in connection with such Intellectual Property have been filed with the relevant copyright, trademark or other governmental or regulatory authorities for the purposes of maintaining such Intellectual Property.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Intellectual Property constitutes all patents and patent applications, and technology, know-how, trade secrets and information owned or licensed to each Target Company relating to the manufacture, use or sale of the Target Company Products. There have been no claims made against either Target Company or any of their respective Affiliates asserting the invalidity, abuse, misuse, or unenforceability of any of the Intellectual Property, and, to the Knowledge of each Target Company, Red Cat or any of their Affiliates, no grounds for any such claims exist. No Target Company, Red Cat nor any of their respective Affiliates has made any claim of any violation or infringement by others of its rights in the Intellectual Property, and, to the Knowledge of each Target Company, Red Cat or any of their respective Affiliates, no grounds for any such claims exist. Neither each Target Company, Red Cat nor any of their Affiliates has received any notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property and, to the Knowledge of each Target Company, Red Cat or any their Affiliates, the use of the Intellectual Property by each Target Company, Red Cat or any of its Affiliates is not infringing and has not infringed upon any rights of any other Person. No interest in any of the Intellectual Property has been assigned, transferred, licensed or sublicensed by either Target Company or any of their Affiliates to any Person. No Target Company, Red Cat nor any of their Affiliates has Knowledge of any act or failure to act by any of them or any of their respective directors, officers, employees, attorneys or agents during the prosecution or registration of, or any other proceeding relating to, any of the Intellectual Property or of any other fact which could render invalid or unenforceable or negate the right to issuance of any of any of the Intellectual Property.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each Target Company has taken reasonable steps to protect the confidentiality and value of all trade secrets and any other confidential information that are owned, used, or held by such Target Company in confidence, including entering into licenses and Target Company Contracts that require employees, licensees, contractors, and other Persons with access to trade secrets or other confidential information to safeguard and maintain the secrecy and confidentiality of such trade secrets. To the Knowledge of Red Cat or any of their Affiliates, each Target Company and Red Cat, such trade secrets have not been used, disclosed to, or discovered by any Person except pursuant to valid and appropriate non-disclosure, license, or any other appropriate Target Company Contract which has not been breached.

**Section 5.26 <u>Power of Attorney</u>**. Neither Target Company has issued, granted or executed any powers of attorney on behalf of such Target Company which is in force at the Closing Date, other than in connection with routine legal filings.

**Section 5.27 <u>Absence of Material Adverse Effects</u>**. Since April 30, 2022, each Target Company has conducted its business only in the ordinary and usual course and in a manner consistent with past practices and, since such date there has been no Material Adverse Effect relating to either Target Company and such Target Company has not engaged or agreed to engage in any actions described in Section 8.02.

**Section 5.28 <u>Accounts and Notes Receivable and Payable</u>**. Set forth on **<u>Schedule 5.28</u>** is a true and complete aged list of unpaid accounts and notes receivable owing to and owed by each Target Company as of the most recent practicable date. All of such accounts and notes receivable and payable constitute bona fide, valid and binding claims arising in the ordinary course of such Target Company's business. Except as set forth on **<u>Schedule 5.28</u>**, there is no agreement for deduction, free goods, discounts, or other deferred price or adjustment to such receivables. Except as set forth on **<u>Schedule 5.28</u>**, (a) all receivables owing to each Target Company are less than 90 days old, are fully collectible and (b) will be collected in the ordinary course of business.

**Section 5.29 <u>Related Parties</u>**. Except as disclosed on **<u>Schedule 5.29</u>**, to the Knowledge of Red Cat and the Principal Stockholder, neither Red Cat, nor any other officer, director, or employee of either Target Company, or any of their respective spouses, domestic partners, or family member has, directly or indirectly, (a) any ownership interest in, or is a director, officer, manager, employee, consultant or agent of, any Person which is a competitor, supplier or customer of either Target Company; (b) any ownership interest in any property or asset, tangible or intangible, including any Intellectual Property, used in the conduct of either Target Company's business; (c) any interest in or is, directly or indirectly, a party to, any Target Company Contract; (d) any contractual or other arrangement with either Target Company, or any competitor, supplier or customer of either Target Company; (e) any cause of action or claim whatsoever against, or owes any amount to, either Target Company; or (f) any Liability to either Target Company. Except as disclosed on **<u>Schedule 5.29</u>**, neither Target Company nor any Subsidiary thereof has any Liability to Red Cat.

**Section 5.30 <u>Banks</u>**. **<u>Schedule 5.30</u>** sets forth (a) the name of each bank, trust corporation or other financial institution and stock or other broker with which each Target Company has an account, credit line or safe deposit box or vault, (b) the names of all Persons authorized to draw thereon or to have access to any safe deposit box or vault, (c) the purpose of each such account, safe deposit box or vault, and (d) the names of all Persons authorized by proxies, powers of attorney or other like instrument to act on behalf of each Target Company in matters concerning their business or affairs. Except as otherwise set forth on **<u>Schedule 5.30</u>**, no such proxies, powers of attorney or other like instruments are irrevocable.

**Section 5.31 <u>Accuracy of Information Furnished</u>**. To the Knowledge of Red Cat, no representation, statement or information contained in this Agreement (including the various exhibits attached hereto) or any agreement executed in connection herewith or in any certificate or other document delivered pursuant hereto or thereto or made or furnished to Unusual or its Representatives by any Target Company or Red Cat, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained herein and therein not misleading. Copies of all documents listed or described in the various exhibits attached hereto and provided by any Target Company or Red Cat to Unusual are true, accurate and complete.

**Section 5.32 <u>Employment Compliance</u>**. In the last 5 years:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) to the Knowledge of Red Cat and the Principal Stockholder, no allegations of sexual harassment, sexual misconduct, sexual, gender, racial, religious or other discrimination which is in violation of applicable Laws, or retaliation or policy violations of a Target Company have been made involving any current or former director, officer, manager, employee or independent contractor of either Target Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) neither Target Company has entered into any settlement agreement related to allegations referred to in Section 5.32(a); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) no Legal Proceedings are pending or, to the Knowledge of Red Cat and the Principal Stockholder, threatened related to allegations referred to in Section 5.32(a) against either Target Company.

**ARTICLE VI<br> <u>REPRESENTATIONS AND WARRANTIES REGARDING THE PRINCIPAL STOCKHOLDER</u>**

In order to induce Unusual to enter into this Agreement and to consummate the transactions contemplated hereby, the Principal Stockholder makes the representations and warranties set forth below to Unusual, which shall be true and correct as of the Effective Date and the Closing Date.

**Section 6.01 <u>Authorization; Enforceability</u>**. The Principal Stockholder has all requisite right, power and capacity to execute and deliver this Agreement, the Escrow Agreement and the Transaction Documents to which he is a party and consummate the transactions contemplated hereby and thereby. The execution and delivery of the Transaction Documents to which it is a party by the Principal Stockholder and the consummation by the Principal Stockholder of the transactions contemplated hereby and thereby have been duly authorized by all requisite action. This Agreement has been duly executed and delivered by the Principal Stockholder and constitutes the legal, valid and binding obligations of such party, enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws affecting creditors' rights generally and subject to the effect of general principles of equity, whether considered in a proceeding in equity or at law.

**Section 6.02 <u>No Consent, Violation or Conflict</u>**. The execution and delivery of this Agreement, the Escrow Agreement and the Transaction Documents to which the Principal Stockholder is a party and the consummation of the transactions contemplated hereby and thereby, and compliance by the Principal Stockholder with the provisions hereof and thereof, (a) do not and will not violate or, if applicable, conflict with any provision of Law and (b) do not and will not, with or without the passage of time or the giving of notice, result in the breach of, cause the acceleration of performance or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of the Principal Stockholder pursuant to any instrument or agreement to which the Principal Stockholder is a party or by which the Principal Stockholder's properties may be bound or affected.

**Section 6.03 <u>Consent of Governmental Authorities</u>**. The Principal Stockholder has obtained all necessary authorizations and no further consent, approval or authorization of, or registration, qualification or filing, with any Governmental Authority or any other Person is required to be made or obtained by the Principal Stockholder in connection with the execution and delivery of this Agreement, the Escrow Agreement and the Transaction Documents to which he is a party or the consummation by the Principal Stockholder of the transactions contemplated by the Transaction Document.

**Section 6.04 <u>Brokers</u>**. The Principal Stockholder has not incurred and will not incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement.

**Section 6.05 <u>Ownership of the Escrow Shares</u>**. The Principal Stockholder is and will immediately prior to the Closing be the record and beneficial owner of the Escrow Shares, as such term is defined by the Escrow Agreement, by and among the Principal Stockholder, Unusual and the Escrow Agent dated as of the Effective Date. Prior to the Closing such Escrow Shares will be deposited into Escrow with the Escrow Agent (as defined under the Escrow Agreement) and will be owned free and clear of any Liens, including, without limitation, claims or rights under any Voting Trust Agreements, Proxies, Stockholder Agreements or other Agreements. At the Closing, the Principal Stockholder will deposit the Escrow Shares into Escrow with the Escrow Agent free and clear of all Liens. No written or oral agreement or understanding with respect to the disposition of the Principal Stockholder's Escrow Shares or any rights therein, other than this Agreement and the Escrow Agreement, exists.

**Section 6.06 <u>Rights, Warrants, and Options</u>**. Other than this Agreement, there are no options, warrants or other rights, arrangements or commitments of any character to which the Principal Stockholder is a party or by which the Principal Stockholder is bound relating to the Escrow Shares or obligating the Principal Stockholder to sell any Escrow Shares.

**Section 6.07 <u>Employment Compliance</u>**. In the last 5 years:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) to the Knowledge of the Principal Stockholder, no allegations of sexual harassment, sexual misconduct, sexual, gender, racial, religious other discrimination which is in violation of applicable Laws, o retaliation or policy violations have been made involving any current or former director, officer, manager, employee or independent contractor of either Target Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) neither Target Company has entered into any settlement agreement related to allegations referred to in Section 6.07(a); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) no Legal Proceedings are pending or, to the Knowledge of each Target Company, threatened related to allegations referred to in Section 6.07(a) against either Target Company.

**ARTICLE VII<br> <u>SURVIVAL; INDEMNIFICATION</u>**

**Section 7.01 <u>Survival of the Representations and Warranties</u>**. The representations and warranties and indemnification obligations of Red Cat, the Principal Stockholder and Unusual set forth in this Article VII shall survive the Closing Date for a period of 1 year from the Closing Date; <u>provided</u>, <u>however</u>, that the representations and warranties set forth in Section 3.01 (Organization), Section 3.02 (Capital Structure), Section 3.03 (Authority; Non-Contravention; Governmental Consents; Board Approval), Section 3.11 (Rule 506 (d) Bad Actor Disqualification Representations and Covenants), Sections 4.01(a)-(c) (Authority; Non-Contravention; Governmental Consents), Section 4.03 (Capitalization), Section 4.04 (Rights, Warrants, Options), Section 5.13 (Compliance with Environmental Laws), and Section 5.18 (Employment Matters) shall survive the Closing Date until the expiration of the period specified in the applicable statute of limitations; <u>provided</u>, <u>further</u>, any claims with respect to the Tax representations shall survive the Closing for a period of 90 days following the expiration of the applicable statute of limitations period. If, at any time prior to the expiration of the limitation periods contained in this Section 7.01 including any applicable statute of limitations, any Indemnified Party delivers to the Indemnifying Party a written notice asserting in good faith a claim for recovery under this Section 7.01), then the claim asserted in such notice shall survive such expiration time until such time as such claim is fully and finally resolved including the expiration of any applicable time to appeal.

**Section 7.02 <u>General Release</u>**. Effective as of the Closing Date, Red Cat hereby unconditionally and irrevocably releases and forever discharges, effective as of the Closing Date, each Target Company and its officers, managers, directors, employees and agents, from any and all rights, claims, demands, judgments, obligations, liabilities and damages, whether accrued or unaccrued, asserted or unasserted, and whether known or unknown, relating exclusively to such Target Company which ever existed, now exist, or may hereafter exist, by reason of any tort, breach of contract, violation of Law or other act or failure to act which shall have occurred at or prior to the Closing Date, or in relation to any other liabilities of such Target Company to Red Cat, other than any fraud, willful misconduct or gross negligence of such person.

**Section 7.03 <u>Indemnification</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Indemnification by Red Cat</u>. Red Cat agrees to defend, indemnify and hold harmless Unusual (which, after the Closing shall include the Target Companies) and their respective directors, officers, managers, employees and agents (each, an "**Unusual Indemnitee**" and collectively, the "**Unusual Indemnitees**") from, against and in respect of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) (A) any and all actions, suits, proceedings, investigations, demands, liabilities, damages, claims, deficiencies, fines, penalties, interest, assessments, judgments, losses, Taxes, costs and expenses, including, without limitation, reasonable fees and disbursements of counsel (collectively, the "**Indemnified Losses**") arising from or in connection with any breach or violation of any of the representations and warranties of Red Cat, contained in this Agreement or (B) any and all Indemnified Losses arising from or in connection with any breach or violation of the covenants or agreements exclusively of Red Cat contained in this Agreement (in each case, other than in respect of Section 5.21 or any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in Article IX, it being understood that the sole remedy for any such breach, violation or failure shall be pursuant to Article IX); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any and all Indemnified Losses not reserved for on the Closing Trial Balance related to the business or operations of any Target Company prior to the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Indemnification by the Principal Stockholder</u>. The Principal Stockholder agrees to defend, indemnify and hold harmless the Unusual Indemnitees from, against and in respect of, the full amount of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) (A) any and all Indemnified Losses arising from or in connection with any breach or violation of any of the representations and warranties of Red Cat or the Principal Stockholder contained in this Agreement or (B) any and all Indemnified Losses arising from or in connection with any breach or violation of the covenants or agreements of Red Cat or the Principal Stockholder contained in this Agreement (in each case, other than in respect of Section 5.21 or any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in Article IX, it being understood that the sole remedy for any such breach, violation or failure shall be pursuant to Article IX);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any and all Indemnified Losses related to or arising from claims for breach of contract existing on or prior to the Closing Date, and/or which are brought after the Closing Date for acts and omissions of any Target Company or Red Cat, which occurred prior to the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any and all Indemnified Losses related to or arising from any Target Company Products delivered by either Target Company prior to the Closing Date, including without limitation, Indemnified Losses for Target Company Product recalls, Target Company Product defects, warranty claims, personal injury or death;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) any and all Indemnified Losses which relate to any Legal Proceedings which are not set forth on **<u>Schedules 5.12(a)</u>** and **<u>(b)</u>**, existing on or prior to the Closing Date, and/or which are brought after the Closing Date for acts and omissions of any Target Company or Red Cat, which occurred prior to the Closing Date; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) any and all Indemnified Losses not reserved for on the Closing Trial Balance related to the business or operations of any Target Company prior to the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Indemnification by Unusual</u>. Unusual agrees to defend, indemnify and hold harmless Red Cat and its Affiliates and their respective directors, officers, managers, employees and agents from, against and in respect of, the full amount of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) any and all Indemnified Losses arising from or in connection with any breach or violation of any of the representations or warranties of Unusual contained in this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any and all Indemnified Losses arising from or in connection with any breach or violation of any of the covenants or agreements of Unusual contained in this Agreement; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any and all Indemnified Losses arising from the Offering or the Registration Statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Indemnification Procedure</u>. Any Party seeking indemnification under this Agreement (the "**Indemnified Party**") will give prompt written notice to the Party or Parties against whom indemnity is sought (the "**Indemnifying Party**") of any Indemnified Losses which it discovers or of which it receives notice after the Closing, stating the nature, basis (including the section of this Agreement that has been or will be breached, if any, and the facts giving rise to the claim that a breach has or will occur), and (to the extent known) amount thereof; <u>provided, however</u>, that no delay on the part of Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability hereunder unless (and then solely to the extent) the Indemnifying Party is prejudiced by such delay.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Indemnification Procedure as to Third Party Claims</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Promptly after any Indemnified Party obtains knowledge of the commencement of any third party claim, action, suit or proceeding or of the occurrence of any event or the existence of any state of facts which may become the basis of a third party claim (any such claim, action, suit or proceeding or event or state of facts being hereinafter referred to in this Section 7.03 as a "**Claim**"), in respect of which an Indemnified Party is entitled to indemnification under this Agreement, such Indemnified Party shall promptly notify the Indemnifying Party of such Claim in writing; <u>provided</u>, <u>however</u>, that any failure to give notice (A) will not waive any rights of the Indemnified Party except to the extent that the rights of the Indemnifying Party are actually prejudiced thereby and (B) will not relieve the Indemnifying Party of its obligations as hereinafter provided in this Section 7.03 after such notice is given. With respect to any Claim as to which such notice is given by the Indemnified Party to the Indemnifying Party, the Indemnifying Party will, subject to the provisions of Section 7.03(e)(ii), assume the defense or otherwise settle such Claim with counsel reasonably satisfactory to the Indemnified Party and experienced in the conduct of Claims of that nature at the Indemnifying Party's sole risk and expense, <u>provided</u>, <u>however</u>, that the Indemnified Party: (1) shall be permitted to join the defense and settlement of such Claim and to employ counsel reasonably satisfactory to the Indemnifying Party, and at the Indemnified Party's own expense; (2) shall cooperate fully with the Indemnifying Party in the defense and any settlement of such Claim in any manner reasonably requested by the Indemnifying Party; and (3) shall not compromise or settle any such Claim without the prior written approval of the Indemnifying Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) If (A) the Indemnifying Party fails to assume the defense of such Claim or, having assumed the defense and settlement of such Claim, fails reasonably to contest such Claim in good faith, or (B) the remedy sought by the claimant with respect to such Claim is not solely for money damages, the Indemnified Party, without waiving its right to indemnification, may, but is not required to, assume the defense and settlement of such Claim, <u>provided</u>, <u>however</u>, that (1) the Indemnifying Party shall be permitted to join in the defense and settlement of such Claim and to employ counsel at its own expense, (2) the Indemnifying Party shall cooperate with the Indemnified Party in the defense and settlement of such Claim in any manner reasonably requested by the Indemnified Party, and (3) the Indemnified Party shall not settle such Claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) As used in this Section 7.03, the terms Indemnified Party and/or Indemnifying Party shall be deemed to include the plural thereof where the rights or obligations of more than one Indemnified Party and/or Indemnifying Party may be involved.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Tax-free Indemnification Payments</u>. All sums payable by an Indemnifying Party as indemnification under this Section 7.03 shall be paid free and clear of all deductions or withholdings (including any Taxes or governmental charges of any nature) unless the deduction or withholding is required by Law, in which event or in the event the Indemnified Party shall incur any Liability for Taxes chargeable or assessable in respect of any such payment, the Indemnifying Party shall pay such additional amounts as shall be required to cause the net amount received by the Indemnified Party to equal the full amount which would otherwise have been received by it had no such deduction or withholding been made or no such Liability for Taxes been incurred.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>No Contribution</u>. The obligations of Red Cat, or the Principal Stockholder, to indemnify Unusual pursuant to the terms of this Agreement are several and not joint obligations of Red Cat and the Principal Stockholder, respectively, subject to the limitations set forth herein. Red Cat and the Principal Stockholder hereby waive any right to seek or obtain indemnification or contribution from the Target Companies or from each other for Indemnified Losses as a result of any breach by Red Cat or the Principal Stockholder of any representation, warranty or covenant contained in this Agreement.

**Section 7.04 <u>Limitations on Liabilities</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Notwithstanding anything to the contrary contained herein, in no event shall the aggregate sums payable under Section 7.03 (other than sums payable as a result of fraud) exceed (i) with respect to Red Cat or the Principal Stockholder the Escrow Shares under the Escrow Agreement and the aggregate liability for Unusual exceed $1.8 million. Notwithstanding anything herein to the contrary, the Escrow Shares shall be the sole and exclusive recourse by Unusual for any breaches of the representations and warranties set forth in this Agreement by Red Cat and/or the Principal Stockholder and for any Red Cat or Principal Stockholder Indemnified Losses. The Principal Stockholder shall have no right of indemnification or contribution against Red Cat for any claims or breaches of the representations and warranties of Red Cat set forth herein or any Red Cat Indemnified Losses.

Notwithstanding anything to the contrary contained herein, no Party (including Unusual) shall be obligated to indemnify and hold harmless any other under Section 7.04 for breaches of representations and warranties unless and until all Indemnified Losses in respect of which such Party is obligated to provide indemnification exceed $250,000 (the "**Basket Amount**") following which (subject to the provisions of this Section 7.04) such Party shall be obligated to indemnify and hold harmless, the other Party for all such Indemnified Losses (not merely the amount by which the Indemnified Losses exceed the Basket Amount); <u>provided</u>, <u>however</u> the Basket Amount shall not apply to indemnity obligations for Indemnified Losses arising as a result of fraud if determined by a final decision of a court of competent jurisdiction or breaches of the representations and warranties in Sections 5.07, 5.08, and 5.27.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Notwithstanding anything to the contrary set forth herein, none of the limitations on indemnification set forth in this Section 7.04 shall apply to matters relating to fraud if determined by a final decision of a court of competent jurisdiction.

**ARTICLE VIII<br> <u>INTERIM COVENANTS</u>**

**Section 8.01 <u>Form S-1</u>**. As soon as practicable following the Effective Date, Unusual shall file a Form S-1 Registration Statement (the "**Registration Statement**") with the SEC providing for Unusual to sell at least $15 million of Unusual Common Stock, plus an additional $2.5 million in shares of Unusual Common Stock issuable upon conversion of the Unusual Note to be offered by Red Cat or certain affiliated parties as selling stockholders on a delayed or continuous basis following the Offering, or in the Offering by the underwriter for Unusual (the "**Offering**"). Red Cat shall co-operate with Unusual in connection with the Offering. Unusual may use a portion of the proceeds to pay additional Cash Consideration in lieu of issuing the Unusual Note as part of the Consideration at the Closing. Unusual shall not file the Form S-1 Registration Statement, or any amendment thereto, absent the express prior written approval therefor by Red Cat, such consent not to be unreasonably withheld, delayed or denied.

**Section 8.02 <u>Interim Operations of the Target Companies</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Red Cat covenants and agrees that, from the Effective Date until the Closing Date, Red Cat and the Principal Stockholder shall cause each Target Company to operate its business in accordance with its ordinary course and past practice. Nothing in this Section 8.02 shall preclude the dissolution of any Cayman Island Subsidiary of a Target Company. In addition, during the period commencing on the Effective Date and until the Closing Date, Red Cat and the Principal Stockholder shall cause such Target Company to, except to the extent Unusual specifically gives its prior written consent to the contrary:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) use its best efforts to preserve intact its business organization and the goodwill of its customers, suppliers and others having business relations with it;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) use its best efforts to keep available to Unusual the services of such Target Company's officers, managers, employees, independent contractors and agents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) promptly furnish to Unusual a copy of any correspondence received from or delivered to any Governmental Authority;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) maintain and keep its properties and assets in the same repair and condition as they were on the date of this Agreement, ordinary wear and tear excepted;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) continue and maintain the approval process in the ordinary course of business with respect to the Target Company Products and any Target Company Products being developed by such Target Company; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) continuously maintain insurance coverage substantially equivalent to the insurance coverage in existence on the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Additionally, during the period from the Effective Date to the Closing Date, except with the prior written consent of Unusual, no Target Company shall, and neither Red Cat nor the Principal Stockholder shall permit such Target Company to, directly or indirectly:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) amend or otherwise change such Target Company's Charter Documents (other than dissolution of any Target Company Subsidiary organized in the Cayman Islands to which Unusual consents);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) issue, sell or authorize for issuance or sale, shares of any class of its equity securities (including, but not limited to, by way of share split or dividend) or any subscriptions, options, warrants, rights, or enter into any agreements or commitments of any character obligating it to issue or sell any such securities, unless the sole purchaser is Red Cat;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) issue or sell any Indebtedness including any convertible Indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) redeem, purchase or otherwise acquire directly or indirectly any shares of its authorized share capital or any option, warrant or other right to purchase or acquire any such shares;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) declare or pay any dividend or other distribution to its equityholders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) sell, transfer, surrender, abandon or dispose of any of its assets or property rights (tangible or intangible), except for sales or dispositions of inventory in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) grant, make or subject itself or any of its assets or properties to any Lien;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) create, incur or assume any liability other than Indebtedness which would remain with such Target Company after the Closing Date, except in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) enter into, amend or terminate any Target Company Contract;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) commit to make any capital expenditures in excess of $100,000, which would be payable by such Target Company after the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) issue any guaranty of sums due from any other Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii) waive, release, assign, settle or compromise any material claim or litigation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii) except as required by Law, increase the compensation payable or to become payable to directors, officers, managers, employees, consultants or agents or grant any rights to severance or termination pay to, or enter into any Employment or Severance Agreement with any of the foregoing Persons or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, share option, restricted share, pension, retirement, deferred compensation, employment, termination, severance or other Target Company Plan, agreement, trust, fund, policy or arrangement for the benefit of any of the foregoing Persons;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv) acquire (including, without limitation, by merger, consolidation or acquisition of stock or assets) any interest in any corporation, partnership, other business organization, Person or any division thereof or any assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv) alter the manner of keeping its books, accounts or records, or change in any manner the accounting practices therein reflected;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi) make any Tax election or settle or compromise any material federal, state or local or federal income Tax Liability ("**Tax Liability**");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii) change its accounting practices, methods or assumptions or write down any of its assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii) enter into any commitment or transaction, which would survive the Closing Date, except in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix) accelerate, terminate, modify or cancel any Target Company Contract;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx) grant any license or sublicense of any right under or with respect to any Intellectual Property or disclose any proprietary or confidential information to any third party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi) take or omit to take any action which would render of any Red Cat's or the Principal Stockholder's representations or warranties untrue or misleading, or which would be a breach of any of Red Cat's covenants contained in the Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii) enter into any Material Contract, transaction or arrangement with any Affiliate (other than Red Cat);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii) take any action which could have a Material Adverse Effect on either Target Company; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiv) agree, whether in writing or otherwise, to do any of the foregoing.

**Section 8.03 <u>Conduct of the Business of Unusual</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Unusual covenants and agrees that, from the Effective Date until the Closing Date, Unusual shall operate its business in accordance with its ordinary course and past practice. In addition, during the period commencing on the Effective Date and until the Closing Date, Unusual shall, except to the extent Red Cat specifically gives its prior written consent to the contrary:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) use its best efforts to preserve intact its business organization and the goodwill of its customers, suppliers and others having business relations with it;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) use its best efforts to keep available to Unusual the services of its officers, managers, employees, independent contractors and agents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) promptly furnish to Red Cat a copy of any correspondence received from or delivered to any Governmental Authority;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) maintain and keep its properties and assets in the same repair and condition as they were on the date of this Agreement, ordinary wear and tear excepted;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) continue and maintain the approval process in the ordinary course of business with respect to Unusual products and any products being developed by Unusual; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) continuously maintain insurance coverage substantially equivalent to the insurance coverage in existence on the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Additionally, during the period from the Effective Date to the Closing Date, except with the prior written consent of Red Cat, Unusual shall not directly or indirectly:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) amend or otherwise change its Charter Documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) issue, sell or authorize for issuance or sale, shares of any class of its equity securities (including, but not limited to, by way of share split or dividend) or any subscriptions, options, warrants, rights, or enter into any agreements or commitments of any character obligating it to issue or sell any such securities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) issue or sell any Indebtedness including any convertible Indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) redeem, purchase or otherwise acquire directly or indirectly any shares of its authorized share capital or any option, warrant or other right to purchase or acquire any such shares;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) declare or pay any dividend or other distribution to its equityholders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) sell, transfer, surrender, abandon or dispose of any of its assets or property rights (tangible or intangible), except for sales or dispositions of inventory in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) grant, make or subject itself or any of its assets or properties to any Lien;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) create, incur or assume any liability other than Indebtedness, except in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) enter into, amend or terminate any Unusual Material Contract;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) commit to make any capital expenditures in excess of $100,000, which would be payable by Unusual after the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) issue any guaranty of sums due from any other Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii) waive, release, assign, settle or compromise any material claim or litigation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii) except as required by Law or scheduled to this Agreement with respect to certain equity awards, increase the compensation payable or to become payable to directors, officers, managers, employees, consultants or agents or grant any rights to severance or termination pay to, or enter into any Employment or Severance Agreement with any of the foregoing Persons or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, share option, restricted share, pension, retirement, deferred compensation, employment, termination, severance or other Unusual plan, agreement, trust, fund, policy or arrangement for the benefit of any of the foregoing Persons;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv) acquire (including, without limitation, by merger, consolidation or acquisition of stock or assets) any interest in any corporation, partnership, other business organization, Person or any division thereof or any assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv) alter the manner of keeping its books, accounts or records, or change in any manner the accounting practices therein reflected;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi) make any Tax election or settle or compromise any material federal, state or local or federal income Tax Liability;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii) change its accounting practices, methods or assumptions or write down any of its assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii) enter into any commitment or transaction, which would survive the Closing Date, except in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix) accelerate, terminate, modify or cancel any Unusual Material Contract;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx) grant any license or sublicense of any right under or with respect to any Intellectual Property or disclose any proprietary or confidential information to any third party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi) enter into any Material Contract, transaction or arrangement with any Affiliate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii) take any action which could have a Material Adverse Effect on Unusual; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii) agree, whether in writing or otherwise, to do any of the foregoing.

**Section 8.04 <u>Maintenance of Personnel</u>**. During the period from the date of this Agreement to the Closing Date, each Target Company and Red Cat agree to cooperate and provide adequate personnel to permit the conduct of the activity contemplated in Section 8.02.

**Section 8.05 <u>Consent of Governmental Authorities</u>**. Each of Unusual, on the one hand, and each Target Company and Red Cat, on the other hand, agree to file, submit or request (or cause to be filed, submitted or requested) promptly after the Effective Date and to prosecute diligently any and all (a) applications or notices required to be filed or submitted to any Governmental Authorities, and (b) in the case of each Target Company, requests for consents and approvals of Persons required to be obtained in connection with the transactions contemplated by this Agreement. Each of Unusual, on the one hand, and each Target Company and Red Cat on the other hand, shall promptly make available to the other or to a relevant Governmental Authority, as the case may be, such information as each of them may reasonably request relative to its business, assets and property as may be required by each of them to prepare and file or submit such applications and notices and any additional information requested by any Governmental Authority, and shall update by amendment or supplement any such information given in writing.

**Section 8.06 <u>Due Diligence Review; Access to Information</u>**. Each Party shall (and shall cause its directors, officers, employees, auditors, counsel and agents to) afford the other Party's officers, employees, auditors, counsel and agents reasonable access at all reasonable times to its properties, offices, and other facilities, to its officers and employees and to all books and records, and shall furnish such Persons with all financial, operating and other data and information as may be requested. Neither the due diligence investigation made by any Party in connection with the transactions contemplated hereby nor information provided to or obtained by such Party shall affect any representation or warranty, covenants, or agreements contained herein, or limit or otherwise affect the remedies available to such Party pursuant to this Agreement.

**Section 8.07 <u>No Solicitation</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Takeover Proposal</u>. Neither Red Cat, on the one hand, nor Unusual, on the other hand, shall, and each shall cause their respective Representatives, Subsidiaries or Subsidiaries' Representatives as applicable, not to, directly or indirectly, solicit, initiate, or knowingly take any action to facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or, subject to Section 8.07(b): (i) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to Red Cat or Unusual or any of their respective Subsidiaries, as applicable, to, afford access to the business, properties, assets, books, or records of Red Cat or Unusual or any of their respective Subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party (or its potential sources of financing) that is seeking to make, or has made, any Takeover Proposal; (ii) except where the Red Cat Board or Unusual Board, as applicable, makes a good faith determination, after consultation with its financial advisors and outside legal counsel, that the failure to do so would cause it to be in breach of its fiduciary duties, amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of Red Cat or Unusual, as applicable, or any of their respective Subsidiaries to, amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of Red Cat or Unusual, as applicable, or any of their respective Subsidiaries; or (iii) enter into any Agreement in Principle, Letter of Intent, Term Sheet, Acquisition Agreement, Merger Agreement, Option Agreement, Joint Venture Agreement, Partnership Agreement, or other Target Company Contract relating to any Takeover Proposal (each, an "**Acquisition Agreement**"). Except as expressly permitted by this Agreement, the Red Cat Board shall not effect a Red Cat Adverse Recommendation Change ("**Red Cat Adverse Recommendation Change**"). Red Cat on the one hand, and Unusual, on the other hand, shall, and shall cause their respective Representatives, Subsidiaries and Subsidiaries' Representatives to, cease immediately and cause to be terminated any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the Effective Date with respect to any Takeover Proposal and shall use its reasonable best efforts to cause any such third party (or its agents or advisors) in possession of non-public information in respect of Red Cat or Unusual, as applicable, and any of their respective Subsidiaries that was furnished by or on behalf of such Party or its respective Subsidiaries to return or destroy (and confirm destruction of) all such information. Without limiting the foregoing, it is understood that any violation of or the taking of actions inconsistent with the restrictions set forth in this Section 8.07 by any Representative of Red Cat or its Subsidiaries, on the one hand, or Unusual or its Subsidiaries, on the other hand, whether or not such Representative is purporting to act on behalf of the applicable Party or any of its Subsidiaries, shall be deemed to be a breach of this 8.07 by the applicable Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Superior Proposal</u>. Notwithstanding anything herein to the contrary, the Red Cat Board, directly or indirectly through any Representative, may, subject to Section 8.07(c): (i) participate in negotiations or discussions with any third party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that the Red Cat Board believes in good faith, after consultation with its financial advisors and outside legal counsel, constitutes or could reasonably be expected to result in a Superior Proposal; (ii) thereafter furnish to such third party non-public information relating to such Party or any of its Subsidiaries pursuant to an executed Confidentiality Agreement that constitutes an acceptable Confidentiality Agreement ("**Acceptable Confidentiality Agreement**") (a copy of which Confidentiality Agreement shall be promptly (in all events within 72 hours) provided for informational purposes to the other Party); (iii) following receipt of and on account of a Superior Proposal, make a Red Cat Adverse Recommendation Change; and/or (iv) take any action that any court of competent jurisdiction orders such Party to take (which order remains unstayed), but in each case referred to in the foregoing clauses (i) through (iv), only if the Red Cat Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action could cause it to be in breach of its fiduciary duties under applicable Law. Nothing contained herein shall prevent the Red Cat Board from disclosing to its stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act with regard to a Takeover Proposal, if the Party determines, after consultation with its financial advisors and outside legal counsel, that failure to disclose such position could cause Red Cat Board to be in breach of its fiduciary duties under applicable Law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Notification to the Other Party</u>. The Red Cat Board shall not take any of the actions referred to in clauses (i) through (iv) of Section 8.07(b) unless Red Cat shall have delivered to Unusual a prior written notice advising Unusual that it intends to take such action. Red Cat shall notify Unusual promptly (but in no event later than 24 hours) after it obtains Knowledge of the receipt by Red Cat (or any of its Representatives) of any Takeover Proposal, any inquiry that could reasonably be expected to lead to a Takeover Proposal, any request for non-public information relating to Red Cat or any of its Subsidiaries or for access to the business, properties, assets, books, or records of Red Cat or any of its Subsidiaries by any third party. In such notice, Red Cat shall identify the third party making, and details of the material terms and conditions of, any such Takeover Proposal, indication or request, including any proposed financing. Red Cat shall keep Unusual fully informed, on a current basis, of the status and material terms of any such Takeover Proposal, indication or request, including any material amendments or proposed amendments as to price, proposed financing, and other material terms thereof. Red Cat shall provide Unusual with at least 48 hours prior notice of any meeting of the Red Cat Board, or any committee ("**Red Cat Board Committee**") thereof (or such lesser notice as is provided to the members of the Red Cat Board or Red Cat Board Committee) at which the Red Cat Board, or Red Cat Board Committee, is reasonably expected to consider any Takeover Proposal. Red Cat shall promptly provide Unusual with a list of any non-public information concerning such Red Cat's or any of its Subsidiaries' business, present or future performance, financial condition, or results of operations, provided to any third party, and, to the extent such information has not been previously provided to Unusual, copies of such information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Adverse Recommendation Change or Acquisition Agreement</u>. Except as expressly permitted by this Section 8.07, the Red Cat Board shall not effect a Red Cat Adverse Recommendation Change; or enter into (or permit any of its respective Subsidiaries to enter into) an Acquisition Agreement. Notwithstanding the foregoing, at any time: (i) prior to the receipt of the Requisite Red Cat Vote, the Red Cat Board may effect a Red Cat Adverse Recommendation Change or enter into (or permit any Subsidiary to enter into) an Acquisition Agreement that did not result from a breach of this Section 8.07, if (A) Red Cat promptly notifies Unusual, in writing, at least five Business Days (the "**Superior Proposal Notice Period**") before making a Red Cat Adverse Recommendation Change, as applicable, or entering into (or causing one of its Subsidiaries to enter into) an Acquisition Agreement, of its intention to take such action with respect to a Superior Proposal, which notice shall state expressly that Red Cat has received a Takeover Proposal that the Red Cat Board or Red Cat Board Committee intends to declare a Superior Proposal and that it intends to effect a Red Cat Adverse Recommendation Change, and/or Red Cat intends to enter into an Acquisition Agreement, (B) Red Cat specifies the identity to Unusual whom is making the Superior Proposal and the material terms and conditions thereof in such notice and includes an unredacted copy of the Takeover Proposal and attaches to such notice the most current version of any proposed agreement (which version shall be updated on a prompt basis) and any related documents including financing documents, to the extent provided by the relevant Party in connection with the Superior Proposal, (C) Red Cat shall, and shall cause its Representatives to, during the Superior Proposal Notice Period, negotiate with Unusual in good faith to make such adjustments in the terms and conditions of this Agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Unusual, in its discretion, proposes to make such adjustments (it being agreed that in the event that, after commencement of the Superior Proposal Notice Period, there is any material revision to the terms of a Superior Proposal, including, any revision in price or financing, the Superior Proposal Notice Period shall be extended, if applicable, to ensure that at least three Business Days remains in the Superior Proposal Notice Period subsequent to the time Red Cat notifies Unusual of any such material revision (it being understood that there may be multiple extensions)), and (D) Red Cat Board or Red Cat Board Committee determines in good faith, after consulting with its financial advisors and outside legal counsel, that such Takeover Proposal continues to constitute a Superior Proposal (after taking into account any adjustments made by Unusual during the Superior Proposal Notice Period in the terms and conditions of this Agreement) and that the failure to take such action would cause Red Cat Board to be in breach of its fiduciary duties under applicable Law.

**Section 8.08 <u>Preparation of Proxy Statement</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Proxy Statement</u>. In connection with a Red Cat Stockholders Meeting, as soon as reasonably practicable following the Effective Date, Red Cat shall prepare and file the Proxy Statement with the SEC.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Furnishing of Information</u>. Red Cat and Unusual shall furnish to the other Party all information concerning such Person and its Affiliates required by the Exchange Act to be set forth in the Proxy Statement. Each of Red Cat and Unusual shall promptly correct any information provided by it for use in the Proxy Statement if and to the extent that such information shall have become false or misleading in any material respect. Each of Red Cat and Unusual shall take all steps necessary to amend or supplement the Proxy Statement, as applicable, and Red Cat shall cause the Proxy Statement, as so amended or supplemented, to be filed with the SEC and disseminated to the holders of Red Cat Common Stock and other voting securities to the extent required by applicable Law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>SEC Comments</u>. Red Cat shall promptly provide Unusual and its counsel with any comments or other communications, whether written or oral, Red Cat, or its counsel may receive from the SEC or its staff with respect to the Proxy Statement promptly after the receipt of such comments. Prior to the filing of the Proxy Statement with the SEC (including in each case any amendment or supplement thereto) or the dissemination thereof to the holders of Red Cat Common Stock and voting securities, or responding to any comments of the SEC with respect to the Proxy Statement, Red Cat shall provide Unusual and its counsel a reasonable opportunity to review and comment on such Proxy Statement, or response (including the proposed final version thereof), and Red Cat shall give reasonable and good faith consideration to any comments made by Unusual or their counsel.

**Section 8.09 <u>Red Cat Stockholders Meeting</u>**. Red Cat shall take all action necessary to duly call, give notice of, convene, and hold the Red Cat Stockholders Meeting as soon as reasonably practicable, and, in connection therewith, Red Cat shall mail the Proxy Statement to the holders of Red Cat Common Stock and voting securities in advance of such meeting. The Proxy Statement shall include the Red Cat Board Recommendation. Red Cat shall use reasonable best efforts to: (a) solicit from the holders of Red Cat Common Stock and voting securities proxies in favor of the adoption of this Agreement and approval of the Purchase and Sale, including the engagement of a solicitation agent, if required, the identity of which shall require the reasonable approval of Unusual; and (b) take all other actions necessary or advisable to secure the vote or consent of the holders of Red Cat Common Stock and voting securities required by applicable Law to obtain such approval. Red Cat shall keep Unusual and its counsel updated with respect to proxy solicitation results as requested by Unusual. Once the Red Cat Stockholders Meeting has been called and noticed, Red Cat shall not postpone or adjourn the Red Cat Stockholders Meeting without the consent of Unusual other than in order to obtain a quorum of its stockholders. Notwithstanding anything in this Agreement to the contrary, in lieu of holding a meeting, Red Cat may take action by consent as permitted by the Rules of the SEC and the NRS.

**Section 8.10 <u>Notices of Certain Events</u>**. Subject to applicable Law, Red Cat shall notify Unusual promptly of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and (c) any event, change, or effect between the Effective Date and the Closing which individually or in the aggregate causes or is reasonably likely to cause or constitute (i) a material breach of any of its representations, warranties, or covenants contained herein, or (ii) the failure of any of the conditions set forth in Article IX of this Agreement to be satisfied; <u>provided that</u>, any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute a violation of this Section 8.10 or the failure of any condition set forth in Article IX to be satisfied, or otherwise constitute a breach of this Agreement by the Party failing to give such notice, in each case unless the underlying breach would independently result in a failure of the conditions set forth in Article IX to be satisfied; and <u>provided</u>, <u>further</u>, that the delivery of any notice pursuant to this Section 8.10 shall not cure any breach of, or noncompliance with, any other provision of this Agreement or limit the remedies available to the Party receiving such notice.

**Section 8.11 <u>Preparation of Nasdaq Listing Application</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Nasdaq Listing Application</u>. In connection with the Offering, as soon as reasonably practicable following the Effective Date, Unusual shall prepare and file a listing application with the Nasdaq Capital Market ("**Nasdaq**") to allow trading of its common stock under the symbol "UMAC" or other symbol acceptable to Unusual but not similar to RCAT (the "**Nasdaq Listing Application**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Furnishing of Information</u>. Red Cat and Unusual shall each furnish to the other Party all information concerning such Person and its Affiliates required by the Exchange Act to be set forth in the Nasdaq Listing Application. Each of Red Cat and Unusual shall promptly correct any information provided by it for use in the Nasdaq Listing Application if and to the extent that such information shall have become false or misleading in any material respect. Each of Red Cat and Unusual shall take all steps necessary to amend or supplement the Nasdaq Listing Application, as requested by Nasdaq.

**Section 8.12 Reasonable Best Efforts**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Governmental and Other Third-Party Approval; Cooperation and Notification</u>. Upon the terms and subject to the conditions set forth in this Agreement (including those contained in this Section 8.12), each of the Parties hereto shall, and shall cause its Subsidiaries to, use its respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper, or advisable to consummate and make effective, and to satisfy all conditions to, (and in any event no later than the End Date, as defined), the Purchase and Sale and the other transactions contemplated by this Agreement, including: (i) the obtaining of all Material Permits, waivers, and actions or non-actions from Governmental Authorities and the making of all necessary registrations, filings, and notifications (including filings with any Governmental Authority) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Authority; (ii) the obtaining of all necessary consents or waivers from third parties; and (iii) the execution and delivery of any additional instruments necessary to consummate the Purchase and Sale and to fully carry out the purposes of this Agreement. Red Cat and Unusual shall, subject to applicable Law, promptly: (A) cooperate and coordinate with the other in the taking of the actions contemplated by clauses (i), (ii), and (iii) immediately above; and (B) supply each other with any information that may be reasonably required in order to effectuate the taking of such actions. Each Party hereto shall promptly inform the other Party or Parties, as the case may be, of any communication from any Governmental Authority regarding any of the transactions contemplated by this Agreement. If Red Cat, on the one hand, or Unusual, on the other hand, receives a request for additional information or documentary material from any Governmental Authority with respect to the transactions contemplated by this Agreement, then it shall use reasonable best efforts to make, or cause to be made, as soon as reasonably practicable and after consultation with the other Party, an appropriate response in compliance with such request, and, if permitted by applicable Law and by any applicable Governmental Authority, provide the other Party's counsel with advance notice and the opportunity to attend and participate in any meeting or other form of communication with any Governmental Authority in respect of any filing made thereto in connection with the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Actions or Proceedings</u>. In the event that any Legal Proceeding is instituted (or threatened to be instituted) by a Governmental Authority or private party challenging the Purchase and Sale or any other transaction contemplated by this Agreement, or any other agreement contemplated hereby, each Party shall cooperate in all respects with the other Party and shall use its reasonable best efforts to contest and resist any Legal Proceeding and to have vacated, lifted, reversed, or overturned any Order, whether temporary, preliminary, or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to the contrary, no Party, or any of its Affiliates shall be required to defend, contest, or resist any Legal Proceeding, or to take any action to have vacated, lifted, reversed, or overturned any Order, in connection with the transactions contemplated by this Agreement.

**Section 8.13 <u>Public Announcements</u>**. The initial press release with respect to this Agreement and the transactions contemplated hereby shall be a release mutually agreed to by Red Cat and Unusual. Thereafter, each of Red Cat and Unusual agrees that no public release, statement, announcement, or other disclosure concerning the Purchase and Sale and the other transactions contemplated hereby shall be issued by any Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld, conditioned, or delayed), except as may be required by: (a) applicable Law; (b) court process; (c) Nasdaq; or (d) any Governmental Authority to which the relevant Party is subject or submits; <u>provided</u>, in each such case, that the Party making the release, statement, announcement, or other disclosure shall use its reasonable best efforts to allow the other Party reasonable time to comment on such release, statement, announcement, or other disclosure in advance of such issuance. Notwithstanding the foregoing, the restrictions set forth in this Section 8.13 shall not apply to any release, statement, announcement, or other disclosure made with respect to the Purchase and Sale and the other transactions contemplated hereby that is substantially similar (and identical in any material respect) to those in a previous release, statement, announcement, or other disclosure made by Red Cat or Unusual in accordance with this Section 8.13.

**Section 8.14 <u>Anti-Takeover Statutes</u>**. If any "control share acquisition," "fair price," "moratorium," or other anti-takeover Law becomes or is deemed to be applicable to Red Cat or Unusual relating to the Purchase and Sale, then each of Red Cat and the Red Cat Board on the one hand, and Unusual and the Unusual Board on the other hand, shall grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to render such anti-takeover Law inapplicable to the foregoing.

**Section 8.15 <u>Stockholder Litigation</u>**. Red Cat shall promptly advise Unusual in writing after becoming aware of any Legal Proceeding commenced, or to Red Cat's Knowledge threatened, against Red Cat or any of its directors by any stockholder of Red Cat (on their own behalf or on behalf of Red Cat) relating to this Agreement or the transactions contemplated hereby (including the Purchase and Sale and the other transactions contemplated hereby) and shall keep Unusual reasonably informed regarding any such Legal Proceeding. Red Cat shall: (a) give Unusual the opportunity to participate in the defense and settlement of any such stockholder litigation, (b) keep Unusual reasonably apprised on a prompt basis of proposed strategy and other significant decisions with respect to any such stockholder litigation, and provide Unusual with the opportunity to consult with Red Cat regarding the defense of any such litigation, which advice Red Cat shall consider in good faith, and (c) not settle any such stockholder litigation without the prior written consent of Unusual.

**Section 8.16 <u>Resignations</u>**. At the written request of Unusual, Red Cat shall cause each director or manager of any of the Target Companies and Subsidiaries to resign in such capacity, with such resignations to be effective as of the Closing.

**Section 8.17 <u>Debt</u>**. On or prior to the Closing, Red Cat shall have eliminated any and all Indebtedness, relating to the Target Companies and all Liens related to the assets of the Target Companies shall have been released prior to the Closing, except for Permitted Liens.

**Section 8.18 <u>Assignment of Intellectual Property</u>**. On or prior to the Closing, Red Cat shall have taken all action to assign or license the trademarks and other Intellectual Property on Rotor Riot and Fat Shark from Red Cat, UAV Patent Corp., or any other Red Cat Subsidiary to Unusual at the Closing (the "**IP Assignments**").

**Section 8.19 <u>Lock-Up Agreements</u>**. If requested by the underwriters in connection with the Offering, Red Cat shall enter into a lock-up agreement for a maximum of 180 days, provided, however, that on and following 90 days after the Closing, in the event that the trading price on the principal exchange for Unusual Common Stock equals or exceeds 150% of the Offering price, Red Cat (and its successors and assigns) shall be permitted to offer and sell up to 25% of the 30 day average daily trading volume per day for Unusual Common Stock underlying the Unusual Preferred Stock. Unusual' s officers, directors and 5% stockholders shall enter into a lock-up agreement with Red Cat for 180 days following the Offering and if requested by the underwriters in connection with the Offering, Unusual shall enter into a lock-up agreement with such underwriters if requested by the underwriters in connection with the Offering(the "**Lock-Up Agreements**").

**Section 8.20 <u>Registration Rights Agreement</u>**. At the Closing, Unusual and Red Cat shall execute and deliver a Registration Rights Agreement, which shall be substantially in form attached hereto on <u>Exhibit A</u> (the "**Registration Rights Agreement**").

**Section 8.21 <u>Escrow Agreement</u>**. At the Closing, Red Cat, Unusual, the Principal Stockholder and the Escrow Agent shall execute and deliver the Escrow Agreement on terms and conditions reasonably acceptable to the Parties.

**Section 8.22 <u>Notice of Developments</u>**. During the period from the date of this Agreement to the Closing Date, each Party will give prompt written notice after discovery thereof to the other Parties of any material adverse development causing a breach of any of such Party's representations, warranties and covenants set forth herein.

**Section 8.23 <u>Delivery of Financial Statements.</u>** Each Party will prepare and deliver to the other Parties audited financial statements and reviewed any unaudited financial statement for any interim period, in each instance that will be reasonably requested by the other Party prior to or following Closing, including all material respect required to be included in the Registration Statement or the Proxy.

**Section 8.24 <u>Non-Competition Agreement.</u>** Red Cat and Unusual shall enter into a Non-Competition Agreement which shall be in form and substance mutually acceptable to the Parties.

**ARTICLE IX<br> <u>TAX MATTERS</u>**

**Section 9.01 Tax Covenants.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Without the prior written consent of Unusual, Red Cat (and, prior to the Closing, the Target Companies, their respective Affiliates and its and their respective Representatives) shall not, to the extent it may affect, or relate to, the Target Companies, make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Unusual or the Target Companies in respect of any Post-Closing Tax Period. Red Cat agrees that Unusual is to have no liability for any Tax resulting from any action of Red Cat, the Target Companies, their respective Affiliates or any of its or their respective Representatives, and agrees to indemnify and hold harmless Unusual (and, after the Closing Date, the Target Companies) against any such Tax or reduction of any Tax asset.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the Transaction Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by Red Cat when due. Red Cat shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Unusual shall cooperate with respect thereto as necessary).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Unusual shall prepare, or cause to be prepared, all Tax Returns required to be filed by the Target Companies after the Closing Date with respect to a Pre-Closing Tax Period. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or any accounting method and shall be submitted by Unusual to Red Cat (together with schedules, statements and, to the extent requested by Red Cat, supporting documentation) at least 45 days prior to the due date (including extensions) of such Tax Return. If Red Cat objects to any item on any such Tax Return, it shall, within 10 days after delivery of such Tax Return, notify Unusual in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection shall be duly delivered, Unusual and Red Cat shall negotiate in good faith and use their reasonable best efforts to resolve such items. If Unusual and Red Cat are unable to reach such agreement within 10 days after receipt by Unusual of such notice, the disputed items shall be resolved by the Independent Accounting Firm and any determination by the Independent Accounting Firm shall be final. The Independent Accounting Firm shall resolve any disputed items within 20 days of having the item referred to it pursuant to such procedures as it may require. If the Independent Accounting Firm is unable to resolve any disputed items before the due date for such Tax Return, the Tax Return shall be filed as prepared by Unusual and then amended to reflect the Independent Accounting Firm's resolution. The costs, fees and expenses of the Independent Accounting Firm shall be borne equally by Unusual and Red Cat. The preparation and filing of any Tax Return of the Target Companies that does not relate to a Pre-Closing Tax Period shall be exclusively within the control of Unusual.

**Section 9.02 Termination of Existing Tax Sharing Agreements.** Any and all existing Tax sharing agreements (whether written or not) binding upon the Target Companies shall be terminated as of the Closing Date. After such date none of the Target Companies, Red Cat nor any of Red Cat's or the Target Companies' Affiliates and their respective Representatives shall have any further rights or liabilities thereunder.

**Section 9.03 Tax Indemnification.** Except to the extent treated as a liability in the calculation of Final Working Capital, Red Cat and the Principal Stockholder shall jointly and severally indemnify the Target Companies, Unusual, and each Unusual Indemnitee and hold them harmless from and against: (a) any Indemnified Losses attributable to any breach of or inaccuracy in any representation or warranty made in Section 5.21; (b) any Indemnified Losses attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in this Article IX; (c) all Taxes of the Target Companies or relating to the business of the Target Companies for all Pre-Closing Tax Periods ("**Pre-Closing Taxes**"); (d) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Target Companies (or any predecessor of the Target Companies) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; and (e) any and all Taxes of any person imposed on the Target Companies arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring before the Closing Date. In each of the above cases, together with any out-of-pocket fees and expenses (including attorneys' and accountants' fees) incurred in connection therewith, Red Cat shall reimburse Unusual for any Taxes of the Target Companies that are the responsibility of Red Cat pursuant to this Section 9.03 within [10] business days after payment of such Taxes by Unusual or the Target Companies.

**Section 9.04 Straddle Period.** In the case of Taxes that are payable with respect to a taxable period that begins before and ends after the Closing Date (each such period, a "**Straddle Period**"), the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this Agreement shall be:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital or net worth, (ii) imposed in connection with the sale, transfer or assignment of property, or (iii) required to be withheld, deemed equal to the amount which would be payable if the taxable year ended with the Closing Date; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) in the case of other Taxes, deemed to be the amount of such Taxes for the entire period multiplied by a fraction the numerator of which is the number of days in the period ending on the Closing Date and the denominator of which is the number of days in the entire period.

**Section 9.05 Intentionally Omitted.**

**Section 9.06 Intentionally Omitted.**

**Section 9.07 Contests.** Unusual agrees to give written notice to Red Cat of the receipt of any written notice by the Acquisition, Unusual or any of Unusual's Affiliates which involves the assertion of any claim, or the commencement of any Legal Proceeding, in respect of which an indemnity may be sought by any Unusual Indemnitee pursuant to this Article IX (a "**Tax Claim**"); <u>provided</u>, that failure to comply with this provision shall not affect Unusual's right to indemnification hereunder. Unusual shall control the contest or resolution of any Tax Claim; <u>provided</u>, <u>however</u>, that Unusual shall obtain the prior written consent of Red Cat (which consent shall not be unreasonably withheld, conditioned or delayed) before entering into any settlement of a claim or ceasing to defend such Tax Claim; and, <u>provided</u>, <u>further</u>, that Red Cat shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose, the fees and expenses of which separate counsel shall be borne solely by Red Cat.

**Section 9.08 Cooperation and Exchange of Information.** Red Cat and Unusual shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to this Article IX or in connection with any audit or other proceeding in respect of Taxes of the Target Companies. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by tax authorities. Each of Red Cat and Unusual shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Target Companies for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Target Companies for any taxable period beginning before the Closing Date, Red Cat or Unusual (as the case may be) shall provide the other party with reasonable written notice and offer the other party the opportunity to take custody of such materials.

**Section 9.09 Tax Treatment of Indemnification Payments.** Any indemnification payments pursuant to this Article IX shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

**Section 9.10** **<u>Payments to Unusual</u>.** Any amounts payable to Unusual pursuant to this Article IX shall be satisfied from Red Cat and the Principal Stockholder, jointly and severally.

**Section 9.11 Survival.** Notwithstanding anything in this Agreement to the contrary, the provisions of Section 5.21 and this Article IX shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 90 days. If, at any time prior to the expiration of the limitation period contained in this Section 9.11 including any applicable statute of limitations, any Unusual Indemnitee delivers to the Red Cat a written notice asserting in good faith a claim for recovery under this Article IX), then the claim asserted in such notice shall survive such expiration time until such time as such claim is fully and finally resolved including the expiration of any applicable time to appeal.

**Section 9.12 Overlap.** To the extent that any obligation or responsibility pursuant to Article VII may overlap with an obligation or responsibility pursuant to this Article IX, the provisions of this Article IX shall govern.

**ARTICLE X<br> <u>CLOSING CONDITIONS</u>**

**Section 10.01 <u>Conditions to Each Party's Obligation to Effect the Purchase and Sale</u>**. The respective obligations of each Party to this Agreement to effect the Purchase and Sale is subject to the satisfaction or waiver (where permissible pursuant to applicable Law) on or prior to the Closing of each of the following conditions (collectively, the "**Closing Conditions**"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Red Cat Stockholder Approval</u>. The sale of the Target Companies shall have been duly approved by the Requisite Red Cat Vote.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Offering</u>. The SEC shall have declared the S-1 effective and the Offering shall have been consummated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Nasdaq Listing</u>. Unusual's Nasdaq Listing Application shall have been approved and trading shall commence simultaneously with the consummation of the Offering and the Closing of the Purchase and Sale.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Employment and Non-Competition Agreements</u>. Brandon Torres Declet and Unusual shall have entered into an Employment Agreement (with a customary non-compete provision that may not be amended or waived without the reasonable consent of Red Cat) in form and substance reasonably acceptable to Unusual and Brandon Torres Declet and Unusual and the Target Companies shall have entered into a Non-Competition Agreement with Red Cat referenced in Section 11.15 of this Agreement in form and substance mutually acceptable to the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Unusual and Red Cat shall have executed and delivered a Demand Registration Rights Agreement for Unusual Common Stock issuable upon conversion of the Unusual Preferred Stock, which shall be in form and substance mutually acceptable to the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The Principal Stockholder and Unusual and the Escrow Agent shall have executed and delivered the Escrow Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) Unusual shall have entered into an Engagement Letter and Underwriting Agreement with Revere Securities LLC in form and substance satisfactory to Red Cat.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Lockup Agreements with officers, directors and 5% owners of Unusual in form and substance acceptable to Red Cat shall have been executed and delivered by the applicable parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Unusual and Red Cat shall execute and deliver a transition services agreement in form and substance satisfactory to Red Cat and Unusual (the "**Transition Services Agreement**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Consents</u>. Unusual, Red Cat and each Target Company shall have obtained all authorizations, waivers, consents and approvals of, and made all filings, applications and notices with, Persons which are necessary or advisable to consummate the transactions contemplated by this Agreement, each of which shall have been obtained without the imposition of any materially adverse term or condition.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>No Injunctions, Restraints, or Illegality</u>. No Governmental Authority shall have enacted, issued, promulgated, enforced, or entered any Laws or Orders, whether temporary, preliminary, or permanent, that make illegal, enjoin, or otherwise prohibit consummation of the Purchase and Sale, or the other transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Disclosure Schedules</u>. Each Party shall deliver updated Disclosure Schedules necessary to make their respective representations and warranties true and correct as of the Closing Date.

**Section 10.02 <u>Conditions to Obligations of Unusual</u>**. The obligations of Unusual to effect the Purchase and Sale are also subject to the satisfaction or waiver (where permissible pursuant to applicable Law) by Unusual on or prior to the Closing of the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Representations and Warranties True and Correct</u>. The representations and warranties of the Parties (other than Unusual set forth in Article III of this Agreement) shall be true and correct in all respects (without giving effect to any limitation indicated by the words "in all material respects," "in any material respect," "material," or "materially") as of the Effective Date and as of the Closing Date, as if made on and as of such date (except those representations and warranties that address matters only as of a particular date, which shall be true and correct in all respects as of that date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on such Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Performance of Covenants</u>. Red Cat, t and the Principal Stockholder shall have performed in all material respects all obligations and complied in all material respects with the agreements and covenants, in this Agreement required to be performed by or complied with by it at or prior to the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>No Material Adverse Effect</u>. There shall not have occurred any Material Adverse Effect with respect to Red Cat or Target Company, the impact of which the Parties have not been able to resolve to the satisfaction of the Parties, acting in good faith and in a commercially reasonable manner.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Target Company's Certificate</u>. Each Target Company shall have delivered to Unusual a certificate executed by an authorized Representative of such Target Company, on behalf of such Target Company and of Red Cat, dated the Closing Date, certifying in such detail as Unusual may reasonably request, that the conditions specified in this Section 10.02 have been fulfilled.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>No Litigation</u>. Legal proceeding shall be pending or threatened by or before any Governmental Authority, no law shall have been enacted after the date of this Agreement, and no judicial or administrative decision shall have been rendered; in each case, which enjoins, prohibits or materially restricts, or seeks to enjoin, prohibit or materially restrict, the consummation of the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Delivery of Closing Trial Balance</u>. Red Cat shall have delivered to Unusual the Closing Trial Balance, which shall not reflect any Indebtedness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Delivery of the Target Companies' Capital Stock</u>. Red Cat shall have delivered to Unusual certificates representing the Target Companies' Capital Stock with stock powers endorsed in blank, free and clear of any Liens, which deliveries and maybe in book entry.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) **Intentionally Omitted**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>IP Assignment</u>. Red Cat shall have executed and delivered to Unusual the IP Assignment, in a form and substance reasonably acceptable to Unusual or taken steps to deliver promptly following closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Escrow Agreement</u>. The Principal Stockholder and the Escrow Agent shall have executed and delivered to Unusual the Escrow Agreement, and the Escrow Agent shall have received the Escrow Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Lock-Up Agreements</u>. Red Cat shall have executed and delivered to Unusual the Lock-Up Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>Employment Agreements; Waivers of Severance</u>. The Persons set forth on **<u>Schedule 10.02</u>** shall have entered into agreements with Unusual or the applicable Target Company in form and substance satisfactory to Unusual providing for the continued services for the applicable Target Company, for protection from disclosure of confidential information, protection of Intellectual Property and trade secrets, compliance with Law, and non-competition for a minimum term of 12 months for such non-competition with Red Cat substantially on the terms acceptable to Red Cat. The Persons listed on **<u>Schedule 10.02(l)</u>** have waived the payments of any severance arising solely from a change of control of the Target Companies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Officers Certificate</u>. Unusual will have received a certificate signed by the Chief Executive Officer or Chief Financial Officer of Red Cat certifying as to the matters set forth in Section 2.02 and Section 10.02 hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <u>Balance Sheet</u>. Red Cat shall have delivered an unaudited balance sheet of the Targets for the 3 and 6 month periods ended October 31, 2022 and there shall have been no Material Adverse Effect on the Targets reflected on such balance sheets.

**Section 10.03 <u>Conditions to Obligation of Red Cat, the Target Companies and the Principal Stockholder</u>**. The obligations of Red Cat and the Principal Stockholder to effect the Purchase and Sale and the transaction contemplated by it is also subject to the satisfaction or waiver by Red Cat on or prior to the Closing of the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Representations and Warranties True</u>. The representations and warranties of contained in this Agreement or in any certificate or other document delivered pursuant to this Agreement, shall be true and correct in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true and correct to the extent of such materiality), as of the Closing Date with the same force and effect as though made on and as of such date and shall have been true as of the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Performance of Covenants</u>. Unusual shall have performed in all material respects all obligations, and complied in all material respects with the agreements and covenants, in this Agreement required to be performed by or complied with it at or prior to the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>No Material Adverse Effect</u>. Since the Effective Date, there shall not have been any Unusual Material Adverse Effect with respect to Unusual or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Unusual.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>No Litigation</u>. No Legal Proceedings shall be pending or threatened by or before any Governmental Authority; no Laws shall have been enacted after the date of this Agreement, and no judicial or administrative decision shall have been rendered; in each case, which enjoins, prohibits or materially restricts, or seeks to enjoin, prohibit or materially restrict, the consummation of the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Officers Certificate</u>. Red Cat will have received a certificate, signed by the Chief Executive Officer and Chief Financial Officer of Unusual, certifying in such detail as Red Cat may reasonable request, that the conditions specified in this Section 10.03 have been fulfilled.

**Section 10.04 <u>Frustration of Closing Conditions</u>**. Neither Red Cat, the Target Companies, the Principal Stockholder nor Unusual may rely, as a basis for not consummating the Purchase and Sale or the other transactions contemplated by this Agreement, on the failure of any condition set forth in Sections 10.01, 10.02, or 10.03, as the case may be, to be satisfied if such failure was caused by such Party's breach in any material respect of any provision of this Agreement.

**ARTICLE XI<br> <u>TERMINATION, AMENDMENT, AND WAIVER</u>**

**Section 11.01 <u>Termination by Mutual Consent</u>**. This Agreement may be terminated at any time prior to the Closing (whether before or after the receipt of the Requisite Red Cat Vote) by the mutual written consent of Unusual and Red Cat.

**Section 11.02 <u>Termination by Either Red Cat or Unusual</u>**. This Agreement may be terminated by either Red Cat or Unusual at any time prior to the Closing (whether before or after the receipt of the Requisite Red Cat Vote):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) if the Purchase and Sale has not been consummated on or before March 30, 2023 (the "**End Date**"); <u>provided</u>, <u>however</u>*,* that the right to terminate this Agreement pursuant to this Section 11.02 shall not be available to any Party whose breach of any representation, warranty, covenant, or agreement set forth in this Agreement has been the principal cause of, or that resulted in, the failure of the Purchase and Sale to be consummated on or before the End Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) if any Governmental Authority shall have enacted, issued, promulgated, enforced, or entered any Law or Order making illegal, or permanently enjoining, the consummation of the Purchase and Sale, or the other transactions contemplated by this Agreement, and such Law or Order shall have become final and non-appealable, or Section 11.02(b);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) if the Purchase and Sale has been submitted to the stockholders of Red Cat for approval at a duly convened Red Cat Stockholders Meeting and the Requisite Red Cat Vote shall not have been obtained at such meeting (unless such Red Cat Stockholders Meeting has been adjourned or postponed, in which case at the final adjournment or postponement thereof); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) if any Closing Condition set forth in Section 10.01 shall not be satisfied by Unusual.

**Section 11.03 <u>Termination by Red Cat</u>**. This Agreement may be terminated by the Red Cat at any time prior to the Closing:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) if prior to the receipt of the Requisite Red Cat Vote at the Red Cat Stockholders Meeting or any adjournment thereof, the disinterested Red Cat stockholders fail to approve this Agreement by a majority vote or the Red Cat Board shall have accepted a Superior Proposal and entered into an Acquisition Agreement with a third party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) if Unusual shall have breached or failed to perform in any material respect any of its covenants and agreements set forth in Article VIII; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) if there shall have been a breach of any representation, warranty, covenant, or agreement on the part of Unusual set forth in this Agreement such that the conditions to the Closing of the Purchase and Sale set forth in Section 10.03(a) or Section 10.03(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; <u>provided</u>*,* <u>that</u> Red Cat shall have given Unusual at least 30 days written notice prior to such termination stating Red Cat's intention to terminate this Agreement pursuant to this Section 10.03(c); <u>provided further</u>, that Red Cat shall not have the right to terminate this Agreement pursuant to this Section 10.03 if Red Cat is then in material breach of any representation, warranty, covenant, or obligation hereunder that would cause any condition set forth in Sections 10.02(a) or 10.02(b) not to be satisfied.

**Section 11.04 <u>Termination by Unusual</u>**. This Agreement may be terminated by Unusual at any time prior to the Closing:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) if prior to the receipt of the Requisite Red Cat Vote at the Red Cat Stockholders Meeting, or any adjournment thereof the disinterested Red Cat stockholders fail to approve this Agreement by a majority vote or the Red Cat Board shall have accepted a Superior Proposal and entered into an Acquisition Agreement with a third party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) if Red Cat shall have breached or failed to perform in any material respect any of its covenants and agreements set forth in Article VIII; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) if there shall have been a breach of any representation, warranty, covenant, or agreement on the part of Red Cat, the Target Companies or the Principal Stockholder set forth in this Agreement such that the conditions to the Closing of the Purchase and Sale set forth in Section 10.02(a) or 10.02(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; <u>provided</u>, <u>that</u> Unusual shall have given Red Cat, the Target Companies and the Principal Stockholder, as applicable, at least 30 days written notice prior to such termination stating Unusual's intention to terminate this Agreement pursuant to this Section 10.04; <u>provided further</u>, that Unusual shall not have the right to terminate this Agreement pursuant to this Section 10.04 if Unusual is then in material breach of any representation, warranty, covenant, or obligation hereunder that would cause any condition set forth in Section 10.02(a) or Section 10.02(b) not to be satisfied.

**Section 11.05 <u>Notice of Termination; Effect of Termination</u>**. The Party desiring to terminate this Agreement pursuant to this Article X (other than pursuant to Section 10.01) shall deliver written notice of such termination to each other Party hereto specifying with particularity the reason for such termination, and any such termination in accordance with this Section 10.05 shall be effective immediately upon delivery of such written notice to the other Party or upon expiration of the 30-day notice, as the case may be. If this Agreement is terminated pursuant to this Article X, it will become void and of no further force and effect, with no Liability on the part of any Party to this Agreement (or any stockholder, director, officer, employee, agent, or Representative of such Party) to any other Party hereto, except: (a) with respect to Section 8.05(b), this Section 11.05, Section 11.06, Section 11.07 and Article XII (and any related definitions contained in any such Sections or Article), which shall remain in full force and effect; and (b) with respect to any Liabilities incurred or suffered by a Party, to the extent such Liabilities were the result of fraud or the breach by another Party of any of its representations, warranties, covenants, or other agreements set forth in this Agreement.

**Section 11.06 <u>Amendment</u>**. At any time prior to the Closing, this Agreement may be amended or supplemented in any and all respects, whether before or after receipt of the Requisite Red Cat Vote, by written agreement signed by each of the Parties hereto; <u>provided</u>, <u>however</u>, that: (a) following the receipt of the Requisite Red Cat Vote, there shall be no amendment or supplement to the provisions of this Agreement which by Law would require further approval by the holders of Red Cat capital stock without such approval.

**Section 11.07 <u>Termination Fee</u>**. Notwithstanding anything to the contrary herein, if Red Cat accepts an Acquisition Proposal relating to a third party obtaining Control of the Target Companies collectively, an "**Acquisition Proposal**"), then Red Cat upon closing the Acquisition Proposal shall pay Unusual a non-refundable fee in the amount of $500,000 in cash or shares of Red Cat common stock if elected by Red Cat, at the highest VWAP prior to the date of issuance payable within 5 days. For purposes of the immediately preceding sentence, the term "obtaining control" or "acquiring control" (collectively "**Control**") shall mean one or more Persons obtaining or acquiring more than 50.1% of the voting power of the Target Companies in the case of Red Cat. In no event shall a Termination Fee by payable if the Purchase and Sale is not consummated by the End Date (unless such End Date is extended by the written agreement of the Parties). Notwithstanding anything to the contrary herein, if Unusual: (a) terminates this Agreement unilaterally without cause (it being understood that the failure to consummate the Offering or the failure to obtain a listing with Nasdaq shall not be deemed to be a termination for cause); and (b) consummates a public offering within 12 months of termination of this Agreement, Unusual shall pay Red cat a non-refundable fee in the amount of $500,000 in cash or shares of Unusual if Unusual has a class of its securities listed for trading on a national securities exchange if elected by Unusual at the highest VWAP prior to the date of issuance, payable within 5 days after the consummation of any such alternative transaction.

**Section 11.08 <u>Extension; Waiver</u>**. At any time prior to the Closing, Red Cat, on the one hand, or Unusual, on the other hand, may: (a) extend the time for the performance of any of the obligations of the other Party(ies); (b) waive any inaccuracies in the representations and warranties of the other Party(ies) contained in this Agreement or in any document delivered under this Agreement; or (c) unless prohibited by applicable Law, waive compliance with any of the covenants, agreements, or conditions contained in this Agreement. Any agreement on the part of a Party to any extension or waiver will be valid only if set forth in an instrument in writing signed by such Party. The failure of any Party to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights.

**ARTICLE XII<br> <u>MISCELLANEOUS</u>**

**Section 12.01 <u>Disclosure Schedules</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The inclusion of any information in the Disclosure Schedules (the "**Schedules**") shall not be deemed an admission or acknowledgment that such information is required to be listed in the Schedules or that such items are material. The Schedules are arranged in Sections corresponding to the Sections contained in this Agreement merely for convenience, and the disclosure of an item in one Section of the Schedules as an exception to a particular covenant, agreement, representation or warranty shall be deemed adequately disclosed as an exception with respect to all other covenants, agreements, representations and warranties to the extent that the relevance of such item to such other covenants, agreements, representations or warranties is reasonably apparent on its face without independent knowledge of the reader, notwithstanding the presence or absence of an appropriate cross-reference thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Notwithstanding anything to the contrary herein, from time-to-time prior to the Closing, each Party may at its option supplement or amend and deliver updates to any Schedule that has been rendered inaccurate or incomplete since the Effective Date solely as a result of matters or events first occurring after the Effective Date as necessary to complete or correct any information in such Schedules. The updating Party(ies) shall provide the other Party(ies) with any such supplement or amendment by written notice (each, a "**Schedule Update**"). If the matters identified in a Schedule Update, individually or collectively with matters identified in any other Schedule Update, constitute a Material Adverse Effect on such Party, then the other Party(ies) may at any time within three Business Days following their receipt of any such Schedule Update, elect to terminate this Agreement pursuant to Article X. If the receiving Party does not so timely elect (subject to the preceding sentence with respect to the cumulative effect of matters identified in all Schedule Updates, whether prior to or after the Schedule Update in question), the Schedule Update shall be deemed to have amended the appropriate Schedule or Schedules as of the Effective Date, and shall be deemed to have qualified the applicable representations and warranties contained in this Agreement as of the Effective Date, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the existence of such matter.

**Section 12.02 <u>Interpretation; Construction</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Recitals, each Exhibit and the Schedules are hereby incorporated into and made a part of this Agreement by reference. The headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Unless the context otherwise requires, references herein: (i) to "Article(s)", "Section(s)", "Exhibit(s)" and "Schedules" refer to the corresponding Article(s), Section(s), Exhibit(s) and Schedule(s) of or to this Agreement; (ii) to "Schedule(s)" refer to the corresponding Schedule(s) of the Disclosure Schedules; (iii) to an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time-to-time to the extent permitted by the provisions thereof; and (iv) to a statute means such statute as amended from time-to-time and includes any successor legislation thereto and any regulations promulgated thereunder. Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation," and the word "or" is not exclusive. The word "extent" in the phrase "to the extent" means the degree to which a subject or other thing extends, and does not simply mean "if." A reference in this Agreement to $ or dollars is to U.S. dollars. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words "hereof," "herein," "hereby," "hereto," and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to "this Agreement" shall include the Schedules.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

**Section 12.03 <u>Survival</u>**. The representations and warranties contained in this Agreement or in any instrument delivered under this Agreement will survive the Closing and expire at the various time referenced in Section 7.01. This Section 12.03 does not limit any covenant or agreement of the Parties contained in this Agreement which, by its terms, contemplates performance after the Closing.

**Section 12.04 <u>Governing Law</u>**. This Agreement and all Legal Proceedings (whether based on contract, tort, or statute) arising out of, relating to, or in connection with this Agreement or the actions of any of the Parties hereto in the negotiation, administration, performance, or enforcement hereof, shall be governed by and construed in accordance with the internal Laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of New York.

**Section 12.05 <u>Submission to Jurisdiction</u>**. Each of the Parties hereto irrevocably agrees that any Legal Proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by any other Party hereto or its successors or assigns shall be brought and determined exclusively in the federal or state court located in New York County, New York. Each of the Parties hereto hereby irrevocably submits with regard to any such Legal Proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any Legal Proceeding relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the Parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim, or otherwise, in any Legal Proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder: (a) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason; (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the fullest extent permitted by the applicable Law, any claim that (i) the suit, action, or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action, or proceeding is improper, or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

**Section 12.06 <u>Waiver of Jury Trial</u>**. **Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated by this Agreement. Each Party to this Agreement certifies and acknowledges that: (a) no Representative of any other Party has represented, expressly or otherwise, that such other Party would not seek to enforce the foregoing waiver in the event of a legal action; (b) such Party has considered the implications of this waiver; (c) such Party makes this waiver voluntarily; and (d) such Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this section 11.06.**

**Section 12.07 <u>Notices</u>**. All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given upon the earlier of actual receipt or (a) when delivered by hand providing proof of delivery; (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by email if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient. Such communications must be sent to the respective Parties at the following addresses (or to such other Persons or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12.07):

---

| | |
|:---|:---|
| If to Unusual: | Unusual Machines, Inc.<br> 151 Calle de San Francisco<br> STE 200 PMB 2106<br> San Juan, PR 00901-1607<br> Attention: Brandon Torres Declet, CEO<br> Email: brandon@unusualmachines.com<br>|
| with a copy (which will not constitute notice to Unusual) to: | Nason, Yeager, Gerson, Harris & Fumero, P.A.<br> 3001 PGA Boulevard, Suite 305<br> Palm Beach Gardens, FL 33410<br> Attention: Michael D. Harris<br> Email: Mharris@nasonyeager.com<br>|
| If to Red Cat: | Red Cat Holdings, Inc.<br> 15 Ave Munoz Rivera, Suite 2200<br> San Juan, Puerto Rico 00901<br> Attention: Joe Freedman, Co-Chair of the Special Committee<br> Email: Jf@redcat.red<br>|
| with a copy (which will not constitute notice to Red Cat) to:<br>| Law Office of Harvey Kesner<br> 500 Fifth Avenue<br> New York, NY 10036<br> 646-678-2543<br> Harvey@hkesnerlaw.com<br> Attention: Harvey Kesner, Esq. |
| If to the Principal Stockholder<br>with a copy (which will not constitute notice to Principal Stockholder) to: | Jeffrey Thompson<br> Email: jeff@redcat.red |

---

**Section 12.08 <u>Entire Agreement</u>**. This Agreement (including all Exhibit(s) and Schedules referred to herein), the Escrow Agreement and the Confidentiality Agreement constitute the entire agreement among the Parties with respect to the subject matter of this Agreement and supersede all other prior agreements and understandings, both written and oral, among the Parties to this Agreement with respect to the subject matter of this Agreement. In the event of any inconsistency between the statements in the body of this Agreement (other than an exception expressly set forth as such in the Schedules) or the Confidentiality Agreement, the statements in the body of this Agreement will control.

**Section 12.09 <u>No Third-Party Beneficiaries</u>**. Except as provided in Section 8.10 hereof (which shall be to the benefit of the Persons referred to in such Section), this Agreement is for the sole benefit of the Parties hereto and their permitted assigns and respective successors and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.

**Section 12.10 <u>Severability</u>**. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

**Section 12.11 <u>Assignment</u>**. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Neither Red Cat, the Target Companies nor the Principal Stockholder, on the one hand, nor Unusual on the other hand, may assign its rights or obligations hereunder without the prior written consent of the other Party(ies). No assignment shall relieve the assigning Party of any of its obligations hereunder.

**Section 12.12 <u>Remedies Cumulative</u>**. Except as otherwise provided in this Agreement, any and all remedies expressly conferred upon a Party to this Agreement will be cumulative with, and not exclusive of, any other remedy contained in this Agreement, at Law, or in equity. The exercise by a Party to this Agreement of any one remedy will not preclude the exercise by it of any other remedy.

**Section 12.13 <u>Specific Performance</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at Law or in equity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each Party further agrees that: (i) no such Party will oppose the granting of an injunction or specific performance as provided herein on the basis that the other Party has an adequate remedy at law has not been irreparably harmed or that an award of specific performance is not an appropriate remedy for any reason at law or equity; (ii) no such Party will oppose the specific performance of the terms and provisions of this Agreement; and (iii) no other Party or any other Person shall be required to obtain, furnish, or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Agreement, and each Party irrevocably waives any right it may have to require the obtaining, furnishing, or posting of any such bond or similar instrument.

**Section 12.14 <u>Counterparts; Effectiveness</u>**. This Agreement may be executed in any number of counterparts, all of which will be one and the same agreement. This Agreement will become effective when each Party to this Agreement will have received counterparts signed by all of the other Parties.

**Section 12.15 <u>Other Agreements</u>**. For a period commencing with the Closing Date continuing for a period of 5 years, Unusual and the Target Companies shall execute and deliver a Non-Competition Agreement with Red Cat for 5 years in form and substance mutually acceptable to the Parties pursuant to which Unusual and the Target Companies shall agree to restrict its activities and shall not design, manufacture, market, import, build or sell any Group 1 or Group 2 UAV/drone to customers which are Governmental Authorities and/or any third-party intermediary such as contractors or Red Cat's to customers which are Governmental Authorities, without the prior written consent of Red Cat, and shall exclusively refer all such opportunities to Red Cat. The Non-Competition Agreement shall also provide that Unusual shall be entitled to usual and customary compensation for all sales by Red Cat for such referrals.

**Section 12.16 <u>No Sandbagging</u>**. No Party(ies) shall be liable to the other Party(ies) for any losses or damages based upon or arising out of any inaccuracy in or breach of any of the representations or warranties of such Party(ies) contained in this Agreement if the other Party(ies) had Knowledge of such inaccuracy or breach prior to the Closing.

**[signature page follows]**

**IN WITNESS WHEREOF**, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

---

| |
|:---|
| **UNUSUAL MACHINES, INC.**<br> a Puerto Rico corporation<br>By: _________________________<br> Name: Brandon Torres Declet,<br> Title: Chief Executive Officer<br>|
| **RED CAT HOLDINGS, INC.**<br> a Nevada corporation<br>By: __________________________<br> Name: Joe Freedman<br> Title: Lead Director<br>|
| **PRINCIPAL STOCKHOLDER:**<br>_______________________________<br> **Jeffrey Thompson**  |

---

Signature Page to Share Purchase Agreement

**<u>Exhibit A</u>**

**<u>Form of Registration Rights Agreement</u>**

**<u>(See attached)</u>**

Exhibit A-1

## Exhibit 10.2

**Exhibit 10.2**

**<u>REGISTRATION RIGHTS AGREEMENT</u>**

THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of the ____ day of _______, 2023 by and among Unusual Machines, Inc., a Puerto Rico corporation (the "Company"), and Red Cat Holdings, Inc., a Nevada corporation (and its successors and assigns) (the "Investor").

WHEREAS, the Company and Investor entered into a Securities Purchase Agreement (the "Purchase Agreement") dated as of November 21, 2021 for the purchase and sale of Rotor Riot, LLC, an Ohio limited liability company ("Rotor Riot") and Fat Shark Holdings, Ltd., a Nevada corporation ("Fat Shark"); and

WHEREAS, pursuant to the Purchase Agreement, the Company shall provide certain registration rights to the Investor.

Now, therefore, in consideration of the mutual promises and the covenants as set forth herein, the parties hereto hereby agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. **<u>Definitions</u>**. Unless the context otherwise requires, the terms defined in this Section 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined.

"<u>Agreement</u>" means this Registration Rights Agreement, as the same may be amended, modified or supplemented in accordance with the terms hereof.

"<u>Board</u>" means the Board of Directors of the Company.

"<u>Common Stock</u>" means the Company's authorized common stock, par value $0.01 per share, as constituted on the date of this Agreement, any stock into which such Common Stock may thereafter be changed and any stock of the Company of any other class, which is not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption, issued to the holders of shares of such Common Stock upon any re-classification thereof.

"<u>Commission</u>" means the Securities and Exchange Commission or any other governmental body at the time administering the Securities Act.

"<u>Company</u>" has the meaning assigned to it in the introductory paragraph of this Agreement.

"<u>Company Securities</u>" has the meaning any securities proposed to be sold by the Company for its own account in a registered public offering.

"<u>Exchange Act</u>" means the Securities Exchange Act of 1934 (or successor statute).

"<u>Excluded Forms</u>" means registration statements under the Securities Act, on Forms S-4 and S-8, or any successors thereto.

"<u>Investor</u>" has the meaning assigned to it in the introductory paragraph of this Agreement.

"<u>Other Shares</u>" has the meaning assigned to it in Section 4(f) of this Agreement.

"<u>Person</u>" includes any natural person, corporation, trust, association, company, partnership, joint venture, limited liability company and other entity and any government, governmental agency, instrumentality or political subdivision.

"<u>Purchase Agreement"</u> has the meaning assigned to it in the second Whereas clause.

"<u>Proposed Registration</u>" has the meaning set forth in Section 2.2(a).

The terms "<u>register</u>" "<u>registered</u>" and "<u>registration</u>" refer to a registration effected by preparing and filing a registration statement on other than any of the Excluded Forms in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

"<u>Registrable Securities</u>" means the Common Stock issuable: (A) upon conversion of Senior Secured Convertible Note(s) issued in connection with the Purchase Price as defined in the Purchase Agreement or any adjustments, and (B) upon conversion of Series A Convertible Preferred Stock under the Purchase Agreement, and any securities of the Company issued with respect to such Common Stock by way of a stock dividend or stock split or in connection with a combination, recapitalization, share exchange, consolidation or other reorganization of the Company.

"<u>Selling Expenses</u>" means all selling commissions or discounts, finder's fees and stock transfer taxes applicable to the Registrable Securities registered by the Investor and all fees and disbursements of counsel for the Investor.

"<u>Securities Act</u>" means the Securities Act of 1933, as amended (or successor statute).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. **<u>Required Registration</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1. **<u>Demand Registration</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Except as provided in Section 2.1(b), upon the Investor's written request that the Company effect pursuant to this Section 2 the registration of the Registrable Securities under the Securities Act (which request shall specify the number of Registrable Securities to be registered), the Company shall use its best efforts to effect the registration under the Securities Act of the Registrable Securities of the Investor which the Company has been so requested to register.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Company shall not be obligated to take any action to effect any registration requested by the Investor pursuant to Section 2.1(a) above after the Company has effected one registration pursuant to this Section 2 for all of the Registrable Securities and such registration has been declared or ordered effective and such Registration Statements continues to be effective and available to the Investor (and its successors and assigns).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Notwithstanding any other provision hereof to the contrary, a registration requested pursuant to this Section 2 shall not be deemed to have been effected (i) unless it has become effective and remains effective.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The Company shall not be obligated to effect any registration pursuant to this Section 2 within 90 days after the effective date of any underwritten public offering by the Company or of any previous registration withdrawn at the request of the Investor. The Company may postpone for up to 90 days the filing or the effectiveness of a registration statement for a registration pursuant to this Section 2 if the financial advisor and/or underwriter to the Company certifies to the Investor of the Registrable Securities that such registration would reasonably be expected to have a material adverse effect on the Company; <u>provided</u>, <u>however</u>, that in such event the Investor of Registrable Securities requesting such registration shall be entitled to withdraw such request and, if such request is withdrawn, such registration shall not count as the one permitted registration under this Section 2 and the Company shall pay all Registration Expenses in connection with such postponed or withdrawn registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 **<u>Piggyback Registration.</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each time the Company proposes for any reason to register any of its Common Stock under the Securities Act in connection with the proposed offer and sale of its Common Stock for money, either for its own account or on behalf of any other security holder ("Proposed Registration"), other than pursuant to a registration statement on Excluded Forms, the Company shall promptly give written notice of such Proposed Registration to the Investor and shall offer the Investor the right to request inclusion of its Registrable Securities, as the case may be, in the Proposed Registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Investor shall have 10 days from the receipt of such notice to deliver to the Company a written request specifying the number of Registrable Securities that the Investor intends to sell in the Proposed Registration and the Investor's intended method of disposition.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) In the event that the Proposed Registration by the Company or any selling shareholder (or shareholders), as the case may be, is, in whole or in part, an underwritten public offering, the Company shall so advise the Investor as part of the written notice given pursuant to Section 2.2(a), and any request under Section 2.2 (b) must specify that the Investor's Registrable Securities be included in the underwriting on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters under such registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Upon receipt of a written request pursuant to Section 2.2(b), the Company shall promptly use its best efforts to cause all such Registrable Securities held by the Investor to be registered under the Securities Act (and included in any related qualifications under blue sky laws), to the extent required to permit sale or disposition as set forth in the Proposed Registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) In the event that the offering is to be an underwritten offering, if the Investor proposes to distribute its Registrable Securities through such underwritten offering, then the Investor agrees to enter into an underwriting agreement with the underwriter or underwriters selected for such underwriting by the Company or any selling shareholder (or shareholders), as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 **<u>Form S-3</u>**. Whenever the Company is eligible to use Form S-3, it shall use that Form rather than Form S-1.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. **<u>Obligations of the Company</u>**. If and whenever the Company is required by the provisions hereof to effect or cause the registration of any Registrable Securities under the Securities Act as provided herein, the Company shall:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) use its best efforts to prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) use its best efforts to prepare and file with the Commission such amendments to such registration statement (including post-effective amendments) and supplements to the prospectus included therein as may be necessary to keep such registration statement effective, subject to the qualifications in Section 4(a), and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Investor set forth in such registration statement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) furnish to the Investor such number of copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as each Investor may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities owned by the Investor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) use its best efforts to make such filings under the securities or blue sky laws reasonably requested by the Investor (or New York if the Company's Common Stock is not listed on the Nasdaq Stock market or the New York Stock Exchange or NYSE American) to enable the Investor to consummate the sale in such jurisdiction of the Registrable Securities owned by the Investor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) notify the Investor at any time when a prospectus relating to their Registrable Securities is required to be delivered under the Securities Act, of the Company's becoming aware that the prospectus included in the related registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare and furnish to the Investor a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) to use its best efforts to cause Registrable Securities to be quoted on each trading market and/or in each quotation service on which the Common Stock of the Company is then quoted; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) notify the Investor of any stop order threatened or issued by the Commission and take all actions reasonably necessary to prevent the entry of such stop order or to remove it if entered.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. **<u>Other Procedures</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Subject to the remaining provisions of this Section 4(a) and the Company's general obligation to use best efforts under Section 3, the Company shall be required to maintain the effectiveness of a registration statement (under Form S-1 or Form S-3) until the earlier of (i) the sale of all Registrable Securities or (ii) forty-eight months from the effective date of the registration statement. The Company shall have no liability to the Investor for delays in the Investor being able to sell the Registrable Securities (i) as long as the Company uses its best efforts to file a registration statement, amendments to a registration statement, post-effective amendments to a registration statement or supplements to a prospectus contained in a registration statement (including any amendment or post effective amendments), (ii) where the required financial statements or auditor's consents are unavailable or (iii) where the Company would be required to disclose information at a time when it has no duty to disclose such information under the Securities Act, the Exchange Act, or the rules and regulations of the Commission. Provided, however, any suspension under clauses (ii) or (iii) shall not exceed 180 days in any 12 month period.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) In consideration of the Company's obligations under this Agreement, the Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e) herein, the Investor shall forthwith discontinue his sale of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by said Section 3(e) and, if so directed by the Company, shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in the Investor's possession of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The Company's obligation to file any registration statement or amendment including a post-effective amendment, shall be subject to each Investor, as applicable, furnishing to the Company in writing such information and documents regarding such Investor and the distribution of such Investor's Registrable Securities as may reasonably be required to be disclosed in the registration statement in question by the rules and regulations under the Securities Act or under any other applicable securities or blue sky laws of the jurisdiction referred to in Section 3(d) herein. The Company's obligations are also subject to each Investor promptly executing any representation letter concerning compliance with Regulation M under the Exchange Act (or any successor rule or regulation).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) If any such registration or comparable statement refers to the Investor by name or otherwise as a stockholder of the Company, but such reference to the Investor by name or otherwise is not required by the Securities Act or the rules thereunder, then each Investor shall have the right to require the deletion of the reference to the Investor, as may be applicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) In connection with the sale of Registrable Securities, the Investor shall deliver to each purchaser a copy of the necessary prospectus and, if applicable, prospectus supplement, within the time required by Section 5(b) of the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <u>Registration Expenses</u>. In connection with any registration of Registrable Securities pursuant to Section 2, the Company shall, whether or not any such registration shall become effective, from time to time, pay all expenses (other than Selling Expenses) incident to its performance of or compliance, including, without limitation, all registration, and filing fees, fees and expenses of compliance with securities or blue sky laws, word processing, printing and copying expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and all independent public accountants and other Persons retained by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. **<u>Indemnification</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) In the event of any registration of any shares of Common Stock under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless each Investor, from and against any losses, claims, damages or liabilities, joint or several, to which each Investor may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or any document incident to registration or qualification of any Registrable Securities pursuant to Section 3(d) herein, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, or state securities or blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under the Securities Act or such state securities or blue sky laws. If the Company fails to defend the Investor as required by Section 6(c) herein, it shall reimburse (after receipt of appropriate documentation) each Investor for any legal or any other out-of-pocket expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; <u>provided</u>, <u>however</u>, that the Company shall not be liable to an Investor in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said prospectus, or said amendment or supplement or any document incident to registration or qualification of any Registrable Securities pursuant to Section 3(d) hereof in reliance upon and in conformity with written information furnished to the Company by such Investor specifically for use in the preparation thereof or information omitted to be furnished by such Investor or (ii) any act or failure to act of such Investor including the failure of any Investor to deliver a prospectus as required by Section 5(b) of the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, each Investor shall indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6(a)) the Company, each director of the Company, each officer of the Company who signs such registration statement, the Company's attorneys and auditors and any Person who controls the Company within the meaning of the Securities Act, with respect to (i) any untrue statement or omission from such registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, if such untrue statement or omission was made solely in reliance upon and in conformity with written information furnished to the Company by such Investor specifically for use in the preparation of such registration statement, preliminary prospectus, final prospectus or amendment or supplement or (ii) from any other act or failure to act of the Investor.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in Section 6(a) or (b), such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the Indemnifying Party of the commencement of such action. The indemnifying party shall be relieved of its obligations under this Section 6(c) to the extent that the indemnified party delays in giving notice and the indemnifying party is damaged or prejudiced by the delay. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so as to assume the defense thereof, the indemnifying party shall be responsible for any legal or other expenses subsequently incurred by the indemnifying party in connection with the defense thereof, <u>provided, however</u>, that, if counsel for an indemnified party shall have reasonably concluded that there is an actual or potential conflict of interest between the indemnified and the indemnifying party the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, and such indemnifying party shall reimburse such indemnified party and any Person controlling such indemnified party for the fees and expenses of counsel retained by the indemnified party which are reasonably related to the matters covered by the indemnity agreement provided in this Section 6; <u>provided, however</u>, that in no event shall any indemnification by an Investor under this Section 6 exceed the net proceeds from the sale of Registered Securities received by the Investor. No indemnified party shall make any settlement of any claims indemnified against hereunder without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. In the event that any indemnifying party enters into any settlement without the written consent of the indemnified party the indemnifying party shall not, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff of a release of such indemnified party from all liability in respect to such claim or litigation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which under any indemnified party makes a claim for indemnification pursuant to this Section 6, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required in circumstances for which indemnification is provided under this Section 6; then, in each such case, the Company and such Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject as is appropriate to reflect the relative fault of the Company and such Investor in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, it being understood that the parties acknowledge that the overriding equitable consideration to be given effect in connection with this provision is the ability of one party or the other to correct the statement or omission (or avoid the conduct or take an act) which resulted in such losses, claims, damages or liabilities, and that it would not be just and equitable if contribution pursuant hereto were to be determined by pro-rata allocation or by any other method of allocation which does not take into consideration the foregoing equitable considerations. Notwithstanding the foregoing, (i) no such Investor shall be required to contribute any amount in excess of the net proceeds to him of all Registrable Securities sold by him pursuant to such registration statement, and (ii) no Person who is guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Notwithstanding any of the foregoing, if, in connection with an underwritten public offering of the Registrable Securities, the Company, any of the Investor and the underwriters enter into an underwriting agreement relating to such offering which contains provisions covering indemnification among the parties, then the indemnification provision of this Section 6 shall be deemed inoperative for purposes of such offering.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. **<u>Certain Limitations on Registration Rights</u>**. At any time prior to the effectiveness of any registration statement filed pursuant to this Agreement, if the Company determines to file a registration statement with the Commission for the public sale of its securities and the managing underwriter of such offering offers to purchase the Registrable Securities for its own account at the same price including underwriting discounts and applicable expenses as paid to the Company, the Investor shall either (i) elect to include their Registrable Securities being registered pursuant to this Agreement in the registration statement covering the sale of the Company's securities, or (ii) immediately cease their public sales for a period of 90 days following the effective date of the registration statement covering the sale by the Company. Additionally, no Investor may participate in the registration statement relating to the sale by the Company of its Common Stock as provided above unless such Investor enters into an underwriting agreement with the managing underwriter and completes and/or executes all questionnaires, indemnities and other reasonable documents requested by the managing underwriter. Each Investor shall be deemed to have agreed by acquisition of its Registrable Securities not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities and to use its best efforts not to effect any such public sale or distribution of any other equity security of the Company (including any short sale) or of any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such underwritten public offering) within 10 days before or 90 days after the effective date of such registration statement. In such event, the Investor shall, if requested, sign a customary market stand-off letter with the Company's managing underwriter, and to comply with applicable rules and regulations of the Commission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. **<u>Allocation of Securities Included in Registration Statement</u>**. In the case of a registration pursuant to Section 7 for the Company's account, if the Company's managing underwriter shall advise the Company and the Investor in writing that the inclusion in any registration pursuant hereto of some or all of (a) the Registrable Securities sought to be registered by the Investor and securities offered by other holders, and (b) the Company's securities sought to be registered creates a substantial risk that the proceeds or price per unit that will be derived from such registration will be reduced or that the number of securities to be registered is too large a number to be reasonably sold, (i) first, the number of Company securities sought to be registered shall be included in such registration, and (ii) next, the number of Registrable Securities offered by the Investor and securities offered by other holders shall be included in such registration to the extent permitted by the Company's managing underwriter with the number of Registrable Securities and such other securities being registered determined on a pro-rata basis based on the number of Registered Securities and securities the participating holders including the Investor desire to have registered; <u>provided, however</u>, that, if any participating Investor would be required pursuant to the provisions of this Section 7 to reduce the number of Registrable Securities that he may include in such registration, the Investor may withdraw all or any portion of its Registrable Securities from such registration and may resume selling shares under the registration statement (assuming it is effective) referred to in Section 2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. **<u>Rule 144</u>**. The Company covenants that it will file the reports required to be filed under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, in the event that the Company is not required to file such reports, it will make publicly available information as set forth in Rule 144(c)(2) promulgated under the Securities Act), and it will take such further action as the Investor may reasonably request, or to the extent required from time to time to enable the Investor to sell their Registrable Securities without registration under the Securities Act within the limitation of the exemption provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission (collectively, "Rule 144"), such actions to be at the Company's sole cost and expense, including any legal fees and costs for opinions. Upon request of any Investor, the Company will deliver to the Investor a written statement as to whether it has complied with such requirements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11. **<u>Severability</u>**. In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12. **<u>Counterparts</u>**. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13. **<u>Benefit</u>**. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14. **<u>Notices and Addresses</u>**. All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar overnight next business day delivery, or by facsimile delivery followed by overnight next business day delivery, as follows:

To the Company: Unusual Machines, Inc.

151 Calle de San Francisco, Ste. 200 PMB 2106

San Juan, PR 00901-1607

Attention: Brandon Torres-Declet, CEO

Email: brandon@unusualmachines.com

With a Copy to: Nason, Yeager, Gerson, Harris & Fumero, P.A.

3001 PGA Boulevard, Suite 305

Palm Beach Gardens, FL 33410

Attention: Michael D. Harris, Esq.

Email: Mharris@nasonyeager.com

To the Investor: Red Cat Holdings, Inc.

15 Ave Munoz Rivera, Suite 2200

San Juan, Puerto Rico 00901

Attention: Joe Freedman, Lead Director

Email: JF@redcat.red

With a Copy to: Law Office of Harvey Kesner

500 Fifth Avenue

New York, NY 10036

Attention: Harvey Kesner, Esq.

Harvey@hkesnerlaw.com

or to such other address as any of them, by notice to the other may designate from time to time. The transmission confirmation receipt from the sender's facsimile machine shall be evidence of successful facsimile delivery. Time shall be counted from the date of transmission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15. **<u>Attorneys' Fees</u>**. In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding relating to this Agreement is filed, the prevailing party shall be entitled to an award by the court of reasonable attorneys' fees, costs and expenses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16. **<u>Oral Evidence</u>**. This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17. **<u>Additional Documents</u>**. The parties hereto shall execute such additional instruments as may be reasonably required by their counsel in order to carry out the purpose and intent of this Agreement and to fulfill the obligations of the parties hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18. **<u>Governing Law</u>**. This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the State of New York without regard to choice of law considerations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19. **<u>Arbitration</u>**. Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach or enforcement which the parties are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim or dispute to binding arbitration in San Juan, Puerto Rico (unless the parties agree in writing to a different location), before a single arbitrator in accordance with the rules of the American Arbitration Association then in effect. In any such arbitration proceeding the parties agree to provide all discovery deemed necessary by the arbitrator. The decision and award made by the arbitrator shall be final, binding and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20. **<u>Section or Paragraph Headings</u>**. Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21. **<u>Force Majure</u>**. The Company shall be excused from any delay in performance or for non-performance of any of the terms and conditions of this Agreement caused by any circumstances beyond its control, including, but not limited to, any Act of God, fire, flood, or government regulation, direction or request, or accident, interruption of telecommunications facilities, labor dispute, unavoidable breakdown, civil unrest or disruption to the extent that any such circumstances affect the Company's ability to perform its obligations under this Agreement or the ability of the Commission to perform its responsibilities under the Securities Act.

[Remainder of this page intentionally left blank.]

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed personally or by a duly authorized representative thereof as of the day and year first above written.

**THE COMPANY:**

**UNUSUAL MACHINES, INC.**

By:<u> </u>

Name: Brandon Torres Declet

Title: Chief Executive Officer

**INVESTOR:**

**RED CAT HOLDINGS, INC.**

By:<u> </u>

Name: Joe Freedman

Title: Lead Director

## Exhibit 10.3

**Exhibit 10.3**

**<u>SECURITY AGREEMENT</u>**

THIS SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this "Agreement") dated as of the date each Secured Party executed this Agreement (the "Effective Date"), by and among Unusual Machines Inc., a Puerto Rico corporation (collectively with all of its subsidiaries, "Debtor"), each person that is a Purchaser under a Purchase Agreement dated as of the date of this Agreement and who executes this Agreement (each a "Secured Party" and collectively the "Secured Parties"), and the person who agrees to be Collateral Agent by so noting on Secured Party's signature page hereto.

WHEREAS, each Secured Party is a party to that certain share purchase agreement dated as of the Effective Date by and between Debtor and one or more Secured Parties (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Purchase Agreement"), pursuant to which Secured Parties purchased from Debtor one or more senior secured notes made by Debtor up to a maximum purchase amount of $2, 5000,000 (the "Notes"); and

WHEREAS, to induce Secured Parties to enter into the Purchase Agreement and purchase the Notes, each Debtor agreed to pledge and grant a security interest in all of its right, title and interest in and to the Collateral as security for its Obligations for the benefit of Secured Party in accordance with the terms and conditions as set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I. <u>Definitions</u>. Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Purchase Agreement. In addition, as used herein:

"<u>Account</u>" or "<u>Accounts</u>" means any "account," as such term is defined in the UCC, and, in any event, shall include, without limitation, "supporting obligations" as defined in the UCC.

"<u>Agreement</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Chattel Paper</u>" means any "chattel paper," as such term is defined in the UCC.

"<u>Collateral</u>" shall have the meaning ascribed thereto in Section III.

"<u>Collateral Agent</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Contracts</u>" means all contracts, undertakings, or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which a Debtor may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof.

"<u>Copyrights</u>" means any copyrights, rights and interests in copyrights, works protectable by copyrights, copyright registrations and copyright applications, including, without limitation, the copyright registrations and applications listed on <u>Schedule I</u> attached hereto (if any), and all renewals of any of the foregoing, all income, royalties, damages and payments now and hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing.

"<u>Default</u>" and "<u>Default</u>" shall mean the occurrence of any event creating a default in Section V hereto.

"<u>Deposit Accounts</u>" means all "deposit accounts" as such term is defined in the UCC, now or hereafter held in the name of a Debtor.

"<u>Debtor</u>" or "<u>Debtors</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Documents</u>" means any "documents," as such term is defined in the UCC, and shall include, without limitation, all documents of title (as defined in the UCC), bills of lading or other receipts evidencing or representing Inventory or Equipment.

"<u>Effective Date</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Equipment</u>" means any "equipment," as such term is defined in the UCC and, in any event, shall include, motor vehicles.

"<u>Event of Default</u>" shall have the meaning ascribed thereto in the Notes.

"<u>Excluded Assets</u>" means any lease, license or other agreement or any property subject to a capital lease, purchase money security interest or similar arrangement, to the extent that a grant of a Lien thereon in favor of Secured Party would violate or invalidate such lease, license, agreement or capital lease, purchase money security interest or similar arrangement or create a right of termination in favor of any other party thereto (other than Debtors), so long as such provision exists and so long as such lease, license or agreement was not entered into in contemplation of circumventing the obligation to provide Collateral hereunder or in violation of the Purchase Agreement, other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law including the bankruptcy code, or principles of equity.

"<u>Financing Statement</u>" means a Form UCC-1 or similar UCC financing statement providing for the protection of the Secured Party's interest in the Collateral.

"<u>General Intangibles</u>" means any "general intangibles," as such term is defined in the UCC, and, in any event, shall include, without limitation, all right, title and interest in or under any Contract, models, drawings, materials and records, claims, literary rights, goodwill, trade secrets, formulas, recipes, rights of performance, Copyrights, Trademarks, Patents, warranties, rights under insurance policies and rights of indemnification.

"<u>Goods</u>" means any "goods", as such term is defined in the UCC, including, without limitation, fixtures and embedded Software to the extent included in "goods" as defined in the UCC.

"<u>Governmental Authority</u>" means the government of the United States of America or any other nation, or any political subdivision thereof, whether state or local, or any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administration powers or functions of or pertaining to government over any Debtor, or any of their respective properties, assets or undertakings.

"<u>Instruments</u>" means any "instrument," as such term is defined in the UCC, and shall include, without limitation, promissory notes, drafts, bills of exchange, trade acceptances, letters of credit, letter of credit rights (as defined in the UCC), and Chattel Paper.

"<u>Inventory</u>" means any "inventory," as such term is defined in the UCC.

"<u>Investment Property</u>" means any "investment property", as such term is defined in the UCC.

"<u>Lien</u>" shall have the meaning ascribed thereto in the Purchase Agreement.

"<u>Notes</u>" shall have the meaning ascribed thereto in the preamble. Note shall have the same meaning as Notes.

"<u>Obligations</u>" means all obligations, liabilities and indebtedness of every nature of Debtors from time to time owed or owing under or in respect of this Agreement, the Purchase Agreement, the Notes, the Warrants and any of the other Transaction Documents, as the case may be, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable whether before or after the filing of a bankruptcy, insolvency or similar proceeding under applicable federal, state, foreign or other law and whether or not an allowed claim in any such proceeding.

"<u>Patents</u>" means any patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein, all patentable inventions and those patents and patent applications listed on <u>Schedule I</u> attached hereto (if any), and the reissues, divisions, continuations, renewals, extensions and continuations-in-part of any of the foregoing, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing.

"<u>Permitted Indebtedness</u>" shall have the meaning ascribed thereto in the Notes.

"<u>Proceeds</u>" means "proceeds," as such term is defined in the UCC and, in any event, includes, without limitation, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any person acting under color of Governmental Authority), and (c) any and all other amounts from time to time paid or payable under, in respect of or in connection with any of the Collateral.

"<u>Purchase Agreement</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Secured Party</u>" or "<u>Secured Parties</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Security Documents</u>" means any documents securing the Liens of a Secured Party hereunder.

"<u>Debtor</u>" shall have the meaning ascribed thereto in the preamble.

"<u>Software</u>" means all "software" as such term is defined in the UCC, now owned or hereafter acquired by a Debtor, other than software embedded in any category of Goods, including, without limitation, all computer programs and all supporting information provided in connection with a transaction related to any program.

"<u>Trademarks</u>" means any trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, the trademarks and applications listed in <u>Schedule I</u> attached hereto (if any) and renewals thereof, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect to any of the foregoing, including, without limitation, damages and payments for past, present and future infringements of any of the foregoing and the right to sue for past, present and future infringements of any of the foregoing.

"<u>UCC</u>" shall mean the Uniform Commercial Code as in effect from time to time in the State of Florida; provided, that to the extent that the Uniform Commercial Code is used to define any term herein and such term is defined differently in different Articles or Divisions of the Uniform Commercial Code, the definition of such term contained in Article or Division 9 shall govern.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;II. <u>Creation of Security Interest</u>. Debtor hereby grants to Secured Party a security interest in the Collateral described in <u>Section III</u> to secure the performance or payment of the Obligations of Debtor to Secured Party under <u>Section IV</u>. Debtor has or will have rights in and the power to transfer the Collateral in which it purports to grant a security interest pursuant to the terms of this Agreement (subject, with respect to after acquired Collateral, to such Debtor acquiring the same) and no Lien other than Permitted Indebtedness exists or will exist upon such Collateral at any time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;III. <u>Collateral</u>. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, each Debtor hereby pledges and grants to Secured Party a Lien on and security interest in and to all of such Debtor's right, title and interest in all Instruments, Accounts, Inventory, General Intangibles, Equipment, Documents, Contracts, Goods, Investment Property, Deposit Accounts, Trademarks, Patents and Copyrights, all books and records pertaining to the other Collateral, and all other tangible and intangible property of such Debtor, whether now owned by such Debtor or hereafter acquired and whether now existing or hereafter coming into existence and wherever located (all being collectively referred to herein as "Collateral"). Notwithstanding anything to the contrary contained herein or in any Transaction Document, in no event shall the security interest granted herein or therein attach to any Excluded Assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IV. <u>Debtor's Obligations</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <u>Obligation to Pay</u>. Debtor shall pay to Secured Party the sum or sums evidenced by the Note or Notes held by the Secured Party between Secured Party and Debtor in accordance with the terms of the Note.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <u>Additional Obligations</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Protection of Collateral</u>. The Collateral:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) will not be misused or abused, but will be maintained in good and operable condition, reasonable wear and tear excepted (except for any loss, damage or destruction which is fully covered by insurance proceeds) and will be repaired, renewed and replaced by Debtor as Debtor, in the exercise of reasonable discretion, shall deem necessary, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) will be insured by Debtor until this Agreement is terminated against all expected risks to which it is exposed, including fire, theft, wind and flood, and those which Collateral Agent may designate, with the policies acceptable to Secured Party, payable to both Secured Party and Debtor, as their interests appear, and providing for ten days' minimum cancellation notice to Collateral Agent, and with certificates evidencing such insurance deposited with Secured Party, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) will be kept within Palm Beach County, Florida, unless Debtor notifies Collateral Agent in writing and Collateral Agent consents in writing in advance of its removal to another location, and except in the ordinary course of business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. <u>Protection of Security Interest</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Collateral will not be sold, transferred or disposed of or be subjected to any unpaid charge, including taxes, or to any subsequent interest of a third person created or suffered by Debtor voluntarily or involuntarily, except in the ordinary course of business and if replaced by like quality unless Collateral Agent consents in advance in writing to such charge, transfer, disposition or subsequent interest, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Debtor will sign and execute a Financing Statement necessary to protect the security interest under this Agreement against the rights or interests of third persons.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;V. <u>Default</u>. Misrepresentation and misstatement in connection with, or non-compliance with or non-performance of Debtor's Obligations or Agreements under <u>Section IV</u> shall constitute Default under this Agreement. In addition, Debtor shall be in Default if bankruptcy or insolvency proceedings are instituted by or against Debtor which proceedings are not dismissed within ninety (90) days, if Debtor makes any assignment for the benefit of creditors, if Debtor shall default in performance of any agreement with Secured Party, or if any Event of Default occurs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;VI. <u>Secured Party's Rights and Remedies</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. Secured Party may assign this Agreement, with notice to Debtor, and, if Secured Party does assign this Agreement, the Assignee shall be entitled, upon notifying Debtor, to performance of all of Debtor's obligations under this Agreement, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. Upon Debtor's Default, Collateral Agent may exercise Secured Party's rights of enforcement under the UCC and, in conjunction with, addition to or substitution for those rights, at Collateral Agent's discretion, may:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. To the extent permitted by law, enter upon Debtor's premises to take possession of, assemble and collect the Collateral or to render it unusable, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Require Debtor to assemble the Collateral and make it available at a place Collateral Agent designates which is mutually convenient, to allow Collateral Agent to take possession or dispose of the Collateral, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Waive any Default or remedy any Default in any reasonable manner without waiving the Default remedied and without waiving any other prior or subsequent Default, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. Debtor understands that to the extent permitted by law, if Debtor fails to meet any of Debtor's obligations under this Agreement, Collateral Agent has a right to possession of the Collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. Collateral Agent will give notice to Debtor that Debtor is in Default hereunder, and Debtor shall have 15 days from the effective date of such notice to cure such Default for monetary Defaults and 30 days from the effective date of such notice to cure non-monetary Defaults; provided, however, that in the event Debtor shall commence curing said non-monetary Default within said 30-day period and shall thereafter diligently pursue the cure of said Default, said period of 30 days shall be extended for that period of time reasonably necessary to effect said cure. Any notice hereunder shall be forwarded to Debtor by certified mail to Debtor's chief place of business set forth above. Such notice shall be effective as of the date it is received, first refused or returned as non-deliverable as evidenced by the return receipt of the U.S. Postal Service

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;VII. <u>Collateral Agent.</u> 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. Each Debtor hereby irrevocably constitutes and appoints Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Debtor and in the name of such Debtor or in its own name, from time to time in the discretion of Collateral Agent, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to perfect or protect any security interest granted hereunder, to maintain the perfection or priority of any security interest granted hereunder, or to otherwise accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, hereby gives Collateral Agent the power and right, on behalf of such Debtor, without notice to or assent by such Debtor (to the extent permitted by applicable law), to do the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. upon the occurrence and during the continuation of a Default, to ask, demand, collect, receive and give acquittance and receipts for any and all moneys due and to become due under any Collateral and, in the name of such Debtor or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other Instruments for the payment of moneys due under any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Collateral Agent for the purpose of collecting any and all such moneys due under any Collateral whenever payable and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Collateral Agent for the purpose of collecting any and all such moneys due under any Collateral whenever payable;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. to pay or discharge charges or Liens levied or placed on or threatened against the Collateral, to effect any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due, and to become due thereunder, directly to Collateral Agent or as Collateral Agent shall direct, and to receive payment of and receipt for any and all moneys, claims and other amounts due, and to become due at any time, in respect of or arising out of any Collateral;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. upon the occurrence and during the continuation of a Default, to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other Documents constituting or relating to the Collateral;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. upon the occurrence and during the continuation of a Default, to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. upon the occurrence and during the continuation of a Default, to defend any suit, action or proceeding brought against a Debtor with respect to any Collateral;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. upon the occurrence and during the continuation of a Default, to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Collateral Agent may deem appropriate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. to the extent that a Debtor's authorization given is not sufficient to file such financing statements with respect to this Agreement, with or without such Debtor's signature, or to file a photocopy of this Agreement in substitution for a financing statement, as Collateral Agent may deem appropriate and to execute in such Debtor's name such financing statements and amendments thereto and continuation statements which may require such Debtor's signature;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10. upon the occurrence and during the continuation of a Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Collateral Agent were the absolute owners thereof for all purposes; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11. to do, at Collateral Agent's option and at such Debtor's expense, at any time, or from time to time, all acts and things which Collateral Agent reasonably deems necessary to protect or preserve or, upon the occurrence and during the continuation of an Default, realize upon the Collateral and Collateral Agent's Lien therein, in order to effect the intent of this Agreement, all as fully and effectively as such Debtor might do.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. Each Debtor hereby ratifies, to the extent permitted by law, all that such attorneys lawfully do or cause to be done by virtue hereof provided the same is performed in a commercially reasonable manner. The power of attorney granted hereunder is a power coupled with an interest and shall be irrevocable until the Obligations are indefeasibly paid in full in cash and this Agreement is terminated. Each Debtor also authorizes Collateral Agent, at any time from and after the occurrence and during the continuation of any Default, (x) to communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Debtor in and under the Contracts hereunder and other matters relating thereto and (y) to execute, in connection with any sale of Collateral any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;VIII. <u>Mutual Agreements</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. "Debtor", "Secured Party", and "Collateral Agent" as used in this Agreement include the heirs, executors or administrators, successors or assigns of those parties, as applicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. If more than one Debtor executes this Agreement, their obligations under this Agreement shall be joint and several.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. The law governing this secured transaction shall be that of the State
of New York in force at the date of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The undersigned Collateral Agent agrees to act as the collateral agent
if the Company distributes any convertible notes to its successors or assigns (with the only change being that such notes may be prepayable)
with the understanding that the investors shall share in the collateral on a pro rata basis based on the amount of principal outstanding.

EXECUTED this _____ day of _________, ____.

____________________________________

By:

Its: Chief Executive Officer

SECURED PARTY: _____________________

____________________________________

____________________________________

By:__________________________________

Name: _______________________________

Its:__________________________________

Collateral Agent: The Secured Party hereto

**<u>Schedule I</u>**

**<u>Copyrights, Patents, and Trademarks</u>**

## Exhibit 10.4

**Exhibit 10.4**

**UNUSUAL MACHINES, INC.**

**2022 EQUITY INCENTIVE PLAN, as Amended**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Scope of Plan; Definitions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) This 2022 Equity Incentive Plan (the "Plan") is intended to advance the interests of Unusual Machines, Inc. (the "Company") and its Related Corporations by enhancing the ability of the Company to attract and retain qualified employees, consultants, Officers and directors, by creating incentives and rewards for their contributions to the success of the Company and its Related Corporations. This Plan will provide to (a) Officers and other employees of the Company and its Related Corporations opportunities to purchase common stock, par value $0.001 ("Common Stock") of the Company pursuant to Options granted hereunder which qualify as incentive stock options ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986 (the "Code"), (b) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to purchase Common Stock of the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Options"); (c) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to receive shares of Common Stock of the Company which normally are subject to restrictions on sale ("Restricted Stock"); (d) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to receive grants of stock appreciation rights ("SARs"); and (e) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to receive grants of restricted stock units ("RSUs"). ISOs and Non-Qualified Options are referred to hereafter as "Options." Options, Restricted Stock, RSUs and SARs are sometimes referred to hereafter collectively as "Stock Rights." Any of the Options and/or Stock Rights may in the Board of Directors' or Compensation Committee's discretion be issued in tandem to one or more other Options and/or Stock Rights to the extent permitted by law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) For purposes of the Plan, capitalized words and terms shall have the following meaning: "Board" means the board of directors of the Company.

"Chairman" means the Chairman of the Board.

"Change of Control" means the occurrence of any of the following events: (i) the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets in a transaction which requires shareholder approval under applicable state law; or (ii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

"Code" shall have the meaning given to it in Section 1(a). "Common Stock" shall have the meaning given to it in Section 1(a).

"Company" shall have the meaning given to it in Section 1(a).

"Compensation Committee" means the compensation committee of the Board, if any, which shall consist of two or more members of the Board, each of whom shall be both an "outside director" within the meaning of Section 162(m) of the Code and a "non-employee director" within the meaning of Rule 16b-3. All references in this Plan to the Compensation Committee shall mean the Board when (i) there is no Compensation Committee or (ii) the Board has retained the power to administer this Plan.

"Disability" means "permanent and total disability" as defined in Section 22(e)(3) of the Code or successor statute.

"Disqualifying Disposition" means any disposition (including any sale) of Common Stock underlying an ISO before the later of (i) two years after the date of employee was granted the ISO or (ii) one year after the date the employee acquired Common Stock by exercising the ISO.

"Exchange Act" shall mean the Securities Exchange Act of 1934.

"Fair Market Value" shall be determined as of the last Trading Day before the date a Stock Right is granted and shall mean:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) the closing price on the principal market if the Common Stock is listed on a national securities exchange or the OTCQB or OTCQX.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) if the Company's shares are not listed on a national securities exchange or the OTCQB or OTCQX, then the closing price if reported or the average bid and asked price for the Company's shares as published by OTC Markets Group, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) if there are no prices available under clauses (1) or (2), then Fair Market Value shall be based upon the average closing bid and asked price as determined following a polling of all dealers making a market in the Company's Common Stock; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) if there is no regularly established trading market for the Company's Common Stock or if the Company's Common Stock is listed, quoted or reported under clauses (1) or (2) but it trades sporadically rather than every day, the Fair Market Value shall be established by the Board or the Compensation Committee taking into consideration all relevant factors including the most recent price at which the Company's Common Stock was sold.

"ISO" shall have the meaning given to it in Section 1(a).

"Non-Qualified Options" shall have the meaning given to it in Section 1(a). "Officers" means a person who is an executive officer of the Company and is required to file ownership reports under Section 16(a) of the Exchange Act. "Options" shall have the meaning given to it in Section 1(a).

"Plan" shall have the meaning given to it in Section 1(a).

"Related Corporations" shall mean a corporation which is a subsidiary corporation with respect to the Company within the meaning of Section 424(f) of the Code.

"Restricted Stock" shall have the meaning contained in Section 1(a). "RSU" shall have the meaning given to it in Section 1(a).

"SAR" shall have the meaning given to it in Section 1(a). "Securities Act" means the Securities Act of 1933.

"Stock Rights" shall have the meaning given to it in Section 1(a).

"Trading Day" shall mean a day on which The Nasdaq Stock Market LLC is open for business.

This Plan is intended to comply in all respects with Rule 16b-3 ("Rule 16b-3") and its successor rules as promulgated under Section 16(b) of the Exchange Act for participants who are subject to Section 16 of the Exchange Act. To the extent any provision of the Plan or action by the Plan administrators fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Plan administrators. <u>Provided</u>, <u>however</u>, such exercise of discretion by the Plan administrators shall not interfere with the contract rights of any grantee. In the event that any interpretation or construction of the Plan is required, it shall be interpreted and construed in order to ensure, to the maximum extent permissible by law, that such grantee does not violate the short-swing profit provisions of Section 16(b) of the Exchange Act and that any exemption available under Rule 16b-3 or other rule is available.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. <u>Administration of the Plan</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Plan may be administered by the entire Board or by the Compensation Committee. Once appointed, the Compensation Committee shall continue to serve until otherwise directed by the Board. A majority of the members of the Compensation Committee shall constitute a quorum, and all determinations of the Compensation Committee shall be made by the majority of its members present at a meeting. Any determination of the Compensation Committee under the Plan may be made without notice or meeting of the Compensation Committee by a writing signed by all of the Compensation Committee members. Subject to ratification of the grant of each Stock Right by the Board (but only if so required by applicable state law), and subject to the terms of the Plan, the Compensation Committee shall have the authority to (i) determine the employees of the Company and Related Corporations (from among the class of employees eligible under Section 3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the class of individuals and entities eligible under Section 3 to receive Non-Qualified Options, Restricted Stock, RSUs and SARs) to whom Non-Qualified Options, Restricted Stock, RSUs and SARs may be granted; (ii) determine when Stock Rights may be granted; (iii) determine the exercise prices of Stock Rights other than Restricted Stock and RSUs, which shall not be less than the Fair Market Value; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine when Stock Rights shall become exercisable, the duration of the exercise period and when each Stock Right shall vest; (vi) determine whether restrictions such as repurchase options are to be imposed on shares subject to or issued in connection with Stock Rights, and the nature of such restrictions, if any, and (vii) interpret the Plan and promulgate and rescind rules and regulations relating to it. The interpretation and construction by the Compensation Committee of any provisions of the Plan or of any Stock Right granted under it shall be final, binding and conclusive unless otherwise determined by the Board. The Compensation Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best.

No members of the Compensation Committee or the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. No member of the Compensation Committee or the Board shall be liable for any act or omission of any other member of the Compensation Committee or the Board or for any act or omission on his own part, including but not limited to the exercise of any power and discretion given to him under the Plan, except those resulting from his own gross negligence or willful misconduct.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Compensation Committee may select one of its members as its Chairman and shall hold meetings at such time and places as it may determine. All references in this Plan to the Compensation Committee shall mean the Board if no Compensation Committee has been appointed. From time to time the Board may increase the size of the Compensation Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused or remove all members of the Compensation Committee and thereafter directly administer the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Stock Rights may be granted to members of the Board, whether such grants are in their capacity as directors, Officers or consultants. All grants of Stock Rights to members of the Board shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) In addition to such other rights of indemnification as he or she may have as a member of the Board, and with respect to administration of the Plan and the granting of Stock Rights under it, each member of the Board and of the Compensation Committee shall be entitled without further act on his part to indemnification from the Company for all expenses (including advances of litigation expenses, the amount of judgment and the amount of approved settlements made with a view to the curtailment of costs of litigation) reasonably incurred by him in connection with or arising out of any action, suit or proceeding, including any appeal thereof, with respect to the administration of the Plan or the granting of Stock Rights under it in which he may be involved by reason of his being or having been a member of the Board or the Compensation Committee, whether or not he continues to be such member of the Board or the Compensation Committee at the time of the incurring of such expenses; <u>provided</u>, <u>however</u>, that such indemnity shall be subject to the limitations contained in any Indemnification Agreement between the Company and the Board member or Officer. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Board or the Compensation Committee and shall be in addition to all other rights to which such member of the Board or the Compensation Committee would be entitled to as a matter of law, contract or otherwise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The Board may delegate the powers to grant Stock Rights to Officers to the extent permitted by the Delaware General Corporation Law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. <u>Eligible Employees and Others</u>. ISOs may be granted to any employee of the Company or any Related Corporation. Those Officers and directors of the Company who are not employees may not be granted ISOs under the Plan. Subject to compliance with Rule 16b-3 and other applicable securities laws, Non-Qualified Options, Restricted Stock, RSUs and SARs may be granted to any director (whether or not an employee), Officers, employees or consultants of the Company or any Related Corporation. The Compensation Committee may take into consideration a recipient's individual circumstances in determining whether to grant an ISO, a Non-Qualified Option, Restricted Stock, RSUs or a SAR. Granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from participation in, any other grant of Stock Rights.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. <u>Common Stock</u>. The Common Stock subject to Stock Rights shall be authorized but unissued shares of Common Stock, or shares of Common Stock reacquired by the Company in any manner, including purchase, forfeiture or otherwise. The aggregate number of shares of Common Stock which may be issued pursuant to the Plan is no more than 10% of the outstanding shares on a fully diluted basis giving effect to the exercise and conversion of all outstanding common stock equivalents issued outside of this Plan including preferred stock and warrants less any Stock Rights previously granted or exercised subject to adjustment as provided in Section 14. Any such shares may be issued under ISOs, Non-Qualified Options, Restricted Stock, RSUs or SARs, so long as the number of shares so issued does not exceed the limitations in this Section. Subject to adjustment in accordance with Section 14, no more than 250,000 shares of Common Stock may be issued in the aggregate pursuant to the exercise of ISOs. If any Stock Rights granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares, the unpurchased shares subject to such Stock Rights and any unvested shares so reacquired by the Company shall again be available for grants under the Plan. For the avoidance of doubt, in the event that (i) the payment of the exercise price of any Stock Right, or (ii) the satisfaction of any tax withholding obligations arising from any Stock Right is made by withholding of shares of Common Stock by the Company, the shares so withheld shall again become available for grants under the Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <u>Granting of Stock Rights</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The date of grant of a Stock Right under the Plan will be the date specified by the Board or Compensation Committee at the time it grants the Stock Right; <u>provided</u>, <u>however</u>, that such date shall not be prior to the date on which the Board or Compensation Committee acts to approve the grant. The Board or Compensation Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to Section 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Board or Compensation Committee shall grant Stock Rights to participants that it, in its sole discretion, selects. Stock Rights shall be granted on such terms as the Board or Compensation Committee shall determine except that ISOs shall be granted on terms that comply with the Code and regulations thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) A SAR entitles the holder to receive, as designated by the Board or Compensation Committee, cash or shares of Common Stock, value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of shares of Common Stock at the time of exercise over (b) an exercise price established by the Board or Compensation Committee. The exercise price of each SAR granted under this Plan shall be established by the Compensation Committee or shall be determined by a method established by the Board or Compensation Committee at the time the SAR is granted, provided the exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of the grant of the SAR, or such higher price as is established by the Board or Compensation Committee. A SAR shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Board or Compensation Committee. Shares of Common Stock delivered pursuant to the exercise of a SAR shall be subject to such conditions, restrictions and contingencies as the Board or Compensation Committee may establish in the applicable SAR agreement or document, if any. The Board or Compensation Committee, in its discretion, may impose such conditions, restrictions and contingencies with respect to shares of Common Stock acquired pursuant to the exercise of each SAR as the Board or Compensation Committee determines to be desirable. A SAR under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Board or Compensation Committee shall, in its discretion, prescribe. The terms and conditions of any SAR to any grantee shall be reflected in such form of agreement as is determined by the Board or Compensation Committee. A copy of such document, if any, shall be provided to the grantee, and the Board or Compensation Committee may condition the granting of the SAR on the grantee executing such agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) An RSU gives the grantee the right to receive a number of shares of the Company's Common Stock on applicable vesting or other dates. Delivery of the RSUs may be deferred beyond vesting as determined by the Board or Compensation Committee. RSUs shall be evidenced by an RSU agreement in the form determined by the Board or Compensation Committee. With respect to an RSU, which becomes non-forfeitable due to the lapse of time, the Compensation Committee shall prescribe in the RSU agreement the vesting period. With respect to the granting of the RSU, which becomes non-forfeitable due to the satisfaction of certain pre- established performance-based objectives imposed by the Board or Compensation Committee, the measurement date of whether such performance-based objectives have been satisfied shall be a date no earlier than the first anniversary of the date of the RSU. A recipient who is granted an RSU shall possess no incidents of ownership with respect to such underlying Common Stock, although the RSU agreement may provide for payments in lieu of dividends to such grantee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Notwithstanding any provision of this Plan, the Board or Compensation Committee may impose conditions and restrictions on any grant of Stock Rights including forfeiture of vested Options, cancellation of Common Stock acquired in connection with any Stock Right and forfeiture of profits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The Options and SARs shall not be exercisable for a period of more than 10 years from the date of grant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. <u>Sale of Shares</u>. The shares underlying Stock Rights granted to any Officer, director or a beneficial owner of 10% or more of the Company's securities registered under Section 12 of the Exchange Act shall not be sold, assigned or transferred by the grantee until at least six months elapse from the date of the grant thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. <u>ISO Minimum Option Price and Other Limitations</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The exercise price per share relating to all Options granted under the Plan shall not be less than the Fair Market Value per share of Common Stock on the last trading day prior to the date of such grant. For purposes of determining the exercise price, the date of the grant shall be the later of (i) the date of approval by the Board or Compensation Committee or the Board, or (ii) for ISOs, the date the recipient becomes an employee of the Company. In the case of an ISO to be granted to an employee owning Common Stock which represents more than 10% of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share shall not be less than 110% of the Fair Market Value per share of Common Stock on the date of grant and such ISO shall not be exercisable after the expiration of five years from the date of grant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) In no event shall the aggregate Fair Market Value (determined at the time an ISO is granted) of Common Stock for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any Related Corporation) exceed $100,000.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. <u>Duration of Stock Rights</u>. Subject to earlier termination as provided in Sections 5, 9, 10 and 11, each Option and SAR shall expire on the date specified in the original instrument granting such Stock Right (except with respect to any part of an ISO that is converted into a Non-Qualified Option pursuant to Section 17), <u>provided</u>, <u>however</u>, that such instrument must comply with Section 422 of the Code with regard to ISOs and Rule 16b-3 with regard to all Stock Rights granted pursuant to the Plan to Officers, directors and 10% shareholders of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. <u>Exercise of Options and SARs; Vesting of Stock Rights</u>. Subject to the provisions of Sections 9 through 13, each Option and SAR granted under the Plan shall be exercisable as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Options and SARs shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board or Compensation Committee may specify.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option and SAR, unless otherwise specified by the Board or Compensation Committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each Option and SAR or installment, once it becomes exercisable, may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The Board or Compensation Committee shall have the right to accelerate the vesting date of any installment of any Stock Right; <u>provided</u> that the Board or Compensation Committee shall not accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Section 17) if such acceleration would violate the annual exercisability limitation contained in Section 422(d) of the Code as described in Section 7(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10. <u>Termination of Employment</u>. Subject to any greater restrictions or limitations as may be imposed by the Board or Compensation Committee or by a written agreement, if an optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or Disability, no further installments of his Options shall vest or become exercisable, and his Options shall terminate as provided for in the grant or on the day 12 months after the day of the termination of his employment (except three months for ISOs), whichever is earlier, but in no event later than on their specified expiration dates. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to re-employment is guaranteed by statute. A leave of absence with the written approval of the Board shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations so long as the optionee continues to be an employee of the Company or any Related Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11. <u>Death; Disability</u>. Unless otherwise determined by the Board or Compensation Committee or by a written agreement:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If the holder of an Option or SAR ceases to be employed by the Company and all Related Corporations by reason of his death, any Options or SARs held by the optionee may be exercised to the extent he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the Options or SARs by will or by the laws of descent and distribution, at any time prior to the earlier of: (i) the Options' or SARs' specified expiration date or (ii) one year (except three months for an ISO) from the date of death.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If the holder of an Option or SAR ceases to be employed by the Company and all Related Corporations, or a director or Director Advisor can no longer perform his duties, by reason of his Disability, any Options or SARs held by the optionee may be exercised to the extent he could have exercised it on the date of termination due to Disability until the earlier of (i) the Options' or SARs' specified expiration date or (ii) one year from the date of the termination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12. <u>Assignment, Transfer or Sale</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) No ISO granted under this Plan shall be assignable or transferable by the grantee except by will or by the laws of descent and distribution, and during the lifetime of the grantee, each ISO shall be exercisable only by him, his guardian or legal representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Except for ISOs, all Stock Rights are transferable subject to compliance with applicable securities laws and Section 6 of this Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13. <u>Terms and Conditions of Stock Rights</u>. Stock Rights shall be evidenced by instruments (which need not be identical) in such forms as the Board or Compensation Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in Sections 5 through 12 hereof and may contain such other provisions as the Board or Compensation Committee deems advisable which are not inconsistent with the Plan. In granting any Stock Rights, the Board or Compensation Committee may specify that Stock Rights shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Board or Compensation Committee may determine. The Board or Compensation Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more Officers of the Company to execute and deliver such instruments. The proper Officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14. <u>Adjustments Upon Certain Events</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Stock Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Stock Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of a Stock Right, as well as the price per share of Common Stock (or cash, as applicable) covered by each such outstanding Option or SAR, shall be proportionately adjusted for any increases or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; <u>provided</u>, <u>however</u>, that conversion of any convertible securities of the Company or the voluntary cancellation whether by virtue of a cashless exercise of a derivative security of the Company or otherwise shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board or Compensation Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to a Stock Right. No adjustments shall be made for dividends or other distributions paid in cash or in property other than securities of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) In the event of the proposed dissolution or liquidation of the Company, the Board or Compensation Committee shall notify each participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, a Stock Right will terminate immediately prior to the consummation of such proposed action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) In the event of a merger of the Company with or into another corporation, or a Change of Control, each outstanding Stock Right shall be assumed (as defined below) or an equivalent option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Stock Rights, the participants shall fully vest in and have the right to exercise their Stock Rights as to which it would not otherwise be vested or exercisable. If a Stock Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board or Compensation Committee shall notify the participant in writing or electronically that the Stock Right shall be fully vested and exercisable for a period of at least 15 days from the date of such notice, and any Options or SARs shall terminate one minute prior to the closing of the merger or sale of assets.

For the purposes of this Section 14(c), the Stock Right shall be considered "assumed" if, following the merger or Change of Control, the option or right confers the right to purchase or receive, for each share of Common Stock subject to the Stock Right immediately prior to the merger or Change of Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change of Control by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); <u>provided</u>, <u>however</u>, that if such consideration received in the merger or Change of Control is not solely common stock of the successor corporation or its parent, the Board or Compensation Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Stock Right, for each share of Common Stock subject to the Stock Right, to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the merger or Change of Control.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Notwithstanding the foregoing, any adjustments made pursuant to Section 14(a), (b) or (c) with respect to ISOs shall be made only after the Board or Compensation Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Board or Compensation Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs it may refrain from making such adjustments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15. <u>Means of Exercising Stock Rights</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) An Option or SAR (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the exercise price therefor (to the extent it is exercisable in cash) either (i) in United States dollars by check or wire transfer; or (ii) at the discretion of the Board or Compensation Committee, through delivery of shares of Common Stock having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Stock Right or such other formula as may be approved by the Board or Compensation Committee; or (iii) at the discretion of the Board or Compensation Committee, by any combination of (i) and (ii) above. If the Board or Compensation Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (ii) or (iii) of the preceding sentence, such discretion need not be exercised in writing at the time of the grant of the Stock Right in question. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in Section 14 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each notice of exercise shall, unless the shares of Common Stock are covered by a then current registration statement under the Securities Act, contain the holder's acknowledgment in form and substance satisfactory to the Company that (i) such shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Securities Act), (ii) the holder has been advised and understands that (1) the shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act and are subject to restrictions on transfer and (2) the Company is under no obligation to register the shares under the Securities Act or to take any action which would make available to the holder any exemption from such registration, and (iii) such shares may not be transferred without compliance with all applicable federal and state securities laws. Notwithstanding the above, should the Company be advised by counsel that issuance of shares should be delayed pending registration under federal or state securities laws or the receipt of an opinion that an appropriate exemption therefrom is available, the Company may defer exercise of any Stock Right granted hereunder until either such event has occurred.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16. <u>Term, Termination and Amendment</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) This Plan was adopted by the Board. This Plan may be approved by the Company's shareholders, which approval is required for ISOs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Board may terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate 10 years from the date the Board adopts the Plan. No Stock Rights may be granted under the Plan once the Plan is terminated. Termination of the Plan shall not impair rights and obligations under any Stock Right granted while the Plan is in effect, except with the written consent of the grantee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The Board at any time, and from time to time, may amend the Plan. <u>Provided</u>, <u>however</u>, except as provided in Section 14 relating to adjustments in Common Stock, no amendment shall be effective unless approved by the shareholders of the Company to the extent (i) shareholder approval is necessary to satisfy the requirements of Section 422 of the Code or (ii) required by the rules of the principal national securities exchange or trading market upon which the Company's Common Stock trades. Rights under any Stock Rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the written consent of the grantee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The Board at any time, and from time to time, may amend the terms of any one or more Stock Rights; <u>provided</u>, <u>however</u>, that the rights under the Stock Right shall not be impaired by any such amendment, except with the written consent of the grantee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17. <u>Conversion of ISOs into Non-Qualified Options; Termination of ISOs</u>. The Board or Compensation Committee, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. <u>Provided</u>, <u>however</u>, the Board or Compensation Committee shall not reprice the Options or extend the exercise period or reduce the exercise price of the appropriate installments of such Options without the approval of the Company's shareholders. At the time of such conversion, the Board or Compensation Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Board or Compensation Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Board or Compensation Committee takes appropriate action. The Compensation Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18. <u>Application of Funds</u>. The proceeds received by the Company from the sale of shares pursuant to Options or SARS (if cash settled) granted under the Plan shall be used for general corporate purposes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19. <u>Governmental Regulations</u>. The Company's obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20. <u>Withholding of Additional Income Taxes</u>. In connection with the granting, exercise or vesting of a Stock Right or the making of a Disqualifying Disposition the Company, in accordance with Section 3402(a) of the Code, may require the optionee to pay additional withholding taxes in respect of the amount that is considered compensation includable in such person's gross income.

To the extent that the Company is required to withhold taxes for federal income tax purposes as provided above, if any optionee may elect to satisfy such withholding requirement by (i) paying the amount of the required withholding tax to the Company; (ii) delivering to the Company shares of its Common Stock (including shares of Restricted Stock) previously owned by the optionee; or (iii) having the Company retain a portion of the shares covered by an Option exercise. The number of shares to be delivered to or withheld by the Company times the Fair Market Value of such shares or such other formula as may be approved by the Board or Compensation Committee pursuant to the Plan shall equal the cash required to be withheld.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21. Notice to the Company of Disqualifying Disposition. Each employee who receives an ISO must agree to notify the Company in writing immediately after the employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. If the employee has died before such stock is sold, the holding periods requirements of the Disqualifying Disposition do not apply and no Disqualifying Disposition can occur thereafter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22. <u>Continued Employment</u>. The grant of a Stock Right pursuant to the Plan shall not be construed to imply or to constitute evidence of any agreement, express or implied, on the part of the Company or any Related Corporation to retain the grantee in the employ of the Company or a Related Corporation, as a member of the Company's Board or in any other capacity, whichever the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23. <u>Governing Law; Construction</u>. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of the State of Delaware. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24. (a) <u>Forfeiture of Stock Rights Granted to Employees or Consultants</u>. Notwithstanding any other provision of this Plan, and unless otherwise provided for in a Stock Rights Agreement, all vested or unvested Stock Rights granted to employees or consultants shall be immediately forfeited at the discretion of the Board if any of the following events occur:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Termination of the relationship with the grantee for cause including, but not limited to, fraud, theft, dishonesty and violation of Company policy;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Purchasing or selling securities of the Company in violation of the Company's insider trading guidelines then in effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Breaching any duty of confidentiality including that required by the Company's insider trading guidelines then in effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) Competing with the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) Being unavailable for consultation after leaving the Company's employment if such availability is a condition of any agreement between the Company and the grantee;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) Recruitment of Company personnel after termination of employment, whether such termination is voluntary or for cause;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) Failure to assign any invention or technology to the Company if such assignment is a condition of employment or any other agreements between the Company and the grantee; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8) A finding by the Board that the grantee has acted disloyally and/or against the interests of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Forfeiture of Stock Rights Granted to Directors</u>. Notwithstanding any other provision of this Plan, and unless otherwise provided for in a Stock Rights Agreement, all vested or unvested Stock Rights granted to directors shall be immediately forfeited at the discretion of the Board if any of the following events occur:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Purchasing or selling securities of the Company in violation of the Company's insider trading guidelines then in effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Breaching any duty of confidentiality including that required by the Company's insider trading guidelines then in effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Competing with the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) Recruitment of Company personnel after ceasing to be a director;

or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) A finding by the Board that the grantee has acted disloyally and/or against the interests of the Company.

The Company may impose other forfeiture restrictions which are more or less restrictive and require a return of profits from the sale of Common Stock as part of said forfeiture provisions if such forfeiture provisions and/or return of provisions are contained in a Stock Rights Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Profits on the Sale of Certain Shares; Redemption</u>. If any of the events specified in Section 24(a) or (b) of the Plan occur within one year from the date the grantee last performed services for the Company in the capacity for which the Stock Rights were granted (the "Termination Date") (or such longer period required by any written agreement), all profits earned from the sale of the Company's securities, including the sale of shares of Common Stock underlying the Stock Rights, during the two-year period commencing one year prior to the Termination Date shall be forfeited and immediately paid by the grantee to the Company. Further, in such event, the Company may at its option redeem shares of Common Stock acquired upon exercise of the Stock Right by payment of the exercise price to the grantee. To the extent that another written agreement with the Company extends the events in Section 24(a) or (b) beyond one year following the Termination Date, the two-year period shall be extended by an equal number of days. The Company's rights under this Section 24(c) do not lapse one year form the Termination Date but are contract rights subject to any appropriate statutory limitation period.

## Exhibit 10.6

**Exhibit 10.6**

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l": •UNUSUAL ௭ MACHINES tec hn olo g y advanci ng with us October 6, 2022 Br i an Hoff 16000 Hamilton Way B ro omfie l d, Co lorad o 80023 Re: Offe r Lette r for the Position of Ch i ef F i nancia l Officer at Unusual M ach i nes, Inc. Dea r B rian , I am p l eased to offer you the position of Ch i ef Financia l Officer for Unusual Mac hi nes, Inc . ("Company") comme n c in g November 1 , 2022 (the "Effective Date"), r eport i ng d ir ect l y to the Company's Chief Executive Off i cer . I am c onfident that t hi s position w ill p r ovide you wit h an exce ll ent opportunity for s ig nif i can t professional sat i sfaction and I am confident that the relationship w ill be a mutua ll y rewarding one . This l etter, if accepted by you, sets forth our agreement regarding the mate ri al terms and condit i ons of yo ur emp l oyment by the Company and may be referred to as the Emp l oyment Agreement . l . Respons ibilities . As a key p l ayer i n the Company's growth, yo u will be r espons i b l e for managing all aspects of the Company's f i sca l and fiduciary responsib ili ties . You wi ll estab li sh a nd maintain best in class fi nance and accounting teams r equired fo r a forward - thinking company that plans to grow s i gnificant l y . You wi ll a l so be respons i ble for ensur in g successfu l acq ui sitions and public offer i ngs . You wi ll report directly to the Company's Chief Executive w ill perform your duties and Broomf i eld, Co l orado with the to trave l from t ime - to - t im e as Off i ce r. Un l ess otherw i se agreed, you responsibili t i es from your hom e off i ce in unders tand ing that you may be requ ir ed r easonab l y necessary to perform your job . 2. Indem ni fication . The Company sha ll , to the maximum extent permitted by l aw, indemn i fy, defend and hold you harm l ess from and against any claims that be asserted aga i nst you based upon any act i ons and/or decisions you make during the course and scope of yo ur emp l oyment wh i ch are take n or

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2 made in good faith in ca rrying our job duties and responsibili ties . To the same extent, the Company will pay, and subject to any legal limitations, advance to yo u all expenses, including reasonable attorneys' fees and costs, actually and necessarily incurred by you in connection wit h the defense of any action, suit or proceeding and in connection with any appeal, which has been brought against you by reason of your service as an officer or agent of the Company . 3 . Compensation and Benefits. 3.7 Salary. You will be compensated at the rate of $250,000 per year in base salary paid in accordance with the Company's normal payroll schedule and processes. 2. Performance Bonus . You will be eligib l e to earn an annual bonus of 50 % of your annual base salary (the "Pe rformance Bonus"), wh i ch wi ll be prorated based on your start date . Within 30 days of your start date, you wi ll work with the Chief Exec utive Officer and the Board of Directors to agree upon and draft key performance indicators ("KPls") upon w hich your annual Performance Bonus w ill be based . Annual Performance Bonuses will be paid to you within 720 days of the fiscal yea r end or upon the determination of your achievement of the KP ls by the Chief Executive Officer and Board of Directo rs, whichever i s sooner . 3. Benefits . You wi ll ha ve the same compre h ensive emp lo yee benefits package enjoyed by all the C - suite executives of the Company, including group medical and dental insur ance, and the 40 l(k) program, subject to the eligibility r equi rem ents of each such p lan . You wi ll be expected to work w ith the Chief Executive Officer to id ent i fy and implement those benefit plans for the Company by the end of CY 2022 . You w ill be reimbursed for a ll health insurance costs you incur prior to impl ementat ion of the new Company benefits plans . 4. E quity Grant . Subject to Board app ro va l , you will be granted restricted stock units (RSUs) under the Company's equ i ty in ce nti ve plan, which RSUs w ill represent 7 % of the issued and outstanding cap ita l stoc k of the Company on a fu lly diluted basis as of the grant date . The RSUs w ill begranted to you no later than 30 days following the earlier of (i) the closing of the Roto r Riot, LLC and Fat Sha rk Holdings, Ltd . acquisition transactions, or (ii) the date on which the Company reasonably determines that the acqu i s it ion transactions wi ll not proceed to c lo si n g . Twenty - five percent (25 %) of the R S U s w il l vest on the 72 - month anniversary of your emp lo yment s tart date, twenty five percent (25 %) of the RSUs will vest on t h e 24 - month anniversary of your employment start date, twenty - five percent (25 %) of the RSUs w ill vest on the 36 - month ann i versary of your emp l oyme nt start date , and the remaining

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3 twenty - five pe r cent (25%) of the RSUs w il l vest on the 48 - month anniversary of you r emp l oyment start date, 5. Acquisi t ion Bonus/ Cap i ta l Ra i se Bonus . You are e l ig i b l e for cash and equity bonuses upon each successfu l acquisition completed by the Company . Upon each successfu l acqu i s i t i on completed by the Company, you w il l receive a bonus in an amount up to $725 , 000 (the "Acquis i tion Bonus") . Each Acqu i s i tion Bonus sha ll be paid in a l ump sum w i thin 30 days fo ll owing a determinat i on of e li g i bi l ity by the Ch i ef Executive Officer and the Boa r d of Directors . You w ill a l so be e l igib l e for a bonus of $725 , 000 upon the comp l et i on of a capital raise event (e . g . , a secondary offer i ng on the NASDAQ, a pr i vate p l acement offer i ng, an at - the - marked ("ATM") offering, a private investment in pub li c equ i ty ("PIPE") offering, etc .) (the "Capital Raise Bonus") . The Capital Ra i se Bonus shal l be paid in a lump sum w i th i n 30 days fo ll owing a determ i nation of e l ig i b ili ty by the Chief Execut i ve Officer and the Board o f D ir ectors . 6. Vacat i on . Our Company offers un l im i ted paid vacation . You will work w i t h the Chief Execut i ve Officer in advance to coordinate expected time off . 7. Severance Benefits. See Section 5.3 be l ow. 4 . At - Wi ll E mp l oy m e n t Subject to the prov i sions of this Section 4 , your employment w i th the Company is for no spec i fied period and i s cons i dered to be at - wi l l . You are free to resign your employment at any time, for any r eason or fo r no reason, and the Company is free to terminate its emp l oyment relationsh i p with yo u at any time, with or without any reason . 4 . 7 T erminat i on by Mutual Agreement . T h i s Employment Agreement, and your emp l oyment hereu n der, may be terminated at any t i me upon the mutua l written agreement of you and the Company . 2. Termination due to Death or Disabil i ty . This Emp l oyment Agreemen t and your employment hereunder w il l terminate automatica ll y upon your death and may be terminated by the Company in the event of your D i sab il ity . For purposes of this Emp loyment Agreement , "Disabi l ity" means a physica l or mental d i sability that prevents you from perform i ng your du ties hereunder , w i th or without reasonable accommodat i on, lasting for a period o f one hundred (100) consecutive days or for a p e riod of one hundr e d twe nty - five (725) days in any twe l ve - mon th period . 3. Te rmination by the Company . The Company may terminate th i s Em p l oyment Agreement and your emp l oyment hereunder with or w i thout

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4 Ca u se . Fo r pu rp oses o f t h i s Ag r eeme n t , "Cause" means : (i) your r ef u sa l , or fa ilur e, to pe r fo r m you r ma te ri a l dut i es u nd e r t hi s Emp l oymen t Ag r eement that a r e (A) co n s i stent wit h you r ro l e a s Ch i ef F i nancia l O ffi ce r , and (B) not ill ega l or u n e thi ca l , which refusal o r fa i lure co n t i n u es fo r a pe ri o d of th i r t y (30) days a ft er you h ave rece i ved written not i ce from t h e Company descr i bing i n r easonable de t a il t h e mate ri a l d ut i es you h ave r efused or fa il ed to pe r fo r m and the c u re requeste d b y the Company, prov i ded you r right to cure w ill not apply i f t h e c ir c u mstances a n d consequences o f yo ur refusa l o r fa ilur e to perform do n ot pe r m i t a reaso n ab l e c ur e ; (ii) you h ave e n gaged i n w il lf ul m i sconduct or gross n eg li ge n ce, or have breac h ed any f i duc i a r y duty, wit h r espect to the Company ; (i i i) yo u h ave been co n v i cte d of, o r you have enter e d a p l ea of g uil ty o r no l o contende r e to , a fe l ony , o r any ot h e r cr i m i na l offense invo l v i ng moral tu rpi tude ; (i v) yo u have committed any other act or om i ss i on i nvo l v i ng dis h onesty, d i s l oya l ty or fraud, w hi c h h as caused, o r i s reasonab l y expected to cause, s i g ni fican t econ o m i c ha r m to t h e Company ; o r (v) you h ave comm i tted a mate ri a l b reac h o f th i s Emp l oyment Ag r ee m ent o r a mater i al w ri tte n po l icy of t h e Company to w h ich you a r e sub j ect o r any ot h e r mate r ial w r itten agree m ent betwee n you a nd t h e Co mp a n y, wh i c h is not reasonab l y cu r ed by you w i th i n th i rty (30) days of yo u r r ece i pt of a w ri tte n notice fr om the Company desc ri b i ng in reasonab l e deta il the v i o l at i on o r b r eac h and the cure re q uested by t h e Company . In a n y in st an ce whe r e advanced notice and an oppor t un i ty t o cure i s req ui red a ccord i ng to t h e fo r ego i ng te r ms, the Company must g i v e n o ti ce no l ater t ha n 30 days after t h e Co m pany becomes aware of t h e r e l evant act o r om i ss i on, and i t must te r m i nate your emp l oyment no l ate r t han 90 days afte r s u ch date by de li ve rin g a Not i ce of T ermina ti on i n accordance w i th Sect i on 4 . 5 be l ow . 4 . 4 Te rmin at i o n by You . You may te r m i nate t his Emp l oyment Agree m e n t an d you r e m p l oymen t h ereun d er w it h o r wit h o u t Good Reason . For purposes of t h is Emp l oy m ent Ag r eeme n t, "Good Reason " means the occu rr ence of any o f the fo ll owing e vents w i t h out your p ri o r wr i tte n consen t : (i) any r ed u ct i o n i n your base sa l ary, (ii) any mater i a l d i m i nut i on i n you r author i t i es, t it l es o r offices, or the ass i gnment to you of duties t h a t mater i a ll y i mpai r your ab ilit y to perfo r m the dut i es no r ma ll y ass i gn e d to a Chief F i nanc i a l Officer, (ii i) any c h ange i n yo ur r e porting s truct u re so that you r e po r t to s omeone ot h e r t h an to t h e Comp a ny ' s C h i ef Execut i ve Off i cer; (i v) a requ est by t h e C omp a ny t h at yo u r e l ocate so t hat you c an pe r form your j o b duties and respons i bi li t i es from a l ocat i on ot h e r t h an you r c u rr ent home off i ce ; or (v) any mater i a l b r each by th e Company o f the E mp l oyment Ag r eem e nt or any othe r materia l wri tt en agr ee ment b e tw e en you and t h e Company (in c l uding for th e avo i dan c e of doub t , any e qui t y doc um e n t s) ; s o l ong as (A) wr i tten not i ce , i n r eas onab l e detai l , describ i ng t h e e v e n t c on s t i tut i ng Good Reason (the "G oo d R eason Eve n t") h as b ee n deliv e red to t h e Company w i t h i n 30 d ays aft e r y ou first becom e awa r e of th e Good Reason E ven t , (B) th e Company hasbee n g i ve n

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5 30 days after receipt of suc h w ritt e n notice to c ur e such Good Reason Event (and , if the Company cures such Good Reason Event w i th in such 30 - day period, there shall be no Good Re a son for term i nat ion), and (C) you te r minate th i s Em plo yment Agreement and your emp lo yment hereunder w ithin 90 days following the date you r f irs t became aware of such Good Reason Event by delivering a No t ic e of Ter m ina t i on in accordance wit h Sect ion 4 . 5 below . 4 . 5 Notice of T erm ination . Any te rmina t i o n of th is Emp lo yment Ag r ee men t and you r emp lo yment hereunder , other t h an by reason of your death, shall be commun i cated by the party te rmina t ing t his Emp l oyment Agreement to the other party by w ri tten Notice of Termination . For purposes of t hi s Employment Ag r eement, a "Not ice of Termina t ion " means a wr itten notice that (i) indi cates the spec ifi c provision in this Employment Agreem ent being relied upon for such termination, (ii) to the extent applicable, sets forth in r easonab l e d eta il t he facts and c ir cumstances c laim ed to provide a ba s i s fo r the te rmin at i on of yo ur em plo yme nt under the provision so indicated, and (iii) specifies t he Date o f T e rmin at i on (as d efined below) . The failure by you or t he Company to set for th in the Notice of T e rmin ation any fact or circumstance that co n t rib utes to a s ho w ing of Cause or Good Reason, respectively, shall not wa i ve any right that you or the Company has hereunder or preclude your or t h e Company from asserti n g such fact or c ir cumstance in enforcing yo ur or the Company's righ ts hereunder . 5 . Compensation and other Benefits Upon Termination. 5.1 T erm i nat ion upon the Mutua l Agreement of t h e Pa r t i es : T erm in at i on as a Result of You r Death or Disability: Termination by the Company for Cause: T erm in at ion by Youfo r a Reason other t h an Good Reason . Upon the termination of yo ur emp l oyment pursuant to Section 4. 1 [t e rmin at ion upon the mu tua l ag r ee m e n t of the pa r t i es), Sect i on 4.2 [ te rmin at i on as a result of you r death or disabili ty], Sect i on 4 .3 [te r m ina t i on by the Company fo r Ca u se ], or Section 4.4 [ term in ation by you fo r a reason other than Good Reason], you s hall be entitled t o receive (l) any base sala r y earned but u np a i d as of the date of term i nat i o n , (2) any Pe rforman ce Bonus, Acqu i sit ion Bonus and/or Cap i ta l Ra i se Bonus whic h has been ea rned and determined as of t h e dat e of termination but not yet paid , an d (3) any a uth or i zed bus i ness expenses tha t were inc urred bu t not reimbu r sed as of the date of termination . 5 . 2 Term i nat i on by th e Company wi th out Cause : Term i nation by You for Good Reaso n . In t h e event t he Company term in ates yo ur emp l oym e nt w ith out Cause pu r sua nt to Sect i on 4 . 3 above, o r in the event you termina t e you r emp l oyment fo r Good Reason pur s uant to Sect i on 4 . 4 above, you sha ll be ent itl e d to r ece ive (7) any base sa l ary earned but unpa id as of t h e dat e o f

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6 termination, (2) any Performance Bonus, Acqu i s i t i on Bonus and/or Cap i tal Ra i se Bonus wh i ch has been earned and determined as of the date of termination but not yet paid, and (3) any authorized bus in ess expenses that we r e in cur r ed but not r e imbur sed as of the date of termination . I n addition , you wi ll be ent i t l ed to r eceive the fo ll ow in g severance benefits : 1. You w ill be entitled to severance pay equal to si x (6) months of your base sa l ary as of the date of your terminat i on . Theseve r ance w ill be paid i n the form of sa lar y contin u at i on during the six - month period im mediate l y fo ll ow in g you r term inati on pursuant to the Company's norma l payroll schedu l e and practices . 2. The Company w ill reimburse you fo r your COBRA premiums during the s i x (6) month period imm ed iatel y fol l ow i ng your employment te rmination date . 3. Th e vest ing of your unvested RSUs w ill be accele ra ted such tha t 50 % of your RSUs that we r e no t yet vested im med i ately prior to your e m p l oyment te r m in at i on date wi ll be deemed fu lly vested as of your employment term in at i on date . 6. Other Conditions . 1. The Compa n y w ill furnish you a l aptop and cell phone w here a ll you r Company business i s expected to be transacted . No us e of personal l aptop or ce ll pho n e i s permitted . 2. Your dutie s are expected to in clude extensive travel to achieve the objectives of the Company . This may be se l f - i n i t i ated travel o r at the direc tio n of th e C hief Exec uti ve Off icer . As a cond i t i o n of emp l oyment, yo u ag r ee to s i gn t hi s Emplo yment Agreement no l ater than the October 15 , 2022 and pass a criminal background chec k . I look forward to your d ec i s i on regarding your new position at the Company and I am confi d ent that the r elatio n sh ip w ill be a mutua ll y re wa rdin g one . Please l et me k n ow your d ec i s i on in due t im e . I n add i t i on, please ind i cate yo ur acceptance of the te r ms and condit i o n s set fo r th i n this E mployment Agreement by s i gning and returning . T h anks!

![](image_009.jpg)

Regards, 7 Unusua l Machines, Inc. /i Brandon Torres Declet CEO & Chairman of the Board

![](image_010.jpg)

AGREED AND ACCEPTED Brian Hoff 8 Date: Oc - le,l:,er Zt> 22. .

## Exhibit 23.1

**Exhibit 23.1**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We hereby consent to the incorporation in this Form S-1-A1 of our report dated March 14, 2023, relating to the financial statements of Unusual Machines, Inc. as of December 31, 2022 and 2021 and to our report dated December 14, 2022, related to the financial statements of Fat Shark Holdings, Ltd. as of April 30, 2022 and 2021 and to our report dated December 14, 2022, related to the financial statements of Rotor Riot, LLC as of April 30, 2022 and 2021 and to all references to our firm included in this registration statement.

Certified Public Accountants

Lakewood, CO

March 14, 2023

## Ex-Filing

**Exhibit 107**

**Calculation of Filing Fee Tables**

<u>Form S-1</u>

(Form Type)

<u>Unusual Machines, Inc.</u>

(Exact Name of Registrant as Specified in its Charter)

<u>Table 1: Newly Registered and Carry Forward Securities</u>

---

| | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Security <br> Type** | **Security <br> Class <br> Title** | **Fee <br> Calculation <br> or Carry <br> Forward Rule** | **Amount <br> Registered** | **Proposed <br> Maximum <br> Offering <br> Price Per <br> Unit** | **Maximum<br> Aggregate<br> Offering<br> Price**<br> **(1)** | **Fee <br> Rate** | **Amount of <br> Registration <br> Fee** | **Carry <br> Forward <br> Form <br> Type** | **Carry <br> Forward <br> File <br> Number** | **Carry <br> Forward <br> Initial <br> effective <br> date** | **Filing Fee <br> Previously <br> Paid In <br> Connection <br> with <br> Unsold <br> Securities <br> to be<br> Carried <br> Forward** |
| **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** |
| Fees to Be <br> Paid | Equity | Common Stock, par value $0.01 per share<br> (2) | 457(o) | (1) | (1) | $20125000.00 | $110.20 per $1,000,000 | $2217.78 |  |  |  |  |
| Fees <br> Previously<br> Paid |  |  |  |  |  |  |  |  |  |  |  |  |
| **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** |
| Carry <br> Forward<br> Securities |  |  |  |  |  |  |  |  |  |  |  |  |
|  | **Total Offering Amounts (3)** | **Total Offering Amounts (3)** | **Total Offering Amounts (3)** | **Total Offering Amounts (3)** |  | $20125000.00 | $2217.78 |  |  |  |  |  |
|  | **Total Fees Previously Paid** | **Total Fees Previously Paid** | **Total Fees Previously Paid** | **Total Fees Previously Paid** |  |  | $0 |  |  |  |  |  |
|  | **Total Fee Offsets** | **Total Fee Offsets** | **Total Fee Offsets** | **Total Fee Offsets** |  |  |  |  |  |  |  |  |
|  | **Net Fee Due** | **Net Fee Due** | **Net Fee Due** | **Net Fee Due** |  |  | $2217.78 |  |  |  |  |  |

---

__________________

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(2) Represents maximum total gross proceeds of up to $20,125,000 from the sale of shares of common stock, par value $0.01 per share. This amount also includes common stock that may be issued upon exercise of a 45-day over-allotment option granted to the underwriter. Based on an assumed offering price of $4.25, the midpoint of the anticipated range of potential offering prices per share, the number of shares sold in the offering, including pursuant to the over-allotment option, would be 4,735,295 shares.

(3) In the event of a stock split, stock dividend, or similar transaction involving our common stock, the number of shares registered shall automatically be increased to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act of 1933.