Unusual Machines, Inc S-1, filed Sep 11, 2024

Unusual Machines, Inc. (UMAC)

S-1 2024-09-11

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Nevada		3663		66-0927642
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

	Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	ii
PROSPECTUS SUMMARY	1
THE OFFERING	3
RISK FACTORS	6
USE OF PROCEEDS	35
DIVIDEND POLICY	35
DETERMINATION OF OFFERING PRICE	35
CAPITALIZATION	35
SELLING STOCKHOLDERS	36
PLAN OF DISTRIBUTION	38
BUSINESS	40
PROPERTIES	44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45
MANAGEMENT	53
CORPORATE GOVERNANCE	55
EXECUTIVE COMPENSATION	59
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	63
RELATED PARTY TRANSACTIONS	63
PRINCIPAL STOCKHOLDERS	65
DESCRIPTION OF OUR SECURITIES	66
LEGAL MATTERS	68
EXPERTS	68
WHERE YOU CAN FIND MORE INFORMATION	68
INDEX TO FINANCIAL STATEMENTS	69

	·	The market and sales success of our existing and any new products;
	·	our ability to raise capital when needed and on acceptable terms;
	·	the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months;
	·	our ability to make acquisitions and integrate acquired businesses into our company;
	·	our limited operating history;
	·	our ability to attract and retain qualified employees and key personnel;
	·	our ability to manage our rapid growth and organizational change effectively;
	·	changes in the political and regulatory environment and in business and economic conditions in the United States and globally;
	·	geopolitical conflicts in Ukraine and Israel;
	·	our ability to develop and maintain our brand cost-effectively; and
	·	the other factors set forth in “Risk Factors” beginning on page 6 of this Prospectus.

Issuer		Unusual Machines, Inc., a Nevada corporation

Securities offered by the Selling Stockholders		A total of 7,080,038 shares of our common stock. This includes 7,017,538 shares of common stock which we refer to herein as “Principal Selling Stockholders Shares,” and (ii) 62,500 shares of common stock which we refer to herein as “Representative Shares”. See “Selling Stockholders” beginning on page 36 for more information.

Total common stock outstanding after the resale offering(1)		13,265,021 shares of common stock.

Use of Proceeds		We will not receive any proceeds from the sale of the Securities covered by this Prospectus.

Risk Factors		Investing in our common stock involves a high degree of risk. For a discussion of factors to consider before deciding to invest in our common stock, you should carefully review and consider the “Risk Factors” beginning on page 6 of this Prospectus.

	·	250,000 shares of our common stock issuable upon conversion of outstanding Series B preferred stock (the “Series B”); and
	·	Future equity grants to our officers and independent directors. See “Executive Compensation”.

	·	Because the Company had a very limited operating history prior to its acquisition of Fat Shark and Rotor Riot, any investment in us is highly speculative.
	·	Fat Shark and Rotor Riot incurred net losses since their acquisition by Red Cat and may fail to achieve or maintain profitability.
	·	The Company may be unable to repay its indebtedness.
	·	We may begin to amortize our intangibles, which will result in a non-cash charge going forward and until we do a valuation, the amount is uncertain and the future charge may or may not be material.
	·	If the proceeds of the prior IPO 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.
	·	If we lose key personnel, it may adversely affect our business.
	·	Conflicts of interest involving our board of directors (“Board”) and other parties could materially harm our business.
	·	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.
	·	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.
	·	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 failure to effectively manage our growth could harm our business.
	·	If we are unable to attract, integrate and retain additional qualified personnel, including top technical talent, our business could be adversely affected.

	·	We operate in an emerging and rapidly evolving industry which makes it difficult to evaluate our business and future prospects.
	·	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 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.
	·	Several steps of our production processes are dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.
	·	We may not be able to procure necessary key components for our products or may produce or purchase too much inventory.
	·	We may not be able to keep pace with technological advances; and we depend on advances in technology by other companies.
	·	Lack of long-term purchase orders and commitments from customers may lead to a rapid decline in sales.
	·	Our products require ongoing research and development and may experience technical problems or delays, which could lead the business to fail.
	·	If we are involved in litigation, it could harm our business or otherwise distract management.
	·	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.
	·	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.
	·	Future acquisitions could disrupt our business and adversely affect our operating results, financial condition and cash flows.
	·	If we incur any future impairment in the carrying value of our goodwill asset or write-off of our general intangibles, it could depress our stock price.
	·	Product quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.

	·	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.
	·	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.
	·	If we lose our rights under our third-party technology licenses, our operations could be adversely affected.
	·	Significant inflation could adversely affect our business and financial results.

	·	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.
	·	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 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.
	·	If the courts uphold the SEC’s climate change rules, we will incur additional costs which may materially and adversely affect our operating results and financial condition.
	·	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.

	·	Because the Purchase Price for Fat Shark and Rotor Riot exceeded an independent valuation that Red Cat received for the enterprise value of the target companies, you may lose all or part of your investment.
	·	The market price of our shares of common stock is subject to fluctuation.
	·	Our stock price may be and has been volatile, which could result in substantial losses to investors.
	·	An active trading market for our common stock may not develop.
	·	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 125,000 shares of our common stock held by Mr. Jeffrey Thompson, the value of such shares may be an insufficient remedy.
	·	We are incurring 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.
	·	Our failure to maintain effective disclosure controls and internal controls over financial reporting could have an adverse impact on us.
	·	Because our common stock is listed on NYSE American, we are subject to additional regulations and continued requirements.
	·	Our Board may authorize and issue shares of new classes of stock that could be superior to or adversely affect current holders of our common stock.
	·	If we raise capital in the future, it may dilute our existing stockholders’ ownership and/or have other adverse effects on us, our securities or our operations.
	·	Common stock eligible for future sale may adversely affect the market price.
	·	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.
	·	We and our investors face the implications of our status as an emerging growth company under the federal securities laws and regulations.
	·	We have never paid dividends and we do not expect to pay dividends for the foreseeable future.
	·	Our Articles of Incorporation contains certain provisions which may result in difficulty in bringing stockholder actions against or on behalf of the Company or its affiliates.

	·	researching, developing, producing and distributing new products;

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

	·	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;

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

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

	·	developing our indirect sales channels and strategic partner network;

	·	maintaining the quality of our technology infrastructure;

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

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

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

	·	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;

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

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

	·	any future impact from the ongoing geopolitical military conflict (including the war in Israel, the Russian war in Ukraine, tensions between China and Taiwan, and other unrest in the Middle East);

	·	supply chain issues particularly due to 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.

	·	New Product Launches: 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;

	·	Existing Products Impacted by New Introductions: 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

	·	Forecasting, Planning and Supply Chain Logistics: 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.

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

	·	acquiring and maintaining market share;

	·	attracting and retaining qualified personnel;

	·	successfully developing and commercially marketing new products;

	·	complying with development regulatory requirements;

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

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

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

	·	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.

	·	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.

	·	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.

	·	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.

	·	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 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.

	·	We do not have a supply agreement requiring the manufacturer to produce a specified volume per year;
	·	Of the initial 10,000 units, one overseas customer elected to purchase 6,600 controllers;
	·	The manufacturer expects to deliver the 10,000 controllers to us over a seven-month period which increases the likelihood we may be unable to meet a large order from one or more customers;
	·	Beyond the 10,000 units, we have no assurances on future pricing which means future costs could adversely affect our marketing and future gross margins;
	·	Because we have no non-compete from the manufacturer, it could manufacture controllers for our competitors;
	·	We have no representations from the manufacturer on its intellectual property ownership of the controllers; and
	·	Because we are not the manufacturer, we are subject to a number of risks including timely deliveries and quality control.

	·	our ability to integrate the operations of Fat Shark and Rotor Riot;

	·	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 Rotor Riot and achieve consistent profitability;

	·	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

	·	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 drone 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.

	·	on an actual basis;

	·	on a pro forma basis to give effect to (i) the cancellation of 4,250,000 shares of common stock and issuance of 4,250 shares of Series A preferred stock, and (ii) the reduction of $1.0 million of the note payable in exchange for 210 shares of Series C convertible into 630,000 shares of or our common stock.

	·	on a pro forma basis as adjusted basis to give effect to (i) the full conversion of 4,250 shares of Series A into 4,250,000 shares of common stock, (ii) the full conversion of 50 shares of Series B into 250,000 shares of common stock, (iii) the full conversion of 210 shares of Series C into 630,000 shares of common stock, (iv) the full exercise of the Warrants into 630,000 shares of our common stock, and (v) the full conversion of the New Notes into 1,507,538 shares of our common stock. The pro forma adjustments do not take into account certain beneficial ownership limitations contained in the Series A, Series B, Series C, the Warrants and the New Notes.

	As of June 30, 2024 (Presented in $ except for share numbers)
	Actual			Pro forma (1)			Pro forma as adjusted (2)
Long term debt	$	4,000,000		$	3,000,000		$	–

Par value of preferred stock		0.01			0.01			0.01
Series A Convertible Preferred Stock, 0 shares issued and outstanding as of June 30, 2024		–			43			–
Series B Convertible Preferred Stock, 50 shares issued and outstanding as of June 30, 2024		1			1			–
Series C Convertible Preferred Stock, 210 shares issued and outstanding as of June 30, 2024		–			2			–

Par value of common stock		0.01			0.01			0.01
Common stock, 10,411,240 shares issued and outstanding as of June 30, 2024; pro forma as adjusted reflects 13,265,021 shares issued and outstanding		104,113			61,612			134,287

Additional paid in capital		26,518,993			27,561,449			30,488,820
Accumulated deficit		(6,651,286	)		(6,651,286	)		(6,651,286	)
Total stockholders’ equity	$	19,971,821		$	20,971,821		$	23,971,821
Total capitalization	$	23,971,821		$	23,971,821		$	23,971,821

	(1)	Reflects (i) the cancellation of 4,250,000 shares of common stock and issuance of 4,250 shares of Series A preferred stock, and (ii) conversion of $1.0 million of the note payable into 210 shares of Series C Convertible Preferred Stock.

	(2)	Reflects and gives effect to pro forma (1) adjustments and (i) the conversion of 4,250 shares of Series A Convertible Preferred Stock into 4,250,000 shares of common stock, (ii) the conversion of 50 shares of Series B Convertible Preferred Stock into 250,000 shares of common stock, (iii) the conversion of 210 shares of Series C Convertible Preferred Stock into 630,000 shares of common stock and (iv) the full exercise of warrants into 630,000 shares of common stock, and (iv) full conversion of the New Notes into 1,507,538 shares of our common stock and reducing our debt by the remaining $3.0 million.

Name of Selling Stockholders	Shares of Common Stock Beneficially Owned prior to this Offering		Shares Offered by this Prospectus			Shares of Common Stock Beneficially Owned After this Offering		Percentage of Shares of Common Stock Beneficially Owned After this Offering (1)

Eleven Ventures LLC (2)		426,538		3,793,135	(3)		101,538		0.8%
Titan Multi Strategy Fund I Ltd. (4)		325,000		3,225,000	(5)		–		–%
Dominari Securities LLC (6)		45,250		45,250	(7)		–		–%
Revere Securities LLC (8)		8,750		8,750	(9)		–		–%
R.F. Lafferty & Co. (10)		8,500		8,500	(11)		–		–%

*	Less than 1%

(1)	Percentages are based on 13,265,021 shares of common stock outstanding as of the date of this Prospectus and assumes the Selling Stockholders’ Shares offered by this Prospectus are sold.

(2)	The 426,538 shares represents 101,538 shares of common stock which are not offered for sale by this Prospectus and 325,000 Shares issuable upon conversion of any of the New Note or Series C or exercise of the Warrants subject in all cases to a 4.99% beneficial ownership limitation. The Eleven Ventures LLC is managed by Eleven Managers LLC. Hartley Wasko is the sole manager of Eleven Managers LLC. Accordingly, Eleven Managers LLC and Hartley Wasko are each deemed to have beneficial ownership of Eleven Ventures LLC. The business address of Eleven Ventures LLC is 463 Adams Street, Denver, CO 80206.

(3)	Comprised of (i) 2,318,000 Shares issuable upon the full conversion of the Series A, (ii) 315,000 Shares of common stock issuable upon the full conversion of the Series C, (iii) 315,000 Shares issuable upon the full exercise of the Warrants and (iv) 845,135 Shares issuable upon the full conversion of the New Note.

(4)	The 325,000 Shares issuable upon conversion of any of the New Note, the Series C or exercise of the Warrants, subject in all cases to a 4.99% beneficial ownership limitation. Titan Multi Strategy Fund I Ltd. is managed by Jonathan Honig. The business address for Titan Multi Strategy Fund I Ltd. is 5825 Windsor Court, Boca Raton, FL 33496.

(5)	Comprised of (i) 1,932,000 Shares issuable upon the full conversion of the Series A and (ii) 315,000 Shares issuable upon the full conversion of the Series C, (iii) 315,000 Shares issuable upon the full exercise of the Warrants and (iv) 662,403 Shares issuable upon the full conversion of the New Note.

(6)	Dominari Securities LLC is managed by CEO, Kyle Wool with a business address of 725 Fifth Avenue, 23^rd Floor, New York, NY 10022
(7)	Represents 45,250 Shares issuable upon the full exercise of the Representative’s Warrant.
(8)	Revere Securities, LLC is managed by CEO, Bill Moreno with a business address of 560 Lexington Avenue, 16^th Floor, New York, NY 10022
(9)	Represents 8,750 Shares issuable upon the full exercise of the Representative’s Warrant.
(10)	R.F. Lafferty & Co. is managed by CEO Henry Hackel with a business address of 40 Wall Street, 29^th Floor, New York, NY 10005.
(11)	Represents 8,500 Shares issuable upon the full exercise of the Representative’s Warrant.

	·	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

	·	block trades in which the broker-dealer will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	·	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

	·	an exchange distribution in accordance with the rules of the applicable exchange;

	·	privately negotiated transactions;

	·	settlement of short sales;

	·	in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such Shares at a stipulated price per share;

	·	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

	·	a combination of any such methods of sale; or

	·	any other method permitted pursuant to applicable law.

	·	Prohibits federal departments and agencies from procuring and operating certain foreign commercial off-the-shelf drone or covered unmanned aircraft system manufactured or assembled in countries identified as national security threats, and provides a timeline to end current use of these drones.
	·	Prohibits the use of federal funds awarded through certain contracts, grants, or cooperative agreements to state or local governments from being used (1) to procure a covered unmanned aircraft system that is manufactured or assembled by a covered foreign entity or (2) in connection with the operation of such a drone or unmanned aircraft system.
	·	Requires the Comptroller General of the United States to submit a report to Congress no later than 275 days after the enactment of the NDAA detailing the amount of foreign commercial off-the-shelf drones and covered unmanned aircraft systems procured by federal departments and agencies from countries identified as national security threats.