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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 16, 2024
Unusual Machines, Inc.
(Exact name of registrant as specified in its charter)
| Puerto Rico | 333-270519 | 66-0927642 | ||
| (State or other jurisdiction | (Commission | (IRS Employer | ||
| of incorporation) | File Number) | Identification No.) |
| 151 Calle De San Francisco Suite 200 PMB 2106 | ||
| San Juan, Puerto Rico | 00901-1607 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (720) 383-8983
N/A
(Former name or former address, if changed since last report.)
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 | UMAC | NYSE American |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
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Item 2.01 Completion of Acquisition or Disposition of Assets.
On February 16, 2024 (the “Closing Date”), Unusual Machines, Inc. (the “Company”) acquired 100% of the equity of Fat Shark Holdings Ltd (“Fat Shark”) and Rotor Riot LLC (“Rotor Riot”) from Red Cat Holdings, Inc. (“Red Cat”) in exchange for $20 million (the “Purchase Price”) comprised of (i) $1.0 million in cash, (ii) a $2.0 million promissory note (the “Note”) issued by the Company to Red Cat on the Closing Date, and (iii) $17.0 million of the Company’s common stock or 4,250,000 shares of common stock issued by the Company on the Closing Date. See the next page for information on certain registration rights we granted to Red Cat. On the Closing Date, Red Cat also executed a lock-up agreement effective for 180 days following the Closing Date, or such lesser period as may be agreed upon by the managing underwriter of the Company’s initial public offering and Red Cat under which Red Cat agreed not to transfer or sell any of its 4,250,000 shares of our common stock during such period, subject to certain exceptions. The Company’s initial public offering was also consummated on the Closing Date. As a result of the Company’s issuance of the 4,250,000 shares of common stock to Red Cat, Red Cat owns 48.66% of the Company’s common stock as of the Closing Date.
The Company, Red Cat, and Jeffrey Thompson, Chief Executive Officer of Red Cat and a director of the Company, (the “Thompson”) had previously entered into a Share Purchase Agreement dated November 21, 2022 (as amended, the “Purchase Agreement”). The Purchase Agreement contained, among other terms, the terms and conditions required to consummate the acquisitions and contained customary representations and warranties.
On the Closing Date, the parties to the Purchase Agreement agreed to defer the requirement to provide the Estimated Working Capital Statement (as defined in the Purchase Agreement) and the calculations of the Estimated Working Capital (as defined in the Purchase Agreement), and as applicable, the Estimated Working Capital Excess Amount (as defined in the Purchase Agreement) or the Estimated Working Capital Deficiency Amount (as defined in the Purchase Agreement) required by Section 2.04(a) of the Purchase Agreement. Rather, the parties agreed that their respective financial teams will deliver estimated or agreed upon actual calculations of the foregoing (based on the book value of physical inventory and fair value of any transition inventory in accordance with Generally Accepted Accounting Principles) on or before May 17, 2024 (the “Calculation Date”). Any disputes with respect to any calculations including the failure to agree on such calculations by the Calculation Date (unless the Parties shall agree to an extension of the Calculation Date in writing) shall be resolved by an Independent Accounting Firm and the mechanics set forth in Section 2.04(c) of Purchase Agreement. No payments or adjustments related to Working Capital was made on the Closing Date. In the event that after determining the actual Working Capital calculation, any actual Working Capital Excess Amount, at Red Cat’s option, will be paid in cash or will increase the principal amount of the Note and any actual Working Capital Deficiency Amount will, at Red Cat’s option, will be paid in cash or will reduce the principal amount of the Promissory Note dollar for dollar.
The Note bears interest at 8%. Interest is payable monthly in arrears on the 15th day of each month commencing on the next month following the original issue date of the Note. The principal amount of the note is payable in a lump sum on the 18 month anniversary of Closing Date. In the event of a qualified financing of debt or equity where the Company receives net proceeds of $5.0 million in one or more related transactions, Red Cat may require the Company to repay the Note with accrued interest thereon in cash. Upon an event of default, Red Cat may require the Company to convert the Note into shares of our common stock, subject to beneficial ownership limitations set forth in the Note, at a conversion price equal to an amount of the 10 day average VWAP (as defined in the Note) prior to the conversion date.
In addition, the Company executed a Registration Rights Agreement pursuant to which the Company agreed to use its best efforts to prepare and file a registration statement with respect to 500,000 shares of its common stock which were issued to Red Cat as part of the Purchase Price, and to cause such registration statement to be filed within 120 days and declared effective within 180 days of closing.
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On the Closing Date, Thompson’s executed a Lock-up Agreement effective for 180 days following the Closing Date (the “Lock-up Period”) with respect to all of his shares of common stock that he held on the Closing Date. In addition, Thompson agreed that upon the expiration of the Lock-Up Period, 125,000 shares of the Company’s common stock (the “Security Shares”) shall remain locked-up subject to his Lock-Up Agreement for an additional 90 days, or for such longer period until there is a Settled Claim (as defined in the Lock-up Agreement”) or resolution of a Disputed Claim (each as defined in the Lock-up Agreement) to provide security for Red Cat’s and Thompson’s indemnification obligations to the Company pursuant to the Purchase Agreement.
On the Closing Date, the Company entered into a Non-Compete Agreement in favor of Red Cat whereby for a period commencing with the Closing Date continuing for a period of five years (the “Restricted Period”), the Restricted Parties (as defined in the Non-Compete Agreement) agreed to restrict its activities and agreed not to design, manufacture, market, import, build or sell any Group 1 or Group 2 UAV drone (as defined in the Non-Compete Agreement) to customers which are a Governmental Authority (as defined in the Non-Compete Agreement) and/or any third-party intermediary to customers which are a Governmental Authority, without the prior written consent of Red Cat. Dr. Allan Evans, the Company’s Chief Executive Officer, also executed and delivered a similar Non-Compete Agreement with a 12 month Restricted Period.
The Company’s Non-Compete Agreement also provided that the Company shall be entitled to be paid 10% of net collected revenue as and when collected for sales made by Teal Drones Inc. or any successor or affiliated company of Teal (“Teal”) referred by the Company (a “UMAC Referral”) for sales of Group 1 or Group 2 UAV drones to a Government Authority not previously in contact with Teal and the Company is obligated to refer all such opportunities to Teal during its Restricted Period. Such referral fees shall be payable to the Company after the expiration of the Restricted Period if Teal continues to sell Group 1 UAV or Group 2 UAV drones to a third party that was a UMAC Referral.
The foregoing descriptions of the Purchase Agreement, the Note, and the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by the full text of the Purchase Agreement (as its related amendments) which are incorporated by reference as Exhibits 10.1 through 10.5, respectively to this Current Report, the full text of the Note which is incorporated by reference as Exhibit 4.1 to this Current Report, the full text of the Registration Rights Agreement which is incorporated by reference as Exhibit 10.6 to this Current Report, the full text of Thompson’s Lock-up Agreement which is incorporated by reference as Exhibit 10.7 to this Current Report, the full text of the Company’s Non-Compete Agreement which is incorporated by reference as Exhibit 10.8 to this Current Report, and the full text of the Allan Evans’s Non-Compete Agreement which is filed as Exhibit 10.9 to this Current Report, all of which are incorporated herein by reference.
Item 8.01. Other Events.
On February 22, 2024, the Company issued a press release announcing that it had consummated the acquisitions described in Item 2.01 of this Current Report. The Company’s press release is filed as Exhibit 99.1 to this Current Report and is incorporated herein by reference.
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Item 9.01 Financial Statements and Exhibits
(d) Exhibits
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Incorporated by Reference |
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| Exhibit # | Exhibit Description | Form | Date | Number |
Filed or Furnished Herewith |
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| 4.1 | Form of Promissory Note | S-1/A | 12/15/2023 | 4.3 | ||||||
| 10.1 | Share Purchase Agreement+ | S-1 | 03/14/2023 | 10.1 | ||||||
| 10.2 | Amended and Restated Amendment No. 1 to Share Purchase Agreement | S-1/A | 05/03/2023 | 10.2 | ||||||
| 10.3 | Amendment No. 2 to Share Purchase Agreement | S-1/A | 08/07/2023 | 10.3 | ||||||
| 10.4 | Amendment No. 3 to Share Purchase Agreement | S-1/A | 09/19/2023 | 10.4 | ||||||
| 10.5 | Amendment No. 4 to Share Purchase Agreement | S-1/A | 12/15/2023 | 10.5 | ||||||
| 10.6 | Revised Form of Registration Rights Agreement | S-1/A | 12/15/2023 | 10.6 | ||||||
| 10.7 | Form of Lock-up Agreement – Jeffrey Thompson | S-1/A | 02/01/2024 | 10.15 | ||||||
| 10.8 | Form of Non-Compete Agreement | S-1/A | 08/07/2023 | 10.8 | ||||||
| 10.9 | Allan Evans Non-Compete Agreement | Filed Herewith | ||||||||
| 99.1 | Press Release Dated February 22, 2024 | Filed Herewith | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Unusual Machines, Inc. | ||
| Date: February 22, 2024 | By: | /s/ Allan Evans |
| Name: | Allan Evans | |
| Title: | Chief Financial Officer | |
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Exhibit 10.9
NON-COMPETE
I hereby enter into this Non-Compete (“Agreement”) with Unusual Machines, Inc. (“the Company”) on this the 16th day of February 2024 (the “Effective Date”).
WHEREAS, I have been an employee as Chief Executive Officer of the Company pursuant to an Offer Letter dated November 27, 2023 (the “Offer Letter”);
WHEREAS pursuant to a Share Purchase Agreement dated November 21, 2022 (as, amended, the “SPA”) by and among the Company, Red Cat Holdings, Inc., a Nevada corporation (“Red Cat”), and Jeffrey Thompson, on or about the date hereof the Company will acquire from Red Cat all of the capital stock of Fat Shark Holdings, Ltd (“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot,” and collectively the “Target Companies”) in connection with the acquisition contemplated in the SPA (the “Acquisition”);
WHEREAS as an inducement and condition precedent for Red Cat to consummate the Acquisition and the transactions contemplated by the SPA, I am required to execute and deliver this Agreement;
WHEREAS, the Company and I recognize that the agreements and covenants contained in this Agreement are required to protect the business interests of Red Cat.
NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and I hereby agree as follows, intending to be legally bound:
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| 1. | NON-COMPETITION AND NON-SOLICITATION |
1.1 Prohibited Business. “Prohibited Business” means any business substantially similar to or competitive with the business conducted by Red Cat or its affiliates as of the day of this Agreement excluding the businesses of the Target Companies to be acquired in connection with the Acquisition, including, but not limited to the designing, manufacturing, marketing, importing, build or sell any Group 1 or Group 2 UAV drone (as defined below) to customers which are a Governmental Authority (as defined below) and/or any third-party intermediary to customers which are a Governmental Authority, and all ancillary activities and associated transactions, without the prior written consent of Red Cat. As used in this Agreement, a “Group 1 UAV” drone is defined as a small, lightweight unmanned system (such as the Teal 2 and RQ-11 Raven drones) weighing up to 20 pounds that are designed for operation at lower altitudes (capable of reaching up to 1,200 feet above ground level at speeds of less than 100 knots. As used in this Agreement, a “Group 2 UAV” drone is defined as drones that weigh between 21 and 55 pounds (such as the RQ-7 Shadow) and are designed for medium range missions, capable of reaching altitudes up to 3,500 feet above ground level and fly at speed less than 250 knots. As used in this Agreement, “Governmental Authority” means a 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.
1.2 Non-Competition. I agree that during the period commencing on the Effective Date and continuing for a period of twelve months (the “Non-Competition Period”), I will not, without the Company’s express written consent, directly or indirectly, for myself or for others, in the United States:
| (a) | engage in or attempt to engage in any activity, work, business, or investment in the Prohibited Business; provided, however, I may own an investment interest of less than 5% in a publicly-traded company and my current shareholdings in Red Cat; or | |
| (b) | render advice or services to, or otherwise assist, any other person or entity who is engaged, directly or indirectly, in the Prohibited Business; or | |
| (c) | directly or indirectly, either as proprietor, stockholder, partner, officer, employee or otherwise, distribute, sell, offer to sell, or solicit any orders for the purchase or distribution of any products or services which are similar to those distributed, sold or provided by Red Cat during the 12 months preceding my termination of employment with Red Cat, to or from any person, firm or entity which was a customer of Red Cat during the 12 months preceding such termination of employment. |
So long as Red Cat will hold at least 10% of the equity of the Company that it will receive in connection with the consummation of the Acquisition, this Section 3.2 may not be waived without the express written consent of Red Cat.
2. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.
3. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement.
4. GENERAL PROVISIONS
4.1 Notices. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three days after the date of mailing.
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4.2 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of New York, as such laws are applied to agreements entered into and to be performed entirely within New York between New York residents. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in New York, New York for any lawsuit filed there against me by the Company arising from or related to this Agreement.
4.3 Legal and Equitable Remedies. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.
4.4 Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall then appear.
4.5 Assignment. The Company may assign this Agreement or any part of its rights under this Agreement. I may not assign or delegate my duties under this Agreement without the Company’s prior written approval. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.
4.6 Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee.
4.7 Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause.
4.8 Waiver. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
4.9 Entire Agreement. The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which I was previously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement along with my Offer Letter are the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment of this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
4.10 Third Party Beneficiaries. I acknowledge that Red Cat and the Company’s legal counsel (for the purposes of issuing its legal opinion in connection with the consummation of the Offering (as defined in the SPA)) shall be entitled to rely on this Agreement.
This Agreement shall be effective as of the first day of my employment with the Company, November 27, 2023.
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I have read the Agreement carefully and understand its terms. I have completely filled out Exhibit A to this Agreement.
Accepted and Agreed to:
| Dated: | 2/16/24 | |
| /s/ Allan Evans | ||
| Signature | ||
| Allan Evans | ||
| UNUSUAL MACHINES, INC. | ||
| By: | /s/ Brian Hoff | |
| Name: Brian Hoff | ||
| Title: Chief Financial Officer | ||
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Exhibit 99.1
Unusual Machines Completes Acquisitions of Fat Shark and Rotor Riot
SAN JUAN, PUERTO RICO – February 22, 2024 (ACCESSWIRE) – Unusual Machines, Inc. (NYSE American: UMAC) (“Unusual Machines” or the “Company”) announced today the closing of its acquisitions of Fat Shark Holdings, Ltd. (“Fat Shark”), a pioneer in the design and manufacture of ultra-low latency first-person-view (FPV) goggles, and Rotor Riot LLC (“Rotor Riot”), a curated e-commerce marketplace focused on serving drone enthusiasts.
"With the acquisitions of Fat Shark and Rotor Riot, Unusual Machines is well positioned to serve the FPV drone market," said Allan Evans, CEO of Unusual Machines. "These strategic moves provide the basis from which we are able to focus on delivering great products to enthusiasts, drone builders, and FPV pilots."
The integration of Fat Shark and Rotor Riot into Unusual Machines is expected to bolster the Company's market position, leveraging Fat Shark's technical prowess in FPV goggles and Rotor Riot's robust e-commerce platform and community engagement. Historical revenues for the two companies for the 12-months ended April 30, 2023, were $5.8 million, up 26.1% from $4.6 million in the 12-months ended April 30, 2022.
Unusual Machines' business is focused on expanding its customer base through superior products and rapid adoption. The Company is committed to investing in new products and intellectual property and aims to explore and pursue additional acquisitions that complement and enhance its current offerings, with an emphasis on expanding customer relationships and integrating third-party solutions.
By targeting promising FPV drone companies, Unusual Machines aims to provide a domestic alternative to international players. "Our acquisitions of Fat Shark and Rotor Riot mark the beginning of an exciting journey toward leadership in the nascent domestic drone industry," added Evans. "We are committed to unlocking the full potential of FPV technology and delivering superior experiences to our customers worldwide."
About Unusual Machines
Unusual Machines manufactures and sells drone components and drones across a diversified brand portfolio. The Company also retails small, acrobatic FPV (first-person-view) drones and equipment directly to consumers through the curated Rotor Riot e-commerce store. With a changing regulatory environment, Unusual Machines seeks to be a dominant Tier-1 parts supplier to the fast-growing multi-billion-dollar US drone industry. According to Fact.MR, the global drone accessories market is currently valued at $17.5 billion and is set to top $115 billion by 2032.
For more information visit Unusual Machines at https://www.unusualmachines.com/.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements regarding the integration of Fat Shark and Rotor Riot and the expected benefits, investing in new products and intellectual property, pursing, pursuing complimentary acquisitions, and becoming the dominant Tier-1 supplier to the drone industry. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. The results expected by some or all of these forward-looking statements may not occur. Factors that affect our ability to achieve these results include our ability to select, negotiate and close any acquisition targets, the sufficiency of our cash resources and future stock price, our ability to enhance our existing products, develop new products and create new services for our customers and future customers, and the risk factors contained in our final Prospectus filed with the Securities and Exchange Commission. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Any forward-looking statement made by us herein speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Contact:
Dave Gentry
RedChip Companies
1-407-491-4498
1-800-733-2447
UMAC@redchip.com
SOURCE: Unusual Machines, Inc.