Unusual Machines, Inc. Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2025

Or

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____________ to _____________

Commission File No. 001-41961

Unusual Machines, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		66-0927642
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4677 L B McLeod Rd

Suite J

Orlando, FL

32811

Address of Principal Executive Offices

Zip Code

(720) 383-8983

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, par value $0.01 per share	UMAC	NYSE American

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-accelerated Filer ☒	Smaller Reporting Company ☒
	Emerging Growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ☐ No ☒

As of August 14, 2025, 30,437,786 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

UNUSUAL MACHINES, INC.

2025 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4
	Consolidated Condensed Balance Sheets	4
	Unaudited Consolidated Condensed Statements of Operations	5
	Unaudited Consolidated Condensed Statements of Changes in Shareholders’ Equity	6
	Unaudited Consolidated Condensed Statements of Cash Flows	8
	Notes to Unaudited Consolidated Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	Signatures	35

Unless we state otherwise or the context otherwise requires, the terms “Unusual Machines,” “we,” “us,” “our” and the “Company” refer to Unusual Machines, Inc., a Nevada corporation.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology.

Forward-looking statements are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include the factors set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024 and Part II, Other Information, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.

These forward-looking statements speak only as of the date of this Form 10-Q and are subject to business and economic risks. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Unusual Machines, Inc.

Consolidated Condensed Balance Sheets


	June 30, 2025			December 31, 2024
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	38,933,059		$	3,757,323
Accounts receivable		173,388			66,575
Inventories		1,609,117			1,335,503
Prepaid inventory		1,314,592			904,728
Other current assets		192,778			31,500
Total current assets		42,222,934			6,095,629

Non-current assets:
Property and equipment, net		262,979			570
Operating lease right-of-use asset, net		288,516			323,514
Other assets		84,693			59,426
Goodwill		7,402,906			7,402,906
Intangible assets, net		2,184,686			2,225,530
Total non-current assets		10,223,780			10,011,946

Total assets	$	52,446,714		$	16,107,575

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	608,694		$	668,732
Operating lease liability		73,569			67,820
Deferred revenue		139,435			197,117
Total current liabilities		821,698			933,669

Non-current liabilities
Deferred tax liability		93,793			93,793
Operating lease liability – non-current		223,762			262,171
Total non-current liabilities		317,555			355,964

Total liabilities		1,139,253			1,289,633

Commitments and contingencies (See note 13)		–			–

Stockholders’ equity:
Preferred stock - $0.01 par value, 10,000,000 authorized		–			–
Series A preferred stock - $0.01 par value, 4,250 designated and 0 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively		–			–
Series B preferred stock - $0.01 par value, 1,000 designated and 0 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively		–			–
Series C preferred stock - $0.01 par value, 3,000 designated and 0 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively		–			–
Common stock - $0.01 par value, 500,000,000 authorized and 25,287,786 and 15,122,018 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively		252,877			151,221
Additional paid in capital		97,199,116			50,580,235
Accumulated deficit		(46,144,532	)		(35,913,514	)
Total stockholders’ equity		51,307,461			14,817,942

Total liabilities and stockholders’ equity	$	52,446,714		$	16,107,575

See accompanying unaudited notes to the consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Operations

For the Three and Six Months Ended June 30, 2025 and 2024

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2025			2024			2025			2024

Revenues	$	2,123,970		$	1,411,124		$	4,166,270		$	2,030,039

Cost of goods sold		1,329,291			1,022,684			2,874,784			1,437,432

Gross Margin		794,679			388,440			1,291,486			592,607

Operating Expenses
Operations		404,277			213,772			706,879			326,094
Research and development		62,731			10,282			70,633			27,078
Sales and marketing		302,358			386,332			509,975			543,390
General and administrative		7,195,193			1,349,587			10,421,097			2,353,761
Depreciation and amortization		20,593			171			41,186			342
Total operating expenses		7,985,152			1,960,144			11,749,770			3,250,664

Loss from operations		(7,190,473	)		(1,571,704	)		(10,458,284	)		(2,658,057	)

Other income and (expense)
Interest income		225,734			–			227,266			–
Interest expense		–			(40,534	)		–			(60,183	)
Other income and (expense)		225,734			(40,534	)		227,266			(60,183	)

Net loss	$	(6,964,739	)	$	(1,612,238	)	$	(10,231,018	)	$	(2,718,240	)

Net loss per share attributable to common stockholders
Basic and diluted	$	(0.32	)	$	(0.16	)	$	(0.54	)	$	(0.34	)

Weighted average common shares outstanding
Basic and diluted		21,771,954			10,040,741			18,853,428			8,053,299

See accompanying unaudited notes to the consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Changes in Stockholders’ Equity

For the Three and Six Months Ended June 30, 2025 and 2024

(Unaudited)

Three and Six Months Ended June 30, 2024


		Series B, Preferred Stock							Common Stock				Additional Paid-In			Accumulated			Total Stockholders’
		Shares			Value				Shares		Value		Capital			Deficit			Equity
Balance, December 31, 2023	–		190		$	2		–		3,217,255	$	32,173	$	5,315,790		$	(3,933,046	)	$	1,414,919

Issuance of common shares as settlement			–			–				16,086		161		64,183			–			64,344
Issuance of common shares, initial public offering, net of offering costs			–			–				1,250,000		12,500		3,837,055			–			3,849,555
Issuance of common shares, business combination			–			–				4,250,000		42,500		16,957,500			–			17,000,000
Conversion of preferred shares			(120	)		(1	)			600,000		6,000		(5,999	)		–			–
Net loss	–		–			–		–		–		–		–			(1,106,002	)		(1,106,002	)

Balance, March 31, 2024	–		70		$	1		–		9,333,341	$	93,334	$	26,168,529		$	(5,039,048	)	$	21,222,816

Conversion of preferred shares			(20	)		–				100,000		1,000		(1,000	)		–			–
Issuance of common shares, equity incentive plan			–			–				977,899		9,779		(9,779	)		–			–
Stock compensation expense - vested stock			–			–				–		–		346,854			–			346,854
Stock option compensation expense			–			–				–		–		14,389			–			14,389
Net loss	–		–			–		–		–		–		–			(1,612,238	)		(1,612,238	)

Balance, June 30, 2024	–		50		$	1		–		10,411,240	$	104,113	$	26,518,993		$	(6,651,286	)	$	19,971,821

See accompanying unaudited notes to the consolidated condensed financial statements.

Three and Six Months Ended June 30, 2025

Series A,
Preferred Stock

Series B,
Preferred Stock

Series C,
Preferred Stock

Common
Stock

Additional Paid-In

Accumulated

Total Stockholders’

Value

Capital

Deficit

Equity

Balance, December 31, 2024

–

15,122,018

151,221

50,580,235

(35,913,514

)

14,817,942

Issuance of restricted common stock, equity incentive plan

–

483,546

4,835

(4,835

)

–

Issuance of common stock for exercise of warrants

–

1,224,606

12,246

2,424,720

–

2,436,966

Stock compensation expense - vested stock

–

1,883,433

–

1,883,433

Stock option compensation expense

–

22,940

–

22,940

Net loss

–

(3,266,279

)

(3,266,279

)

Balance, March 31, 2025

–

16,830,170

168,302

54,906,493

(39,179,793

)

15,895,002

Series A,
Preferred Stock

Series B,
Preferred Stock

Series C,
Preferred Stock

Common
Stock

Additional Paid-In

Accumulated

Total Stockholders’

Value

Capital

Deficit

Equity

Issuance of common shares, Management/Board of Directors

–

208,336

2,082

(2,082

)

–

Issuance of common shares, Option exercises

–

94,650

947

366,923

–

367,870

Issuance of common shares, consulting services

–

4,630

(46)

–

Issuance of common shares, advisory board

–

150,000

1,500

(1,500)

–

Issuance of common shares, public offering

–

8,000,000

80,000

36,416,000

–

36,496,000

Stock option compensation expense

–

576,831

–

576,831

Stock option compensation expense – vested stock

–

4,936,497

–

4,936,497

Net loss

–

(6,964,739

)

(6,964,739

)

Balance, June 30, 2025

–

25,287,786

252,877

97,199,116

(46,144,532

)

51,307,461

See accompanying unaudited notes to the consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Cash Flows

For the Six Months Ended June 30, 2025 and 2024

(Unaudited)


	Six Months Ended June 30,
	2025			2024

Cash flows from operating activities:
Net loss	$	(10,231,018	)	$	(2,718,240	)
Depreciation and amortization		41,186			342
Stock compensation expense as settlement		–			64,344
Stock compensation expense		7,419,701			361,243
Bad debt		12,146			–
Change in assets:
Accounts receivable		(118,959	)		6,798
Inventory		(273,614	)		152,566
Prepaid inventory		(409,864	)		(253,424	)
Other assets		(151,547	)		(129,089	)
Change in liabilities:
Accounts payable and accrued expenses		(60,038	)		384,556
Operating lease liabilities		(32,660	)		(18,615	)
Customer deposits and other current liabilities		(57,682	)		(32,321	)
Net cash used in operating activities		(3,862,349	)		(2,181,840	)

Cash flows from investing activities
Cash portion of consideration paid for acquisition of businesses, net of cash received		–			(852,801	)
Purchase of property & equipment		(262,751	)		–
Net cash used in investing activities		(262,751	)		(852,801	)

Cash flows from financing activities:
Proceeds from issuance of common shares, IPO		–			5,000,000
Proceeds from issuance of common shares, public offering		40,000,000			–
Proceeds from option exercises		367,870			–
Proceeds from issuance of common shares, warrant exercises		2,436,966			–
Common share issuance offering costs		(3,504,000	)		(637,687	)
Net cash provided by financing activities		39,300,836			4,362,313

Net increase in cash		35,175,736			1,327,672

Cash, beginning of period		3,757,323			894,773

Cash, end of period	$	38,933,059		$	2,222,445

Supplemental disclosures of cash flow information:
Non-cash consideration paid for assets acquired and liabilities assumed	$	–		$	19,000,000
Deferred acquisition costs	$	–		$	100,000
Deferred offering costs recorded as reduction of proceeds	$	–		$	512,758

See accompanying unaudited notes to the consolidated condensed financial statements.

Unusual Machines, Inc.

Notes to Consolidated Condensed Financial Statements

June 30, 2025

Note 1 – Organization and nature of business

Unusual Machines, Inc. (“the Company”) is a Nevada corporation engaged in the commercial drone industry. The Company reincorporated from Puerto Rico to Nevada on April 22, 2024.

On February 16, 2024, the Company closed its Initial Public Offering (the “IPO”) of 1,250,000 shares of common stock at a public offering price of $4.00 per share (“IPO Price”). The shares are traded on NYSE American. Simultaneous with the closing of the IPO, the Company acquired Fat Shark Holdings Ltd. (“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot”) from Red Cat Holdings, Inc. (“Red Cat”) (See Note 3).

Note 2 – Summary of significant accounting policies

Principles of Consolidation

The consolidated financial statements include accounts of the Company and its wholly owned subsidiaries, Fat Shark and Rotor Riot since the acquisitions on February 16, 2024. Intercompany transactions and balances have been eliminated upon consolidation.

Basis of Presentation

The consolidated condensed financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. Accordingly, these condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2025. The results for any interim period are not necessarily indicative of results for any future period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material.

The condensed consolidated financial statements include some amounts that are based on management's best estimates and judgments. Significant estimates reflected in these consolidated financial statements include those used to (i) determine stock-based compensation, (ii) the fair value of assets acquired and liabilities assumed in business combinations and the value of shares issued as consideration, (iii) reserves and allowances related to accounts receivable, and inventory, (iv) the evaluation of long-lived assets, including intangibles and goodwill, for impairment, (v) the fair value of lease liabilities and related right of use assets, and (vi) the deferred tax asset valuation allowance.

Reclassification

In the condensed consolidated financial statements, the Company has reclassified $5,470 for the six months ended June 30, 2024 from depreciation and amortization to general and administrative expense to conform to the current period presentation. This reclassification did not affect previously reported total operating expenses, loss before income taxes, or net loss in the condensed consolidated statements of operations.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash deposits in multiple commercial banks and financial services companies. These financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance may at times exceed these limits. At June 30, 2025 and December 31, 2024, the Company had approximately $38.5 million and $3.0 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.

Accounts Receivable, net

The Company carries its accounts receivable at invoiced amounts. Upon the closing of the acquisitions in February 2024 when we acquired accounts receivable, the Company adopted ASC 326, Financial Instruments – Credit Losses, which the Company evaluates all credit losses as of the reporting date. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses 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 June 30, 2025 and December 31, 2024, the Company considers accounts receivable to be fully collectible; accordingly, no allowance for credit losses has been established.

Inventory

Inventories, which consist of finished goods, are stated at the lower of cost or net realizable value, and are measured using the first-in, first-out method. Cost components include direct materials, as well as in-bound freight. At each balance sheet date, the Company evaluates the net realizable value of its inventory using various reference measures including current product selling prices, as well as evaluating for excess quantities and obsolescence.

Property and equipment, net

Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets of three years. As we expand into the Orlando production facility, our current plan is to set the capitalization threshold at $10,000.

Leases

The Company applies Accounting Standards Codification (ASC) 842, “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company recognized a lease liability obligation and a right-of-use asset for the facilities leased in Orlando, FL.

The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company used an effective discount rate of 11.49% based on its last debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets. Lease terms do not include an option to renew.

Business Combinations

The Company accounts for business combinations under ASC 805 using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions used in valuations and estimates determined by management. Business acquisitions are included in the Company’s consolidated financial statements as of the date of the acquisition.

Goodwill and Long-lived Assets

Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and separately recognized. The Company tests goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform an impairment test. The impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company recorded an impairment loss on goodwill of $10,073,326 in 2024 based on the Company’s estimated future net cash flows from the acquisitions.

The estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross margin, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of capital (i.e., the selected discount rate). Management’s assumptions are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services.

The Company reviews long-lived assets, including tangible assets and other intangible assets with definitive lives, for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets”. ASC 360 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. Amortizable intangible assets are assessed for impairment upon triggering events that indicate that the carrying value of an asset may not be recovered. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible assets. No impairment charges were recorded by the Company as of June 30, 2025.

The Company has indefinite-lived trademark assets that are reviewed for impairment by first performing a qualitative analysis in accordance with ASC 350-30 to determine whether it is more likely than not that the fair value of the indefinite-lived asset is less than its carrying value. If based on this assessment, management determines that impairment is not more than likely, then no further quantitative testing is required. However, if performing a qualitative analysis determines that is more likely than not that the fair value is less than its carrying value, then a quantitative analysis is performed in accordance with ASC 350-30-35, which occurs annually in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. If a quantitative analysis is required, the Company utilizes the relief-from-royalty method, which is a form of the income approach and requires us to make significant estimates and assumptions including preparation of forecasted revenue, selection of a royalty rate and discount rate and estimate of the terminal year revenue growth rate. The Company did not record an impairment as of June 30, 2025, related to the indefinite-lived assets.

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, other current assets, accounts payable, and accrued expenses. The carrying amounts of cash, receivables, other current assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these instruments.

Accrued Warranty

Fat Shark products are warranted against defects in materials and workmanship for a period of two years from the date of shipment. If a defect arises during the warranty period, Fat Shark will either (i) repair the affected product at no charge using new parts or parts that are equivalent to new in performance and reliability; (ii) exchange the affected product with a functionally equivalent product; or (iii) refund the original purchase price for the affected product. Allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product warranty claim rates and expected costs to repair or to replace the products under warranty. The Company currently establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior 24 months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly from the Company’s estimates, adjustments to recognize the additional cost of sales may be required in future periods. Historically, the warranty accrual and the expense amounts have been immaterial. The warranty liability is included in accrued expenses on the accompanying consolidated balance sheets and amounted to $17,789 and $28,944 as of June 30, 2025 and December 31, 2024, respectively.

Rotor Riot does not provide any warranty of any kind for any of the equipment it sells or otherwise distributes. Consumers assume all risk for any products purchased or received from Rotor Riot.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including:

Step 1: Identify the contract with a customer;

Step 2: Identify the performance obligations in the contract;

Step 3: Determine the transaction price;

Step 4: Allocate the transaction price to the performance obligations in the contract; and

Step 5: Recognize revenue when (or as) the Company satisfies a performance obligation at a point in time.

The Company receives revenues from the sale of products from both retail distributers and individual consumers. Sales revenue is recognized when the products are shipped and the price is fixed or determinable, no other significant obligations of the Company exist and collectability is probable. Revenue is recognized when the title to the products has been passed to the customer, which is the date the products are shipped to the customer. This is the date the performance obligation has been met.

Deferred Revenue

Deferred revenue relates to orders placed and payment received, but not yet fulfilled. All deferred revenue is expected to be recognized within one year. Deferred revenue related to orders placed, but not yet fulfilled totaled $139,435 and $197,117 as of June 30, 2025 and December 31, 2024, respectively.

Cost of Goods Sold

Cost of goods sold includes inventory costs, direct packaging costs and production related depreciation, if any.

Shipping and Handling Costs

Shipping and handling costs incurred for products shipped to customers are included in operations expenses and amounted to $147,572 and $74,634 for the six months ended June 30, 2025 and 2024, respectively. Shipping and handling costs charged to customers are included in sales.

Research and Development

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development costs, materials, and a proportionate share of overhead costs.

Income Taxes

The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realizable in the future.

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense.

Stock-Based Compensation

Stock options are valued using the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends. The Company recognizes forfeitures as they occur. The fair value of restricted stock is based on our quoted stock price or other fair value indicators on the date of grant. Compensation cost is recognized on a straight-line basis over the service period which is typically the vesting term.

Warrants

The Company accounts for warrants to purchase shares of its common stock in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies warrants issued for the purchase of shares of its common stock as either equity or liability instruments based on an assessment of the specific terms and conditions of each respective contract. The assessment considers whether the warrants are freestanding financial instruments or embedded in a host instrument, whether the warrants meet the definition of a liability pursuant to ASC 480, whether the warrants meet the definition of a derivative under ASC 815, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants classified as liabilities are recognized as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss.

Net Loss per Share

Basic and diluted net loss per share is calculated based on the weighted-average of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive.

Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Unusual Machines, which sells drones and drone-related components, operates as a single reportable segment entity. Our chief operating decision maker, our Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Chief Executive Officer is regularly provided with consolidated revenue and expenses consistent with those presented in the consolidated statements of operations and assets and liabilities consistent with those presented in the consolidated balance sheets.

Recent Accounting Pronouncements

In December 2023, new accounting guidance was issued related to income tax disclosures. The new guidance requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This new guidance will likely not result in additional required disclosures when adopted.

In November 2024, the FASB issued ASU No. 2024-03, “Disaggregation of Income Statement Expenses” which requires disaggregated disclosure of income statement expenses into specified categories in disclosures within the footnotes to the financial statements. The standard is effective for annual reporting periods beginning after December 15, 2026. The Company is currently evaluating the effect of this ASU on the consolidated financial statements and disclosures.

In May 2025, the FASB issued ASU No. 2025-4, “Compensation – Stock Compensation and Revenue From Contracts With Customers” which provides clarifications to share-based consideration payable to a customer. This new guidance will likely have an impact on the Company.

Note 3 – Acquisitions

Fat Shark and Rotor Riot

On February 16, 2024, the Company closed on the acquisitions of both Fat Shark and Rotor Riot from Red Cat and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat (the “Business Combination”) (See Note 12 – Related Party Transactions for additional information). Fat Shark and Rotor Riot are in the business of designing and marketing consumer drones and first-person-view (“FPV”) goggles. Rotor Riot is also a licensed authorized reseller of consumer drones manufactured by third parties.

The Company specializes in the production and sale of small drones and essential components and with the acquisitions of Fat Shark and Rotor Riot, it brings brand recognition and a strong curated retail channel in the FPV drone market segment. This Business Combination is a realization of the Company’s strategy to build its business both organically and through strategic acquisitions that leverage our retail business to onshore production of critical drone components. With the transition to onshoring production of drone components, the Company intends to expand into B2B channels for customers that require a domestic supply chain.

The Business Combination was based on a share purchase agreement (the “Purchase Agreement”) that was executed on November 21, 2022. From November 21, 2022 to February 16, 2024, the Purchase Agreement was subject to several amendments and subject to certain working capital adjustments. Under the terms of the Purchase Agreement, as amended, the consideration paid for the acquired assets consisted of (i) $1.0 million in cash and a cash deposit of $0.1 million made in 2022, (ii) issuance of a $4.0 million 18 month promissory note to Red Cat (see Note 9 “Promissory and Convertible Notes” for further details), and (iii) the issuance of 4,250,000 shares of the Company’s common stock, which represented approximately 48.66% of the outstanding common stock of the Company on February 16, 2024, after the effect of the issued shares (collectively the “Consideration Paid”). The Company valued the Red Cat common stock at $4.00 per share for $17,000,000 which represents the IPO price of the Company’s common stock on February 15, 2024. Accordingly, the value of the Consideration Paid is equal to $22,100,000.

The acquisitions met the definition of a business combination under ASC 805, Business Combinations, and therefore the assets acquired, and liabilities assumed are accounted for at fair value.

The following represents the fair value allocation of Fat Shark and Rotor Riot Purchase Price:


Cash	$	147,200
Accounts receivable (approximates contractual value)		6,798
Inventories (on hand and prepaid)		2,611,583
Other current assets		10,892
Right of use asset – operating		378,430
Other long-term assets		59,426
Goodwill		17,476,232
Intangible assets		2,297,007

Total assets		22,987,568

Accounts payable and accrued liabilities		287,544
Deferred revenue		114,441
Deferred tax liability		107,153
Operating lease liability – current and long-term		378,430
Total liabilities		887,568

Total purchase price	$	22,100,000

On December 31, 2024, the Company recorded a measurement period adjustment to the above fair value allocation to report a deferred tax liability of $107,153 and increase goodwill by the same amount.

Goodwill and intangible assets relate to Fat Shark and Rotor Riot being FPV market leaders and their well-known and established brands within the industry and related patents. Combining these entities and their existing customer base along with Unusual Machines’ strategy of extending to B2B sales of drone components will provide a strategic advantage.

The results of Fat Shark and Rotor Riot have been included in the Consolidated Financial Statements from the date of acquisition of February 16, 2024. The financial activity for the 2024 period prior to the acquisition is not considered material and pro forma information has not been included in the unaudited consolidated condensed financial statements.

Note 4 – Inventories

Inventories, consisting solely of finished goods, totaled $1,609,117 and $1,335,503 as of June 30, 2025 and December 31, 2024, respectively. In addition, the Company had prepaid deposits for inventory totaling $1,314,592 and $904,728 as of June 30, 2025 and December 31, 2024, respectively.

Note 5 – Other Current Assets

Other current assets included as of:

Schedule of other current assets
	June 30, 2025		December 31, 2024
Prepaid insurance	$	149,512	$	31,500
Prepaid expenses		41,266		–
Other current assets		2,000		–
Total other current assets	$	192,778	$	31,500

Non-current other assets include rent deposits of $84,693 and $59,426 related to the operating leases for our Orlando, FL facilities as of June 30, 2025 and December 31, 2024, respectively.

Note 6 – Property and Equipment, net

Property and equipment consist of assets with an estimated useful life greater than one year. Property and equipment are reported net of accumulated depreciation, and the reported values are periodically assessed for impairment. Property and equipment as of:

Schedule of property and equipment
	June 30, 2025			December 31, 2024
Computer equipment	$	7,738		$	7,738
Motor equipment		247,434			–
Tenant improvements		15,317			–
Total Property and Equipment		270,489			7,738

Accumulated depreciation		(7,510	)		(7,168	)
Total property and equipment, net	$	262,979		$	570

Depreciation expense totaled $342 and $171 for the six months ended June 30, 2025 and 2024, respectively. The Company has open commitments of approximately $3.0 million related to the purchase of motor equipment and $0.5 million related to tenant improvements. These assets are expected to be placed into service during Q3 2025.

Note 7 – Operating Leases

The Company has assumed in the business combination a five-year operating lease for approximately 6,900 square feet of warehouse and office space in Orlando, Florida. The lease commenced in November 2023 and expires in October 2028. The Company has valued the ROUA and the associated liability, as of February 16, 2024, at $378,430. The Company has no finance leases. Operating lease expense totaled $52,572 and $51,435, respectively for the six months ended June 30, 2025 and 2024.

The following is a summary of the operating lease right-of-use asset and liability:


	Orlando, FL Operating Lease
Operating lease right-of-use assets	$	378,430
Less: accumulated amortization		(89,914	)
Operating lease right-of-use assets, as of June 30, 2025	$	288,516

Operating lease liability	$	378,430
Less: accumulated reduction		(81,099	)
Operating lease liability, as of June 30, 2025	$	297,331

Current operating lease liability	$	73,569
Non-current operating lease liability		223,762
Total operating lease liability	$	297,331

The following is a summary of future lease payments required under the five-year lease agreement:

Schedule of future lease payments
Year	Future Lease Payments		Operating Lease Discount			Operating Lease Liability
2025	$	50,901	$	(15,741	)	$	35,160
2026		105,178		(25,468	)		79,710
2027		109,037		(15,985	)		93,052
2028		94,185		(4,776	)		89,409
Total	$	359,301	$	(61,970	)	$	297,331

Schedule of supplemental information
Supplemental Information
Weighted average remaining lease term (in years)			3.33
Weighted average discount rate			11.49%

In June 2025, we signed a lease agreement for an additional 17,000 square feet of warehouse/office space in Orlando, FL. This space will be used primarily for motor production. The lease commencement date is August 1, 2025 and currently runs through August 21, 2030.

Note 8 – Goodwill and Intangible Assets

Goodwill

There were no changes in the carrying amount of goodwill during the six months ended June 30, 2025. The carrying value of goodwill was $7,402,906 as of June 30, 2025.

Intangible Assets

As of June 30, 2025, the balances of intangible assets were as follows:

Schedule of intangible assets
	Type	Gross Value		Accumulated Amortization			Net Value
Patents/IP	Finite-lived	$	816,877	$	(112,321	)	$	704,556

Trademark	Indefinite-lived		1,480,130		–			1,480,130

Total intangible assets, net		$	2,297,007	$	(112,231	)	$	2,184,686

Patents and intellectual property relate to the patents and technology know-how from the acquisition of Fat Shark in February 2024. Patents are amortized over 10 years. Trademarks relate to the brand name and recognition of Rotor Riot from the acquisition in February 2024. Amortization was $40,844 and $0 for the six months ended June 30, 2025 and 2024, and $20,422 and $0 for the three months ended June 30, 2025 and 2024, related to the Patents.

Note 9 – Promissory and Convertible Notes

In February 2024 and in conjunction with the acquisition of Fat Shark and Rotor Riot, as discussed in Note 3, the Company issued a promissory note (“Note”) with Red Cat Holdings, Inc. (“Red Cat”) for $2.0 million. In July 2024, the Company finalized its working capital adjustment with Red Cat which increased the overall purchase price by an additional $2.0 million. In accordance with ASC 470, Debt, the additional $2.0 million was treated as a modification that was not treated as a debt extinguishment and expenses related to the debt were expensed as incurred. The additional $2.0 million was added to the existing Note and was reflected as an adjustment to the opening purchase price and was included in the opening balance sheet as of February 16, 2024 as an increase to goodwill and intangible assets. Accordingly, the Note was amended to increase the principal amount of the Note to $4.0 million.

Subsequently and in July 2024, in conjunction with a private sale of Red Cat’s common stock and its promissory note to two accredited investors (“Investors”), the Company issued new notes to the new Investors (the “July Notes”) and cancelled the original Note. The July Notes contained 8% per annum interest. In addition, the maturity date of the July Notes was extended to November 30, 2025, subject to certain conditions.

On August 21, 2024, the Company entered into two exchange agreements with the Investors, under which the Investors exchanged their respective 8% July Notes for new 4% Convertible Notes (the “August Notes”). Pursuant to the exchange agreements, the Investors exchanged the $4,000,000 of July Notes for an aggregate of (i) $3,000,000 for the August Notes, (ii) 210 shares of Series C preferred stock, which converts into 630,000 shares of the Company’s common stock, and (iii) 630,000 warrants with a five-year term and an exercise price of $1.99 per share, subject to certain adjustments. The July Notes were cancelled as a part of the exchange agreement. In accordance with ASC 470, since the August Notes were considered a greater than 10% change from the July Notes and a substantive conversion option was added to the August Notes, this exchange was treated as a debt extinguishment. The August Notes bear interest at 4% annually with interest payable monthly and the principal due on November 30, 2025. The August Notes are convertible into common stock at a fixed $1.99 per share, except in the Event of Default as defined in the August Notes, which the conversion price for an Event of Default Conversion is calculated at a 10% discount of the average three-day volume-weighted average price prior to the conversion date.

During the third quarter 2024, the Company recognized a loss on debt extinguishment of $685,151 related to the exchange agreement discussed above. The loss on extinguishment related to the August Notes included $315,303 fair value related to the warrant liability issued, $347,947 fair value related to the optional conversion feature derivative liability of the remaining principal balance, and $21,901 cash fees paid for legal costs related to the August Notes. The Company used the binomial option pricing method for calculating the derivative fair value related to the warrants and optional conversion feature.

In December 2024, the Investors exercised their conversion option to convert the remaining $3,000,000 in August Notes to Common Stock at a fixed $1.99 conversion price. As a result, the Company issued 1,507,538 shares of common stock, cancelled the $3,000,000 in August Notes, and recorded $17,864,325 to common stock and additional paid in capital related to the conversion of the August Notes to Common Stock. This value is based on the closing price of the Company’s common stock on December 3, 2024 of $11.85 per share. This resulted in a loss on debt extinguishment of $14,864,325. The settlement of the related conversion option derivative resulted in a gain on extinguishment of $16,503,923. The net gain was $1,639,598.

Total interest expense for the six months ended June 30, 2025 and 2024 was $0 and $60,183, respectively. Total interest expense for the three months ended June 30, 2025 and 2024 was $0 and $40,534, respectively

Note 10 – Earnings Per Share and Stockholders’ Equity

Earnings per Share

Outstanding securities not included in the computation of diluted net loss per share because their effect would have been anti-dilutive include 382,850 of stock options issued to employees as of June 30, 2025, 330,000 unvested restricted stock awards and units, 8,500 of common stock representative warrants issued to the underwriter associated with the February 2024 IPO, 164,473 warrants issued related to the October 2024 private placement, and 640,000 warrants issued to the placement agent related to the May 2025 confidentially marketed public offering.

Preferred Stock

As of 6/30/25 and 12/31/24, there are no issued and outstanding Series A, B, and C Preferred Stock.

The Series A was convertible into common stock at a ratio of 1,000 shares of common stock for each share of Series A stock held, subject to certain limitations. The Series A shares were not entitled to vote on any matters submitted to shareholders of the Company.

The Series B was convertible into common stock at a ratio of 5,000 shares of common stock for each share of Series B stock held, subject to certain limitations. The Series B shares were not entitled to vote on any matters submitted to shareholders of the Company.

The Series C was convertible into common stock at a ratio of 3,000 shares of common stock for each share of Series C stock held, subject to certain limitations. The Series C shares were not entitled to vote on any matters submitted to shareholders of the Company.

On April 10, 2025, the Company filed a Withdrawal of Designation with the Secretary of State of the State of Nevada withdrawing the certificates of designation for each of the Series A, Series B and Series C.

2024 Preferred Stock Transactions

During the six months ended June 30, 2024, shareholders converted 140 shares of Series B into 700,000 shares of common stock. The Company cancelled the 140 shares of Series B upon the conversion.

Common Stock

2025 Transactions

On January 14, 2025, the Company issued 3,546 immediately vested restricted shares of common stock to non-employee directors of the Company. The shares of restricted stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $11.99 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of $42,517 to be recognized as stock compensation expense during the six months ended June 30, 2025.

On February 3, 2025, the Company issued 480,000 restricted shares of common stock to executive officers and certain employees of the Company. The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan. The restricted shares issued to executive officers are subject to pro rata forfeiture through December 31, 2025. The restricted shares issued to certain employees are subject to pro-rata forfeiture over a four-year period. The shares were valued at $12.00 per share, which was the value of the Company’s common stock on the date of grant, respectively for a total of $5,760,000 to be recognized as stock compensation expense pro-rata over the vesting period. Stock compensation expense of $3,044,536 was recognized during the six months ended June 30, 2025.

In February 2025, the Company issued 1,224,606 shares of common stock related to warrant holders exercising their warrants. The Company received gross proceeds of $2,436,966 related to the warrant exercises. The Company cancelled the 1,224,606 warrants upon issuance of the common shares.

On May 6, 2025, in a confidentially marketed public offering the Company sold 8,000,000 shares of common stock at $5.00 per share resulting in gross proceeds of $40,000,000, prior to payment of placement agent fees of $3,200,000 and $304,000 of other offering expenses resulting in net proceeds of $36,496,000. Dominari Securities, LLC acted as the sole placement agent and also received a warrant to purchase 640,000 shares of the Company’s common stock at $5.00 per share over a two-year period expiring on May 6, 2027.

On May 19, 2025, the Company issued 33,336 immediately vested restricted shares of common stock to non-employee directors of the Company. The shares of restricted stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $5.40 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of approximately $180,000 to be recognized as stock compensation expense during the six months ended June 30, 2025.

On May 19, 2025, the Company issued 4,630 immediately vested shares of common stock to a consultant of the Company related to services provided. The shares of common stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $5.40 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of approximately $25,000 to be recognized as stock compensation expense during the six months ended June 30, 2025.

On May 22, 2025, the Company issued 150,000 shares of common stock related to vested restricted stock units for our advisory board members. The restricted stock units are valued at $4.40 per share, the closing price of our common stock as of the date of the grant, for a total value of $660,000.

During the six months ended June 30, 2025, several employees of the Company exercised 94,650 of their vested stock options in which the Company issued 94,650 shares of common stock related to these stock option exercises. The Company received total cash proceeds of $367,870 related to the exercise of these options.

On June 30, 2025, the Board of Directors of the Company awarded the Company’s Chief Executive Officer 175,000 restricted shares of the Company’s common stock under the 2022 Equity Incentive Plan as a bonus related to the May 2025 public offering. The restricted shares are valued at $8.57 per share, the closing price of our common stock as of the date of the grant, for a total value of $1,499,750 that was recognized immediately based on the vesting of the awards for each of the Company’s Officers. The shares are subject to the Company’s clawback policy.

2024 Transactions

On January 2, 2024, the Company issued 16,086 shares of common stock to its prior Chief Executive Officer as a part of a separation agreement and recognized compensation expense of $64,344 or $4 per share, the value of the IPO in February 2024.

On February 16, 2024 the Company completed its IPO and issued 1,250,000 shares of common stock at the IPO Price for total net proceeds of $3,849,555. The Company incurred $510,000 direct deduction from proceeds, $127,687 in cash disbursements related to offering costs and $512,758 in prior year paid and deferred offering costs as of December 31, 2023 for a total of $1,150,445 offering costs, associated with the IPO which consisted of underwriter, legal, accounting, and other associated filing fees. These costs have been recorded as a reduction of the gross proceeds from the IPO in stockholder’s equity. The 62,500 of representative warrants are exercisable for common stock at a price of $5.00 per share (125% of the IPO Price) at any time beginning on August 15, 2024 through and including February 16, 2029, the expiration date.

Simultaneously with its IPO and as a part of the Purchase Agreement as discussed in Note 3, the Company issued Red Cat 4,250,000 shares of common stock as consideration of the business combination. These were subsequently exchanged into 4,250 Series A preferred shares as discussed above. As agreed in the Purchase Agreement, $17.0 million of the purchase price would be issued in common stock based on the IPO price of $4.00 per share.

During the six months ended June 30, 2024, the Company issued 700,000 shares of common stock related to certain shareholders converting 140 Series B shares into common stock.

On April 30, 2024, the Company issued 937,249 restricted shares of common stock to executive officers and board members of the Company. The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan. The restricted shares issued to executive officers are subject to pro rata forfeiture through February 14, 2025.

On May 2, 2024, the Company issued an additional 40,650 of restricted shares of common stock to a company controlled by Allan Evans, the Company’s CEO, related to an agreed upon reduction of the consulting fee paid to the company. The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan.

The April 30, 2024 and May 2, 2024 shares were valued at $1.20 and $1.23 per share, respectively for a total of $1,174,698 to be recognized pro-rata over the vesting period which is the forfeiture period. Stock compensation expense of $346,854 was recognized during the six months ended June 30, 2024.

Note 11 – Share Based Awards

Stock Options

The 2022 Equity Incentive Plan (the “Plan”) allows the Company to incentivize key employees and directors with long term compensation awards such as stock options, restricted stock, and other similar types of awards. The Plan is authorized to issue up to 15% 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 the Plan. In addition, the Plan has an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year beginning in 2025 and ending in 2032 equal to the lesser of (a) five percent (5%) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (b) such smaller number of shares of stock as determined by our board of directors. As of June 30, 2025, the Plan is authorized to issue up to 4,333,728 of awards after the 5% increase on January 1, 2025.

The following table presents the activity for stock options outstanding as of June 30, 2025:

Schedule of stock option activity
	Non-Qualified Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding - December 31, 2024		330,000		$	1.24		9.34	$
Granted		177,500			5.36
Forfeited/canceled		(30,000	)		1.20
Exercised		(94,650	)		3.89
Outstanding – June 30, 2025		382,850		$	2.50		9.16	$	2,324,870
Exercisable – June 30, 2025		100,350			3.71		9.44		487,445

The Company recognized $599,771 in stock-based compensation expense related to stock options during the six months ended June 30, 2025. As of June 30, 2025, there was $494,070 of unrecognized stock-based compensation expense related to unvested stock options to be recognized over the remaining vesting term through 2028.

Restricted Stock

The following table presents the activity for restricted stock outstanding:

Restricted Stock
Awards

Weighted
Average
Grant Date
Fair Value - RSA

Restricted
Stock Units

Weighted
Average
Grant Date
Fair Value - RSU

Unvested - December 31, 2024

227,723

SEC Form 10-Q filed by Unusual Machines Inc.