What changed in this filing

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Item 1. Business

2025-03-27 compared with 2024-03-22 · 252 added, 146 removed, 110 unchanged (78% of the section changed)

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(“Unusual Machines”

or the “Company”) is a Puerto Rico corporation, originally incorporated July 11, 2019, with our principal place of business

in Orlando, Florida.

The Company was incorporated in Puerto Rico under the name “Red Cat Motor Corporation” on July 11, 2019,

before changing its name to “AerocarveUS Corporation” on October 20, 2020 and then to “Unusual Machines, Inc.”

on July 5, 2022.

The Company is in the process of reincorporating as a Nevada corporation.

or the “Company”) is a Nevada corporation engaged in the commercial drone industry with our principal place of business in

Orlando, Florida.

The Company reincorporated from Puerto Rico to Nevada on April 22, 2024.

Initial Public Offering

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.

shares are traded on the New York Stock Exchange American (“NYSE American”).

Simultaneous with the closing of the IPO, the

Company acquired Fat Shark Ltd.

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.

are traded on the New York Stock Exchange American (“NYSE American”).

Simultaneous with the closing of the IPO, the Company

acquired Fat Shark Ltd.

(“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot”) from Red Cat Holdings, Inc.

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On November 21, 2022, the Company entered into

a Share Purchase Agreement (the “Purchase Agreement”) with Red Cat and Jeffrey Thompson, the founder and Chief Executive

Officer of Red Cat, pursuant to which we agreed to purchase Red Cat’s consumer business consisting of Fat Shark and Rotor Riot

(the “Business Combination”).

Under the terms of the Purchase Agreement, as amended, the Company purchased Rotor Riot and

Fat Shark subsidiaries for $20.0 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, and (iii) $17.0 million of the Company’s common stock

or 4,250,000 shares of common stock at the $4.00 per share IPO price.

Fat Shark is a leader in designing and manufacturing

ultra-low latency first-person-view (“FPV”) video goggles for drone pilots, which it markets towards retail distributors

including Rotor Riot.

Rotor Riot is a rapidly growing e-commerce marketplace,

backed by the largest community of FPV drone pilots in the world and retails FPV drones and goggles, parts, tools, drone components,

and accessories manufactured by third-parties.

a Share Purchase Agreement (the “Purchase Agreement”) with Red Cat and Jeffrey Thompson, the founder and Chief Executive Officer

of Red Cat, pursuant to which we agreed to purchase Red Cat’s consumer business consisting of Fat Shark and Rotor Riot (the “Business

Combination”).

Under the terms of the Purchase Agreement, as amended, the Company purchased Rotor Riot and Fat Shark subsidiaries

for $22.1 million (the “Purchase Price”) comprised of (i) $1.1 million in cash, (ii) a $4.0 million promissory note (the “Note”)

issued by the Company to Red Cat, and (iii) $17.0 million of the Company’s Common Stock or 4,250,000 shares of Common Stock at the

$4.00 per share IPO price.

Unusual Machines 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.

Unusual Machines intends 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

and sale of small drones and essential components through B2B sales and a curated retail channel.

There is strong brand recognition of

the Rotor Riot and Fat Shark brands particularly in the FPV sub-segment of the drone market.

Unusual Machines intends to build its business

both organically and through strategic acquisitions while onshoring production of critical drone components.

With the transition to onshoring

production of drone components, the Company is expanding into B2B channels for customers that require a non-Chinese supply chain.

A major factor in Unusual Machines’ component

production is the validation of the new supply chains.

The Defense Innovation Unit (DIU) audits new drone components for supply chain

and cyber security risks.

Components that pass the audit can then be put on the actively maintained Blue Framework list.

of 2024, Unusual Machines has developed three components (and variants) that have been approved and placed on the Blue Framework.

includes a flight controller, a motor controller, and a camera.

The company intends to continue to develop and certify new components

through this process to ease the acquisition requirements on domestic drone manufacturers that are ultimately significant customers.

The Drone Industry

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valued at $2.6 billion in 2021 is projected to reach $9.9 billion by 2031.

Unusual Machines intends to pursue strategic

acquisition targets that are cash flow positive and either sell drone parts or allow us to vertically integrate the production of drone

The Company believes that very promising, private companies (such as those the company will likely target) are in many instances

underfunded and missing out on the ability to go public and bring their innovative products and solutions to a larger set of customers

We believe that unlocking this potential will be key to industry consolidation and breaking the dominance of China in the drone

Unusual Machines intends to pursue strategic acquisition

targets that are cash flow positive and either sell drone parts or allow us to integrate drone parts and software services.

believes that very promising, private companies (such as Aloft Technologies, Inc.

as discussed below) are in many instances underfunded

and missing out on the ability to go public and bring their innovative products and solutions to a larger set of customers globally.

believe that unlocking this potential will be key to industry consolidation and breaking the dominance of China in the drone industry.

First Person View (FPV) Market Segment

Fat Shark and Rotor Riot principally operate

in the FPV segment of the drone industry.

This segment focuses on drones piloted with wearable display devices.

These are head mounted

displays (“HMDs”) or goggles for drone pilots.

These goggles give pilots FPV perspective to control their drone in flight.

Unusual Machines principally operates in the FPV

segment of the drone industry.

This segment focuses on drones piloted with wearable display devices or screens that show a first-person

view of the camera mounted on the drone.

This is a unique experience where the pilot is interacting with an aircraft through visual immersion.

This experience is accomplished

by live streaming footage from a camera mounted on the nose of the drone directly into specially designed goggles worn by the pilot.

This experience is accomplished by live streaming footage from a camera mounted on the nose of the drone directly to the pilot with as

little latency as possible.

The image is transmitted via radio (traditionally analog but increasingly digital) to the pilot.

The drone remote control unit, the drone,

and the FPV goggles are all interconnected via radio.

This effect requires sophisticated electronics that transmit visual information

with sufficient speed and reliability to allow pilot control over the drone in real-time.

Pilots routinely achieve speeds of over 90

mph in racing and other mission critical applications.

remote control unit, the drone, and the pilot display are all interconnected via radio.

This effect requires sophisticated electronics

that transmit visual information with sufficient speed and reliability to allow pilot control over the drone in real-time.

Pilots routinely

achieve speeds of over 90 mph in racing and other mission critical applications.

There are four common categories of FPV flight

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a subject matter from the air from the viewpoint of the pilot.

Defense is a newer market segment characterized by the use cases emerging

in the Ukrainian conflict.

Defense is a market segment characterized by the use cases demonstrated

in the Ukrainian conflict and is the largest segment of the market with over 5 million FPV drones expected to be built in 2025.

Potential Aloft Acquisition

On February 1, 2025, the Company entered

into a Merger Agreement to acquire a drone software company, Aloft Technologies, Inc.

We believe that Aloft

is a leader in the drone fleet and airspace management sector, powering more than 70% of all FAA-approved Low Altitude Authorization

and Notification Capability (“LAANC”) airspace authorizations in the United States, according to Aloft.

According to Aloft, Aloft has provided more than 1.6 million authorizations in total with 400,000 authorizations provided in 2024.

The acquisition is for $14.5 million payable, almost entirely in the Company’s Common Stock with the issuance of 1,204,319

shares of Common Stock and approximately $100,000 in cash.

In addition, customary closing conditions by the parties must be

completed before closing the merger.

There can be no assurances that the Aloft merger will close.

“ Risk Factors .”

Plans for Growth, Development, and Expansion

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In parallel, the Company intends to aggressively invest in the extension of

their business from just B2C sales to B2B sales of drone components.

Unusual Machine’s business strategy includes (i) increasing

its overall customer base with its products and rapid adoption;

(ii) investing in new products and IP, starting with the Fat Shark and

Rotor Riot acquisitions that were completed with our IPO, (iii) expanding and growing Unusual Machine’s customer base and revenue

streams from its existing customer base using a “land-and-expand” model that establishes initial relationships and grows

those relationships through the provision of high quality products and services, (iv) enhancing the company’s products to improve

the integration of third-party solutions, and (v) seeking strategic partnerships and sponsorships with companies that want access to

the FPV community.

Revenues for Fat Shark are principally generated

through distributors and for Rotor Riot online through its e-commerce site, www.rotorriot.com.

Both Fat Shark and Rotor Riot market their

products and services to recreational and professional drone pilots and hobbyists.

Rotor Riot competes with a number of significantly

their B2B sales of drone components.

Unusual Machine’s business strategy includes (i) increasing its overall customer base with

its products and rapid adoption;

(ii) investing in new hardware products, (iii) expanding and growing Unusual Machine’s customer

base and revenue streams from its existing customer base using a “land-and-expand” model that establishes initial relationships

and grows those relationships through the provision of high quality products and services, and (iv) expanding into new segments like SaaS

through acquisitions like Aloft.

Historically, revenues for Unusual Machines has

primarily generated online through its e-commerce site, www.rotorriot.com and the Company continues to see continued growth through its

retail store.

As Unusual Machines continues to expand its B2B component business and with potential acquisitions, the Company expects

to rapidly grow an enterprise customer base primarily of drone manufacturers.

Unusual Machines competes with a number of significantly

larger, better capitalized companies.

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market share estimated at more than 70%, according to industry research firms.

Other competitors include GetFPV and Lumenier.

Quads is a larger, direct competitor in the FPV sector.

Rotor Riot competes against these competitors by leveraging its visibility on

the internet through its Facebook page which has more than 38,000 followers and its Rotor Riot YouTube channel which has more than 272,000

We believe that the Rotor Riot brand has been at the center of the racing and freestyle culture of drones since registering

its domain name in 2015.

Fat Shark also competes with DJI along with other

FPV headset companies including Skyzone FPV, Orqa, and HD Zero.

The Fat Shark brand has been synonymous with FPV headsets since the emergence

of the market in 2008.

Fat Shark continues to compete through partnerships with other FPV companies and a focus on manufacturing and

product quality.

Rotor Riot purchases inventory from approximately

50 suppliers although 57% of this inventory is purchased from four vendors.

The two most critical components are electronics and frames.

Approximately 95% of Rotor Riot’s inventory is purchased directly from Chinese vendors, all of which could be subject to varying

The United States has continuously increased tariffs since 2019, which Rotor Riot is currently subject to and range from 2%

These tariffs increase the cost of goods which reduces the company’s profit margins.

Fat Shark has sources over 90% of its components

and inventory from a single Chinese supplier, Shenzhen Fatshark Co.

See Item 13 – Certain Relationships and

Related Party Transactions and Director Independence for additional information.

The primary retail competitor is GetFPV.

Unusual Machines

competes against these competitors by leveraging its visibility on the internet through its Rotor Riot Facebook page which has more than

38,000 followers and its Rotor Riot YouTube channel which has more than 272,000 subscribers.

The Company believes that the Rotor Riot

brand has been at the center of the racing and freestyle culture of drones since registering its domain name in 2015.

With the Company’s expansion into the drone

component market, additional competitors include T-Motor, Orqa, Modal AI, ARK Electronics.

Unusual Machines differentiates from these

competitors by being price competitive and having their products approved by the Defense Innovation Unity Blue Framework for their enterprise

components, which allows them to be sold within Federal guidelines.

Unusual Machines maintains price competitiveness and is an emerging

leader in the value segment of the non-Chinese components market.

The Company’s Drone Manufacturing

The Company hired a vice president of manufacturing

in January 2025 whose role is to head up the Company’s proposed drone motor manufacturing business.

The Company plans to lease

an additional facility near its headquarters office in Orlando, Florida, at which it will manufacture NDAA compliant drone motors.

Company expects that it will be in a position to commence manufacturing during the second quarter of 2025.

We believe that by bringing

manufacturing in house, it can reduce our costs of motor inventory.

See “Item 1A.

Risk Factors .”

Unusual Machines purchases inventory from approximately

50 suppliers, much of which could be subject to varying tariffs.

The United States has continuously increased tariffs since 2019, which

Unusual Machines is currently subject to and range from 2% to 25%.

In addition, in Q1 2025, additional tariffs have been instituted on

Chinese products and could see potential changes to tariffs in the future.

These tariffs increase the cost of goods which reduces the

company’s profit margins or increases the total price to our customers.

For more information, See Risk Factors – Risks Related

to our Business and Financial Condition “Rising threats of international tariffs, including tariffs applied to goods between the

and China, may materially and adversely affect our business.”

Unusual Machines retail competitors are subject

to the same tariffs and have supply chains that include a greater mix of products sourced from China.

The Company can use its domestically

manufactured parts to improve both relative margin and price relative to the other domestic retailers.

In this way, tariffs may be a driver

for revenue and margin growth.

Additionally, tariffs have caused domestic drone manufacturers to prioritize domestic producers.

created preference for components from companies, like Unusual Machines, that are actively onshoring.

Government Regulation

and Federal Policy

National Defense

Authorization Act and American Security Drone Act

National Defense Authorization

Act and American Security Drone Act

In December 2023, Congress passed the National

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national security, such as China.

The basis for the legislation is that purchases from these countries

(i) pose a significant threat to national security, (ii) represent efforts to infiltrate and influence American society, and (iii) risk

the theft of personal and business data.

The basis for the legislation is that purchases from these countries (i)

pose a significant threat to national security, (ii) represent efforts to infiltrate and influence American society, and (iii) risk the

theft of personal and business data.

Specifically, the American Security Drone Act:

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

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.

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.

Federal Aviation

Administration

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.

Federal Aviation Administration

The Federal Aviation Administration (“FAA”)

of the United States Department of Transportation is responsible for the regulation and oversight of civil aviation within the U.S.

primary mission is to ensure the safety of civil aviation.

of the United States Department of Transportation is responsible for the regulation and oversight of civil aviation within the United

Its primary mission is to ensure the safety of civil aviation.

The FAA has adopted the name “unmanned aircraft” (“UA”)

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FAA is beneficial to the drone industry generally, and the Company specifically.

Approximately 10 % of the drones sold by Rotor Riot

are below the weight threshold required to register.

The remaining 90% have more functionality, are more likely to be used for commercial

purposes, and therefore, should be registered.

Approximately 70% of all FAA LAANC authorization are

already done using the Aloft product.

Countering Chinese

Communist Party Drone Act

In December 2025, Section 1709 was passed into

law as part of the National Defense Authorization Act.

Section 1709 is commonly referred to as the Countering Chinese Communist Party

(CCCP) Drone Act.

The law mandates that within one year, a security review of the two largest Chinese drone companies (DJI and Autel)

must be conducted and if it is not (or they fail to pass), the FCC will no longer grant licenses to operate within the United States.

The Company believes that this is functionally a ban on all new DJI and Autel products (similar to a previous ban of Huawei).

will impact consumers as well as enterprises and the Company believes this will open the entire U.S.

drone market up to domestic competition.

Environmental Considerations

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Employees and Human Capital Resources

As of December 31, 2023, the Company had three

full-time employees.

However, with the completion of and acquisitions of Fat Shark and Rotor Riot, the Company had 14 full-time employees

as of March 21, 2024.

As of March 25, 2025, the Company had sixteen

full-time employees and two full-time contractors, including our Chief Executive Officer, whose services are performed on behalf of a

consulting agreement.

The Company’s headquarters

are in Orlando, Florida under a lease which expires in October 2028.

At this facility, the Company maintains its executive offices and

a warehouse from which it holds inventory and ships inventory to customers.

As stated above, the Company plans to initiate a manufacturing

facility and believes that there are available locations near its current facility.

Intellectual Property

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for 20 years from the date the patent application was made (subject to potential extension, if applied for and granted).

patent protection provides the patent holder with a monopoly on the invention within its scope for the duration of the patent.

AERIAL VEHICLE

201830008387.4

AERIAL VEHICLE

In general, patent

protection provides the patent holder with a monopoly on the invention within its scope for the duration of the patent.

Application Date

United States

UNMANNED AERIAL VEHICLE (Design

UNMANNED AERIAL VEHICLE (Design)

United States

UNMANNED AERIAL VEHICLE (Utility)

201810895541.3

AERIAL VEHICLE

CIRCUIT BOARD

UNMANNED AERIAL VEHICLE (Utility)

602018076194.2

CIRCUIT BOARD

UNMANNED AERIAL VEHICLE (Utility)

United Kingdom

UNMANNED AERIAL VEHICLE (Utility)

United States

PRINTED CIRCUIT BOARD (Design)

United Kingdom

PRINTED CIRCUIT BOARD (Design)

201810324925.X

HEAD-MOUNTED DISPLAY

SINGLE-PANEL HEAD-MOUNTED DISPLAY (Utility)

United States

SINGLE-PANEL HEAD-MOUNTED DISPLAY (Utility)

202010150301.8

FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET

202130741102.X

European Union Countries, Japan, United Kingdom

APPARATUS FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET (Utility)

United States

APPARATUS FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET (Utility)

United States

HEADSET (Design)

VR GLASSES (Design)

HEADSET (Design)

Trademark Portfolio

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As the chart indicates, these trademarks are registered

AOU due 4/4/2023

in the United States and abroad.

Next Deadline

16, 25, 35, 41

Renewal due 4/4/2027

16, 25, 35, 41

Renewal due 12/9/2026

16, 25, 35, 41

Renewal due 1/22/2034

16, 25, 35, 41

Renewal due 12/12/2026

UK00916152688

16, 25, 35, 41

Renewal due 12/12/2026

Rotor Riot Logo

16, 25, 35, 41

Renewal due 4/4/2027

Rotor Riot Logo

16, 25, 35, 41

Renewal due 12/9/2026

Rotor Riot Logo

16, 25, 35, 41

Renewal due 1/22/2034

Rotor Riot Logo

16, 25, 35, 41

Renewal due 12/12/2026

Rotor Riot Logo

UK00916152837

16, 25, 35, 41

Renewal due 12/12/2026

AOU due 4/13/2027

Renewal due 4/17/2028

AOU due 4/21/2026

Renewal due 7/12/2027

UK00917653122

Renewal due 12/28/2027

Next Deadline

Renewal due 3/6/2029

Renewal due 12/6/2028

40-20170165133

Renewal due 12/20/2028

Renewal due 3/8/2029

Shark Head Logo

AOU due 11/26/2025

Shark Head Logo

UK00917938426

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Renewal due 7/31/2028

Shark Head Logo

Renewal due 7/31/2028

Shark Head Logo

Renewal due 4/6/2029

Shark Head Logo

Renewal due 4/6/2029

Shark Head Logo

Renewal due 4/6/2029

AOU due 2/1/2028

UK00003597165

Renewal due 2/18/2031

Renewal due 2/19/2031

Renewal due 10/27/2031

Unusual Machines has

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Research and Development

Research and development activities are part

of Unusual Machine’s business, and the Company will follow a disciplined approach to investing our resources to create new drone

technologies and solutions.

In the years ending December 31, 2023 and 2022, Fat Shark’s research and development costs were approximately

13.0% and 9.8%, respectively, of its revenues.

A fundamental part of this approach is a well-defined screening process that helps us

identify commercial opportunities that support desired technological capabilities in the markets we serve.

Research and development activities are part of

Unusual Machine’s business, and the Company will follow a disciplined approach to investing capital and resources to create new

drone technologies and solutions.

Research and development costs were approximately $90,584 and 0, for the years ended December 31, 2024

and 2023, respectively and primarily related to developing NDAA compliant products including our Brave F7 flight controller, Brave 55A

ESC and the Fat Shark Aura FPV Camera.

A fundamental part of this approach is a well-defined screening process that helps us identify

commercial opportunities that support desired technological capabilities in the markets we serve.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business