What changed in this filing

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Item 1. Financial Statements

2025-05-08 compared with 2024-11-14 · 378 added, 572 removed, 549 unchanged (63% of the section changed)

10 unchanged sentences

Property and equipment, net

Deferred offering costs

Operating lease right-of-use assets

Goodwill and intangible assets

Intangible assets, net

Total non-current assets

LIABILITIES AND STOCKHOLDERS'

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable and accrued expenses

Operating lease liabilities

Operating lease liability

Deferred revenue

Warrant liabilities

Derivative liability – convertible

note conversion option

Total current liabilities

Long-term liabilities

Convertible note

Operating lease liabilities –

Deferred tax liability

Operating lease liability – long term

Total liabilities

1 unchanged sentence

Stockholders’ equity:

Series A preferred stock - $ 0.01

par value, 4,250 authorized and 4,250 and 0 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively

Series B preferred stock - $ 0.01

par value, 10,000,000 authorized and 50 and 190 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively

Series C preferred stock - $ 0.01

par value, 3,000 authorized and 210 and 0 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively

Common stock - $ 0.01 par value,

500,000,000 authorized and 6,184,983 and 3,217,255 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

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 March 31, 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 March 31, 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 March 31, 2025 and December 31, 2024, respectively

Common stock - $ 0.01 par value, 500,000,000 authorized and 16,830,170 and 15,122,018 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

Additional paid in capital

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Total stockholders’ equity

Total liabilities and stockholders’

Total liabilities and stockholders’ equity

See accompanying condensed unaudited notes to the

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Consolidated Condensed Statement of Operations

For the Three and Nine months Ended September

30, 2024 and 2023

Three months ended September 30,

Nine months ended September 30,

For the Three Months Ended March 31, 2025 and

Three Months Ended March 31,

Cost of goods sold

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Research and development

Sales and marketing

Selling and marketing

General and administrative

1 unchanged sentence

Total operating expenses

Operating loss

( 1,461,052 )

Loss from operations

( 3,267,811 )

( 1,086,352 )

Other Income (Expense)

Other income and (expense):

Interest income

Interest expense

Loss on debt extinguishment

Change in fair value of derivatives and warrant liabilities

Other (Income) Expense

Total other income and (expense)

Net loss before income tax

( 3,266,279 )

( 1,106,001 )

Income tax benefit (expense)

$ ( 3,266,279 )

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in Stockholders’ Equity

For the Nine months Ended September 30, 2024

Nine months Ended September 30, 2023 (Restated – Note 14)

Series A, Preferred Stock

Series B, Preferred Stock

Series C, Preferred Stock

Additional Paid-In

Total Stockholders’

Balance, December 31, 2022

$ ( 1,549,584 )

Issuance of common shares for services

( 1,177,904 )

Balance, March 31, 2023

$ ( 2,727,488 )

Conversion of preferred stock

Balance, June 30, 2023

$ ( 3,162,786 )

Balance, September 30, 2023

$ ( 3,516,460 )

Nine months Ended September 30, 2024

Series A, Preferred Stock

Series B, Preferred Stock

Series C, Preferred Stock

For the Three Months Ended March 31, 2025 and

Three Months Ended March 31, 2024

Preferred Stock

Additional Paid-In

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$ ( 3,333,046 )

Issuance of common shares as settlement

Issuance of common

stock as settlement –

Issuance of common shares, initial public offering, net of offering costs

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$ ( 4,439,047 )

Conversion of preferred shares

Issuance of common shares, equity incentive plan

Stock compensation expense - vested stock

Stock option compensation expense

( 1,612,238 )

Balance, June 30, 2024

$ ( 6,651,286 )

Issuance of common shares, equity incentive plan

Exchange of common shares for Series A preferred

Three Months Ended March 31, 2025

Preferred Stock

Additional Paid-In

Total Stockholders’

Balance, December 31, 2024

$ ( 35,913,514 )

Exchange of convertible note for Series C preferred

Issuance of restricted common stock, equity incentive

Cash exercise of warrants

Stock compensation expense - vested stock

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( 3,266,279 )

Balance, September 30, 2024

Balance, March 31, 2025

$ ( 39,179,793 )

See accompanying condensed unaudited notes to the consolidated condensed financial statements.

See accompanying condensed unaudited notes to the

consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Cash Flows

For the Nine months Ended September 30, 2024

Nine months Ended September 30,

(Restated – Note 14)

For the Three Months Ended March 31, 2025 and

Three Months Ended March 31,

Cash flows from operating activities:

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$ ( 1,106,001 )

Stock compensation expense as settlement

Stock compensation expense

Change in fair value for warrant and derivative liabilities

Loss on debt extinguishment, non-cash component

Depreciation and amortization

Share-based compensation expense

Change in assets and liabilities:

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Operating lease liabilities

Customer deposits and other current liabilities

Deferred revenue and other current liabilities

Net cash used in operating activities

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Cash flows from investing activities

Cash portion of consideration paid for acquisition of businesses;

net of cash received

Purchase of property & equipment

Cash portion of consideration paid for acquisition of businesses, net of cash received

Net cash used in investing activities

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Proceeds from issuance of common shares

Proceeds from issuance of common shares, warrant exercises

Common share issuance offering costs

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

( 1,762,404 )

Cash, beginning of period

Cash, end of period

Net cash provided by financing activities

Net increase in cash

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosures of cash flow information:

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Notes to Consolidated Condensed Financial Statements

For the Period Ended September 30, 2024

For the Period Ended March 31, 2025

Note 1 – Organization and nature of business

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transactions and balances have been eliminated upon consolidation.

Unaudited interim financial information

Basis of Presentation

The consolidated condensed financial statements

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accordance with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations.

these condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s

Annual Report on Form 10-K/A, for the year ended December 31, 2023.

The results for any interim period are not necessarily indicative

of results for any future period.

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

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Accordingly, actual results could differ from those estimates, and such results could be material.

The financial statements include some

amounts that are based on management's best estimates and judgments.

Significant estimates reflected in these 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,

inventory and sales, (iv) the evaluation of long-term assets, including goodwill, for impairment, (v) the fair value of lease

liabilities and related right of use assets, the fair value of embedded conversion option derivatives and warrant liabilities, and

(vi) the warranty liability reserve.

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 three months ended March 31, 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

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The Company’s cash balance may at times exceed these limits.

At September 30, 2024 and December

At March 31, 2025 and December

31, 2024, the Company had approximately $ 4.1 million and $ 3 .0 million, respectively, in excess of federally insured limits.

continually monitors its position with, and the credit quality of the financial institutions with which it invests.

continually monitors its positions with, and the credit quality of the financial institutions with which it invests.

Accounts Receivable, net

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On a periodic

basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on a history of past write-offs

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.

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2025 and December 31, 2024, the Company considers accounts receivable to be fully collectible;

accordingly, no allowance for doubtful

accounts has been established.

accordingly, no allowance for credit losses

has been established.

Inventories, which consist of finished goods,

1 unchanged sentence

Cost components include

direct materials and direct labor, 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.

Deferred offering costs

The Company deferred direct incremental costs

associated with its IPO.

The Company capitalized $ 127,687 and $ 376,702 during the nine months ended September 30, 2024 and 2023 prior

to the IPO, respectively and the deferred offering costs were $ 512,758 as of December 31, 2023.

Deferred offering costs consist of primarily

legal, advisory, and consulting fees incurred in connection with the formation and preparation of the IPO.

After consummation of the IPO,

total deferred offering costs of $ 640,445 were recorded as a reduction to additional paid-in capital generated as a result of the offering.

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

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Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets

ranging from two to five years .

of three years.

The Company has adopted Accounting Standards Codification

(ASC) 842, “Leases” which requires the recognition of assets and liabilities associated with lease agreements.

As of February

16, 2024, the date of the acquisition, the Company recognized a lease liability obligation of $ 378,430 and a right-of-use asset for the

same amount related to the lease in Orlando, FL.

recognized a lease liability obligation and a right-of-use asset for the facilities lease in Orlando, FL.

The Company determines if a contract is a lease

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on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense.

Lease terms may include

options to extend or terminate a lease when they are reasonably certain to occur.

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

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

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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

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the asset group against the sum of the undiscounted future cash flows.

If the undiscounted cash flows do not indicate the carrying amount

of the asset group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds

its fair value based on discounted cash flow analysis or appraisals.

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 March 31, 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.

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 March 31, 2025, related to

the indefinite-lived assets.

Fair Values, Inputs and Valuation Techniques

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that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The following table details the fair value measurements

of the Company’s financial liabilities as of September 30, 2024:

Schedule of fair value measurements of financial liabilities

Warrant liabilities

Derivative liability – convertible note conversion option

Changes in Level 3 financial instruments are

Schedule of Level 3 financial instruments

Issuances and

September 30,

Warrant liabilities

Derivative liability – convertible note conversion option

Disclosures for Non-Financial Assets Measured

at Fair Value on a Non-Recurring Basis

The Company's financial instruments mainly consist

of cash, receivables, current assets, accounts payable, accrued expenses, debt, and derivative liabilities.

The Company's financial instruments mainly

consist of cash and cash equivalents, receivables, current assets, accounts payable and accrued expenses.

The carrying amounts of cash,

receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term nature

of these instruments.

receivables, current assets, accounts payable and accrued expenses approximates fair value due to the short-term nature of these

Accrued Warranty

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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 $ 19,080 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

consolidated balance sheets and amounted to $ 19,430 and $ 28,944 as of March 31, 2025 and December 31, 2024, respectively.

Rotor Riot does not provide any warranty of any

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Revenue Recognition

The Company recognizes revenue in accordance with

ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”).

The Company will recognize 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:

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Deferred Revenue

Deferred revenue relates to (i) orders placed,

but not yet fulfilled and (ii) customer tickets purchased related to the Company’s Rampage event, in which tickets are sold in advance

and recognized when the event takes place.

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 $ 300,517 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

Deferred revenue related to

orders placed, but not yet fulfilled totaled $ 117,171 and $ 197,117 as of March 31, 2025 and December 31, 2024, respectively.

Cost of Goods Sold

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packaging costs and production related depreciation, if any.

Operations Expense

Operations expense relates to expenses incurred

for fulfilling orders and warehouse related expenditures including our warehouse personnel, supplies, and shipping and handling costs.

Shipping and Handling Costs

Shipping and handling costs incurred for products

shipped to customers are included in general and administrative expenses and amounted to $ 123,690 since February 16, 2024, the date of

the acquisition, through September 30, 2024.

The Company did no t incur shipping and handling costs in the nine months ended September

shipped to customers are included in operations expenses and amounted to $ 70,161 and $ 23,475 for the three months ended March 31, 2025

and 2024, respectively.

Shipping and handling costs charged to customers are included in sales.

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is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense.

The Company’s current provision for the

nine months ending September 30, 2024 and 2023 consisted of a tax benefit against which we applied a full valuation allowance, resulting

in no current provision for income taxes.

Since the Company has not generated an operating profit since inception, there are no deferred

tax assets other than a net operating loss carryforward offset by a valuation allowance as of September 30, 2024 and December 31, 2023.

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, expected term and future

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 based on comparative companies, expected term

using the simplified method 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.

The fair value of stock grants is

based on our stock price on the date of grant.

Compensation costs are recognized on a straight-line basis over the requisite service period

which is the vesting term.

The Company accounts for warrants to purchase

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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

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

The assessment considers whether the warrants are freestanding financial instruments or embedded in a host instrument, whether

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and comprehensive loss.

Embedded Conversion Option Derivative

The Company accounts for embedded debt conversion

features in accordance with the guidance in ASC 815, Derivatives and Hedging (“ASC 815”).

If the embedded debt conversion

feature is not clearly and closely related to the debt host, then it is required to be bifurcated from the host contract and accounted

for separately as a derivative liability.

The derivative liability is required to be recorded at its initial fair value on the date of

issuance, and each balance sheet date, thereafter.

Changes in the estimated fair value of the derivative are recognized as a non-cash

gain or loss in the consolidated statements of operations and comprehensive loss.

This assessment, which requires the use of professional

judgment, is conducted at the time of Note issuance and as of each subsequent quarterly period end date while the Note is outstanding.

Net Loss per Share

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Segment Reporting

Since the acquisitions of Fat Shark and Rotor

Riot, the Company operates with one reportable segment.

The Company bases its reportable segment based on how our Chief Operating Decision

Maker manages the business, makes resource allocations and operating decisions, and evaluates operating performance.

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 November 2023, new accounting guidance was

issued that updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that

are regularly provided to the Chief Operating Decision Maker (the “CODM”) and included within each reported measure of a segment's

profit or loss.

This new guidance also requires disclosure of the title and position of the individual identified as the CODM and an explanation

of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate

The new guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years

beginning after December 15, 2024.

The new guidance is required to be applied retrospectively to all prior periods presented in the financial

Early adoption is also permitted.

On January 1, 2024, the Company adopted ASC 280, Segment Reporting.

The Company currently

operates a single segment and the Company does not anticipate any net effect related to the adoption.

In December 2023, new accounting guidance was

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This new guidance will likely not result in additional required disclosures when adopted.

In November 2024, the FASB issued ASU No.

“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.

Note 3 – Acquisitions

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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 8 “Convertible Note”

for further details), and (iii) the issuance of 4,250,000 shares of the Company’s common stock, which represented approximately

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

The Company valued the Red Cat common stock at $ 4.00 per share which represents the IPO price of the Company’s common

stock on February 15, 2024.

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 .

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combination under ASC 805, Business Combinations, and therefore the assets acquired, and liabilities assumed are accounted for at fair

The Company has not completed its evaluation of the fair value of assets acquired and liabilities assumed of Fat Shark and Rotor

Riot for the purpose of its 2024 fiscal year financial reporting and as such has not fully determined the unallocated purchase price between

goodwill and other intangible assets.

Such amounts are subject to adjustment during the one-year measurement period.

The following represents the fair value allocation of Fat Shark and

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Other long-term assets

Goodwill and intangible assets (unallocated purchase price)

Intangible assets

Accounts payable and accrued liabilities

Customer deposits

Deferred revenue

Deferred tax liability

Operating lease liability – current and long-term

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Total purchase price

Initial 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.

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 Company will evaluate the amount of goodwill and intangibles that are expected to be deductible for

tax purposes once the unallocated purchase price is finalized.

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

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.

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.

The table below presents the results as reported by the

Company and unaudited pro forma results of the Company, assuming that the acquisition of Fat Shark and Rotor Riot at the beginning of

each period are as follows.

The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the

acquisitions been in effect for the periods presented (in thousands, except per share data):

Schedule of unaudited pro forma results

For the Nine months Ended

September 30, 2024

September 30, 2023

included in the Consolidated Financial Statements from the date of acquisition of February 16, 2024.

The table below presents the results

as reported by the Company and unaudited pro forma results of the Company, assuming that the acquisition of Fat Shark and Rotor Riot occurred

at the beginning of each period are as follows.

The unaudited pro forma results are not necessarily indicative of what actually would

have occurred had the acquisitions been in effect for the periods presented (in thousands, except per share data):

Schedule of pro forma results

For the Year Ended

December 31, 2024

December 31, 2023

Gross profit/(loss)

Loss from operations

Other expense

Other (expense) and income taxes

Net earnings per share:

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Inventories, consisting solely of finished goods,

totaled $ 1,453,042 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

totaled $ 1,214,290 and $ 1,335,503 as of March 31, 2025 and December 31, 2024, respectively.

In addition, the Company had prepaid deposits

for inventory totaling $ 1,140,511 and $ 0 as of September 30, 2024 and December 31, 2023, respectively.

Note 5 – Other Current Assets

for inventory totaling $ 835,279 and $ 904,728 as of March 31, 2025 and December 31, 2024, respectively.

Note 5 – Other Assets

Other current assets included as of:

Schedule of other current assets

September 30, 2024

March 31, 2025

December 31, 2024

Deposit related to Rotor Riot, LLC and Fat Shark, Ltd.

Prepaid insurance

Other prepaid expenses

Total other current assets

Non-current other assets include a rent deposit of $ 59,426 related

to the operating lease for the Orlando, FL facility as of March 31, 2025 and December 31, 2024.

Note 6 – Property and Equipment, net

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Schedule of property and equipment

September 30, 2024

March 31, 2025

December 31, 2024

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Total property and equipment, net

Depreciation expense totaled $ 513 and $ 1,407 for the nine months ended

September 30, 2024 and 2023, respectively.

Depreciation expense totaled $ 171

and $ 171 for the three months ended March 31, 2025

and 2024, respectively.

Note 7 – Operating Leases

As identified in Note 3 “Acquisitions”,

the acquired businesses, specifically Rotor Riot, has entered into 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 15, 2024, at $ 378,430 .

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

The Company has no finance leases.

Operating lease expense

totaled $ 65,716 from the date of acquisition through the period ended September 30, 2024.

Operating lease expense totaled $ 26,286 and $ 13,143 , respectively for the three months ended

March 31, 2025 and 2024.

The following is a summary of the operating lease

right-of-use asset and liability:

Schedule of operating lease right-of-use

Orlando, FL Operating Lease

Operating lease right-of-use assets

accumulated amortization

Operating lease right-of-use assets, as of March 31, 2025

Operating lease liability

accumulated reduction

Operating lease liability, as of March 31, 2025

Current operating lease liability

Non-current operating lease liability

Total operating lease liability

The following is a summary of future lease payments

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Weighted average discount rate

Note 8 – Goodwill and Intangible Assets

There were no changes in the carrying amount of goodwill during the

three months ended March 31, 2025.

The carrying value of goodwill was $ 7,402,906 as of March 31, 2025.

Intangible Assets

As of March 31, 2025, the balances of intangible assets were as follows:

Schedule of intangible assets

Accumulated Amortization

Indefinite-lived

Total intangible assets, net

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 $ 20,422 for the three months ended

March 31, 2025 related to the Patents.

Note 9 – Promissory and Convertible Notes

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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 Investors (the “July Notes”) and cancelled the original Note.

The July Notes contained 8 % per annum interest.

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.

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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.

recognized a loss on debt extinguishment of $ 685,151 during

the three and nine months ended September 30, 2024 related to the August Notes.

The loss on extinguishment related to the August

Notes include $ 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 (see Note 9 – Derivative Liabilities).

Total interest expense for the nine months ended

September 30, 2024 was $ 101,619

The Company had accrued interest of $ 5,004

as of September 30, 2024 related to the August Notes.

Note 9 – Derivative Liabilities

The fair value of the derivative liabilities

are determined using the binomial option pricing model which values the liability on the stock price at the grant date, the estimate

volatility of the stock, the risk-free interest rate over the expected term, and certain estimates and probabilities of different outcomes.

Changes in the fair value of the derivative is recorded in the income statement in other income and expense on a quarterly basis.

Derivative liability – conversion option

In August 2024 and in conjunction with the issuance

of the August Notes as discussed in Note 8 – Convertible Note, the Company recorded a derivative liability related to the optional

conversion feature (“Conversion Derivative”) in accordance with ASC 815 as it is not clearly and closely related to the host

contract and the embedded debt conversion feature meets the definition of a liability due to a potential variable amount of shares that

may be issued upon conversion.

The initial fair value on August 21, 2024 for the Conversion Derivative was $ 347,947 .

The Conversion Derivative

fair value as of September 30, 2024 was $ 311,048 and the Company recorded a change in fair value of derivative liabilities of $ 36,899

during the three months ended September 30, 2024.

Warrant Liability

In August 2024 and in conjunction with the issuance

of the August Notes as discussed in Note 8 – Convertible Note, the Company issued warrants that include specific provisions and

obligations including a fundamental transaction provision that may require a cash payment to the holder upon a triggering event, that

in accordance with ASC 815, require the warrants to be classified as a liability.

The initial fair value on August 21, 2024 for the Warrant

Liability was $ 315,303 and as of September 30, 2024 the fair value is $ 308,964 and the Company recorded a change in fair value of derivative

liabilities of $ 6,340 for the three months ended September 30, 2024.

The August Notes bear interest at 4 % annually with interest payable monthly and the principal due on November

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

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.

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 three months ended

March 31, 2025 and 2024 was $ 0 and $ 19,649 , respectively.

Note 10 – Earnings Per Share and Stockholders’ Equity

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Outstanding securities not included in the computation

of diluted net loss per share because their effect would have been anti-dilutive include 4,250,000 and 0 shares of Series A Convertible

Preferred Stock (the “Series A”), as converted as of September 30, 2024 and 2023, respectively.

250,000 and 950,000 shares

of Series B Convertible Preferred Stock (the “Series B”), as converted as of September 30, 2024 and 2023, respectively.

and 0 shares of Series C Convertible Preferred Stock (the “Series C”), as converted as of September 30, 2024 and 2023, respectively.

330,000 of stock options issued to employees as of September 30, 2024, 62,500 of common stock representative warrants issued to the

underwriter associated with the February 2024 IPO, 630,000 warrants issued related to the debt conversion, and 1,507,538 shares of common

stock, as converted, associated with the Note discussed in Note 8 “Convertible Note”.

of diluted net loss per share because their effect would have been anti-dilutive include 330,000 of stock options issued to employees

as of March 31, 2025, 200,000 unvested restricted stock units, 8,500 of common stock representative warrants issued to the underwriter

associated with the February 2024 IPO, and 164,473 warrants issued related to the October 2024 private placement.

Preferred Stock

The preferred stock par value is $ 0.01 .

The Series A is convertible into common stock

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are not entitled to vote on any matters submitted to shareholders of the Company.

On July 22, 2024, the Company’s

principal shareholder, Red Cat sold all of its securities in the Company to the two unaffiliated third-party Investors.

As part of the transaction and just prior to the above sale, Red Cat entered into an Exchange Agreement with

the Company pursuant to which Red Cat exchanged 4,250,000

shares of the Company’s common stock for 4,250

shares of the Company’s Series A.

The Series A shares can be convertible back into the same amount of shares of common stock

as of the date of the original exchange, and as a result the Company did not recognize any gain or loss related to the exchange.

On August 21, 2024, the Company entered into two

exchange agreements with the Investors, under which each investor exchanged an aggregate of $ 1,000,000 of their Notes for an aggregate

of 210 shares of the Company’s Series C and 630,000 warrants (see Note 11 – Share Based Awards).

Subsequent to the IPO but prior to September 30,

2024, certain shareholders converted 140 shares of Series B into 700,000 shares of common stock.

The Company canceled the 140 shares of

Series B upon the conversion.

On June 1, 2023, the Company issued an additional

50 Series B shares in connection with the cancellation of 250,000 shares of common stock.

Preferred shares outstanding at September 30,

2024 and December 31, 2023 were as follows:

Schedule of preferred shares outstanding

Preferred Series

September 30, 2024

Shares as converted, as of September 30, 2024

December 31, 2023

Shares, as converted, as of December 31, 2023

The common stock par value is $ 0.01 .

2024 Preferred Stock Transactions

During the three months ended March 31, 2024,

shareholders converted 120 shares of Series B into 600,000 shares of common stock.

The Company cancelled the 120 shares of Series B upon

the conversion.

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 three months ended

March 31, 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 $ 1,325,112 was recognized during the three months ended March 31, 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.

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

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The Company incurred $ 510,000 direct

deduction from proceeds, $ 127,687 in cash disbursements related to offering costs in the nine months ended September 30, 2024 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 Company also incurred additional costs related to warrants to purchase

62,500 shares of common stock issued to the underwriters as partial compensation for services rendered in connection with the IPO, which

is preliminarily valued at $ 250,000 as of the date of the IPO using the IPO Price of $4 per share.

The Company is planning to value the

warrants using a Black-Scholes valuation model but has not completed this workflow.

Any change to the fair value of the warrants would

have no change to the Company’s financial statements since the value of the warrants would only impact the “offering costs”

and thus entry would be to adjust “Additional Paid-In Capital – Common Stock” and “Additional Paid-In Capital

The 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.

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

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

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

Subsequent to the IPO and prior to September 30,

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 three months ended March 31, 2024,

the Company issued 600,000 shares of common stock related to certain shareholders converting 120 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 Allan Evans, the Company’s CEO related to an agreed upon reduction of compensation.

The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan (the “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 through

February 14, 2015 which is the forfeiture period.

Stock compensation expense of $ 679,699 was recognized during the nine months ended September

Unrecognized stock compensation expense related to these shares is $ 496,661 as of September 30, 2024.

On July 22, 2024, Red Cat sold all of its securities

in the Company to two accredited investors in a private transaction.

As part of the transaction, Red Cat entered into an Exchange Agreement

with the Company pursuant to which Red Cat exchanged 4,250,000 shares of the Company’s common stock for 4,250 shares of the Company’s

There was no gain or loss on this exchange as both the common and preferred shares were determined to have the same fair value

as of the exchange date.

On July 30, 2024, the Company issued 23,743 immediately

vested restricted shares of common stock to board members of the Company.

The shares of restricted stock were granted under the Plan.

The shares were valued at $ 1.79 per share, which was the value of the Company’s common stock on the date of grant, respectively

for a total of $ 42,500 to be recognized as stock compensation expense during the three months ended September 30, 2024.

2023 Transactions

On March 7, 2023, the Company issued 75,000 shares

of common stock to an investment banking firm (“Revere”) as a fee for the termination of the January 2023 engagement with

These shares were allocated by Revere to some of the Company’s existing shareholders.

The Company recorded $ 600,000 of stock

compensation expense related to the issuance of the shares valued at $ 8.00 per share, which was based on the most recent private sale

of common stock for the Company.

On July 10, 2023, the Company’s Board of

Directors approved a 1-for-2 reverse stock split of our issued and outstanding shares of common stock.

In accordance with Staff Accounting

Bulletin Topic 4.C, the Company has given retroactive effect to reverse stock split.

In addition, and in accordance with FASB ASC 260,

Earnings Per Share , the Company has retroactively adjusted the computations of basic and diluted share calculations.

Note 11 – Share Based Awards

Stock Options

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 1,461,876 of awards and 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.

During the nine months ended September 30, 2024,

the Company’s board of directors approved the grant of 330,000 stock options under the Plan to certain employees.

The stock options

are subject to certain vesting provisions.

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 March 31, 2025, the Plan is authorized to issue

up to 3,037,728 of awards after the 5% increase on January 1, 2025.

The following table presents the activity for

stock options outstanding:

stock options outstanding as of March 31, 2025:

Schedule of stock option activity

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Forfeited/canceled

Outstanding – September 30, 2024

The range of assumptions used to calculate the fair value of options

granted during the nine months ended September 30, 2024 was:

Schedule of stock options assumptions

Exercise Price

Stock Price on date of grant

$ 1.20 – 1.79

Risk-free interest rate

4.080 - 4.71 %

Dividend yield

Expected term (years)

129.45 – 143.46 %

The Company recognized $ 37,475 in stock-based compensation expense

related to stock options during the nine months ended September 30, 2024.

As of September 30, 2024, there was $ 335,686 of unrecognized

stock-based compensation expense related to unvested stock options to be recognized over the remaining vesting term through 2028.

Outstanding – March 31, 2025

Exercisable – March 31, 2025

The Company recognized $ 22,940 in stock-based

compensation expense related to stock options during the three months ended March 31, 2025.

As of March 31, 2025, there was $ 289,296 of

unrecognized stock-based compensation expense related to unvested stock options to be recognized over the remaining vesting term through

Restricted Stock

2 unchanged sentences

Schedule of restricted stock activity

Outstanding - December 31, 2023

Unvested - December 31, 2024

Forfeited/canceled

Outstanding – September 30, 2024

The Company recognized $ 722,200 in stock-based compensation expense

related to restricted stock during the nine months ended September 30, 2024.

As of September 30, 2024, there was $ 496,661 of unrecognized

stock-based compensation expense related to unvested restricted stock to be recognized over the remaining vesting term through February

Unvested – March 31, 2025

Restricted stock awards are equity grants to officers,

directors and employees of the Company in which restricted common stock is issued on the grant date subject to vesting and claw-back provisions.

Restricted stock units are equity grants to employees and advisors of the Company in which common stock is issued upon meeting certain

vesting requirements.

The total value of restricted stock and restricted

stock units granted during the three months ended March 31, 2025 is $ 6,402,517 .

The Company recognized $ 1,883,432 in stock-based compensation

expense related to restricted stock during the three months ended March 31, 2025.

As of March 31, 2025, there was $ 5,199,510 of unrecognized

stock-based compensation expense related to unvested restricted stock to be recognized over the remaining vesting term through March 2029.

The following table presents the activity for warrants outstanding

as of September 30, 2024:

as of March 31, 2025:

Schedule of warrant activity

2 unchanged sentences

Forfeited/cancelled/restored

Outstanding – September 30, 2024

( 1,224,606 )

Outstanding – March 31, 2025

As Discussed in Note 10, “Earnings Per Share

and Stockholders’ Equity”, in connection with the IPO, the Company issued 62,500 representative warrants to its underwriters

to purchase shares of common stock.

The representative warrants have an exercise price of $5.00 or can be exercised through a cashless

exercise feature.

As discussed in Note 8, “Convertible Note”,

in connection with the exchange of the $ 1,000,000 of the Note Payable balance, the Company issued 630,000 warrants to the Investors to

purchase shares of common stock.

The warrants have an exercise price of $ 1.99 .

All warrants outstanding have a weighted

average remaining contractual life of approximately 4.85

years as of September 30, 2024.

The intrinsic value of the warrants at September 30, 2024 is $ 0 as the share price of the Company’s common

stock is lower than the strike price of the warrants.

and Stockholders’ Equity”, in connection with the Private Placement, the Company issued 1,286,184 warrants and an additional

102,895 warrants to the underwriter related to the Private Placement for a total of 1,389,079 warrants.

The warrants have an exercise

price of $ 1.99 .

The warrant holders exercised 1,224,606 warrants during the three months ended March 31, 2025.

All warrants outstanding have a weighted average

remaining contractual life of approximately 5.08 years as of March 31, 2025.

The aggregate intrinsic value of the warrants at March 31,

2025 is $ 737,226 .

Note 12 – Related Party Transactions

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and replaces the Offer Letter dated November 27, 2023.

In October 2024, in relation to the Private Placement

as described in more detail in Note 10, “Earnings Per Share and Stockholders’ Equity”, the Company’s CEO and two

directors (combined “Insiders”) invested $ 250,000 in the Private Placement on identical terms to the other Investors.

the Insiders were required to pay an additional $ 92,105 to the Company related to the greater of book or market value for the warrants.

Note 13 – Commitments and Contingencies

Orlando Lease

As part of the business combination that occurred

3 unchanged sentences

See Note 7 – Operating Leases for additional

Note 14 – Restatement of Previously Issued Financial Statements

On April 16, 2024, the Company changed their independent

PCAOB-registered accounting firm and terminated its engagement with their prior auditor.

On May 3, 2024, the Securities and Exchange Commission

(“SEC”) issued an order that instituted a cease-and-desist against the Company’s previous auditor, which required the

Company to obtain new auditors and re-audit its financial statements for the years ended December 31, 2023 and 2022.

The Company engaged a new, an independent and

registered accounting firm, to re-audit the Company’s previously issued financial statements.

During the Company’s re-audits,

it was noted that certain transactions were not recorded in the correct period, stock compensation expense of $600,000 related to the

March 7, 2023 common stock issuance was not recorded and deferred offering costs were classified as an operating activity rather than

a financing activity.

Expenses totaling $10,993 were originally recorded in 2023 but related to 2022 expenses.

With this restatement, the transactions previously

recorded in the incorrect period have been updated to the correct period, classifications on the statements of cash flow have been corrected

and the stock compensation previously not recorded has been properly recorded.

The following presents reconciliations of the

impacted financial statement line items as filed to the restated amounts as of September 30, 2023 and for the periods then ended.

previously reported amounts reflect those included in the registration statements the Company filed with the Securities and Exchange

Commission on February 1, 2024.

These amounts are labeled “As Filed” in the tables below.

The amounts labeled “Restatement

Adjustments” represent the effects of these restatements due to the timing differences and stock compensation expense.

Schedule of restatement adjustments in financial statements

Statement of Operations for the Nine months Ended September 30, 2023

Restatement Adjustments

Cost of goods sold

Operating expenses:

Research and development

General and administrative

Depreciation and amortization

Total operating expenses

Loss from operations

( 1,377,869 )

( 1,966,876 )

Other income:

Interest income

Total other income

Net loss before income tax

( 1,377,869 )

( 1,966,876 )

Income tax benefit (expense)

$ ( 1,377,869 )

$ ( 589,007 )

$ ( 1,966,876 )

Net loss per share attributable to common stockholders

Basic and diluted

Weighted average common shares outstanding

Basic and diluted

Statements of Changes in Stockholders’ Equity – As Filed

– For the Nine months Ended September 30, 2023

Series B, Preferred Stock

Additional Paid-In

Balance, December 31, 2022

$ ( 1,538,591 )

Issuance of common shares

Conversion to preferred shares

( 1,377,869 )

Balance, September 30, 2023

$ ( 2,916,460 )

Statements of Changes in Stockholders’ Equity – Restatement

Adjustments – For the Nine months Ended September 30, 2023

Series B, Preferred Stock

Additional Paid-In

Balance, December 31, 2022

Issuance of common shares

Conversion to preferred shares

Balance, September 30, 2023

$ ( 600,000 )

Statements of Changes in Stockholders’ Equity – As

Restated – For the Nine months Ended September 30, 2023

Series B, Preferred Stock

Additional Paid-In

Balance, December 31, 2022

$ ( 1,549,584 )

Issuance of common shares

Conversion to preferred shares

( 1,966,876 )

Balance, September 30, 2023

$ ( 3,516,460 )

Statement of Cash Flows for the Nine months Ended September 30,

Restatement Adjustments

Cash flows from operating activities:

$ ( 1,377,869 )

$ ( 589,007 )

$ ( 1,966,876 )

Stock compensation expense

Change in assets and liabilities:

Accounts receivable

Deferred offering costs

Other current assets

Accounts payable and accrued expenses

Net cash used in operating activities

( 1,759,240 )

( 1,382,538 )

Cash flows from investing activities

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Deferred offering costs

Net cash provided by financing activities

Net increase (decrease) in cash

( 1,762,404 )

( 1,762,402 )

Cash, beginning of period

Cash, end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

Cash paid for income tax

Aloft Material Definitive Agreement

On February 1, 2025, the Company entered into

an Agreement and Plan of Merger and Reorganization (the "Agreement”) with Aloft Technologies, Inc., a Delaware corporation

("Aloft”), and UMAC Merger Sub, Inc.

a Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub”).

Aloft is a leader in the drone fleet and airspace management sector, powering a majority of all FAA-approved Low Altitude Authorization

and Notification Capability airspace authorizations in the United States and the related software is complimentary to the Company’s

overall position to provide drone related components and drone services made in the United States.

Under the terms of the Agreement and subject

to customary closing conditions and a working capital adjustment, on the closing date of the Agreement Aloft will merge into Merger

Sub, and Merger Sub will continue as a wholly owned subsidiary of the Company.

In addition, each issued and outstanding share of

Aloft capital stock that is not a dissenting share will be cancelled and each Aloft Stockholder (as defined in the Agreement) will

receive their pro rata share of the merger consideration payable by the Company as provided for in the Agreement.

consideration of $ 14.5

million consists of 1,204,319

shares of common stock of the Company and expected not to exceed $ 100,000

in cash payable to unaccredited investors.

Customary closing conditions by the parties including

Aloft shareholder approval must be met before being able to close the merger.

On May 6, 2025, the Company and Aloft executed

an Amendment and Waiver to the Merger Agreement (the “Aloft Amendment”) which (i) waives the exclusivity provision in the

Agreement, (ii) extends the end date in the Agreement from April 30, 2025 to August 31, 2025, (iii) adds a $100,000 breakup fee in the

event Aloft consummates an alternative transaction while the Agreement remains in effect, and (iv) permits the Company to terminate the

Agreement at any time upon written notice, however, the Company will forfeit the breakup fee.

Note 14 – Subsequent Events

Quarterly Grants to our Board of Directors

On October 22, 2024, the Company issued non-employee

directors listed in the table below the equity portion of their quarterly compensation.

Each of the directors received a vested restricted

stock grant for services as a director (and where applicable, committee member) during the quarter ended September 30, 2024.

of restricted common stock were granted under the Company’s 2022 Equity Incentive Plan and was subject to each director executing

the Company’s standard Restricted Stock Agreement.

The fair value per share was based on the quoted trading price as of the close

of the market as of October 22, 2024.

Value Per Share

of Restricted Common Stock

Private Placement Agreement

On October 29, 2024 (the “Closing

Date”), the Company entered into Securities Purchase Agreements (the "SPA”) with accredited investors (each, an

"Investor” and together the "Investors”) for a private placement offering ("Private Placement”), for

aggregate gross proceeds of $1.95 million before deducting fees to the placement agent and other expenses payable by the Company in

connection with the Private Placement.

The Company intends to use the net proceeds of approximately $1.7 million of the Private

Placement for working capital and general corporate purposes.

As part of the Private Placement, the Company issued an aggregate of

1,286,184 units at a per unit purchase price of $1.52 per unit.

Each unit consists of one share of common stock, par value $0.01 per

share (the "Common Stock”) and one warrant to purchase one share of the Company’s Common Stock at an exercise price

of $1.99 per share (each an "Investor Warrant”) and collectively, the Investor Warrants”).

The Investor Warrants

have a term of five and a half years from the Closing Date and may not be exercised for 180 days after the Closing Date and are

exercisable at $1.99 per share, subject to certain limitations and adjustments set forth in the Investor Warrants.

Allan Evans, the

Company’s Chief Executive Officer and Sanford Rich and Robert Lowry, each a member of the Company’s board of directors,

invested an aggregate of $250,000 in the Private Placement on identical terms to the other Investors.

On November 5, 2024, the Board of Directors of

the Company awarded each of the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operation Officer 50,000 restricted

shares of the Company’s Common Stock under the Plan as bonuses related to the Private Placement.

The restricted shares are valued

at $1.96 per share, the closing price of our common stock as of the date of the grant, for a total value of $98,000 for each of the Company’s

The bonuses are subject to the Company’s clawback Policy.

Confidentially Marketed Public Offering

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 other offering expenses.

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 .

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-Q

Item 1. Financial Statements