Unusual Machines, Inc. 10-Q

Item 1A. Risk Factors In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 and the following additional Risk Factors. Rising threats of international tariffs, including tariffs applied to goods between the United States and China, may materially and adversely affect our business. Our B2C business has historically been dependent on Chinese imports for our products and operations. For example, a majority of our products were manufactured, directly and indirectly, using Chinese vendors. In contrast, our B2B business we instituted in the second half of 2024 employs a made in the United States model. Recently, the current administration has imposed steep and additional tariffs on the importation from China and other countries (paused for 90 days) of goods including the drone components we use in our B2C business. As a result, we have begun sourcing components from other countries including the United States and Taiwan. This creates several issues including increased costs and potential inventory shipment delays. This increase in tariffs imposed could materially and adversely affect our business and results of operations. These tariffs apply to the vast majority of our consumer inventory for our B2C segment, and except for our Unusual Machines branded products we have increased prices and may in the future be forced to implement additional price increases to adjust to the higher costs of inventory. This in turn imposes the risk of reduced demand for such products and lower sales and resulting revenue. While to date, we appear to have not seen resistance based on increases in sales, that may not continue and future increases which we attempt to pass on to our customers may not work. Future inventory increases may require us to increase the prices of our branded products, which may result in decreased sales, particularly since we rely on consumer spending and our B2C products are typically considered non-essential, and purchases are therefore highly price sensitive. Changes in the state of China-United States relations, including any tensions relating to potential military conflict between China and Taiwan, are difficult to predict and could adversely affect the operations or financial condition of the Company given that we are shifting inventory for our B2C business to Taiwan. In addition to Chinese tariffs, one of our first B2B customers was a European company. After the 90-day United States tariff pause, if the European Union and other European countries react to the United States tariffs by imposing tariffs on United States made product including our drones, the trade war may make our B2B drone parts too expensive. If the tariffs or other factors result in increased inflation and a recession, our business may be materially harmed . A direct impact from rising tariffs on our business has been increases in the prices of inventory we acquire and an increase in our selling prices (with one exception described in the prior Risk Factor). Further, due to the tariffs and possibly large cuts in the size of the government, there may be increased unemployment and other economic factors which result in recession. According to a Wall Street Journal article published on April 24, 2025, in March of 2025, the rate of sales of existing homes in the United States fell 5.9% from the prior month and is another indicator of a potential recession. In such event, our B2C business may be materially and adversely affected. Further, our B2B business including our proposed manufacturing of drones in the United States may also be adversely affected by a recessionary economy and inflation. 30