What changed in this filing

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Item 1. Financial Statements

2025-08-14 compared with 2025-05-08 · 288 added, 190 removed, 737 unchanged (39% of the section changed)

1 unchanged sentence

Unusual Machines, Inc.

Consolidated Condensed Balance Sheets

Consolidated Condensed

Balance Sheets

Current assets:

6 unchanged sentences

Property and equipment, net

Operating lease right-of-use assets

Operating lease right-of-use asset, net

Intangible assets, net

6 unchanged sentences

Total current liabilities

Long-term liabilities

Non-current liabilities

Deferred tax liability

Operating lease liability – long term

Operating lease liability – non-current

Total non-current liabilities

Total liabilities

2 unchanged sentences

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

Series A preferred stock - $ 0.01 par value, 4,250 designated and 0 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively

Series B preferred stock - $ 0.01 par value, 1,000 designated and 0 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively

Series C preferred stock - $ 0.01 par value, 3,000 designated and 0 and 0 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively

Common stock - $ 0.01 par value, 500,000,000 authorized and 25,287,786 and 15,122,018 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively

Additional paid in capital

4 unchanged sentences

Total liabilities and stockholders’ equity

See accompanying condensed unaudited notes to the

See accompanying unaudited notes to the

consolidated condensed financial statements.

1 unchanged sentence

Consolidated Condensed Statement of Operations

For the Three Months Ended March 31, 2025 and

Three Months Ended March 31,

For the Three and Six Months Ended June 30,

2025 and 2024

Three months ended June 30,

Six months ended June 30,

Cost of goods sold

1 unchanged sentence

Research and development

Selling and marketing

Sales and marketing

General and administrative

4 unchanged sentences

( 1,571,704 )

( 10,458,284 )

( 2,658,057 )

Other income and (expense)

1 unchanged sentence

Interest expense

Total other income and (expense)

Net loss before income tax

Other income and (expense)

$ ( 6,964,739 )

$ ( 1,612,238 )

Income tax benefit (expense)

$ ( 10,231,018 )

4 unchanged sentences

Basic and diluted

See accompanying condensed unaudited notes to the

See accompanying unaudited notes to the

consolidated condensed financial statements.

2 unchanged sentences

in Stockholders’ Equity

For the Three Months Ended March 31, 2025 and

Three Months Ended March 31, 2024

Preferred Stock

For the Three and Six Months Ended June 30,

2025 and 2024

Three and Six Months Ended June 30, 2024

Series B, Preferred Stock

Additional Paid-In

2 unchanged sentences

$ ( 3,933,046 )

Issuance of common

stock as settlement –

Issuance of common shares as settlement

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

5 unchanged sentences

$ ( 5,039,048 )

Three Months Ended March 31, 2025

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 )

accompanying unaudited notes to the consolidated condensed financial statements.

Three and Six Months Ended June 30, 2025

Preferred Stock

4 unchanged sentences

Balance, December 31, 2024

$ ( 35,913,514 )

Issuance of restricted common stock, equity incentive

Cash exercise of warrants

of common stock for exercise of warrants

Stock compensation expense - vested stock

Stock option compensation expense

( 3,266,279 )

Balance, March 31, 2025

$ ( 39,179,793 )

See accompanying condensed unaudited notes to the

consolidated condensed financial statements.

Preferred Stock

Additional Paid-In

Total Stockholders’

Issuance of common shares, Management/Board of Directors

Issuance of common shares, Option exercises

Issuance of common shares, consulting services

Issuance of common shares, advisory board

Issuance of common shares, public offering

Stock option compensation expense

Stock option compensation expense – vested stock

Balance, June 30, 2025

See accompanying

unaudited notes to the consolidated condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Cash Flows

For the Three Months Ended March 31, 2025 and

Three Months Ended March 31,

For the Six Months Ended June 30, 2025 and 2024

Six Months Ended June 30,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Share-based compensation expense

Change in assets and liabilities:

Stock compensation expense as settlement

Stock compensation expense

Change in assets:

Accounts receivable

Prepaid inventory

Change in liabilities:

Accounts payable and accrued expenses

Operating lease liabilities

Deferred revenue and other current liabilities

Customer deposits and other current liabilities

Net cash used in operating activities

3 unchanged sentences

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

Purchase of property & equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of common shares

Proceeds from issuance of common shares, IPO

Proceeds from issuance of common shares, public offering

Proceeds from option exercises

Proceeds from issuance of common shares, warrant exercises

Common share issuance offering costs

( 3,504,000 )

Net cash provided by financing activities

Net increase in cash

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Cash, beginning of period

Cash, end of period

Supplemental disclosures of cash flow information:

2 unchanged sentences

Deferred offering costs recorded as reduction of proceeds

See accompanying condensed unaudited notes to the

See accompanying unaudited notes to the

consolidated condensed financial statements.

1 unchanged sentence

Notes to Consolidated Condensed Financial Statements

For the Period Ended March 31, 2025

June 30, 2025

Note 1 – Organization and nature of business

38 unchanged sentences

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.

In the condensed consolidated financial statements,

the Company has reclassified $5,470 for the six months ended June 30, 2024 from depreciation and amortization to general and administrative

expense to conform to the current period presentation.

This reclassification did not affect previously reported total operating expenses,

loss before income taxes, or net loss in the condensed consolidated statements of operations.

Cash and Cash Equivalents

6 unchanged sentences

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

At March 31, 2025 and December

At June 30, 2025 and December

31, 2024, the Company had approximately $ 38.5 million and $ 3 .0 million, respectively, in excess of federally insured limits.

23 unchanged sentences

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.

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

As we expand into the Orlando production facility, our current plan is to set the capitalization threshold at $10,000.

The Company applies Accounting Standards

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

The Company recognized a lease liability obligation and a right-of-use asset for the facilities leased in Orlando,

The Company determines if a contract is a lease

73 unchanged sentences

the intangible assets.

No impairment charges were recorded by the Company as of March 31, 2025.

No impairment charges were recorded by the Company as of June 30, 2025.

The Company has indefinite-lived trademark assets

14 unchanged sentences

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.

The Company did not record an impairment as of June 30, 2025, related to the

indefinite-lived assets.

Fair Values, Inputs and Valuation Techniques

26 unchanged sentences

at Fair Value on a Non-Recurring Basis

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 and accrued expenses approximates fair value due to the short-term nature of these

The Company's financial instruments mainly consist

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

The carrying amounts of cash, receivables, other current

assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these instruments.

Accrued Warranty

15 unchanged sentences

The warranty liability is included in accrued expenses on the accompanying

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

consolidated balance sheets and amounted to $ 17,789 and $ 28,944 as of June 30, 2025 and December 31, 2024, respectively.

Rotor Riot does not provide any warranty of any

2 unchanged sentences

Revenue Recognition

The Company will recognize revenue in accordance

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

The Company recognizes revenue in accordance with

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

This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including:

19 unchanged sentences

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.

orders placed, but not yet fulfilled totaled $ 139,435 and $ 197,117 as of June 30, 2025 and December 31, 2024, respectively.

Cost of Goods Sold

1 unchanged sentence

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 operations expenses and amounted to $ 70,161 and $ 23,475 for the three months ended March 31, 2025

and 2024, respectively.

shipped to customers are included in operations expenses and amounted to $ 147,572 and $ 74,634 for the six months ended June 30, 2025 and

2024, respectively.

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

17 unchanged sentences

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 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.

on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term and future dividends.

The Company recognizes

forfeitures as they occur.

The fair value of restricted stock is based on our quoted stock price or other fair value indicators on the

date of grant.

Compensation cost is recognized on a straight-line basis over the service period which is typically the vesting term.

The Company accounts for warrants to purchase

1 unchanged sentence

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

43 unchanged sentences

The Company is currently evaluating the effect of this ASU on the consolidated financial statements and disclosures.

In May 2025, the FASB issued ASU No.

2025-4, “Compensation

– Stock Compensation and Revenue From Contracts With Customers” which provides clarifications to share-based consideration

payable to a customer.

This new guidance will likely have an impact on the Company.

Note 3 – Acquisitions

31 unchanged sentences

Rotor Riot Purchase Price:

Schedule of fair value allocation

Schedule of purchase fair value allocation

Accounts receivable (approximates contractual value)

12 unchanged sentences

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.

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

2 unchanged sentences

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) and income taxes

Net earnings per share:

This unaudited consolidated pro forma financial

information is presented for informational purposes only.

The unaudited consolidated pro forma adjustments are based on preliminary estimates,

information available and certain assumptions, and may be revised as additional information becomes available.

In addition, the unaudited

pro forma financial information does not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition.

The unaudited pro forma financial information

from the beginning of the periods presented until the acquisition date includes adjustments to:

1) eliminate intercompany revenue and

associated cost of sales for sales of product from Fat Shark to Rotor Riot, 2) to adjust fair value for certain Fat Shark inventory as

if the acquisition had occurred as of the beginning of the respective periods and 3) to include acquisition related expenses in the Q1

’23 that were incurred in Q1 ’24.

The financial activity for the 2024

period prior to the acquisition is not considered material and pro forma information has not been included in the unaudited consolidated

condensed financial statements.

Note 4 – Inventories

Inventories, consisting solely of finished goods,

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

totaled $ 1,609,117 and $ 1,335,503 as of June 30, 2025 and December 31, 2024, respectively.

In addition, the Company had prepaid deposits

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

Note 5 – Other Assets

for inventory totaling $ 1,314,592 and $ 904,728 as of June 30, 2025 and December 31, 2024, respectively.

Note 5 – Other Current Assets

Other current assets included as of:

Schedule of other current assets

March 31, 2025

December 31, 2024

Prepaid insurance

Prepaid expenses

Other current assets

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.

Non-current other assets include rent deposits of $ 84,693 and $ 59,426

related to the operating leases for our Orlando, FL facilities as of June 30, 2025 and December 31, 2024, respectively.

Note 6 – Property and Equipment, net

5 unchanged sentences

Schedule of property and equipment

March 31, 2025

December 31, 2024

Computer equipment

Motor equipment

Tenant improvements

Total Property and Equipment

Accumulated depreciation

1 unchanged sentence

Depreciation expense totaled $ 342

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

and 2024, respectively.

and $ 171 for the six months ended June 30, 2025 and

2024, respectively.

The Company has open commitments of approximately $ 3.0 million related to the purchase of motor equipment and $ 0.5

million related to tenant improvements.

These assets are expected to be placed into service during Q3 2025.

Note 7 – Operating Leases

5 unchanged sentences

The Company has no finance leases.

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

March 31, 2025 and 2024.

Operating lease expense totaled $ 52,572 and $ 51,435 , respectively for the six months ended

June 30, 2025 and 2024.

The following is a summary of the operating lease

4 unchanged sentences

accumulated amortization

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

Operating lease right-of-use assets, as of June 30, 2025

Operating lease liability

accumulated reduction

Operating lease liability, as of March 31, 2025

Operating lease liability, as of June 30, 2025

Current operating lease liability

10 unchanged sentences

Weighted average discount rate

In June 2025, we signed a lease agreement for an additional 17,000

square feet of warehouse/office space in Orlando, FL.

This space will be used primarily for motor production.

The lease commencement date

is August 1, 2025 and currently runs through August 21, 2030.

Note 8 – Goodwill and Intangible Assets

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.

six months ended June 30, 2025.

The carrying value of goodwill was $ 7,402,906 as of June 30, 2025.

Intangible Assets

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

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

Schedule of intangible assets

Accumulated Amortization

$ ( 112,321 )

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.

$ ( 112,231 )

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

Trademarks relate to the brand name and recognition of Rotor Riot from the acquisition in February 2024.

Amortization was

and $ 0 for the six months ended June 30, 2025 and 2024, and $ 20,422

and $ 0 for the three months ended June 30, 2025 and 2024, related to the Patents.

Note 9 – Promissory and Convertible Notes

46 unchanged sentences

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.

Total interest expense for the six months ended June 30, 2025 and 2024 was $ 0

and $ 60,183 , respectively.

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

Note 10 – Earnings Per Share and Stockholders’ Equity

2 unchanged sentences

of diluted net loss per share because their effect would have been anti-dilutive include 382,850 of stock options issued to employees

as of 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.

as of June 30, 2025, 330,000 unvested restricted stock awards and units, 8,500 of common stock representative warrants issued to the underwriter

associated with the February 2024 IPO, 164,473 warrants issued related to the October 2024 private placement, and 640,000 warrants issued

to the placement agent related to the May 2025 confidentially marketed public offering.

Preferred Stock

The Series A is convertible into common stock

As of 6/30/25 and 12/31/24, there are no issued

and outstanding Series A, B, and C Preferred Stock.

The Series A was convertible into common stock

at a ratio of 1,000 shares of common stock for each share of Series A stock held, subject to certain limitations.

The Series A shares

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

The Series B is convertible into common stock

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

The Series B was convertible into common stock

at a ratio of 5,000 shares of common stock for each share of Series B stock held, subject to certain limitations.

The Series B shares

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

The Series C is convertible into common stock

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

The Series C was convertible into common stock

at a ratio of 3,000 shares of common stock for each share of Series C stock held, subject to certain limitations.

The Series C shares

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

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

On April 10, 2025, the Company filed a Withdrawal

of Designation with the Secretary of State of the State of Nevada withdrawing the certificates of designation for each of the Series A,

Series B and Series C.

2024 Preferred Stock Transactions

During the 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.

During the six months ended June 30, 2024, shareholders

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

The Company cancelled the 140 shares of Series B upon the conversion.

2025 Transactions

4 unchanged sentences

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 the date of grant, respectively for a total of $ 42,517 to be recognized as stock compensation expense during the six months ended June

On February 3, 2025, the Company issued 480,000

8 unchanged sentences

Stock compensation expense

of $ 1,325,112 was recognized during the three months ended March 31, 2025.

of $ 3,044,536 was recognized during the six months ended June 30, 2025.

In February 2025, the Company issued 1,224,606

3 unchanged sentences

The Company cancelled the 1,224,606 warrants upon issuance of the common shares.

On May 6, 2025, in a confidentially marketed public offering the Company sold 8,000,000 shares

of common stock at $5.00 per share resulting in gross proceeds of $ 40,000,000 , prior to payment of placement agent fees of $ 3,200,000

and $ 304,000 of other offering expenses resulting in net proceeds of $ 36,496,000 .

Dominari Securities, LLC acted as the sole placement

agent and also received a warrant to purchase 640,000 shares of the Company’s common stock at $5.00 per share over a two-year period

expiring on May 6, 2027.

On May 19, 2025, the Company issued 33,336 immediately

vested restricted shares of common stock to non-employee directors of the Company.

The shares of restricted stock were granted under the

2022 Equity Incentive Plan.

The shares were valued at $5.40 per share, which was the value the Company’s common stock on the date

of grant, respectively for a total of approximately $ 180,000 to be recognized as stock compensation expense during the six months ended

June 30, 2025.

On May 19, 2025, the Company issued 4,630 immediately

vested shares of common stock to a consultant of the Company related to services provided.

The shares of common stock were granted under

the 2022 Equity Incentive Plan.

The shares were valued at $5.40 per share, which was the value the Company’s common stock on the

date of grant, respectively for a total of approximately $ 25,000 to be recognized as stock compensation expense during the six months

ended June 30, 2025.

On May 22, 2025, the Company issued 150,000 shares

of common stock related to vested restricted stock units for our advisory board members.

The restricted stock units are valued at $4.40

per share, the closing price of our common stock as of the date of the grant, for a total value of $ 660,000 .

During the six months ended June 30, 2025, several

employees of the Company exercised 94,650 of their vested stock options in which the Company issued 94,650 shares of common stock related

to these stock option exercises.

The Company received total cash proceeds of $ 367,870 related to the exercise of these options.

On June 30, 2025, the Board of Directors of the

Company awarded the Company’s Chief Executive Officer 175,000 restricted shares of the Company’s common stock under the 2022

Equity Incentive Plan as a bonus related to the May 2025 public offering.

The restricted shares are valued at $8.57 per share, the closing

price of our common stock as of the date of the grant, for a total value of $ 1,499,750 that was recognized immediately based on the vesting

of the awards for each of the Company’s Officers.

The shares are subject to the Company’s clawback policy.

2024 Transactions

16 unchanged sentences

$ 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.

During the six months ended June 30, 2024, the

Company issued 700,000 shares of common stock related to certain shareholders converting 140 Series B shares into common stock.

On April 30, 2024, the Company issued 937,249

restricted shares of common stock to executive officers and board members of the Company.

The shares of restricted stock were granted

under the Company’s 2022 Equity Incentive Plan.

The restricted shares issued to executive officers are subject to pro rata forfeiture

through February 14, 2025.

On May 2, 2024, the Company issued an additional

40,650 of restricted shares of common stock to a company controlled by Allan Evans, the Company’s CEO, related to an agreed upon

reduction of the consulting fee paid to the company.

The shares of restricted stock were granted under the Company’s 2022 Equity

Incentive Plan.

The April 30, 2024 and May 2, 2024 shares were

valued at $ 1.20 and $ 1.23 per share, respectively for a total of $ 1,174,698 to be recognized pro-rata over the vesting period which is

the forfeiture period.

Stock compensation expense of $ 346,854 was recognized during the six months ended June 30, 2024.

Note 11 – Share Based Awards

10 unchanged sentences

(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

As of June 30, 2025, the Plan is authorized to issue

up to 4,333,728 of awards after the 5% increase on January 1, 2025.

The following table presents the activity for

stock options outstanding as of March 31, 2025:

stock options outstanding as of June 30, 2025:

Schedule of stock option activity

5 unchanged sentences

Forfeited/canceled

Outstanding – March 31, 2025

Exercisable – March 31, 2025

Outstanding – June 30, 2025

Exercisable – June 30, 2025

The Company recognized $ 599,771 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

compensation expense related to stock options during the six months ended June 30, 2025.

As of June 30, 2025, there was $ 494,070 of unrecognized

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

Restricted Stock

2 unchanged sentences

Schedule of restricted stock activity

Restricted Stock

Fair Value - RSA

Fair Value - RSU

Unvested - December 31, 2024

Forfeited/canceled

Unvested – March 31, 2025

Unvested – June 30, 2025

Restricted stock awards are equity grants to officers,

2 unchanged sentences

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 total value of restricted stock awards and restricted stock units granted during the

six months ended June 30, 2025 is $ 9,392,783 .

The Company recognized $ 6,819,930 in stock-based compensation expense related to restricted

stock and restricted stock units during the six months ended June 30, 2025.

As of June 30, 2025, there was $ 3,253,279 of unrecognized

stock-based compensation expense related to unvested restricted stock awards and units to be recognized over the remaining vesting term

through March 2029.

The following table presents the activity for warrants outstanding

as of March 31, 2025:

as of June 30, 2025:

Schedule of warrant activity

2 unchanged sentences

Forfeited/cancelled/restored

( 1,224,606 )

Outstanding – March 31, 2025

Outstanding – June 30, 2025

As Discussed in Note 10, “Earnings Per Share

3 unchanged sentences

price of $ 1.99 .

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

The warrant holders exercised 1,224,606 warrants during the six months ended June 30, 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,

remaining contractual life of approximately 2.47 years as of June 30, 2025.

The aggregate intrinsic value of the warrants at June 30,

2025 is $ 3,397,377 .

2 unchanged sentences

Purchase Agreement, as amended with Red Cat and Jeffrey Thompson, the Company’s former Chief Executive Officer and President and

current director and also the current Chief Executive Officer of Red Cat, pursuant to which, among other things, Mr.

Thompson and the

Company have agreed to indemnification obligations, which shall survive for a period of nine months from February 16, 2024, subject to

certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of 100,000 shares

a current director.

Thompson is also the current Chief Executive Officer of Red Cat, pursuant to which, among other things, Mr.

and the Company have agreed to indemnification obligations, which shall survive for a period of nine months from February 16, 2024, subject

to certain limitations, which includes a basket of $250,000 before any claim can be asserted and a cap equal to the value of 100,000 shares

of our common stock owned by him to secure any indemnification obligations, which stock is our sole remedy, except for fraud.

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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.

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

In addition, 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.

In May 2025, in relation to the confidentially

marketed public offering as described in more detail in Note 10, “Earnings Per Share and Stockholders’ Equity”, the

Company’s CEO and three directors invested $ 420,000 in the offering on identical terms to the other Investors and received a total

of 84,000 shares of common stock.

Note 13 – Commitments and Contingencies

Orlando Lease

Orlando Leases

As part of the business combination that occurred

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See Note 7 – Operating Leases for additional

On June 4, 2025, the Company entered into a Lease

Agreement to lease approximately 17,000 square feet of space for the Company’s drone motor manufacturing facility in Orlando, Florida,

at an average monthly rental of $21.1k over a five year period.

The lease commences on August 1, 2025 and expires in August 2030.

June 30, 2025, the Company has open commitments of approximately $ 3.0 million related to the purchase of motor equipment and $ 0.5 million

related to tenant improvements.

These assets are expected to be placed into service during Q3 2025.

Aloft Material Definitive Agreement

6 unchanged sentences

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.

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.

The merger 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

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

On June 9, 2025, the Company terminated the Agreement

with Aloft and forfeited its right to receive the $100,000 breakup fee.

Rotor Lab Material Definitive Agreement

On June 12, 2025, the Company entered into a Share Purchase Agreement (“SPA”)

to acquire 100% of the capital stock of Rotor Lab Pty Ltd., an Australian company (“Rotor Lab”) from its existing shareholders.

The Company agreed to issue the sellers a total of $ 4,000,000 of common shares of the Company’s common stock, plus additional earnout

consideration over two years from the closing of the agreement for up to $ 3,000,000 worth of shares of the Company’s common stock.

$ 800,000 of the initial consideration will be restricted and subject to forfeiture in the event of a breach of representations and warranties

and indemnification.

The terms of the SPA are subject to standard closing conditions, in addition to receiving required regulatory approvals

from the Australian Foreign Investment Review Board.

Note 14 – Subsequent Events

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 .

Registered Direct Offering

2025, the Company entered into a securities purchase agreement with certain investors for the purchase and sale of 5,000,000 shares of

common stock in a registered direct offering at a public offering price of $9.70 per share.

On July 15, 2025 the offering closed and we

received aggregate gross proceeds of $48.5 million before deducting placement agent fees and other related expenses.

The Company intends

to use the proceeds of the offering for the purchase of our drone motor manufacturing equipment which we estimate to be approximately

$4.0 million, general corporate purposes and working capital .

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