What changed in this filing

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Item 1. Financial Statements

2025-11-06 compared with 2025-08-14 · 542 added, 227 removed, 798 unchanged (49% of the section changed)

3 unchanged sentences

Balance Sheets

September 30,

Current assets:

Cash and cash equivalents

Short-term investments

Accounts receivable

6 unchanged sentences

Intangible assets, net

Unallocated purchase price provisional, Rotor Lab (See note 3)

Total non-current assets

$ 113,078,818

LIABILITIES AND STOCKHOLDERS' EQUITY

3 unchanged sentences

Deferred revenue

Contingent consideration

Total current liabilities

6 unchanged sentences

Stockholders’ equity:

Preferred stock - $ 0.01 par value, 10,000,000 authorized

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

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

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

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

Preferred stock - $ 0.01 par value, 10,000,000 authorized (See note 10)

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

Common stock - $ 0.01 par value, 500,000,000 authorized and 31,568,949 and 15,122,018 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively

Additional paid in capital

2 unchanged sentences

( 35,913,514 )

Cumulative foreign currency translation adjustment

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying unaudited notes to the

consolidated condensed financial statements.

$ 113,078,818

See accompanying unaudited notes to the consolidated

condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Operations

For the Three and Six Months Ended June 30,

For the Three and Nine Months Ended September

30, 2025 and 2024

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Cost of goods sold

12 unchanged sentences

Interest income

Unrealized gain in short term investments

Interest expense

Loss on debt extinguishment

Change in fair value of derivatives and warrant liabilities

Other income and (expense)

$ ( 6,964,739 )

Net income (loss)

$ ( 2,144,250 )

1 unchanged sentence

$ ( 4,862,490 )

Net loss per share attributable to common stockholders

Basic and diluted

Net income (loss) per share attributable to common

Weighted average common shares outstanding

Basic and diluted

See accompanying unaudited notes to the

consolidated condensed financial statements.

See accompanying unaudited notes to the consolidated

condensed financial statements.

Unusual Machines, Inc.

1 unchanged sentence

in Stockholders’ Equity

For the Three and Six Months Ended June 30,

For the Three and Nine Months Ended September

30, 2025 and 2024

Three and Six Months Ended June 30, 2024

Three and Nine Months Ended September 30, 2024

Series A, Preferred Stock

Series B, Preferred Stock

Series C, Preferred Stock

Additional Paid-In

18 unchanged sentences

$ ( 6,651,286 ) –

accompanying unaudited notes to the consolidated condensed financial statements.

Three and Six Months Ended June 30, 2025

Preferred Stock

Issuance of common shares, equity incentive plan

Exchange of common shares for Series A preferred

( 4,250,000 )

Exchange of convertible note for Series C preferred

Stock compensation expense – vested stock

Stock option compensation expense

( 2,144,250 )

Balance, September 30, 2024

$ ( 8,795,536 ) –

Three and Nine Months Ended September 30, 2025

Unusual Machines, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

For the Three and

Nine Months September 30, 2025 and 2024

Series A, Preferred Stock

Series B, Preferred Stock

Series C, Preferred Stock

Additional Paid-In

Other Comprehensive

Total Stockholders’

Balance, December 31, 2024

Issuance of restricted common stock, equity incentive

of common stock for exercise of warrants

$ ( 35,913,514 )

Issuance of common shares, equity incentive plan

Issuance of common shares for exercise of warrants

Stock compensation expense - vested stock

Stock option compensation expense

Stock compensation expense

( 3,266,279 )

Balance, March 31, 2025

Preferred Stock

Additional Paid-In

Total Stockholders’

Issuance of common shares, Management/Board of Directors

$ ( 39,179,793 )

Issuance of common shares, Management/BOD

Issuance of common shares, Option exercises

3 unchanged sentences

Stock option compensation expense

Stock option compensation expense – vested stock

Stock Compensation expense - vested stock

( 6,964,739 )

Balance, June 30, 2025

See accompanying

unaudited notes to the consolidated condensed financial statements.

$ ( 46,144,532 )

Issuance of common shares, Management/BOD

Issuance of common shares, Option exercises

Issuance of common shares, consulting services

Issuance of common shares, public offering

Issuance of common shares, Rotor Lab acquisition

Issuance of common shares - warrant exercises

Stock compensation expense

Stock compensation expense – vested stock

Equity adjustment from foreign currency translation

Balance, September 30, 2025

$ 150,239,016

$ ( 44,541,067 )

$ 106,015,915

See accompanying unaudited notes to the consolidated

condensed financial statements.

Unusual Machines, Inc.

Consolidated Condensed Statement of Cash Flows

For the Six Months Ended June 30, 2025 and 2024

Six Months Ended June 30,

For the Nine Months Ended September 30, 2025

Nine Months Ended September 30,

Cash flows from operating activities:

4 unchanged sentences

Stock compensation expense

Unrealized gains from short term investments

( 5,849,713 )

Change in fair value for warrant and derivative liabilities

Loss on debt extinguishment, non-cash component

Change in assets:

Accounts receivable

( 1,746,100 )

Prepaid inventory

( 6,016,951 )

Operating lease right-of-use asset

Change in liabilities:

7 unchanged sentences

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

Purchase of property & equipment

Investments in short term securities

( 11,000,000 )

Purchases of property and equipment

( 1,550,687 )

Net cash used in investing activities

( 12,457,633 )

Cash flows from financing activities:

1 unchanged sentence

Proceeds from issuance of common shares, public offering

Proceeds from issuance of common shares, registered direct

Proceeds from option exercises

4 unchanged sentences

Net increase in cash

Effect of exchange rate changes on cash

Cash, beginning of period

2 unchanged sentences

Non-cash consideration paid for assets acquired and liabilities assumed

Non-cash right of use asset and liability

Deferred acquisition costs

Deferred offering costs recorded as reduction of proceeds

See accompanying unaudited notes to the

consolidated condensed financial statements.

See accompanying unaudited notes to the consolidated

condensed financial statements.

Unusual Machines, Inc.

Notes to Consolidated Condensed Financial Statements

June 30, 2025

September 30, 2025

Note 1 – Organization and nature of business

9 unchanged sentences

(“Red Cat”) (See

On September 3, 2025, the Company acquired Rotor

Ltd., an Australian company (“Rotor Lab).

See Note 3 for additional information.

Note 2 – Summary of significant accounting policies

1 unchanged sentence

The consolidated financial statements include

accounts of the Company and its wholly owned subsidiaries, Fat Shark and Rotor Riot since the acquisitions on February 16, 2024.

transactions and balances have been eliminated upon consolidation.

accounts of the Company and its wholly owned subsidiaries, Fat Shark and Rotor Riot since the acquisitions on February 16, 2024 and Rotor

Lab since the acquisition on September 3, 2025.

Intercompany transactions and balances have been eliminated upon consolidation.

Basis of Presentation

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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.

assumed in business combinations, the fair value of shares issued as consideration and the fair value of contingent 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, (vi) the fair value of short term

investments including the value of unexercised warrants received and (vi) the deferred tax asset valuation allowance.

Reclassification

In the condensed consolidated financial statements,

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

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

expense to conform to the current period presentation.

9 unchanged sentences

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

At June 30, 2025 and December

At September 30, 2025 and December

31, 2024, the Company had approximately $ 63.8 million and $ 3 .0 million, respectively, in excess of federally insured limits.

10 unchanged sentences

30, 2025 and December 31, 2024, the Company considers accounts receivable to be fully collectible;

accordingly, no allowance for credit losses

has been established.

Inventories, which consist of finished goods,

are stated at the lower of cost or net realizable value, and are measured using the first-in, first-out method.

Cost components include

direct materials, as well as in-bound freight.

At each balance sheet date, the Company evaluates the net realizable value of its inventory

using various reference measures including current product selling prices, as well as evaluating for excess quantities and obsolescence.

accordingly, no allowance for credit

losses has been established.

Short-Term Equity Investments

The Company measures its investments in

marketable equity securities and non-public warrants at fair value with changes in value recognized in net income (loss) per ASC

During the third quarter, the Company made multiple investments totaling $ 11 .0

As of September 30, 2025 the unrealized gain from short-term investments is approximately $ 5.85

The Company holds less than 5% in each of the investee companies as of September 30, 2025.

Inventory, which consists of raw materials, work

in process and finished goods, are stated at the lower of cost or net realizable value, and are measured using the first-in, first-out

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.

Property and equipment, net

3 unchanged sentences

of three years.

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 applies 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 leased in Orlando, FL and Canberra Australia related

to the Rotor Lab acquisition as discussed in Note 3.

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 June 30, 2025.

No impairment charges were recorded by the Company as of September 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 June 30, 2025, related to the

indefinite-lived assets.

The Company did not record an impairment as of September 30, 2025, related

to the indefinite-lived assets.

Fair Values, Inputs and Valuation Techniques

24 unchanged sentences

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 assets and liabilities as of September 30, 2025:

Schedule of financial assets and liabilities

Short term investments

Contingent consideration from Rotor Lab acquisition

Changes in Level 3 financial instruments are as

Schedule of level 3 financial instruments

Issuances and

September 30,

Non-public warrants

Contingent consideration from Rotor Lab acquisition

The Company calculated the fair value of the

non-public warrants using a Black-Scholes pricing model which values the warrants based on the stock price at the valuation date, the

expected life of the warrant, the estimated volatility of the stock, and the risk-free interest rate over the expected life of the warrant.

The Company used the following inputs related to the warrant fair value as of September 30, 2025:

Assumptions used

Supplemental Information

Non-public Warrants

Expected life of the warrants (years)

Fair market value

$ 3.78 – 7.02

Warrant strike price

Risk free interest rate

124.16 – 145.84%

The contingent consideration from the Rotor Lab

acquisition is based on the maximum amount of $3,000,000, which is provisional based on the pending fair value analysis.

See Note 3 for

additional information.

Disclosures for Non-Financial Assets Measured

1 unchanged sentence

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.

of cash, receivables, short-term investments, 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

Our cash and short-term investments consisted

of the following as of September 30, 2025:

Schedule of cash and short-term investments

Gross Unrealized Gains (Losses)

Short-term investments

Accrued Warranty

15 unchanged sentences

The warranty liability is included in accrued expenses on the accompanying

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

consolidated balance sheets and amounted to $ 19,874 and $ 28,944 as of September 30, 2025 and December 31, 2024, respectively.

Rotor Riot does not provide any warranty of any

1 unchanged sentence

Consumers assume all risk for any products purchased or received from

Rotor Lab does not provide any warranty, but does provide for a seven

day defect period.

Rotor Lab has not had any material defects for products sold.

Revenue Recognition

10 unchanged sentences

satisfies a performance obligation at a point in time.

The Company receives revenues from the sale of

products from both retail distributers and individual consumers.

Sales revenue is recognized when the products are shipped and the price

is fixed or determinable, no other significant obligations of the Company exist and collectability is probable.

Revenue is recognized

when the title to the products has been passed to the customer, which is the date the products are shipped to the customer.

date the performance obligation has been met.

The Company receives revenues from the sale

of products from both retail distributers and individual consumers.

Sales revenue is recognized when the products are shipped and

the price is fixed or determinable, no other significant obligations of the Company exist and collectability is probable.

recognized when the title to the products has been passed to the customer, which is generally the date the products are shipped to

the customer.

This is the date the performance obligation has been met.

Deferred Revenue

Deferred revenue relates to orders placed and

payment received, but not yet fulfilled.

Deferred revenue relates to orders placed

and payment received, but not yet fulfilled.

All deferred revenue is expected to be recognized within one year.

Deferred revenue related to

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

Deferred revenue

related to orders placed, but not yet fulfilled totaled $ 1,518,736 and $ 197,117 as of September 30, 2025 and December 31, 2024,

respectively.

The Company has recognized $ 180,868 of deferred revenue that was outstanding

as of December 31, 2024 during the nine months ended September 30, 2025.

The increase in deferred revenue relates to current year orders

that have not yet been fulfilled, most of which were received during the third quarter of 2025.

Cost of Goods Sold

3 unchanged sentences

Shipping and handling costs incurred for products

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

2024, respectively.

shipped to customers are included in operations expenses and amounted to $ 226,530 and $ 123,690 for the nine months ended September 30,

2025 and 2024, respectively.

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

8 unchanged sentences

of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realizable in the future.

The Company recognizes benefits of uncertain tax

positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits,

The Company recognizes benefits of uncertain

tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits,

as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement.

2 unchanged sentences

Stock-Based Compensation

Stock options are valued using the estimated grant-date

Stock options and warrants are valued using the estimated grant-date

fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation.

Fair value is determined based

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

The Company recognizes

forfeitures as they occur.

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

date of grant.

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

on the Black-Scholes Model using inputs reflecting our estimates of expected volatility which includes the use of comparable public companies

due to the lack of trading history of the Company’s stock, term and future dividends.

The Company recognizes forfeitures as they

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

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

22 unchanged sentences

would be anti-dilutive.

The following table presents the reconciliation

of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders.

Schedule of reconciliation of basic to diluted weighted average shares

For the Three months Ended

For the Nine months Ended

Weighted average shares used in computing net income per share of common stock, basic

Add incremental shares:

Stock based awards (options

and restricted stock units)

Weighted average shares

used in computing net income per share of common stock, diluted

The following table presents the potentially dilutive

shares that were excluded for the nine months ended September 30, 2025 and the three and nine months ended September 30, 2024 from the

computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

Schedule of effect anti-dilutive

For the Nine months Ended

For the Three and Nine months Ended

Unvested stock options

Unvested restricted stock awards

Convertible preferred stock

Convertible debt

Segment Reporting

Operating segments are defined as components of

an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker,

or decision making group, in deciding how to allocate resources and in assessing performance.

Unusual Machines, which sells drones and

drone-related components, operates as a single reportable segment entity.

Our chief operating decision maker, our Chief Executive Officer,

reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

The Chief Executive Officer is regularly provided with consolidated revenue and expenses consistent with those presented in the consolidated

statements of operations and assets and liabilities consistent with those presented in the consolidated balance sheets.

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

manufactures and 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

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condensed financial statements.

On September 3, 2025, the Company closed on the

acquisition of Rotor Lab.

Rotor Lab is an Australian developer and manufacturer of electric motors and propulsion systems for unmanned

aerial systems (“UAS”).

Its product line includes precision-wound electric motors across multiple classes, from sub-400W units

for small UAS to high-power motors supporting large rotary and fixed wing platforms.

The Company is currently building out a motor

production facility in Orlando, FL in which the Company will start producing motors for drones in the fourth quarter of 2025.

and Rotor Lab have been working together prior to the acquisition on co-developing several motor designs and sizes.

The acquisition helps

the Company accelerate their goals of building a resilient drone supply chain through their team and technology.

In addition, Rotor Lab

will continue to serve as the engineering center for the Company’s motor design, prototyping, and low to medium volume production

The Business Combination was based on a share

purchase agreement (the “Rotor Lab Purchase Agreement”) that was executed on June 12, 2025, subject to customary closing conditions

and was completed on September 3, 2025.

Under the terms of the Rotor Lab Purchase Agreement, the consideration paid for the acquired assets

consisted of (i) the issuance of common stock for a value of $ 4 .0 million based on the preceding 20 day average Volume Weighted Average

Price (“VWAP”) of the Company’s stock from the date of the signing the Rotor Lab Purchase Agreement in June 2025, and

(ii) the issuance of common stock for up to a total value of an additional $ 3 .0 million based on the Company producing and recognizing

revenue, dollar for dollar related to internally manufactured motors during the first two years after the acquisition closing date.

shares will be calculated and issued based on the Company’s VWAP for the preceding 20 days on each anniversary date of the closing

of the transaction.

The acquisitions met the definition of a business

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

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

purpose of its 2025 fiscal year financial reporting and as such has not fully determined the unallocated purchase price between goodwill

and other intangible assets.

The Company issued 656,642 shares of its common stock based on the formula as noted above, which resulted

in an initial purchase price of $ 5,922,911 based on the Company’s stock price of $ 9.02 on September 3, 2025, which was the closing

date of the acquisition.

Contingent purchase price has provisionally been recorded at the maximum amount of $ 3,000,000 , which is provisional

based on the pending fair value of such consideration.

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

The following represents the fair value allocation of Rotor Lab Purchase

Schedule of purchase fair value allocation

Accounts receivable (approximates contractual value)

Prepaid expenses

Property and equipment

Right of use asset – operating

Other current assets

Unallocated purchase price

Accounts payable and accrued liabilities

Deferred revenue

Deferred tax liability

Operating lease liability – current and long-term

Total liabilities

Initial consideration

Contingent consideration

Total purchase price

The results of Rotor Lab have been included in

the Consolidated Financial Statements from the date of acquisition.

Revenues included $ 128,024 and net income included $ 42,883 from the

date of acquisition through September 30, 2025 in the consolidated statement of operations.

The table below presents the results as reported

by the Company and unaudited pro forma results of the Company, assuming that the acquisition of Rotor Lab occurred at the beginning of

The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition 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, 2025

September 30, 2024

Gross profit/(loss)

Loss from operations

Other expense

Net earnings per share:

The 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.

Note 4 – Inventories

Inventories, consisting solely of finished goods,

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

In addition, the Company had prepaid deposits

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

Inventories, which consist solely of raw materials,

work in process and finished goods, totaled $ 3,118,491 and $ 1,335,503 as of September 30, 2025 and December 31, 2024, respectively.

Schedule of inventories

September 30,

Raw materials

Work in process

Finished goods

Total inventory

In addition, the Company had prepaid deposits for inventory totaling

$ 6,921,679 and $ 904,728 as of September 30, 2025 and December 31, 2024, respectively.

Note 5 – Other Current Assets

1 unchanged sentence

Schedule of other current assets

September 30,

Prepaid insurance

2 unchanged sentences

Total other current assets

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.

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 September 30, 2025 and December 31, 2024,

respectively.

Note 6 – Property and Equipment, net

5 unchanged sentences

Schedule of property and equipment

September 30,

Computer equipment

Motor equipment

Motor production equipment

Tenant improvements

2 unchanged sentences

Total property and equipment, net

Depreciation expense totaled $ 342

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

2024, respectively.

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

million related to tenant improvements.

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

Depreciation expense totaled $ 2,369 and $ 171

for the nine months ended September 30, 2025 and 2024, respectively.

The Company has open commitments of approximately $ 3.2 million

related to the purchase of motor production equipment and $ 0.9 million related to tenant improvements.

These assets are expected to

be placed into service during Q4 2025.

Note 7 – Operating Leases

The Company has assumed in the business combination

a five-year operating lease for approximately 6,900 square feet of warehouse and office space in Orlando, Florida.

The lease commenced

in November 2023 and expires in October 2028.

The Company has valued the ROUA and the associated liability, as of February 16, 2024, at

The Company has assumed in the February 2024 business

combination a five-year operating lease for approximately 6,900 square feet of warehouse and office space in Orlando, Florida.

commenced in November 2023 and expires in October 2028.

The Company has valued the ROUA and the associated liability, as of February 16,

2024, at $ 378,430 .

The Company has no finance leases.

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

June 30, 2025 and 2024.

Operating lease expense totaled $ 78,859 and $ 61,335 , respectively for the nine months

ended September 30, 2025 and 2024.

In June 2025, the Company 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.

The Company has valued the ROUA and the associated

liability, as of August 1, 2025, at $ 973,443 .

The Company has no finance leases.

Operating lease expense totaled $ 42,287 and $ 0 , respectively

for the nine months ended September 30, 2025 and 2024.

The Company has assumed in the acquisition of

Rotor Lab on September 3, 2025, a three-year operating lease of warehouse and office space in Canberra, Australia.

The leased commenced

in May 2024 and expires in April 2027.

The Company has valued the ROUA and the associated liability, as of September 3, 2025, at $ 99,233 .

The Company has no finance leases.

Operating lease expense totaled $ 3,271 and $ 0 , respectively for the nine months ended September 30,

2025 and 2024.

The following is a summary of the operating lease

right-of-use asset and liability:

right-of-use assets and liabilities at September 30, 2025:

Schedule of operating lease right-of-use

Orlando, FL Operating Lease

Operating Lease

Operating lease right-of-use assets

accumulated amortization

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

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

Operating lease liability

accumulated reduction

Operating lease liability, as of June 30, 2025

Operating lease liability, as of September 30, 2025

Current operating lease liability

2 unchanged sentences

The following is a summary of future lease payments

required under the five-year lease agreement:

required under the lease agreement:

Schedule of future lease payments

1 unchanged sentence

Operating Lease

$ ( 365,563 )

Schedule of supplemental information

2 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

six months ended June 30, 2025.

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

There were no changes in the carrying amount

of goodwill during the nine months ended September 30, 2025.

The carrying value of goodwill was $ 7,402,906 as of September 30,

Intangible Assets

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

As of September 30, 2025, the balances of intangible assets were as

Schedule of intangible assets

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$ ( 132,743 )

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.

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 $ 61,266 and $ 0 for the nine months

ended September 30, 2025 and 2024, and $ 20,422 and $ 0 for the three months ended September 30, 2025 and 2024, related to the Patents.

Note 9 – Promissory and Convertible Notes

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The net gain was $ 1,639,598 .

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

and $ 60,183 , respectively.

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

Total interest expense for the nine months ended

September 30, 2025 and 2024 was $ 0 and $ 101,648 , respectively.

Total interest expense for the three months ended September 30, 2025 and

2024 was $ 0 and $ 41,465 , respectively

Note 10 – Earnings Per Share and Stockholders’ Equity

Earnings per Share

Outstanding securities not included in the computation

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

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

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

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

Preferred Stock

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

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

As of September 30, 2025 and December 31, 2024,

there are no issued and outstanding Series A, B, and C Preferred Stock.

The Series A was convertible into common stock

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2024 Preferred Stock Transactions

During the six months ended June 30, 2024, shareholders

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

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

During the nine months ended September 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

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The shares were valued at $11.99 per share, which was the value the Company’s common stock

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

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

September 30, 2025.

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

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Stock compensation expense

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

of $ 4,154,839 was recognized during the nine months ended September 30, 2025.

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

shares of common stock related to warrant holders exercising their warrants.

The Company received gross proceeds of $ 2,436,966 related

to the warrant exercises.

shares of common stock related to warrant holders exercising their warrants at an exercise price of $ 1.99 .

The Company received gross

proceeds of $ 2,436,966 related to the warrant exercises.

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

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

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

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

Dominari Securities, LLC acted as the sole placement

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

expiring on May 6, 2027.

On May 7, 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

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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.

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

September 30, 2025.

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

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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.

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

ended September 30, 2025.

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

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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

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

On July 15, 2025, in a registered direct offering

the Company sold 5,000,000 shares of common stock at $9.70 per share resulting in gross proceeds of $ 48,500,000 , prior to the payment

of placement fees of $ 3,395,000 and $ 204,000 of other offering expenses resulting in net proceeds of $ 44,901,000 .

Dominari Securities,

LLC acted as the sole placement agent and also received a warrant to purchase 350,000 shares of the Company’s common stock at $9.70

per share over a two-year period expiring on May 6, 2027 .

On August 1, 2025, the Company issued 150,000

shares of common stock related to the delivery of vested restricted stock units under the 2022 Equity Incentive Plan to certain executives

of the Company as a bonus related to the May 2025 public offering.

The shares were valued at $ 1,285,500 based on the $8.57 based on the

quoted trading price on grant date.

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

On August 7, 2025, the Company issued 100,000

restricted shares of common stock to 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 employees are subject to pro-rata forfeiture over a four-year period.

shares were valued at $9.59 per share, which was the quoted trading price of the Company’s common stock on the date of grant, respectively

for a total of $ 959,000 to be recognized as stock compensation expense pro-rata over the vesting period.

Stock compensation expense of

$ 35,638 was recognized during the nine months ended September 30, 2025.

On August 19, 2025, the Company issued 9,232 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 $9.75 per share, which was the quoted trading price the Company’s common stock

on the date of grant, respectively, for a total of approximately $ 90,000 to be recognized as stock compensation expense during the nine

months ended September 30, 2025.

On August 19, 2025, the Company issued 1,539 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 $9.75 per share, which was the quoted trading price the Company’s common

stock on the date of grant, respectively for a total of approximately $ 15,000 which is recognized as stock compensation expense during

the nine months ended September 30, 2025 and included in stock compensation expense – vested stock on the statement of stockholder’s

On September 2, 2025, the Company issued 280,000

restricted shares of common stock to 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 employees are subject to pro-rata forfeiture over a four-year period.

shares were valued at $9.16 per share, which was the value of the Company’s common stock on the date of grant, respectively for

a total of $2,564,800 to be recognized as stock compensation expense pro-rata over the vesting period.

Stock compensation expense of $ 51,085

was recognized during the nine months ended September 30, 2025.

On September 3, 2025, the Company issued 656,642

of common stock related to the closing of the Rotor Lab acquisition (see Note 3).

The shares were valued at $9.02 per shares which was

the closing trading price of the Company’s common stock on September 3, 2025, the closing date of the acquisition, resulting in

an aggregate value of $ 5,922,911 .

On September 24, 2025, the Company issued 8,500

shares of common stock related to warrant holders exercising their warrants.

The Company received gross proceeds of $ 42,500 related to

the warrant exercises.

The Company cancelled the 8,500 warrants upon issuance of the common shares.

In September 2025, the Company issued 50,000 shares

of common stock related to the vesting of certain employee restricted stock units in which the Company issued 50,000 shares of common

stock related to the vesting of these restricted stock units.

During the nine months ended September 30, 2025,

several employees of the Company exercised 119,900 of their vested stock options in which the Company issued 119,900 shares of common

stock related to these exercises.

The Company received total cash proceeds of $ 501,610 related to the exercise of the stock options.

2024 Transactions

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$ 17 .0 million of the purchase price would be issued in common stock based on the IPO price of $4.00 per share.

During the six months ended June 30, 2024, the

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

During the nine months ended September 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

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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.

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, 2025, which is the forfeiture period.

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

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.

Note 11 – Share Based Awards

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(b) such smaller number of shares of stock as determined by our board of directors.

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

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

As of September 30, 2025, the Plan is authorized to

issue up to 5,136,228 of awards after the 5% increase on January 1, 2025.

The following table presents the activity for

stock options outstanding as of June 30, 2025:

stock options outstanding as of September 30, 2025:

Schedule of stock option activity

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Forfeited/canceled

Outstanding – June 30, 2025

Exercisable – June 30, 2025

Outstanding – September 30, 2025

Exercisable – September 30, 2025

The Company recognized $ 714,731 in stock-based

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

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

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

compensation expense related to stock options during the nine months ended September 30, 2025.

As of September 30, 2025, there was $ 2,642,646

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

Restricted Stock

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Forfeited/canceled

Unvested – June 30, 2025

Unvested – September 30, 2025

Restricted stock awards are equity grants to officers,

2 unchanged sentences

vesting requirements.

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 total value of restricted stock awards

and restricted stock units granted during the nine months ended September 30, 2025 is $ 13,021,600 .

The Company recognized $ 8,807,530

in stock-based compensation expense related to restricted stock awards and restricted stock units during the nine months ended

September 30, 2025.

As of September 30, 2025, there was $ 4,894,495 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 June 30, 2025:

as of September 30, 2025:

Schedule of warrant activity

2 unchanged sentences

Forfeited/cancelled/restored

Outstanding – June 30, 2025

( 1,233,106 )

Outstanding – September 30, 2025

As Discussed in Note 10, “Earnings Per Share

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 six months ended June 30, 2025.

and Stockholders’ Equity”, in connection with the May 2025 public offering and July 2025 registered direct offering, the Company

issued 990,000 warrants to the underwriter.

The warrants have an average exercise price of $ 6.66 .

In addition, certain warrant holders exercised

1,233,106 warrants related to our October 2024 private placement during the nine months ended September 30, 2025.

All warrants outstanding have a weighted average

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

The aggregate intrinsic value of the warrants at June 30,

remaining contractual life of approximately 2.08 years as of September 30, 2025.

The aggregate intrinsic value of the warrants at September

30, 2025 is $ 10,510,241 .

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Note 13 – Commitments and Contingencies

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.

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 commenced on August 1, 2025 and expires

in August 2030.

As of September 30, 2025, the Company has open commitments of approximately $3.2 million related to the purchase of

motor production equipment and $0.9 million related to tenant improvements.

These assets are expected to be placed into service

during Q4 2025.

As a part of the business combination that occurred on September 3,

2025, the Company acquired a three-year operating lease of warehouse and office space in Canberra Australia.

The lease commenced in May

2024 and expires in April 2027.

See Note 7 – Operating Leases for additional information.

Aloft Material Definitive Agreement

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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

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 .

At the Market Agreement

On August 28, 2025, the Company entered into a

Capital on Demand Sales Agreement (the "Sales Agreement”) with Jones Trading Institutional Services LLC ("Jones”),

pursuant to which the Company may issue and sell over time and from time to time up to $300,000,000 worth of shares of the Company’s

common stock (the "Shares”).

Sales of the Shares, if any, may be made by any method permitted by law deemed to be an "at

the market” offering as defined in Rule 415 of the Securities Act of 1933, including without limitation sales made directly on or

through the NYSE American, the trading market for the Company’s common stock, or any other existing trading market in the United

States for the Company’s common stock, sales made to or through a dealer other than on an exchange or otherwise, sales made directly

to Jones as principal in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing

market prices, and/or in any other method permitted by law.

Jones will use commercially reasonable efforts to sell on behalf of the Company

all the Shares requested to be sold by the Company, consistent with its normal trading and sales practices, subject to the terms of the

Sales Agreement.

Under the Sales Agreement, Jones will be entitled

to compensation of 3.0% of the gross proceeds from the sales of the Shares sold under the Sales Agreement.

In addition, the Company has

agreed to reimburse Jones for the fees and disbursements of its counsel, in an amount not to exceed $55,000.

In addition, the Company

shall reimburse Jones for legal fees of its counsel up to $3,750 for each quarterly due diligence update.

The Shares are being offered

and sold pursuant to a prospectus supplement filed with the SEC.

During the month of October 2025, the Company

sold 4,666,600 shares of common stock at an average price of $15.46 per share under the Agreement for total gross proceeds of approximately

$72.1 million.

The Company paid Jones $2.16 million related to the sales of common stock under the Agreement.

Fulfillment Lease

On October 30, 2025, the Company entered into

a lease agreement for an additional 25,000 square feet of warehouse/office space in Orlando, FL.

This space will be used primarily as

a fulfillment center.

The lease commencement date is December 1, 2025 and currently runs through December 31, 2030.

Warrants Exercise

On November 5, 2025, warrant holders exercised

640,000 warrants at $5.00 per warrant in connection with the the May 2025 confidentially marketed public offering and the Company issued

640,000 shares of Common Stock.

The Company received cash proceeds of $3,200,000 in relation to the exercise.

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