Unusual Machines, Inc. 10-Q

Item 1. Financial Statements Unusual Machines, Inc. Consolidated Condensed Balance Sheets September 30, 2025 December 31, 2024 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 64,285,750 $ 3,757,323 Short-term investments 16,849,713 – Accounts receivable 309,544 66,575 Inventories 3,118,491 1,335,503 Prepaid inventory 6,921,679 904,728 Other current assets 218,871 31,500 Total current assets 91,704,048 6,095,629 Non-current assets: Property and equipment, net 1,728,661 570 Operating lease right-of-use asset, net 1,268,278 323,514 Other assets 84,693 59,426 Goodwill 7,402,906 7,402,906 Intangible assets, net 2,164,264 2,225,530 Unallocated purchase price provisional, Rotor Lab (See note 3) 8,725,968 – Total non-current assets 21,374,770 10,011,946 Total assets $ 113,078,818 $ 16,107,575 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 1,167,242 $ 668,732 Operating lease liability 247,957 67,820 Deferred revenue 1,518,736 197,117 Contingent consideration 3,000,000 – Total current liabilities 5,933,935 933,669 Non-current liabilities Deferred tax liability 93,793 93,793 Operating lease liability – non-current 1,035,175 262,171 Total non-current liabilities 1,128,968 355,964 Total liabilities 7,062,903 1,289,633 Commitments and contingencies (See note 13) – – Stockholders’ equity: 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 315,688 151,221 Additional paid in capital 150,239,016 50,580,235 Accumulated deficit ( 44,541,067 ) ( 35,913,514 ) Cumulative foreign currency translation adjustment 2,278 – Total stockholders’ equity 106,015,915 14,817,942 Total liabilities and stockholders’ equity $ 113,078,818 $ 16,107,575 See accompanying unaudited notes to the consolidated condensed financial statements. 4 Unusual Machines, Inc. Consolidated Condensed Statement of Operations For the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Revenues $ 2,134,588 $ 1,531,264 $ 6,300,857 $ 3,561,303 Cost of goods sold 1,294,200 1,131,777 4,168,984 2,569,209 Gross Margin 840,388 399,487 2,131,873 992,094 Operating Expenses Operations 636,705 218,126 1,343,584 544,220 Research and development 39,369 15,000 110,002 42,078 Sales and marketing 373,539 252,253 883,514 795,643 General and administrative 4,730,063 1,374,989 15,151,160 3,728,749 Depreciation and amortization 22,449 171 63,635 513 Total operating expenses 5,802,125 1,860,539 17,551,894 5,111,203 Loss from operations ( 4,961,737 ) ( 1,461,052 ) ( 15,420,021 ) ( 4,119,109 ) Other income and (expense) Interest income 715,489 180 942,755 180 Unrealized gain in short term investments 5,849,713 – 5,849,713 – Interest expense – ( 41,465 ) – ( 101,648 ) Loss on debt extinguishment – ( 685,151 ) – ( 685,151 ) Change in fair value of derivatives and warrant liabilities – 43,238 – 43,238 Other income and (expense) 6,565,202 ( 683,198 ) 6,792,468 ( 743,381 ) Net income (loss) $ 1,603,465 $ ( 2,144,250 ) $ ( 8,627,553 ) $ ( 4,862,490 ) Net income (loss) per share attributable to common stockholders Basic $ 0.05 $ ( 0.30 ) $ ( 0.38 ) $ ( 0.63 ) Diluted $ 0.05 $ ( 0.30 ) $ ( 0.38 ) $ ( 0.63 ) Weighted average common shares outstanding Basic 30,002,179 7,147,866 22,610,516 7,749,285 Diluted 30,581,194 7,147,866 22,610,516 7,749,285 See accompanying unaudited notes to the consolidated condensed financial statements. 5 Unusual Machines, Inc. Consolidated Condensed Statement of Changes in Stockholders’ Equity For the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) Three and Nine Months Ended September 30, 2024 Series A, Preferred Stock Series B, Preferred Stock Series C, Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders’ Shares Value Shares Value Shares Value Shares Value Capital Deficit Equity Balance, December 31, 2023 – $ – 190 $ 2 – $ – 3,217,255 $ 32,173 $ 5,315,790 $ ( 3,933,046 ) – $ 1,414,919 Issuance of common shares as settlement – – – – – – 16,086 161 64,183 – – 64,344 Issuance of common shares, initial public offering, net of offering costs – – – – – – 1,250,000 12,500 3,837,055 – 3,849,555 Issuance of common shares, business combination – – – – – – 4,250,000 42,500 16,957,500 – 17,000,000 Conversion of preferred shares – – ( 120 ) ( 1 ) – – 600,000 6,000 ( 5,999 ) – – Net loss – – – – – – – – – ( 1,106,002 ) ( 1,106,002 ) Balance, March 31, 2024 – $ – 70 $ 1 – $ – 9,333,341 $ 93,334 $ 26,168,529 $ ( 5,039,048 ) – $ 21,222,816 Conversion of preferred shares – – ( 20 ) – – – 100,000 1,000 ( 1,000 ) – – Issuance of common shares, equity incentive plan – – – – – – 977,899 9,779 ( 9,779 ) – – Stock compensation expense - vested stock – – – – – – – – 346,854 – – 346,854 Stock option compensation expense – – – – – – – – 14,389 – 14,389 Net loss – – – – – – – – – ( 1,612,238 ) ( 1,612,238 ) Balance, June 30, 2024 – $ – 50 $ 1 – $ – 10,411,240 $ 104,113 $ 26,518,993 $ ( 6,651,286 ) – $ 19,971,821 Issuance of common shares, equity incentive plan – – – – – – 23,743 237 ( 237 ) – – – Exchange of common shares for Series A preferred 4,250 43 – – – – ( 4,250,000 ) ( 42,500 ) 42,457 – – Exchange of convertible note for Series C preferred – – – – 210 2 – – 999,998 – 1,000,000 Stock compensation expense – vested stock – – – – – – – – 375,345 – 375,345 Stock option compensation expense – – – – – – – – 23,086 – 23,086 Net loss – – – – – – – – – ( 2,144,250 ) ( 2,144,250 ) Balance, September 30, 2024 4,250 $ 43 50 $ 1 210 $ 2 6,184,983 $ 61,850 $ 27,959,642 $ ( 8,795,536 ) – $ 19,226,002 6 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 (Unaudited) Series A, Preferred Stock Series B, Preferred Stock Series C, Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Value Shares Value Shares Value Shares Value Capital Deficit Income Equity Balance, December 31, 2024 – $ – – $ – – $ – 15,122,018 $ 151,221 $ 50,580,235 $ ( 35,913,514 ) $ – $ 14,817,942 Issuance of common shares, equity incentive plan – – – – – – 483,546 4,835 ( 4,835 ) – – – Issuance of common shares for exercise of warrants – – – – – – 1,224,606 12,246 2,424,720 – – 2,436,966 Stock compensation expense - vested stock – – – – – – – – 1,883,433 – – 1,883,433 Stock compensation expense – – – – – – – – 22,940 – – 22,940 Net loss – – – – – – – – – ( 3,266,279 ) – ( 3,266,279 ) Balance, March 31, 2025 – $ – – $ – – $ – 16,830,170 $ 168,302 $ 54,906,493 $ ( 39,179,793 ) $ – $ 15,895,002 Issuance of common shares, Management/BOD – – – – – – 208,336 2,082 ( 2,082 ) – – – Issuance of common shares, Option exercises – – – – – – 94,650 947 366,923 – – 367,870 Issuance of common shares, consulting services – – – – – – 4,630 46 ( 46 ) – – – Issuance of common shares, advisory board – – – – – – 150,000 1,500 ( 1,500 ) – – – Issuance of common shares, public offering – – – – – – 8,000,000 80,000 36,416,000 – – 36,496,000 Stock option compensation expense – – – – – – – – 576,831 – – 576,831 Stock Compensation expense - vested stock – – – – – – – – 4,936,497 – – 4,936,497 Net loss – – – – – – – – – ( 6,964,739 ) – ( 6,964,739 ) Balance, June 30, 2025 – $ – – $ – – $ – 25,287,786 $ 252,877 $ 97,199,116 $ ( 46,144,532 ) $ – 51,307,461 Issuance of common shares, Management/BOD – – – – – – 589,232 5,892 ( 5,892 ) – – – Issuance of common shares, Option exercises – – – – – – 25,250 253 133,487 – – 133,740 Issuance of common shares, consulting services – – – – – – 1,539 15 ( 15 ) – – – Issuance of common shares, public offering – – – – – – 5,000,000 50,000 44,851,000 – – 44,901,000 Issuance of common shares, Rotor Lab acquisition – – – – – – 656,642 6,566 5,916,345 – – 5,922,911 Issuance of common shares - warrant exercises – – – – – – 8,500 85 42,415 – – 42,500 Stock compensation expense – – – – – – – – 114,960 – – 114,960 Stock compensation expense – vested stock – – – – – – – – 1,987,600 – – 1,987,600 Net income – – – – – – – – – 1,603,465 – 1,603,465 Equity adjustment from foreign currency translation – – – – – – – – – – 2,278 2,278 Balance, September 30, 2025 – $ – – $ – – $ – 31,568,949 $ 315,688 $ 150,239,016 $ ( 44,541,067 ) $ 2,278 $ 106,015,915 See accompanying unaudited notes to the consolidated condensed financial statements. 7 Unusual Machines, Inc. Consolidated Condensed Statement of Cash Flows For the Nine Months Ended September 30, 2025 and 2024 (Unaudited) Nine Months Ended September 30, 2025 2024 Cash flows from operating activities: Net loss $ ( 8,627,553 ) $ ( 4,862,490 ) Depreciation and amortization 63,635 513 Stock compensation expense as settlement – 64,344 Stock compensation expense 9,522,261 759,673 Unrealized gains from short term investments ( 5,849,713 ) – Bad debt 12,146 – Change in fair value for warrant and derivative liabilities – ( 43,239 ) Loss on debt extinguishment, non-cash component – 663,250 Change in assets: Accounts receivable ( 122,696 ) ( 73,109 ) Inventory ( 1,746,100 ) 337,562 Prepaid inventory ( 6,016,951 ) ( 319,532 ) Other assets ( 165,529 ) ( 29,100 ) Operating lease right-of-use asset 72,202 – Change in liabilities: Accounts payable and accrued expenses 406,399 630,595 Operating lease liabilities ( 80,346 ) ( 33,056 ) Customer deposits and other current liabilities 1,137,953 186,076 Net cash used in operating activities ( 11,394,294 ) ( 2,718,513 ) Cash flows from investing activities Cash portion of consideration paid for acquisition of businesses, net of cash received 93,054 ( 852,801 ) 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 ) ( 852,801 ) Cash flows from financing activities: Proceeds from issuance of common shares, IPO – 5,000,000 Proceeds from issuance of common shares, public offering 40,000,000 – Proceeds from issuance of common shares, registered direct 48,500,000 – Proceeds from option exercises 501,610 – Proceeds from issuance of common shares, warrant exercises 2,479,466 – Common share issuance offering costs ( 7,103,000 ) ( 637,687 ) Net cash provided by financing activities 84,378,076 4,362,313 Net increase in cash 60,526,149 790,999 Effect of exchange rate changes on cash 2,278 – Cash, beginning of period 3,757,323 894,773 Cash, end of period $ 64,285,750 $ 1,685,772 Supplemental disclosures of cash flow information: Non-cash consideration paid for assets acquired and liabilities assumed $ 8,922,911 $ 19,000,000 Non-cash right of use asset and liability $ 973,443 $ – Deferred acquisition costs $ – $ 100,000 Deferred offering costs recorded as reduction of proceeds $ – $ 512,758 See accompanying unaudited notes to the consolidated condensed financial statements. 8 Unusual Machines, Inc. Notes to Consolidated Condensed Financial Statements September 30, 2025 Note 1 – Organization and nature of business Unusual Machines, Inc. (“the Company”) is a Nevada corporation engaged in the commercial drone industry. The Company reincorporated from Puerto Rico to Nevada on April 22, 2024. On February 16, 2024, the Company closed its Initial Public Offering (the “IPO”) of 1,250,000 shares of common stock at a public offering price of $4.00 per share (“IPO Price”). The shares are traded on NYSE American. Simultaneous with the closing of the IPO, the Company acquired Fat Shark Holdings Ltd. (“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot”) from Red Cat Holdings, Inc. (“Red Cat”) (See Note 3). On September 3, 2025, the Company acquired Rotor Lab Pty. Ltd., an Australian company (“Rotor Lab). See Note 3 for additional information. Note 2 – Summary of significant accounting policies Principles of Consolidation 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 and Rotor Lab since the acquisition on September 3, 2025. Intercompany transactions and balances have been eliminated upon consolidation. Basis of Presentation The consolidated condensed financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. Accordingly, these condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2025. The results for any interim period are not necessarily indicative of results for any future period. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material. The condensed consolidated financial statements include some amounts that are based on management's best estimates and judgments. Significant estimates reflected in these consolidated financial statements include those used to (i) determine stock-based compensation, (ii) the fair value of assets acquired and liabilities assumed in business combinations, 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. 9 Reclassification In the condensed consolidated financial statements, 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. 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 The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash deposits in multiple commercial banks and financial services companies. These financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance may at times exceed these limits. 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. The Company continually monitors its positions with, and the credit quality of the financial institutions with which it invests. Accounts Receivable, net The Company carries its accounts receivable at invoiced amounts. Upon the closing of the acquisitions in February 2024 when we acquired accounts receivable, the Company adopted ASC 326, Financial Instruments – Credit Losses, which the Company evaluates all credit losses as of the reporting date. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based on a history of past write-offs and collections and current credit conditions. Accounts are written-off as uncollectible at the discretion of management. At September 30, 2025 and December 31, 2024, the Company considers accounts receivable to be fully collectible; 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 321. During the third quarter, the Company made multiple investments totaling $ 11 .0 million. As of September 30, 2025 the unrealized gain from short-term investments is approximately $ 5.85 million. The Company holds less than 5% in each of the investee companies as of September 30, 2025. Inventory 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 method. 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 Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets of three years. 10 Leases The Company applies Accounting Standards Codification (ASC) 842, “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company 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 or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company's leases do not provide an implicit rate. Therefore, the Company used an effective discount rate of 11.49% based on its last debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets. Lease terms do not include an option to renew. Business Combinations The Company accounts for business combinations under ASC 805 using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions used in valuations and estimates determined by management. Business acquisitions are included in the Company’s consolidated financial statements as of the date of the acquisition. Goodwill and Long-lived Assets Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that are not individually identified and separately recognized. The Company tests goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform an impairment test. The impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company recorded an impairment loss on goodwill of $ 10,073,326 in 2024 based on the Company’s estimated future net cash flows from the acquisitions. The estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross margin, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of capital (i.e., the selected discount rate). Management’s assumptions are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services. 11 The Company reviews long-lived assets, including tangible assets and other intangible assets with definitive lives, for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets”. ASC 360 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. Amortizable intangible assets are assessed for impairment upon triggering events that indicate that the carrying value of an asset may not be recovered. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible assets. No impairment charges were recorded by the Company as of September 30, 2025. The Company has indefinite-lived trademark assets that are reviewed for impairment by first performing a qualitative analysis in accordance with ASC 350-30 to determine whether it is more likely than not that the fair value of the indefinite-lived asset is less than its carrying value. If based on this assessment, management determines that impairment is not more than likely, then no further quantitative testing is required. However, if performing a qualitative analysis determines that is more likely than not that the fair value is less than its carrying value, then a quantitative analysis is performed in accordance with ASC 350-30-35, which occurs annually in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. If a quantitative analysis is required, the Company utilizes the relief-from-royalty method, which is a form of the income approach and requires us to make significant estimates and assumptions including preparation of forecasted revenue, selection of a royalty rate and discount rate and estimate of the terminal year revenue growth rate. The Company did not record an impairment as of September 30, 2025, related to the indefinite-lived assets. Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The guidance establishes three levels of the fair value hierarchy as follows: Level 1 : Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 : Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. 12 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 Total Level 1 Level 2 Level 3 Short term investments $ 16,849,713 $ 15,639,713 $ – $ 1,210,000 Contingent consideration from Rotor Lab acquisition 3,000,000 – – 3,000,000 Total $ 19,849,713 $ 15,639,713 $ – $ 4,210,000 Changes in Level 3 financial instruments are as follows: Schedule of level 3 financial instruments December 31, Purchases, Issuances and Change in September 30, 2024 Settlements Fair Value 2025 Non-public warrants $ – $ 195,000 $ 1,015,000 $ 1,210,000 Contingent consideration from Rotor Lab acquisition – 3,000,000 – 3,000,000 Total $ – $ 3,195,000 $ 1,015,000 $ 4,210,000 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) 0.25 Fair market value $ 3.78 – 7.02 Warrant strike price $ 6.00 Risk free interest rate 3.61 – 4.30% Volatility 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 at Fair Value on a Non-Recurring Basis The Company's financial instruments mainly consist 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 instruments. Our cash and short-term investments consisted of the following as of September 30, 2025: Schedule of cash and short-term investments Cost Gross Unrealized Gains (Losses) Fair Value Cash $ 64,285,752 $ – $ 64,285,752 Short-term investments 11,000,000 5,849,713 16,849,713 Total $ 75,285,752 $ 5,849,713 $ 81,135,465 13 Accrued Warranty Fat Shark products are warranted against defects in materials and workmanship for a period of two years from the date of shipment. If a defect arises during the warranty period, Fat Shark will either (i) repair the affected product at no charge using new parts or parts that are equivalent to new in performance and reliability; (ii) exchange the affected product with a functionally equivalent product; or (iii) refund the original purchase price for the affected product. Allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product warranty claim rates and expected costs to repair or to replace the products under warranty. The Company currently establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior 24 months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly from the Company’s estimates, adjustments to recognize the additional cost of sales may be required in future periods. Historically, the warranty accrual and the expense amounts have been immaterial. The warranty liability is included in accrued expenses on the accompanying consolidated balance sheets and amounted to $ 19,874 and $ 28,944 as of September 30, 2025 and December 31, 2024, respectively. Rotor Riot does not provide any warranty of any kind for any of the equipment it sells or otherwise distributes. Consumers assume all risk for any products purchased or received from Rotor Riot. 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 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: Step 1: Identify the contract with a customer; Step 2: Identify the performance obligations in the contract; Step 3: Determine the transaction price; Step 4: Allocate the transaction price to the performance obligations in the contract; and Step 5: Recognize revenue when (or as) the Company 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 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. All deferred revenue is expected to be recognized within one year. 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 Cost of goods sold includes inventory costs, direct packaging costs and production related depreciation, if any. Shipping and Handling Costs Shipping and handling costs incurred for products 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. 14 Research and Development Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development costs, materials, and a proportionate share of overhead costs. Income Taxes The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion 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, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense. Stock-Based Compensation 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 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 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. Warrants The Company accounts for warrants to purchase shares of its common stock in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) 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 contract. The assessment considers whether the warrants are freestanding financial instruments or embedded in a host instrument, whether the warrants meet the definition of a liability pursuant to ASC 480, whether the warrants meet the definition of a derivative under ASC 815, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants classified as liabilities are recognized as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss. 15 Net Loss per Share Basic and diluted net loss per share is calculated based on the weighted-average of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share . Diluted net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect 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 September 30 September 30 2025 2024 2025 2024 Weighted average shares used in computing net income per share of common stock, basic 30,002,179 7,147,866 22,610,516 7,749,285 Add incremental shares: Stock based awards (options and restricted stock units) 257,303 – – – Warrants 321,712 – – – Weighted average shares used in computing net income per share of common stock, diluted 30,581,194 7,147,866 22,610,516 7,749,285 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 September 30 September 30 2025 2024 Unvested stock options 682,600 330,000 Unvested restricted stock awards 550,000 – Warrants 1,154,473 692,500 Convertible preferred stock – 5,130,000 Convertible debt – 1,507,538 Total 2,387,073 7,600,038 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 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 In December 2023, new accounting guidance was issued related to income tax disclosures. The new guidance requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This new guidance will likely not result in additional required disclosures when adopted. In November 2024, the FASB issued ASU No. 2024-03, “Disaggregation of Income Statement Expenses” which requires disaggregated disclosure of income statement expenses into specified categories in disclosures within the footnotes to the financial statements. The standard is effective for annual reporting periods beginning after December 15, 2026. The Company is currently evaluating the effect of this ASU on the consolidated financial statements and disclosures. 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. 16 Note 3 – Acquisitions Fat Shark and Rotor Riot On February 16, 2024, the Company closed on the acquisitions of both Fat Shark and Rotor Riot from Red Cat and Jeffrey Thompson, the founder and Chief Executive Officer of Red Cat (the “Business Combination”) (See Note 12 – Related Party Transactions for additional information). Fat Shark and Rotor Riot are in the business of designing and marketing consumer drones and first-person-view (“FPV”) goggles. Rotor Riot is also a licensed authorized reseller of consumer drones manufactured by third parties. The Company specializes in the production and sale of small drones and essential components and with the acquisitions of Fat Shark and Rotor Riot, it brings brand recognition and a strong curated retail channel in the FPV drone market segment. This Business Combination is a realization of the Company’s strategy to build its business both organically and through strategic acquisitions that leverage our retail business to onshore production of critical drone components. With the transition to onshoring production of drone components, the Company intends to expand into B2B channels for customers that require a domestic supply chain. The Business Combination was based on a share purchase agreement (the “Purchase Agreement”) that was executed on November 21, 2022. From November 21, 2022 to February 16, 2024, the Purchase Agreement was subject to several amendments and subject to certain working capital adjustments. Under the terms of the Purchase Agreement, as amended, the consideration paid for the acquired assets consisted of (i) $ 1 .0 million in cash and a cash deposit of $ 0.1 million made in 2022, (ii) issuance of a $ 4 .0 million 18 month promissory note to Red Cat (see Note 9 “Promissory and Convertible Notes” for further details), and (iii) the issuance of 4,250,000 shares of the Company’s common stock, which represented approximately 48.66% of the outstanding common stock of the Company on February 16, 2024, after the effect of the issued shares (collectively the “Consideration Paid”). The Company valued the Red Cat common stock at $4.00 per share for $ 17,000,000 which represents the IPO price of the Company’s common stock on February 15, 2024. Accordingly, the value of the Consideration Paid is equal to $ 22,100,000 . 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 value. The following represents the fair value allocation of Fat Shark and Rotor Riot Purchase Price: Schedule of purchase fair value allocation Cash $ 147,200 Accounts receivable (approximates contractual value) 6,798 Inventories (on hand and prepaid) 2,611,583 Other current assets 10,892 Right of use asset – operating 378,430 Other long-term assets 59,426 Goodwill 17,476,232 Intangible assets 2,297,007 Total assets 22,987,568 Accounts payable and accrued liabilities 287,544 Deferred revenue 114,441 Deferred tax liability 107,153 Operating lease liability – current and long-term 378,430 Total liabilities 887,568 Total purchase price $ 22,100,000 17 On December 31, 2024, the Company recorded a measurement period adjustment to the above fair value allocation to report a deferred tax liability of $ 107,153 and increase goodwill by the same amount. 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. Combining these entities and their existing customer base along with Unusual Machines’ strategy of extending to B2B sales of drone components will provide a strategic advantage. The results of Fat Shark and Rotor Riot have been included in the Consolidated Financial Statements from the date of acquisition of February 16, 2024. 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. Rotor Lab 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. The Company 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 of orders. 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. The 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 value. 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. 18 The following represents the fair value allocation of Rotor Lab Purchase Price: Schedule of purchase fair value allocation Cash $ 93,054 Accounts receivable (approximates contractual value) 132,419 Inventories 36,888 Prepaid expenses 21,843 Property and equipment 179,772 Right of use asset – operating 58,524 Other current assets 10,266 Unallocated purchase price 8,725,968 Total assets 9,258,734 Accounts payable and accrued liabilities 92,113 Deferred revenue 183,666 Deferred tax liability – Operating lease liability – current and long-term 60,044 Total liabilities 335,823 Initial consideration 5,922,911 Contingent consideration 3,000,000 Total purchase price $ 8,922,911 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 each period. 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 For the Nine months Ended September 30, 2025 September 30, 2024 As Reported (unaudited) Proforma (unaudited) As Reported (unaudited) Proforma (unaudited) Revenue $ 6,301 $ 6,760 $ 3,561 $ 3,982 Gross profit/(loss) 2,132 2,465 992 1,382 Loss from operations ( 15,420 ) ( 15,430 ) ( 4,119 ) ( 4,059 ) Other expense 6,792 6,792 ( 743 ) ( 695 ) Net loss $ ( 8,628 ) $ ( 8,638 ) $ ( 4,862 ) $ ( 4,754 ) Net earnings per share: Basic $ ( 0.38 ) $ ( 0.38 ) $ ( 0.63 ) $ ( 0.61 ) 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. 19 Note 4 – Inventories 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, 2025 December 31, 2024 Raw materials $ 717,907 $ – Work in process – – Finished goods 2,400,584 1,335,503 Total inventory $ 3,118,491 $ 1,335,503 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 Other current assets included as of: Schedule of other current assets September 30, 2025 December 31, 2024 Prepaid insurance $ 182,777 $ 31,500 Prepaid expenses 14,511 – Other current assets 21,583 – Total other current assets $ 218,871 $ 31,500 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 Property and equipment consist of assets with an estimated useful life greater than one year. Property and equipment are reported net of accumulated depreciation, and the reported values are periodically assessed for impairment. Property and equipment as of: Schedule of property and equipment September 30, 2025 December 31, 2024 Computer equipment $ 22,000 $ 7,738 Motor production equipment 1,601,420 – Tenant improvements 114,785 – Total Property and Equipment 1,738,205 7,738 Accumulated depreciation ( 9,544 ) ( 7,168 ) Total property and equipment, net $ 1,728,661 $ 570 20 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 February 2024 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 $ 378,430 . The Company has no finance leases. 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 assets and liabilities at September 30, 2025: Schedule of operating lease right-of-use Operating Lease Operating lease right-of-use assets $ 1,451,106 Less: accumulated amortization ( 182,828 ) Operating lease right-of-use assets, as of September 30, 2025 1,268,278 Operating lease liability 1,451,106 Less: accumulated reduction ( 167,973 ) Operating lease liability, as of September 30, 2025 1,283,132 Current operating lease liability 247,957 Non-current operating lease liability 1,035,175 Total operating lease liability $ 1,283,132 21 The following is a summary of future lease payments required under the lease agreement: Schedule of future lease payments Year Future Lease Payments Operating Lease Discount Operating Lease Liability 2025 $ 94,033 $ ( 35,318 ) $ 58,715 2026 383,112 ( 124,738 ) 258,374 2027 369,793 ( 95,760 ) 274,033 2028 351,223 ( 64,786 ) 286,437 2029 267,320 ( 36,439 ) 230,880 2030 183,215 ( 8,522 ) 174,693 Total $ 1,648,695 $ ( 365,563 ) $ 1,283,132 Schedule of supplemental information Supplemental Information UMAC Rotor Riot Rotor Lab Weighted average remaining lease term (in years) 3.58 4.92 1.58 Weighted average discount rate 11.49 % 11.49 % 11.49 % Note 8 – Goodwill and Intangible Assets Goodwill 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, 2025. Intangible Assets As of September 30, 2025, the balances of intangible assets were as follows: Schedule of intangible assets Type Gross Value Accumulated Amortization Net Value Patents/IP Finite-lived $ 816,877 $ ( 132,743 ) $ 684,134 Trademark Indefinite-lived 1,480,130 – 1,480,130 Total intangible assets, net $ 2,297,007 $ ( 132,743 ) $ 2,164,264 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. 22 Note 9 – Promissory and Convertible Notes In February 2024 and in conjunction with the acquisition of Fat Shark and Rotor Riot, as discussed in Note 3, the Company issued a promissory note (“Note”) with Red Cat Holdings, Inc. (“Red Cat”) for $ 2 .0 million. In July 2024, the Company finalized its working capital adjustment with Red Cat which increased the overall purchase price by an additional $ 2 .0 million. In accordance with ASC 470, Debt, the additional $2.0 million was treated as a modification that was not treated as a debt extinguishment and expenses related to the debt were expensed as incurred. The additional $2.0 million was added to the existing Note and was reflected as an adjustment to the opening purchase price and was included in the opening balance sheet as of February 16, 2024 as an increase to goodwill and intangible assets. Accordingly, the Note was amended to increase the principal amount of the Note to $ 4 .0 million. Subsequently and in July 2024, in conjunction with a private sale of Red Cat’s common stock and its promissory note to two accredited investors (“Investors”), the Company issued new notes to the new Investors (the “July Notes”) and cancelled the original Note. The July Notes contained 8% per annum interest. In addition, the maturity date of the July Notes was extended to November 30, 2025, subject to certain conditions. On August 21, 2024, the Company entered into two exchange agreements with the Investors, under which the Investors exchanged their respective 8% July Notes for new 4% Convertible Notes (the “August Notes”). Pursuant to the exchange agreements, the Investors exchanged the $ 4,000,000 of July Notes for an aggregate of (i) $ 3,000,000 for the August Notes, (ii) 210 shares of Series C preferred stock, which converts into 630,000 shares of the Company’s common stock, and (iii) 630,000 warrants with a five-year term and an exercise price of $1.99 per share, subject to certain adjustments. The July Notes were cancelled as a part of the exchange agreement. In accordance with ASC 470, since the August Notes were considered a greater than 10% change from the July Notes and a substantive conversion option was added to the August Notes, this exchange was treated as a debt extinguishment. The August Notes bear interest at 4 % annually with interest payable monthly and the principal due on November 30, 2025 . The August Notes are convertible into common stock at a fixed $1.99 per share, except in the Event of Default as defined in the August Notes, which the conversion price for an Event of Default Conversion is calculated at a 10% discount of the average three-day volume-weighted average price prior to the conversion date. During the third quarter 2024, the Company recognized a loss on debt extinguishment of $ 685,151 related to the exchange agreement discussed above. The loss on extinguishment related to the August Notes included $ 315,303 fair value related to the warrant liability issued, $ 347,947 fair value related to the optional conversion feature derivative liability of the remaining principal balance, and $ 21,901 cash fees paid for legal costs related to the August Notes. The Company used the binomial option pricing method for calculating the derivative fair value related to the warrants and optional conversion feature. In December 2024, the Investors exercised their conversion option to convert the remaining $ 3,000,000 in August Notes to Common Stock at a fixed $ 1.99 conversion price. As a result, the Company issued 1,507,538 shares of common stock, cancelled the $3,000,000 in August Notes, and recorded $ 17,864,325 to common stock and additional paid in capital related to the conversion of the August Notes to Common Stock. This value is based on the closing price of the Company’s common stock on December 3, 2024 of $11.85 per share. This resulted in a loss on debt extinguishment of $ 14,864,325 . The settlement of the related conversion option derivative resulted in a gain on extinguishment of $ 16,503,923 . The net gain was $ 1,639,598 . Total interest expense for the 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 23 Note 10 – Earnings Per Share and Stockholders’ Equity 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 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 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 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 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 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. Common Stock 2025 Transactions On January 14, 2025, the Company issued 3,546 immediately vested restricted shares of common stock to non-employee directors of the Company. The shares of restricted stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $11.99 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of $ 42,517 to be recognized as stock compensation expense during the nine months ended September 30, 2025. On February 3, 2025, the Company issued 480,000 restricted shares of common stock to executive officers and certain employees of the Company. The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan. The restricted shares issued to executive officers are subject to pro rata forfeiture through December 31, 2025. The restricted shares issued to certain employees are subject to pro-rata forfeiture over a four-year period. The shares were valued at $12.00 per share, which was the value of the Company’s common stock on the date of grant, respectively for a total of $ 5,760,000 to be recognized as stock compensation expense pro-rata over the vesting period. Stock compensation expense of $ 4,154,839 was recognized during the nine months ended September 30, 2025. 24 In February 2025, the Company issued 1,224,606 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 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 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 nine months ended September 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 nine months ended September 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 . 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. 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. The 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. 25 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 equity. 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. The 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 On January 2, 2024, the Company issued 16,086 shares of common stock to its prior Chief Executive Officer as a part of a separation agreement and recognized compensation expense of $ 64,344 or $4 per share, the value of the IPO in February 2024. On February 16, 2024 the Company completed its IPO and issued 1,250,000 shares of common stock at the IPO Price for total net proceeds of $ 3,849,555 . The Company incurred $ 510,000 direct deduction from proceeds, $ 127,687 in cash disbursements related to offering costs and $ 512,758 in prior year paid and deferred offering costs as of December 31, 2023 for a total of $ 1,150,445 offering costs, associated with the IPO which consisted of underwriter, legal, accounting, and other associated filing fees. These costs have been recorded as a reduction of the gross proceeds from the IPO in stockholder’s equity. The 62,500 of representative warrants are exercisable for common stock at a price of $5.00 per share (125% of the IPO Price) at any time beginning on August 15, 2024 through and including February 16, 2029, the expiration date. Simultaneously with its IPO and as a part of the Purchase Agreement as discussed in Note 3, the Company issued Red Cat 4,250,000 shares of common stock as consideration of the business combination. These were subsequently exchanged into 4,250 Series A preferred shares as discussed above. As agreed in the Purchase Agreement, $ 17 .0 million of the purchase price would be issued in common stock based on the IPO price of $4.00 per share. 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. 26 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 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 Series A. 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 Stock Options The 2022 Equity Incentive Plan (the “Plan”) allows the Company to incentivize key employees and directors with long term compensation awards such as stock options, restricted stock, and other similar types of awards. The Plan is authorized to issue up to 15% of the outstanding shares on a fully diluted basis giving effect to the exercise and conversion of all outstanding common stock equivalents issued outside of the Plan. In addition, the Plan has an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year beginning in 2025 and ending in 2032 equal to the lesser of (a) five percent (5%) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (b) such smaller number of shares of stock as determined by our board of directors. As of 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 September 30, 2025: Schedule of stock option activity Non-Qualified Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding - December 31, 2024 330,000 $ 1.24 9.34 $ – Granted 527,500 8.09 – – Forfeited/canceled ( 55,000 ) 2.81 – – Exercised ( 119,900 ) 4.18 – – Outstanding – September 30, 2025 682,600 $ 5.89 6.81 $ 6,289,795 Exercisable – September 30, 2025 100,308 2.84 8.56 1,229,704 27 The Company recognized $ 714,731 in stock-based 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 2029. Restricted Stock The following table presents the activity for restricted stock outstanding: Schedule of restricted stock activity Restricted Stock Awards Weighted Average Grant Date Fair Value - RSA Restricted Stock Units Weighted Average Grant Date Fair Value - RSU Unvested - December 31, 2024 227,723 $ 1.20 150,000 $ 4.40 Granted 1,087,283 10.24 200,000 9.43 Forfeited/canceled – – – – Vested ( 765,006 ) 7.64 ( 350,000 ) 7.27 Unvested – September 30, 2025 550,000 $ 10.12 – $ – Restricted stock awards are equity grants to officers, directors and employees of the Company in which restricted common stock is issued on the grant date subject to vesting and claw-back provisions. Restricted stock units are equity grants to employees and advisors of the Company in which common stock is issued upon meeting certain vesting requirements. The total value of restricted stock 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. Warrants The following table presents the activity for warrants outstanding as of September 30, 2025: Schedule of warrant activity Weighted Warrants Average Outstanding Exercise Price Outstanding - December 31, 2024 1,397,579 $ 2.01 Granted 990,000 6.66 Forfeited/cancelled/restored – – Exercised ( 1,233,106 ) 2.01 Outstanding – September 30, 2025 1,154,473 $ 6.00 28 As Discussed in Note 10, “Earnings Per Share 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 2.08 years as of September 30, 2025. The aggregate intrinsic value of the warrants at September 30, 2025 is $ 10,510,241 . Note 12 – Related Party Transactions In November 2022, the Company entered into the Purchase Agreement, as amended with Red Cat and Jeffrey Thompson, the Company’s former Chief Executive Officer and President and a current director. Mr. Thompson is 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 of our common stock owned by him to secure any indemnification obligations, which stock is our sole remedy, except for fraud. Our prior Chief Executive Officer, Mr. Brandon Torres Declet, negotiated the terms of the Purchase Agreement on an arms’ length basis with Joe Freedman who was the head of Red Cat’s Special Committee. The transaction was ultimately approved by the Company’s and Red Cat’s board of directors. On March 8, 2023, a majority of the disinterested Red Cat shareholders approved the transactions contemplated in the Purchase Agreement in a special meeting. Mr. Thompson recused himself from such vote. In February 2024, the Company completed the acquisitions to purchase Fat Shark and Rotor Riot from Red Cat. Jeffrey Thompson is the founder and current Chief Executive Officer of Red Cat. Mr. Thompson is also the founder, prior Chief Executive Officer and current member on the Board of Directors of Unusual Machines. Prior to the acquisition, Mr. Thompson held 328,500 shares of common stock in Unusual Machines, which represented approximately 10% prior to the acquisition and IPO. On April 30, 2024 (“Grant Date”), the Company’s board of directors approved the Company entering into a two-year Management Services Agreement (the “Agreement”) with 8 Consulting LLC (the “Consultant”) for the services of our Chief Executive Officer, Dr. Allan Evans, whereby the Consultant agreed to cause Dr. Evans to perform his services as the Company’s Chief Executive Officer and the Consultant will be compensated on behalf of Dr. Evans by the Company in connection with his performance of such services. The Agreement allows Dr. Evans to receive favorable tax benefits as a resident of the Commonwealth of Puerto Rico who will perform such services in Puerto Rico. Pursuant to the Agreement, Dr. Evans will perform the duties and responsibilities that are customary for a chief executive officer of a public company that either have revenues similar to the Company on a pro forma basis as reflected in the Prospectus filed with the SEC on February 15, 2024, or if pre-revenues, are an active and on-going business that are performing pre-revenue activities. The Consultant agreed to cause Dr. Evans, as Chief Executive Officer, (i) to undertake primary responsibility for managing all aspects of the Company and overseeing the preparation of all reports, registration statements and other filings required filed by the Company with the SEC and executing the certifications required the Sarbanes Oxley Act of 2002 and the rules of the SEC as the principal executive officer of the Company; (ii) attend investor meetings and road shows in connection with the Company’s fundraising and investor relations activities; (iii) to report to the Company’s board of directors; (iv) to perform services for such subsidiaries of the Company as may be necessary. The Consultant receives a $ 250,000 fee per year payable in monthly installments. In addition, the Consultant was granted 488,000 fully vested shares of restricted common stock. The fair value of the shares was $ 585,600 based on the $1.20 quoted trading price on the Grant Date and will be recognized over the service period (see below). The grant of restricted common stock was made under the Company’s 2022 Equity Incentive Plan. The shares of restricted common stock are subject to pro rata forfeiture from February 14, 2024 until February 14, 2025, in the event that Dr. Evans is terminated or ends his services to the Company for any reason other than death or disability, as defined in the Internal Revenue Code. The Company and Dr. Evans previously entered into an Offer Letter dated November 27, 2023, under which he would serve as the Company’s Chief Executive Officer effective as of December 4, 2023. The Agreement terminates and replaces the Offer Letter dated November 27, 2023. 29 In October 2024, in relation to the Private Placement as described in more detail in Note 10, “Earnings Per Share and Stockholders’ Equity”, the Company’s CEO and two directors (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 Leases As part of the business combination that occurred on February 14, 2024, the Company acquired 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. See Note 7 – Operating Leases for additional information. 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 On February 1, 2025, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Agreement”) with Aloft Technologies, Inc., a Delaware corporation (“Aloft”), and UMAC Merger Sub, Inc. a Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub”). Aloft is a leader in the drone fleet and airspace management sector, powering a majority of all FAA-approved Low Altitude Authorization and Notification Capability airspace authorizations in the United States and the related software is complimentary to the Company’s overall position to provide drone related components and drone services made in the United States. Under the terms of the Agreement and subject to customary closing conditions and a working capital adjustment, on the closing date of the Agreement Aloft will merge into Merger Sub, and Merger Sub will continue as a wholly owned subsidiary of the Company. In addition, each issued and outstanding share of Aloft capital stock that is not a dissenting share will be cancelled and each Aloft Stockholder (as defined in the Agreement) will receive their pro rata share of the merger consideration payable by the Company as provided for in the Agreement. 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 Aloft shareholder approval must be met before being able to close the merger. On May 6, 2025, the Company and Aloft executed an Amendment and Waiver to the Merger Agreement (the “Aloft Amendment”) which (i) waives the exclusivity provision in the Agreement, (ii) extends the end date in the Agreement from April 30, 2025 to August 31, 2025, (iii) adds a $100,000 breakup fee in the event Aloft consummates an alternative transaction while the Agreement remains in effect, and (iv) permits the Company to terminate the Agreement at any time upon written notice, however, the Company will forfeit the breakup fee. On June 9, 2025, the Company terminated the Agreement with Aloft and forfeited its right to receive the $100,000 breakup fee. 30 Note 14 – Subsequent Events 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. 31