What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2026-03-12 compared with 2025-03-27 · 1095 added, 1195 removed, 220 unchanged (91% of the section changed)

11 unchanged sentences

Risk Factors Summary

Our business and an investment

in our Common Stock are subject to numerous risks and uncertainties, including those highlighted in this “ Risk Factors ” section

Our business and an

investment in our Common Stock are subject to numerous risks and uncertainties, including those highlighted in this “ Risk

Factors ” section below.

Some of these risks include:

Risks Related to our

Business and Financial Condition

Because the Company had a very limited operating history prior to its acquisition of Fat Shark and Rotor Riot, any investment in us is highly speculative.

Fat Shark and Rotor Riot incurred net losses since their acquisition by Red Cat and may fail to achieve or maintain profitability.

Rising threats of

international tariffs, including tariffs applied to goods between the United States and China may materially and adversely affect our

If the proceeds of the prior IPO and subsequent capital raises are insufficient to meet our working capital needs, and if we are then not able to obtain sufficient capital, we may be forced to limit the scope of our operations.

If we lose key personnel, it may adversely affect our business.

Conflicts of interest involving our board of directors (“Board”) and other parties could materially harm our business.

If we are unable to attract new customers or maintain and grow our existing customer relationships in a manner that is cost-effective, our revenue growth could be slower than we expect and our business may be harmed.

Future operating results and key metrics may fluctuate significantly from period-to-period due to a wide range of factors, which makes our future results difficult to predict.

Any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities or disruptions to our continuous operations, including the systems, facilities or operations of third parties with which we do business, such as resulting from cyber-attacks, could result in significant costs, reputational damage and limits on our ability to conduct our business activities.

Our failure to effectively manage our growth could harm our business.

If we are unable to attract, integrate and retain additional qualified personnel, including top technical talent, our business could be adversely affected.

If we are successful in consummating the Merger, the integration of our business and the Aloft business may disrupt or have a negative impact on our business.

Risks Related to Our Sale of Drone-Related Products and Operations

in the Drone Industry

We operate in an emerging and rapidly evolving industry which makes it difficult to evaluate our business and future prospects.

We face competition from larger companies that have substantially greater resources which challenges our ability to establish market share, grow the business, and reach profitability.

Several steps of our production processes are dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.

We may not be able to procure necessary key components for our products or may produce or purchase too much inventory.

We may not be able to keep pace with technological advances;

and we depend on advances in technology by other companies.

Lack of long-term purchase orders and commitments from customers may lead to a rapid decline in sales.

Our products require ongoing research and development and may experience technical problems or delays, which could lead the business to fail.

If we are involved in litigation, it could harm our business or otherwise distract management.

Our business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation, including due to our high reliance on online and social media platforms, would likely adversely affect our business and operating results.

Future growth and ability to generate and grow revenue and achieve or maintain profitability may be adversely affected if our marketing initiatives are not effective in generating sufficient levels of brand awareness.

Future acquisitions could disrupt our business and adversely affect our operating results, financial condition and cash flows.

If we incur any future impairment in the carrying value of our goodwill asset or write-off of our general intangibles, it could depress our stock price.

Product quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.

Risks Related to Our Sale of Drone-Related

Products and Operations in the Drone Industry

failure to effectively manage our rapid growth could harm our business and result in material adverse effects on our future operating

have substantial inventory and the lack of sufficient purchase orders may have a material adverse effect on

our gross margins and results of operations.

rely on significant customers, thus any failure to generate revenue from such customers may have a material adverse effect on our financial

efficiency of our revenue growth is highly dependent on are ability to attract new customers and grow our existing customer relationships

in a cost-effective manner.

rely on a limited number of suppliers and do not have long-term binding contracts, thus a shortage or unavailability of components or

materials used in our manufacturing process may cause significant delays in product delivery which could have a material adverse effect

on our business and financial condition.

entry into a new manufacturing business may require additional working capital and issues with the manufacturing process may lead to

an adverse impact on our business.

quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.

loss of key personnel and the inability to attract qualified personnel may have a material adverse effect on our future success.

growth and ability to generate and grow revenue and achieve or maintain profitability may be adversely affected if our marketing initiatives

are not effective in generating sufficient levels of brand awareness.

to our facilities as a result of unforeseen events or unauthorized access and disruptions to our information technology systems could

result in significant costs, reputational damage and an inability to efficiently and effectively conduct our business.

we fail to comply with United States and foreign laws related to privacy, data security, and data protection, it could adversely affect

our operating results and financial condition.

we are involved in litigation, it could harm our business or otherwise distract management.

face competition from larger companies that have substantially greater resources which challenges our ability to establish market share,

grow the business, and reach profitability.

operate in an emerging and rapidly evolving industry which makes it difficult to evaluate our business and future prospects.

imposition of rising tariffs or other factors that result in significant inflation may have a material adverse effect on our business

and financial results.

Risks Related to Government Regulation of

Our Operations and Industry

to obtain necessary regulatory approvals from the FAA or other governmental

agencies by us, our customers, or others who use our products, or limitations put on the use of UAS, in response to public privacy or

safety concerns, may prevent us from expanding the sales of our drone solutions in the United States.

are or may become subject to governmental export and import controls, economic sanctions and other laws and regulations that could subject

us to liability and impair our ability to compete in international markets.

and regulatory uncertainty surrounding the U.S.

trade policy may cause significant disruption in our supply chain and have a material

adverse effect on our business and operations.

Risks Related to Intellectual Property Protection

If third-party intellectual property infringement claims are asserted against us, it may prevent or delay our product development and commercialization efforts and have a material adverse effect on our business and future prospects.

We may depend on intellectual property rights including patent rights that have not yet been and may not be obtained by us, and our intellectual property rights and proprietary rights may not adequately protect our products.

If we lose our rights under our third-party technology licenses, our operations could be adversely affected.

Significant inflation could adversely affect our business and financial results.

Risks Related to Government Regulation of Our Operations and Industry

Failure to obtain

necessary regulatory approvals from the DIU, FAA or other governmental agencies by us, our customers, or others who use our

products, or limitations put on the use of unmanned aircraft systems, or “UAS,” in response to public privacy or safety

concerns, may prevent us from expanding the sales of our drone solutions in the United States.

We are or may become subject to governmental export and import controls, economic sanctions and other laws and regulations that could subject us to liability and impair our ability to compete in international markets.

If the courts uphold the SEC’s climate change rules, we will incur additional costs which may materially and adversely affect our operating results and financial condition.

If we fail to comply with

United States and foreign laws related to privacy, data security, and data protection, it could adversely affect our operating results

and financial condition.

third-party intellectual property infringement claims are asserted against us, it may prevent or delay our product development and commercialization

efforts and have a material adverse effect on our business and future prospects.

may depend on intellectual property rights including patent rights that have not yet been and may not be obtained by us, and our intellectual

property rights and proprietary rights may not adequately protect our products.

we lose our rights under our third-party technology licenses, our operations could be adversely affected.

Risks Related to our Financial Condition

the Company has a very limited operating history, any investment in

us is highly speculative.

have incurred net losses since inception and may fail to achieve or maintain profitability.

factors may lead to significant fluctuation in our future operating results and key metrics from period-to-period, which makes our future

results difficult to predict.

Risks Related to our Common Stock

The market price of our shares of Common Stock is subject to fluctuation.

Our stock price may be and has been volatile, which could result in substantial losses to investors.

We are incurring significant additional costs as a result of being a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

Our failure to maintain effective disclosure controls and internal controls over financial reporting could have an adverse impact on us.

Because our Common Stock is listed on NYSE American, we are subject to additional regulations and continued requirements.

Our Board of Directors may authorize and issue shares of new classes of stock that could be superior to or adversely affect current holders of our Common Stock.

If we raise capital in the future, it may dilute our existing stockholders’ ownership and/or have other adverse effects on us, our securities or our operations.

Common stock eligible for future sale may adversely affect the market.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our Common Stock, the market price for our Common Stock and trading volume could decline.

We and our investors face the implications of our status as an emerging growth company under the federal securities laws and regulations.

We have never paid dividends and we do not expect to pay dividends for the foreseeable future.

Our Certificate of Incorporation contains certain provisions which may result in difficulty in bringing stockholder actions against or on behalf of the Company or its affiliates.

market price of our common stock is subject to significant fluctuation and volatility which may result in substantial losses for our

our common stock is listed on the NYSE American, we are subject to additional regulations and continued listing requirements.

failure to maintain effective disclosure controls and internal controls over financial reporting could have an adverse impact on us.

securities or industry analysts adversely change their recommendations regarding our common stock, the market price for our common stock

and trading volume could decline.

and our investors face the implications of our status as an emerging growth company under the federal securities laws and regulations.

Board of Directors may authorize and issue shares of new classes of stock that could be superior to or adversely affect current holders

of our Common Stock.

Articles of Incorporation contain certain provisions which may result in difficulty in bringing actions against or on behalf of the Company

or its affiliates.

Investing in our Common Stock involves a high

6 unchanged sentences

In such case, the value and marketability of our securities could

Risks Related to our Business and Financial

Because the Company

had a limited operating history prior to its acquisition of Fat Shark and Rotor Riot, any investment in us is highly speculative.

We completed our acquisitions

of Fat Shark and Rotor Riot simultaneously with the closing of our IPO in February 2024.

Both companies, prior to the completion of the

acquisitions, were operated by Red Cat since their acquisition by Red Cat in 2020.

While the management of each company remained as employees,

no Red Cat officer, other than Dr.

Allan Evans who became our Chief Executive Officer in December 2023, and our Chief Operating Officer

in March 2024, respectively, joined us.

Our management team is headed by our executive officers together with individuals from Fat Shark

and Rotor Riot, and our operations going forward are therefore subject to ordinary integration risks where two companies and two cultures

are combined.

Further, we may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences

or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts.

Our current and future expense levels

are based largely on our budgeted plans and estimates of future revenue.

Similarly, if we are able to raise additional funds in future

financing transactions, we may use a portion of those proceeds to acquire other operating businesses in our industry or in related industries

to facilitate strategic growth and build our market presence and revenue potential.

If we do acquire one or more businesses in the future,

we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force

us to curtail our business operations or plan of operations or acquisitions.

Unusual Machines must

be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages

of operations, and growth process.

For all these reasons, we may be unable to achieve or maintain profitability in some or all of our

business segments in a timely manner or at all.

Fat Shark and Rotor Riot have incurred net

losses since their acquisition by Red Cat and may fail to achieve or maintain profitability.

Since their acquisition by Red Cat in 2020, Fat

Shark and Rotor Riot incurred net losses for each reported quarter with the exception of Fat Shark which reported a small net income in

the quarter ended July 31, 2022.

Further, Unusual Machines was formed in July 2019 did not conduct any operational business activities

until February 2024 after the completion of our IPO and acquisitions of Fat Shark and Rotor Riot.

Following our acquisition of Fat Shark

and Rotor Riot, their operations constitute our business.

Further, Fat Shark had lower revenues in fiscal year 2023 compared to fiscal

year 2022, and Rotor Riot had higher net losses in fiscal year 2023 compared to fiscal year 2022, and generally experiences fluctuating

revenue as a result of recurring seasonal sales cycles.

We will need to generate higher revenues and control operating costs in order

to attain profitability.

There can be no assurances that we will be able to do so or to reach profitability.

We expect to continue to incur losses for the

foreseeable future and we expect costs to increase in future periods as we expend substantial financial and other resources on, among

other things:

expanding into the B2B channel;

opening a manufacturing facility;

researching, developing, producing and distributing new products;

sales and marketing, which will require time before these investments generate sales results;

general and administrative expenditures, including significantly increasing expenses in accounting and legal fees related to the increase in the sophistication and resources required for public company compliance and other needs arising from the growth and maturity of the Company;

competing with other companies that are currently in, or may in the future enter, the markets in which we compete;

maintaining high customer satisfaction and ensuring product and service quality;

developing our indirect sales channels and strategic partner network;

maintaining the quality of our technology infrastructure;

establishing and increasing market awareness of our Company and enhancing our brand;

consummating and integrating acquisitions;

maintaining compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property and drones;

attracting and retaining top talent in a competitive labor market.

These expenditures may not result in additional

revenue or the growth of our business in the manner or to the extent anticipated or intended or at all.

If we fail to grow revenue or

to achieve or sustain profitability, our business, financial condition, results of operations, and prospects could be materially adversely

affected and the market price of our Common Stock could be adversely affected.

Rising threats of international tariffs, including tariffs applied

to goods between the United States and China, may materially and adversely affect our business.

Our B2C business has historically been dependent

on Chinese imports for our products and operations.

For example, a majority of our products are manufactured, directly and indirectly,

using Chinese vendors.

We do not have any written agreements with our other suppliers in China.

We rely only on purchase orders.

are inherent risks and uncertainties regarding the enforcement of our rights with respect to our oral agreements and purchase orders.

Should our suppliers in China fail to honor our oral agreements and purchase orders we will not have any recourse against such suppliers

under Chinese law.

The legal system in China and the enforcement of laws, rules and regulations in China can change quickly and the Chinese

government may intervene or influence the operations of our suppliers which would adversely impact our business insofar as we would have

to seek other suppliers outside of China and such suppliers would most likely charge us more for our products.

As a result of the recent

United States presidential election, President Trump has imposed steep and additional tariffs on the importation from China of goods including

the drones we use in our B2C business.

This increase in tariffs imposed could materially and adversely affect our business and results

of operations.

These tariffs apply to the vast majority of our respective inventory, and we have historically increased prices and may

in the future be forced to implement additional price increases to adjust to the higher costs of inventory, which imposes the risk of

reduced demand for such products and lower sales and resulting revenue.

In addition, additional tariffs have been instituted on Chinese

products and could see potential additional tariffs in the future.

Under the current Trump administration, the imposition of additional

tariffs fluctuates dramatically and have created uncertainty in the global markets.

Future tariffs or any further costs or restrictions

imposed on products that we import, could require us to raise our prices on our B2C products, which may result in the loss of customers

and harm our business, particularly since we rely on consumer spending and our products are typically considered non-essential, and purchases

are therefore highly price sensitive.

In addition, changes in political conditions in

China and changes in the state of China-United States relations, including any tensions relating to potential military conflict between

China and Taiwan, are difficult to predict and could adversely affect the operations or financial condition of the Company.

because of our B2C involvement in the Chinese market, any deterioration in political or trade relations might cause a public perception

in the United States or elsewhere that might cause that business to become less attractive.

Such an impact could adversely affect our

revenues and cash flows.

In addition to Chinese tariffs, one of our first B2B customers was a European company.

If the European Union

and other European countries react to the United States tariffs by imposing tariffs on United States made product including our drones,

the trade war may make our B2B drone part too expensive.

If the tariffs or other factors result in increased

inflation and a recession, our business may be materially harmed .

A direct impact from rising tariffs on our business

will be increases in the prices of inventory we acquire and, most likely, an increase in our selling prices.

Further, due to the tariffs

and possibly large cuts in the size of the government, there may be increased unemployment and other economic factors which result in

In such event, our B2C business may be materially and adversely affected.

Further, our B2B business including our proposed

manufacturing of drones in the United States may also be adversely affected by a recessionary economy and inflation.

If our existing cash

is insufficient to meet our working capital needs, and if we are then not able to obtain sufficient capital, we may be forced to limit

the scope of our operations.

We expect that our existing cash will be sufficient

to meet our working capital needs for at least 12 months.

However, due to our continued negative cash flow we may require substantial

additional working capital.

There can be no assurance that our businesses

will reach profitability.

If adequate additional debt and/or equity financing is not available on reasonable terms or at all, then we

may not be able to continue to develop our business activities, and we will have to modify our business plan.

These factors could have

a material adverse effect on our future operating results and our financial condition.

Our ability to raise financing through sales of

equity linked securities depends on general market conditions and the demand for our Common Stock.

To the extent that we raise additional

capital through the sale of equity or convertible debt securities, the ownership interest of stockholders will be diluted, and the terms

may include liquidation or other preferences that adversely affect the rights of existing stockholders.

Debt transactions often include

restrictive covenants that could limit our ability to engage in strategic transactions, acquire complimentary businesses, or adjust to

changing market environments as quickly or efficiently as we otherwise would or at all.

Further, if adequate financing is not available

or is unavailable on acceptable terms, we may find we are unable to fund our planned expansion, take advantage of acquisition opportunities,

develop or enhance our products, or respond to competitive pressures in the industry which may jeopardize our ability to continue operations.

If we lose key personnel, it may adversely

affect our business.

Our future success depends in large part on the

continued contributions of our executive officers, members of senior management and other key personnel, particularly Dr.

our Chief Executive Officer.

Evans’ leadership, knowledge and experience in the drone industry is expected to be crucial to

our business plan and any future successes and progress we experience.

The loss of Dr.

Evans’ services would therefore materially

adversely affect our business and prospects.

As a condition to the consummation of the IPO, we obtained “key person” insurance

Evans but not for any other officers or employees.

Our executive officers, senior management and key personnel are all employed

on an at-will basis, which means that they could terminate their services with us at any time, for any reason and without notice.

loss of any of our key management personnel could significantly delay or prevent the achievement of our development and strategic objectives

and adversely affect our business.

Conflicts of interest

involving our Board and other parties could materially harm our business.

Our Board on which we

heavily depend are or may become involved in other endeavors giving rise to conflicts of interests that are adverse to the Company.

“Management” and “Corporate Governance.” Mr.

Jeffrey Thompson, a member of our Board is the Chief Executive Officer

of Red Cat, a drone company with which we partner on some of our B2B business.

These arrangements could cause him to be unable or decline

to devote sufficient time and attention to our Company and favor Red Cat, and/or to face a conflict of interest, financial or otherwise,

adverse to us and in favor of Red Cat.

Accordingly, from time-to-time our directors may not devote sufficient time and attention to our

affairs, which could have a material adverse effect on our operating results, and there can be no assurance that other conflicts of interest

will not arise from their other business ventures, any of which could materially and adversely impact our business.

Finally, Rotor Riot offers a variety of drone

products through its website, which includes a number of product offerings from competitors in the drone industry.

While these relationships

have enabled us to generate revenue, by virtue of their involvement in the sale of drones and drone-related products these customers also

have interests that are adverse to ours, and may determine to reduce their expenditures on our products in the future and/or to vertically

integrate their operations to reduce or eliminate their reliance on our products.

Any of the foregoing developments could result

in materially adverse consequences to our Company, results of operations and financial condition.

Risks Related to Our Sale of Drone-Related

Products and Operations in the Drone Industry

Our failure to effectively manage our rapid

growth could harm our business and result in material adverse effects on our future operating results.

Businesses which grow rapidly may have difficulty

managing their growth.

With our recent enterprise orders and commencement of manufacturing, we are experiencing explosive growth.

addition to our legacy facility which we are presently using to assemble drones for a customer, we have opened two manufacturing facilities

and a fulfillment facility.

We also plan to open a battery pack assembly and drone camera facility late in 2026.

With this growth, we

have increased our headcount from 18 employees as of March 31, 2025, to 81 employees as of December 31, 2025, and have approximately

141 employees as of March 6, 2026.

This growth will place a strain on our executive management team.

We may be unable to effectively

manage the growth, oversee our manufacturing facilities and maintain quality control, integrate our new hires into our company culture

and effectively deal with any human resource issues that may arise.

In addition, with our rapid growth, we need to retain an OSHA consultant

to identify, evaluate and control potential workplace hazards to prevent injuries, illnesses and fatalities.

We intend to retain a consultant

to conduct such an assessment but there can be no assurance that any workplace hazards, injuries, illnesses and fatalities may occur.

As a result of these factors, we may face a material adverse effect on our business and future result of operations.

Because we have ordered

substantial inventory in some cases prior to receipt of purchase orders, if our assumptions about future purchase orders are incorrect,

it is possible that we may have to write off some of the inventory in the future.

Based upon communications with customers and

potential customers, we order inventory to not only fulfill actual purchase orders from customers but also to be able to fulfill future

customer orders assuming we receive them.

If we do not receive the anticipated orders for this inventory and if we are unable to otherwise

sell it, we may be required to increase our reserves or write off inventory in the future because it is obsolete.

Any such write off

could be material.

Increased inventory levels can also increase the

potential risk for excess and obsolescence should our forecasts fail to materialize or if there are negative factors impacting our customers’

Such a risk becomes especially prevalent during a recession and market downturn.

If we purchase too much inventory, we may

have to record additional inventory reserves or write-off the inventory, which could have a material adverse effect on our gross

margins and on our results of operations.

Because of our dependence on significant customers,

our failure to generate revenue from those customers may impair our ability achieve projected financial results.

Beginning on September 30, 2025, we obtained

a number of new purchase orders from a limited number of customers.

On September 30, 2025, we announced a $12.8 million purchase order

for components supplying Strategic Logix’s (“SL”) Rapid Reconfigurable Systems Line.

There is no formal contract backstopping

this purchase order.

This purchase order represents the largest order that we have received.

We have, in the past, and expect for the foreseeable

future, to be dependent on a small number of customers, to generate a significant portion of our revenue, and these customers may change

periodically.

As a result, our financial results may be adversely affected if purchase orders from new or existing customers do not meet

our assumptions or if there is a default in a significant payment by any of our customers.

Furthermore, to the extent that any one customer

accounts for a large percentage of our revenue, the loss of that customer, or changes in their buying patterns or decisions, could materially

affect our financial results.

If our customers experience financial difficulties or business reversals, or lose orders or anticipated

orders, which may reduce or eliminate the need for the products which they ordered from us, they may be unable or unwilling to fulfill

their contracts with us.

There is also a risk that our customers will attempt

to impose new or additional requirements on us that reduce the profitability of the orders placed by those customers with us.

even if the orders are not changed, these orders may not generate margins equal to our recent historical or targeted results.

not book more orders with existing customers, or develop relationships with new customers, we may not be able to increase, or even maintain,

our revenue, and our financial condition, results of operations, business and/or prospects may be materially adversely affected.

If we are unable to attract new customers or

1 unchanged sentence

and our business may be harmed.

To increase our revenue, we must add new customers,

upsell to our existing customers, enhance our products with features that set us apart from our competitors, and effectively develop and

market new products including our B2B products that enable us to maintain and expand our brand and market share.

Demand for our products

is affected by a number of factors, many of which are beyond our control.

Additionally, the projections and estimates about the future

success and growth of the drone industry and demand for drone-related products such as ours, could prove to be incorrect, in which case

our results of operations and prospects will decline.

For example, if a recession occurs in the United States or global economy, we expect

that consumer spending, particularly for non-essential goods such as our drone products which are largely focused on recreational uses,

may decline, limiting our ability to attract or maintain a sufficient customer base to achieve or maintain the revenue we seek in the

development and sale of our products.

Even if we do attract customers, the cost of new customer acquisition may prove so high as to prevent

us from achieving or sustaining profitability.

Our future success also depends on our ability

to increase the use of our products and solutions within and across our existing customers and future customers.

While we believe there

is a significant opportunity to further expand within our existing customer base, including due to our planned employment of a “land-and-expand”

business model in which we plan to establish relationships with new customers and grow those relationships over time by providing high

quality products and services.

Our growth prospects depend on our ability to persuade customers to buy more product, and if we fail to

do so, our business goals and prospects may not be achieved to the extent sought or anticipated or at all.

Future operating results and key metrics may

fluctuate significantly from period-to-period due to a wide range of factors, which makes our future results difficult to predict.

Our operating results and key metrics could vary

significantly from quarter-to-quarter as a result of various factors, some of which are outside of our control, including:

delays in the receipt of orders from customers that are dependent on government orders;

the effect that tariffs, a trade war and a potential recession may have on our business;

delays in getting Blue List approval for additional drone components that we develop;

the expansion or contraction of our customer base and the amount of products ordered;

the size, duration and terms of our contracts with both existing and new customers, including distributors we contract with;

seasonality of sales at Rotor Riot which generally has experienced higher sales volumes in October – December than in other three-month periods as a result of holiday purchases and its e-commerce focus;

sales cycles which fluctuate and often include delays between the end of one product or solution’s cycle and the launch of a new product or solution to replace or supplement the prior offering;

the introduction of products and product enhancements by competitors, and changes in pricing for products offered by us or our competitors;

customers delaying purchasing decisions in anticipation of new products or product enhancements by us or our competitors or otherwise;

changes in customers’ budgets;

the amount and timing of payment for expenses, including infrastructure, research and development, sales and marketing expenses, employee benefit and stock-based compensation expenses;

costs related to the hiring, training and maintenance of our employees;

any future impact from the ongoing geopolitical military conflicts (including the war in Israel, the war in Ukraine, and tensions between China and Taiwan;

supply chain issues;

political unrest affecting our relationship with China and future tariffs;

our lack of a long-term agreement with our suppliers which can affect the availability of parts and future costs ;

changes in laws and regulations or other regulatory developments that impact our business;

the timing and extent of the growth of our business;

general economic and political conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers operate.

Any one of these or other factors discussed elsewhere

in this Annual Report may result in fluctuations in our operating results, meaning that quarter-to-quarter comparisons may not necessarily

be indicative of our future performance.

Any failures of or damage to, attack on or

unauthorized access to our information technology systems or facilities or disruptions to our continuous operations, including the systems,

facilities or operations of third parties with which we do business, such as resulting from cyber-attacks, could result in significant

costs, reputational damage and limits on our ability to conduct our business activities.

Our operations will depend on information technology

infrastructure and computer systems, both internal and external, to, among other things, record and process customer and supplier data,

marketing activities and other data and functions and to maintain that data and information securely.

In recent years, several organizations

have suffered successful cyber-attacks launched both domestically and from abroad, resulting in the disruption of services to customers,

loss or misappropriation of sensitive or private data and reputational harm.

If we are subject to a cyber-attack, we could suffer a similar

breach or suspension in the future.

Further, we may be unaware of a prior attack and the damage caused thereby until a future time when

remedial actions cannot be taken.

Cyber-threats are often sophisticated and are continually evolving.

We may not implement effective

systems and other measures to effectively identify, detect, prevent, mitigate, recover from or remediate the full diversity of cyber-threats or

improve and adapt such systems and measures as such threats evolve and advance in their ability to avoid detection.

A cyber-security incident, or a failure to

protect our technology infrastructure, systems and information and our customers, suppliers and others’ information against cyber-security threats,

could result in the theft, loss, unauthorized access to, disclosure, misuse or alteration of information, system failures or outages or

loss of access to information.

The expectations of our customers and regulators with respect to the resiliency of our systems and the

adequacy of our control environment with respect to such systems may increase as the risk of cyber-attacks, and the consequences of those

attacks become more pronounced.

We may not be successful in meeting those expectations or in our efforts to identify, detect, prevent,

mitigate and respond to such cyber-incidents or for our systems to recover in a manner that does not disrupt our ability to provide

products and services to our customers or product personal, private or sensitive information about our business, customers or other third

In July 2023, the Securities and Exchange Commission

(the “SEC”) approved final rules requiring public companies to report material cybersecurity incidents and disclose their

cybersecurity risk management, strategy and governance.

The new rules required us to enhance our cybersecurity compliance efforts and

have the effect of causing us to expend funds to prevent material cybersecurity incidents and begin making cybersecurity-related periodic

and annual disclosures.

Specifically, the new rules impose a new Form

8-K disclosure requirement about material cybersecurity incidents within four business days after we determine that a cybersecurity is

Annually we will be required to disclose in our 10-K our processes, if any, to assess, identify and manage material risks from

cybersecurity threats including whether we have hired third parties in connection with the processes.

We also will be required to disclose

whether any risks from cybersecurity threats have or are materially reasonably likely to materially affect us.

Finally we must describe

our Board’s oversight of risks from cybersecurity threats and management’s role in assessing and managing these risks.

expect to incur material additional compliance and reporting costs, including monitoring, collecting, and analyzing data concerning cyber-security

incidents and evaluating and preparing the required disclosure.

We may also be required to incur third party compliance costs.

The failure to maintain an adequate

technology infrastructure and applications with effective cyber-security controls could impact operations, adversely affect our

financial results, result in loss of business, damage our reputation or impact our ability to comply with regulatory obligations,

leading to regulatory fines and sanctions.

We may be required to expend significant additional resources to modify,

investigate or remediate vulnerabilities or other exposures arising from cyber-security threats.

Failing to prevent or properly

respond to a cyber-attack could expose us to regulatory fees or civil liability, cause us to lose customers or suppliers,

prevent us from offering our products including due to resulting regulatory action, impair our ability to maintain continuous

operations, and inhibit our ability to meet regulatory requirements.

Our failure to effectively manage our growth

could harm our business.

Businesses, including development stage companies

such as ours which often grow rapidly, may have difficulty managing their growth.

These challenges are exacerbated in circumstances such

as ours following our acquisition of operating businesses and will be continued if we close any acquisitions including the Aloft Merger.

We intend to expand the number and types of products we sell as we grow, if and as capital becomes available.

Further, because of our

reliance on consumer spending which depends on novelty and social trends, and the rapid and constant technologically advancements that

characterize our industry, we are subject to periodic sales cycles.

We will need to replace and regularly introduce on a timely basis

new products and technologies, enhance existing products, and effectively stimulate customer demand for new products and upgraded or enhanced

versions of our existing products.

Similarly, because our product offerings are largely dependent on others’ drone-related products

and activities, we may need to adjust or update as third parties advance or alter their technology and activities.

If we are able to successfully

develop, produce and market our products and initiate our planned manufacturing business, we will likely need to incur additional expenditures

and expand our personnel with additional employees and consultants who are capable of providing the necessary support.

We cannot assure

you that our management will be able to manage our growth effectively or successfully.

The replacement and expansion of our products

is expected to place a significant strain on our management, operations and engineering resources.

Specifically, the areas that are strained

most by these activities include the following:

New Product Launches:

With the changes in and growth of our product portfolio, we will experience increased complexity in coordinating product development, manufacturing, and shipping.

As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effectively market to stimulate demand and market acceptance.

We may experience delays in our operations or product development or production efforts.

If we are unable to scale and improve our product launch coordination, we could frustrate our customers and reduce or delay product sales;

Existing Products Impacted by New Introductions :

The introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction and may cause customers to defer purchasing our existing products in anticipation of the new products and potentially lead to challenges in managing inventory of existing products.

We may also provide price protection to some of our retailers as a result of our new product introductions and reduce the prices of existing products.

Granting these rights exposes us to greater risk of operational losses, as they limit our ability to react and adapt to changing economic conditions, such as rising costs caused by supply chain shortages.

If we fail to effectively manage new product introductions, our revenue and ability to become profitable may be harmed;

Forecasting, Planning and Supply Chain Logistics :

With the changes in and growth of our product portfolio, we will experience increased complexity in forecasting customer demand, in planning for production, and in transportation and logistics management.

If we are unable to scale and improve our forecasting, planning, production, and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory.

Because we rely on a limited number of suppliers, including one

key supplier, for our component parts our business may be adversely affected .

In order to grow and increases revenues, we are

subject to the following:

· In our enterprise channel, we must significantly

grow our existing customer base;

· While we have not sold any drone components for use in the Middle East, the

consequences of the ongoing conflicts are uncertain;

· While Russia’s war with Ukraine remains

ongoing, if that conflict is resolved, it many reduce on the need for our drone components;

· Both the United States and the global economies

can impact our enterprise drone components business since an economic downturn or a period of high inflation can reduce orders;

· Similarly, with our retail business, a recession

or a period of high inflation would be expected to adversely affect sales in our retail channel.

If critical components

or raw materials used to manufacture our products or used in its development programs become scarce or unavailable, then we may incur

delays in manufacturing and delivery of our products, which could damage our business.

Our ability to meet customers’ demands depends,

in part, on its ability to obtain timely and adequate delivery of high-quality materials, components and subsystems, many of which are

obtained from a select group of specialized suppliers, including some sole-source providers.

In order to mitigate potential disruptions,

we maintain long-term, non-binding agreements with several key suppliers that help stabilize pricing, reduce lead times and enhance planning

We do not have long-term agreements with all suppliers that obligate them to continue to sell components, products required

to build our systems or products.

Our reliance on suppliers without long-term binding contracts involves significant risks and uncertainties,

including whether our suppliers will provide an adequate supply of required components or products of sufficient quality, will increase

prices for the components or products and will perform their obligations on a timely basis.

If any of our supplier’s face capacity constraints,

financial instability, or an unwillingness to provide raw materials or components to us, it may need to seek alternative suppliers or

revise its designs, particularly because some of the components are sourced from foreign countries.

Locating alternative sources may take

significant time, and even then, we may encounter significant delays in manufacturing and shipping and encounter increased costs.

Additionally,

credit constraints among key suppliers could impact our cash flow.

We have also experienced rising costs for components, shipping, tariffs,

warehousing, and inventory.

Our domestic suppliers have experienced increased demand for their products due to tariffs, which could impact

the availability or price of our components.

The permanence of these cost increases remains uncertain, and obtaining replacement components

within our required time frames may prove challenging.

Shortages could lead to excess inventory and potential obsolescence risks.

In addition, certain raw materials and components

used in the manufacture of our products and in our development programs, are periodically subject to supply shortages, and our business

is subject to the risks of price increases and periodic delays in delivery.

Our ability to stay competitive

within our markets may be dependent upon increasing manufacturing capacity to support anticipated growth and achieving cost reductions

and projected economies of scale from increasing manufacturing quantities of its products.

Failing to adequately increase production capacity

and achieve such reductions in manufacturing costs and projected economies of scale could materially and adversely affect our business.

Our future growth depends on increasing manufacturing

capacity of its products, and any failure to adequately increase such capacity could have a material adverse impact on our business and

operating results.

We do not know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes

that will enable it to manufacture its products in commercial quantities while meeting the volume, speed, quality, price, engineering,

design and production standards required to successfully market such products.

Our failure to develop such manufacturing processes and

capabilities that can efficiently service its clients and markets could have a material adverse effect on its business, financial condition,

results of operations and prospects.

Our ability to remain competitive is, in part, dependent upon achieving increased savings from volume

purchases of raw materials and component parts, achieving acceptable manufacturing yield and capitalizing on machinery efficiencies.

We are subject to a number of supply risks

concerning our Blue List products which could adversely impact our ability to deliver such products to the United States Government and

commercial customers.

We purchase certain Blue UAS products from a privately-held

United States based manufacturer pursuant to purchase orders.

We are subject to a number of risks including:

· we do not have a supply agreement requiring the

manufacturer to produce a specified volume per year;

· the manufacturer expects to deliver product quantities

to us over a pre-determined period which increases the likelihood we may be unable to meet a large order from one or more customers;

· beyond the initial purchase orders, we have no

assurances on future pricing which means future costs could adversely affect our marketing and future gross margins;

· because we have no non-compete from the manufacturer,

it could manufacture the same products for our competitors;

· we have no representations from the manufacturer

on its intellectual property ownership of our products;

· because we are not the manufacturer, we are subject

to a number of risks including timely deliveries and quality control.

Because we rely on a limited number of suppliers, for our component

parts our business may be adversely affected .

The drone industry relies on limited sources to

supply certain components and materials used in the manufacturing of drones.

Our intention is to purchase certain components or sub-components

from suppliers based in the United States, which may lead us to pay higher prices, or select parts from a more limited number of suppliers

relative to our competitors, which would adversely impact our gross margin and operating results.

In addition, the imposition of tariffs

by the United States and a trade war with China will significantly increase the cost of our component parts.

We will also be forced to

increase prices to our customers which could result in decreased sales, especially if there is an economic recession.

Our operating results

could be materially adversely impacted if our suppliers do not provide the critical components used to assemble our products on a timely

supply certain components and materials used in the manufacturing of drone components.

We are seeking to purchase certain components or

sub-components from suppliers based in the United States, which may lead us to pay higher prices, or select parts from a more limited

number of suppliers relative to our competitors, which would adversely impact our gross margins and operating results.

In addition, the

outcome of the United States tariff policies could significantly increase the cost of our component parts.

We will also be forced to increase

prices to our customers which could result in decreased sales, especially if there is an economic recession.

Our operating results could

be materially and adversely impacted if our suppliers do not provide the critical components used to assemble our products on a timely

basis, at a reasonable price, and in sufficient quantities.

Our ability to meet customer demand depends, in

part, on our ability to obtain timely and adequate delivery of components for our products.

Some of the key components used to manufacture

our products come from a limited or single source of supply, or by a supplier that could potentially become a competitor.

manufacturers generally purchase these components on our behalf from approved suppliers.

We are subject to the risk of shortages and long

lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products.

addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules.

our products come from a limited supply, or by a supplier that could potentially become a competitor.

Our contract manufacturers generally

purchase these components on our behalf from approved suppliers.

We are subject to the risk of shortages and long lead times in the supply

of these components and the risk that our suppliers discontinue or modify components used in our products.

In addition, the lead times

associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules.

We order inventory on

a purchase order basis, and these firms do not have a contractual obligation to provide adequate supply or acceptable pricing to us on

a long-term basis.

These suppliers could discontinue sourcing merchandise for us at any time.

If we lose access to components from a particular

1 unchanged sentence

locate alternative suppliers of comparable quality at an acceptable price, or at all, and our business could be materially and adversely

In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity or

elect not to meet our needs as they allocate components to other customers.

Developing suitable alternate sources of supply for these

components may be time-consuming, difficult and costly, and we may not be able to source these components on terms that are acceptable

to us, or at all, which may adversely affect our ability to meet our development requirements or to fill our orders in a timely or cost-effective

Identifying a suitable supplier is an involved process that requires us to become satisfied with the supplier’s quality

control, responsiveness and service, financial stability, labor and other ethical practices, and if we seek to source materials from new

suppliers, there can be no assurance that we could do so in a manner that does not disrupt the manufacture and sale of our products.

Our reliance on single source, or a small number

of suppliers involves a number of additional risks, including risks related to supplier capacity constraints, price increases, timely

delivery, component quality, failure of a key supplier to remain in business and adjust to market conditions, delays in, or the inability

to execute on, a supplier roadmap for components and technologies;

and natural disasters, fire, acts of terrorism or other catastrophic

events, including global pandemics.

Certain components and services necessary for

the manufacture of our products are available from only a limited number of sources, and other components and services are only available

from a single source.

Our relationship generally is on a purchase order basis and these firms do not have a contractual obligation to

provide adequate supply or acceptable pricing to us on a long-term basis.

These suppliers could discontinue sourcing merchandise for us

If any of these suppliers were to discontinue its relationship with us, or discontinue providing specific products to us,

and we are unable to contract with a new supplier that can meet our requirements, or if they or such other supplier were to suffer a disruption

If any of these suppliers were to discontinue its relationship with us, or discontinue providing specific products to us, and

we are unable to contract with a new supplier that can meet our requirements, or if they or such other supplier were to suffer a disruption

in their production, we could experience disruption of our inventory flow, a decrease in sales and the possible need to re-design our

Any such event could disrupt our operations and have an adverse effect on our business, financial condition and results of operations.

Several new and alternative suppliers have begun offering components suitable for use in our products.

With new tooling and electronics,

any one of these alternative components could be incorporated into our products but our costs could be higher, they may offer less performance,

and, as a result, make our products too costly and less desirable.

In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity or elect not

to meet our needs as they allocate components to other customers.

Developing suitable alternate sources of supply for these components

may be time-consuming, difficult and costly, and we may not be able to source these components on terms that are acceptable to us, or

at all, which may adversely affect our ability to fill our orders in a timely or cost-effective manner.

Identifying a suitable supplier

is an involved process that requires us to become satisfied with the supplier’s quality control, responsiveness and service, financial

stability, labor and other ethical practices, and if we seek to source materials from new suppliers, there can be no assurance that we

could do so in a manner that does not disrupt the manufacture and sale of our products.

Our reliance on a small number of suppliers involves

a number of additional risks, including risks related to supplier capacity constraints, price increases, timely delivery, component quality,

failure of a key supplier to remain in business and adjust to market conditions, delays in, or the inability to execute on, a supplier

roadmap for components and technologies;

and natural disasters, fire, acts of terrorism or other catastrophic events, including global

The development and manufacturing of headsets

encompasses several complex processes and several steps of our production processes are dependent upon third party vendors, supply chains,

the availability of PCBs, optics, and certain chips.

Any change in availability of these components, manufacturing or design partners

could result in delivery interruptions, which could adversely affect our operating results.

As we continue to develop our products, we must progress through the complex

and challenging processes involved in the technology and designs on which Fat Shark and Rotor Riot products are based.

Fat Shark and Rotor

Riot rely on third party suppliers for the resources needed to navigate these processes and expect to continue to rely on such parties

when we manufacture and market our component parts.

Our reliance on third-party manufacturers and service providers will entail risks

to which we may not be subject if our future operations were more vertically integrated, including:

· the ongoing supply chain shortages, and any future

supply chain and logistics challenges that we or our vendors may face in the future, including due to the reliance on lithium-ion batteries

and other materials for our products;

· the inability to meet any product specifications

and quality requirements consistently;

· the impact of tariffs, the availability of United

States supply sources and the impact of higher prices;

· discontinuation or recall of products or component

· manufacturing and product quality issues related

to scale-up of manufacturing;

· costs and validation of new equipment and facilities

required for scale-up;

· a failure to comply with applicable regulatory

and safety standards in the United States and foreign markets in which we or our collaborators operate;

· the inability to negotiate manufacturing and

service agreements with third parties under commercially reasonable terms;

· the possibility of breach or termination or nonrenewal

of agreements with third parties in a manner that is costly or damaging to our subsidiaries;

· Our subsidiaries do not always execute definitive

written agreements with their vendors, particularly those located in China, which exposes them to possible disputes concerning the existence

or terms of their agreements and their intellectual property rights;

· the reliance on a few sources, and sometimes,

single sources for raw materials and components, such that if they cannot secure a sufficient supply of these product components, they

cannot manufacture and sell products in a timely fashion, in sufficient quantities or under acceptable terms;

· operations of these third-party manufacturers,

suppliers or service providers could be disrupted by conditions unrelated to our subsidiaries’ business or operations, including

the bankruptcy of the party;

· carrier disruptions or increased costs beyond

our subsidiaries’ control;

· possible misappropriation of our subsidiaries’

proprietary technology;

· failing to deliver products under specified storage

conditions and in a timely manner.

Any of these factors could result in a material

and adverse affect upon our results of operations.

Because our new manufacturing business

has inherent risks, such risks may adversely impact us.

We have recently opened drone motor and drone

headset manufacturing facilities.

We are using our initial facility to assemble drones for a customer, and plan to open a

battery pack assembly and drone camera manufacturing facility in late 2026.

There are inherent risks in connection with launching

our component manufacturing business, which include:

· the need to expend working capital to purchase manufacturing equipment,

rent facilities and to hire personnel with the requisite skills to fabricate drone motors, headsets, batteries and cameras which could

initially have an adverse effect on our working capital;

· the manufacturing equipment and software that

we acquire may have bugs or may not be in sound working order and the products we manufacture may not be manufactured in accordance with

our or our customers specifications, which result in conflicts with customers, the loss of revenues or damage to our reputation;

· we may encounter cost overruns for a variety

of reasons which due to fixed priced customer orders leads to operating losses.

Our products, including motors, batteries, and

other advanced components, rely on rare earth metals for their manufacturing, of which a significant majority are sourced from China.

Any disruption in the supply of these metals could adversely affect our ability to produce and deliver our products.

Factors that might

lead to such disruptions include geopolitical tensions, trade restrictions, supply chain bottlenecks, and environmental regulations affecting

mining operations.

A limited supply or increased cost of rare earth metals could lead to higher production costs, delays in manufacturing

schedules, and potential inability to meet customer demand, thereby impacting our revenue and growth plans.

Managing these risks necessitates

close monitoring of supply chains, diversification of suppliers, and the pursuit of alternative materials or technologies where possible.

Escalating restrictions between the U.S.

contribute to supply chain complexities.

Some of our components sourced from foreign countries, including China, are at risk of further

sanctions and other trade restrictive actions, and any escalation in global trade tensions or trade restrictions may hinder our ability

to obtain these components from new suppliers.

Restrictions on semiconductor manufacturing equipment and raw materials could lead to higher

material costs, material unavailability, and transportation uncertainty.

Product quality issues and a higher-than-expected

number of warranty claims or returns could harm our business and operating results.

The products that we sell including the new drone

motors, headsets and cameras we manufacture could contain defects in design or manufacture.

There can be no assurance we will be able

to detect and remedy all defects in the products we sell, which could result in product recalls, product redesign efforts, loss of revenue,

reputational damage and significant warranty and other remediation expenses.

Similar to other mobile and consumer electronics, our products

have a risk of overheating in the course of usage or upon malfunction.

Any such defect could result in harm to property or in personal

If we determine that a product does not meet product quality standards or may contain a defect, the launch of such product could

be delayed until we remedy the quality issue or defect.

The costs associated with any protracted delay necessary to remedy a quality

issue or defect in a new product could be substantial.

Fat Shark generally provides a one-year warranty

on all of its products, except in certain European countries where it can be two years for some consumer-focused products.

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

day defect period.

Unusual Machines, the parent company which manufactures

motors, has a limited warranty in which it warrants to customers that their products will be free from defects in material and workmanship

under normal use and service for up to 90 days.

The limited warranty covers manufacturing defects and premature failures and extends only

to the original customer and is non-transferrable.

The occurrence of any material defects in our

products could expose us to liability for damages and warranty claims in excess of our current reserves, and we could incur significant

costs to correct any defects, warranty claims or other problems.

In addition, if any of our product designs are defective or are alleged

to be defective, we may be required to participate in a recall campaign.

In part due to the terms of our warranty policies, any failure

rate of our products that exceeds our expectations may result in unanticipated losses.

Any negative publicity related to the perceived

quality of our products could affect our brand images and decrease retailer, distributor and consumer confidence and demand, which could

adversely affect our operating results and financial condition.

Further, accidental damage coverage and extended warranties are regulated

in the United States at the state level and are treated differently within each state.

Additionally, outside of the United States, regulations

for extended warranties and accidental damage vary from country-to-country.

Changes in interpretation of the regulations concerning extended

warranties and accidental damage coverage on a federal, state, local or international level may cause us to incur costs or have additional

regulatory requirements to meet in the future in order to continue to offer its support services.

Our failure to comply with past, present

and future similar laws could result in reduced sales of its products, reputational damage, penalties and other sanctions, which could

harm our business.

Estimated future product warranty claims may be

based on a variety of factors including the expected number of field failures over the warranty commitment period, the term of the product

warranty period, and the costs for repair, replacement and other associated costs.

Because of the foregoing or other contingencies, these

estimates could prove to be incorrect, such that the warranty obligations are higher than anticipated.

Warranty obligations may be affected

by product failure rates, claims levels, material usage and product re-integration and handling costs.

Should actual product failure rates,

claims levels, material usage, product re-integration and handling costs, defects, errors, bugs or other issues differ from original estimates,

Fat Shark could end up incurring materially higher warranty or recall expenses than anticipated, which would materially adversely affect

our business.

If we lose key personnel, it may adversely

affect our business.

Our future success depends in large part on the

continued contributions of our executive officers, members of senior management and other key personnel, particularly Dr.

our Chief Executive Officer and Mr.

Andrew Camden, our President.

In particular, we believe that Dr.

Evans’ leadership, knowledge

and experience in the drone industry has been critical to our growth, our significant working capital and any future successes and progress

we may experience.

The loss of the services of Dr.

Camden could therefore materially and adversely affect our business and

Our executive officers, senior management and key personnel can terminate their services with us at any time, for any reason

and without notice.

The loss of any of our key management personnel could significantly delay or prevent the achievement of our development

and strategic objectives and adversely affect our business.

If we are unable to attract, integrate and

3 unchanged sentences

to expand our operations and further develop and market our products.

We face intense competition for a limited number of qualified individuals

with the requisite skills and experience from numerous other companies, including other software and technology companies, many of whom

have greater financial and other resources than we do.

These companies also may provide more diverse opportunities and better chances

for career advancement.

Some of these characteristics may be more appealing to high-quality candidates than those we have to offer.

addition, new hires often require significant training and, in many cases, take significant time before they achieve full productivity.

We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits

and compensation expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize

the benefit of our investment in recruiting and training them.

Moreover, new employees may not be or become as productive as we expect,

as we may face challenges in adequately or appropriately integrating them into our workforce and culture.

In addition, if we move into

new geographies, we will need to attract and recruit skilled personnel in those areas.

We have limited experience with recruiting in geographic

areas outside of the United States, and may face additional challenges in attracting, integrating and retaining international employees.

If we are unable to attract, integrate and retain suitably qualified individuals who are capable of meeting our growing technical, operational

and managerial requirements, on a timely basis or at all, our business will be adversely affected.

Our new manufacturing

business has inherent risks that may adversely impact us.

The Company has hired

a vice president of manufacturing whose role is to head up the Company’s proposed drone component manufacturing business.

also plans to lease an additional facility near its headquarters office in Orlando, Florida, at which it will manufacture NDAA compliant

drone motors.

There are inherent risks in connection with launching our component manufacturing business, which include:

· the need to expend working capital to purchase manufacturing equipment;

rent a facility and to hire personnel

with the requisite skills to fabricate our drones which could initially have an adverse effect on our working capital;

· to the extent that there are delays in receiving the requisite equipment necessary to manufacture our

drones and component parts, our customers for our products may seek alternative manufacturers and our manufacturing business could be

adversely affected;

· to the extent that any of the equipment that we purchase is sourced overseas, we may be impacted by tariffs

imposed by the current administration;

· the manufacturing equipment that we acquire may have bugs or may not be in sound working order and the

products we manufacture may not be manufactured in accordance with our or our customers specifications, which result in conflicts with

customers, the loss of revenues or damage to our reputation.

Risks Related to Our Sale of Drone-Related

Products and Operations in the Drone Industry.

We operate in an emerging and rapidly evolving

industry which makes it difficult to evaluate our business and future prospects.

The drone industry is relatively new and is growing

As a result, it is difficult to evaluate our business and future prospects.

We cannot accurately predict whether, and even when,

demand for our products will increase, if at all.

The risks, uncertainties and challenges encountered by companies operating in emerging

and rapidly growing industries include:

generating sufficient revenue to cover operating costs and sustain operations;

acquiring and maintaining market share;

attracting and retaining qualified personnel;

successfully developing and commercially marketing new products;

complying with challenging supply chain issues which may arise;

complying with developing regulatory requirements;

the possibility that favorable estimates or projections prove to be incorrect;

responding effectively to changing technology, evolving industry standards, and changing customer needs or requirements;

accessing the capital markets to raise additional capital, on reasonable terms, if and when required to sustain operations or to grow the business.

As such, our current expectations and projects

about future events and trends may be different from the actual results.

Furthermore, if we are unable to address any of the above challenges

successfully, our business, financial condition, results of operations, and prospects may be adversely affected by such failure.

We face competition from larger companies that

have substantially greater resources which challenges our ability to establish market share, grow the business, and reach profitability.

industry is attracting a wide range of significantly larger companies which have substantially greater financial, management, research

and marketing resources than we have.

The drone hardware and parts and components spaces are dominated by larger Chinese companies such

as SZ DJI Technology Company, Ltd and T-Motor.

With respect to our FPV products, current and potential future competitors also include

a variety of established, well-known diversified consumer electronics manufacturers such as Samsung, Sony, LG Electronics (LGE), HTC,

Lenovo, Epson, Yuneec, Boscam, Eachine, Walkera, SkyZone, MicroLED and large software and other products companies such as Alphabet Inc.

(Google), Microsoft, Facebook and Snap.

The large number of smaller and/or private companies focused on drone solutions also have competitive

advantages over us which we may struggle to overcome, particularly as we seek to further establish and grow our customer base.

Our competitors

may be able to provide customers with different or greater capabilities than we can provide, including technical qualifications, pricing,

and key technical support.

Many of our competitors may utilize their greater resources to develop competing products and technologies,

leverage their financial strength to utilize economies of scale and offer lower pricing, and hire more qualified personnel by offering

more generous compensation packages.

On the other hand, other small business competitors may be able to offer more cost competitive solutions

or may be able to adapt more quickly to market developments due to lower overhead costs, leveraging of their professional relationships

and networks, geographic or specialty focuses or greater flexibility inherent in smaller operations and a lower number of personnel.

Among product and service features that drive

competition in our industry are breadth of product line, quality and durability of products, stability, reliability and reputation of

the provider, along with cost.

Quantity discounts, price erosion, and rapid product obsolescence due to technological improvements are

therefore common in our industry as competitors strive to retain or expand market share.

The Company’s ability to compete effectively

will depend on, among other things, the Company’s pricing models, quality of customer service, development of new and enhanced products

and services in response to customer demands and changing technology, reach and quality of sales and distribution channels and capital

Competition could lead to an inability to sustain sales levels, a reduction in the rate at which the Company adds new customers,

a decrease in the size of the Company’s market share and a decline in its customers and revenue.

In order to secure sales, we may

have to offer comparable products and services at lower pricing, which could adversely affect our operating margins.

Our inability to

compete effectively against these larger companies could have a material adverse effect on our business, financial condition and operating

The development and manufacture of FPV goggles

encompasses several complex processes and several steps of our production processes are dependent upon third party vendors, supply chains,

the availability of PCBs, optics, and certain chips.

Any change in availability of these components, manufacturing or design partners

could result in delivery interruptions, which could adversely affect our operating results.

As we continue to develop our products, we must

progress through the complex and challenging processes involved in the technology and designs on which Fat Shark and Rotor Riot products

Fat Shark and Rotor Riot rely on third party suppliers for the resources needed to navigate these processes and expect to

continue to rely on such parties when we reach the manufacturing and marketing stages.

Our reliance on third-party manufacturers and service

providers will entail risks to which we may not be subject if our future operations were more vertically integrated, including:

the ongoing supply chain shortages, and any future supply chain and logistics challenges that we or our vendors may face in the future, including due to the reliance on lithium-ion batteries and other materials for our products;

the inability to meet any product specifications and quality requirements consistently;

the impact of tariffs, the availability of United States supply sources

and the impact of higher prices;

discontinuation or recall of products or component parts;

manufacturing and product quality issues related to scale-up of manufacturing;

costs and validation of new equipment and facilities required for scale-up;

a failure to comply with

applicable regulatory and safety standards in the United States and foreign markets in which we or our collaborators

the inability to negotiate manufacturing and service agreements with third parties under commercially reasonable terms;

the possibility of breach or termination or nonrenewal of agreements with third parties in a manner that is costly or damaging to us;

we do not always execute definitive written agreements with our vendors, particularly those located in China, which exposes us to possible disputes concerning the existence or terms of our agreements and our intellectual property rights;

the reliance on a few sources, and sometimes, single sources for raw materials and components, such that if we cannot secure a sufficient supply of these product components, we cannot manufacture and sell products in a timely fashion, in sufficient quantities or under acceptable terms;

operations of our third-party manufacturers, suppliers or service providers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the party;

carrier disruptions or increased costs beyond our control;

possible misappropriation of our proprietary technology;

failing to deliver products under specified storage conditions and in a timely manner.

Our product technology and manufacturing processes

are evolving, which can result in production challenges and difficulties.

We may be unable to produce our products in sufficient quantity

and quality to maintain existing customers and attract new customers.

In addition, we may experience manufacturing problems which could

result in delays in delivery of orders or product introductions.

Any of these events could lead to production and marketing delays or

failure or impact on our ability to successfully commercialize our products.

If we fail to contract with third parties on favorable terms,

coordinate with and supervise their services and contributions to our processes, and leverage those relationships to deliver quality products

in a timely manner to customers, we could experience reductions or delays in revenue, reputational harm and diminished brand recognition,

higher than expected expenses, or other adverse developments that would materially harm our business.

Several steps of our production processes are

dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.

Fat Shark currently has no equipment redundancy

to manufacture its products, meaning we will rely on a limited number of machines to perform a large quantity of steps in the manufacturing

and assembly processes.

Rotor Riot is limited by the number of personnel it has on staff to assemble drones and drone parts.

among other things, delay delivery timelines or reduce our revenue and accounts receivable, and/or force us to rely more heavily on third

parties to meet customer deadlines or volume demands, either of which will adversely affect our results of operation and ability to achieve

and maintain profitability.

If we experience any significant disruption in assembling, a failure of a critical piece of equipment, or

an inability to hire personnel, we may be unable to supply products to our customers in a timely manner.

Interruptions could be caused

by us or our partners including but not limited to equipment problems, the introduction of new equipment into the manufacturing process

or delays in the delivery of new equipment.

Lead-time for delivery, installation, testing, repair and maintenance of equipment can be

We can provide no assurances that we will not lose potential sales or be able to meet production orders due to future production

interruptions in our manufacturing lines.

When we commence manufacturing drones, the same risks will apply.

We may not be able

to procure necessary key components for our products or may produce or purchase too much inventory.

The drone industry, and

the electronics industry as a whole, can be subject to business cycles.

During periods of growth and high demand for products, we may

not have adequate supplies of inventory on hand to satisfy customers’ needs.

The imposition of tariffs and a trade war may also

impact our supply chain for component parts from China.

Furthermore, during these periods of growth, our suppliers may also experience

high demand and, therefore, may not have adequate levels of the components and other materials that the Company requires to manufacture

products so that it can meet customers’ needs.

Our inability to secure sufficient components to produce products for customers,

or similar challenges faced by the drone manufacturers we serve, could negatively impact our sales and operating results.

We may choose

to mitigate this risk by increasing the levels of inventory for certain key components assuming we have available cash resources.

inventory levels can increase the potential risk for excess and obsolescence should our forecasts fail to materialize or if there are

negative factors impacting our customers’ end markets.

Such a risk becomes especially prevalent during a recession and market downturn.

If we purchase too much inventory, we may have to record additional inventory reserves or write-off the inventory, which could

have a material adverse effect on our gross margins and on our results of operations.

Lack of long-term purchase orders and commitments

from customers in our B2C business may lead to a rapid decline in sales.

Our B2C customers issue purchase orders or use

our e-commerce site solely at their own discretion, often shortly before the requested date of shipment.

Both our distributor relationships

and our online sales through Rotor Riot entail short-term contracts under which customers are generally able to cancel orders (without

penalty) or delay the delivery of products on relatively short notice, regardless of whether or not we are in default under our agreements.

The online business involves retail customers who are not likely to be repeat customers unless a need arises for updated hardware or software

solutions offered by us, which may not occur on a frequent basis, resulting in lack of reliable recurring revenue in that part of our

In addition, current customers may decide not to purchase products for any reason.

If those customers do not continue to purchase

products, sales volume could decline rapidly with little or no warning.

We cannot rely on long-term purchase orders or

commitments to protect from the negative financial effects of a decline in demand for products.

Unusual Machines typically plans production

and inventory levels based on internal forecasts of customer demand, which are unpredictable and can fluctuate substantially.

resellers issue purchase orders but they have options to reschedule or pay cancellation fees.

The uncertainty of product orders makes

it difficult to forecast sales and allocate resources in a manner consistent with actual sales.

Moreover, expense levels and the amounts

invested in capital equipment and new product development costs are based in part on expectations of future sales and, if expectations

regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.

of lack of long-term purchase orders and purchase commitments, and long product development lead times, we may experience a rapid decline

As a result of these and other factors, investors

should not rely on revenues and operating results for any one quarter or year as an indication of future revenues or operating results.

Further, our B2C business is seasonal with retail sales peaking in the fourth quarter.

If quarterly revenues or results of operations

fall below expectations of investors or public market analysts, the price of our Common Stock could fall substantially.

Our products require ongoing research and development

and may experience technical problems or delays, which could lead the business to fail.

Our future research and development efforts will

remain subject to all of the risks associated with the development of new products based on emerging and innovative technologies, including,

for example, unexpected technical problems or the possible insufficiency of funds for completing development of these products.

problems or delays arise, further improvements in products and the introduction of future products could be adversely impacted, and we

could incur significant additional expenses and the business may fail.

Additionally, we may deploy significant capital or human resources

towards developing or improving upon a product, only for such efforts fail to yield the results we hoped for or intended, which would

materially adversely affect our financial condition.

This is an acute risk given the relatively new and evolving nature of the drone industry,

and constant entrance of new market participants attempting to compete with us.

Similarly, if we invest in product research and development

efforts and a competitor brings a similar product to market before us, or alleges an infringement of their intellectual property, our

ability to market the product or compete effectively could be lost.

Any such development could materially harm our business.

We face intense competition for a limited number of qualified middle

management individuals with the requisite skills and experience from numerous other companies, including other software and technology

companies, many of whom have greater financial and other resources than we do.

These companies also may provide more diverse opportunities

and better chances for career advancement.

Some of these characteristics may be more appealing to high-quality candidates than those we

have to offer.

Potential new employees may be unwilling or unable to relocate to the Orlando, Forida area.

In addition, new hires often

require significant training and, in many cases, take significant time before they achieve full productivity.

We may incur significant

costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation

expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our

investment in recruiting and training employees.

Moreover, new employees may not be or become as productive as we expect, as we may face

challenges in adequately or appropriately integrating them into our workforce and culture.

If we are unable to attract, integrate and

retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, on a

timely basis or at all, our business will be adversely affected.

Future growth and ability to generate and grow

revenue and achieve or maintain profitability may be adversely affected if our marketing initiatives are not effective in generating sufficient

levels of brand awareness .

Our future growth and profitability will depend

in large part upon the effectiveness and efficiency of our marketing efforts, including our ability to:

· create awareness of brands and products;

· convert awareness into actual product purchases;

· effectively manage marketing costs (including

creative and media) in order to maintain acceptable operating margins and return on marketing investment;

· successfully offer to sell products or license

technology to third-party companies for sale.

Planned marketing expenditures are unknown and

may not result in increased total sales or generate sufficient levels of product and brand name awareness.

We may not be able to manage

marketing expenditures on a cost-effective basis.

If our facilities

and information technology systems or those of our key suppliers are damaged as a result of disasters or unpredictable events, it could

have an adverse effect on our business operations.

Our new manufacturing facilities are located in

Orlando, Florida.

We also rely on third-party manufacturing plants in the U.S., Asia and other parts of the world to provide key components

for our products.

If major disasters such as hurricanes, tornadoes, pandemics, earthquakes, fires, floods, wars, terrorist attacks, computer

viruses, transportation disasters or other events occur in any of these locations, or our information technology systems or communications

network or those of any of its key component suppliers breaks down or operates improperly as a result of such events, its facilities or

those of its key suppliers may be seriously damaged, and we may have to stop or delay production and shipment of its products.

also incur expenses relating to such damages.

If production or shipment of our products or components is stopped or delayed or if we incur

any increased expenses as a result of damage to its facilities, its business, operating results and financial condition could be materially

and adversely affected.

Any failures of or damage to, attack on or

unauthorized access to our information technology systems or facilities or disruptions to our continuous operations, including the systems,

facilities or operations of third parties with which we do business, such as resulting from cybersecurity attacks, could result in significant

costs, reputational damage and limits on our ability to conduct our business activities.

Our operations depend on information technology

infrastructure and computer systems, both internal and external, to, among other things, record and process customer and supplier data,

marketing activities and other data and functions and to maintain that data and information securely.

In recent years, a number of

companies have suffered successful cybersecurity attacks launched both domestically and from abroad, resulting in the disruption

of services to customers, loss or misappropriation of sensitive or private data and reputational harm.

If we are subject to a cybersecurity

attack, we could suffer a similar breach or suspension in the future.

Further, we may be unaware of a prior attack and the damage caused

thereby until a future time when remedial actions cannot be taken.

Cybersecurity threats are often sophisticated and are continually

We may not implement effective systems and other measures to effectively identify, detect, prevent, mitigate, recover from or

remediate the full diversity of cybersecurity threats or improve and adapt such systems and measures as such threats evolve and advance

in their ability to avoid detection.

A cybersecurity incident, or a failure to

protect our technology infrastructure, systems and information and our customers, suppliers and others’ information against cybersecurity threats,

could result in the theft, loss, unauthorized access to, disclosure, misuse or alteration of information, system failures or outages or

loss of access to information.

The expectations of our customers with respect to the resiliency of its systems and the adequacy of its

control environment with respect to such systems may increase as the risk of cybersecurity attacks, and the consequences of those attacks

become more pronounced.

We may not be successful in meeting those expectations or in its efforts to identify, detect, prevent, mitigate

and respond to such cybersecurity incidents or for its systems to recover in a manner that does not disrupt its ability to provide

products and services to its customers or product personal, private or sensitive information about its business, customers or other third

The failure to maintain an adequate

technology infrastructure and applications with effective cybersecurity controls could impact operations, adversely affect our

financial results, result in loss of business, damage our reputation or impact our ability to comply with regulatory obligations,

leading to regulatory fines and sanctions.

We may be required to expend significant additional resources to modify,

investigate or remediate vulnerabilities or other exposures arising from cybersecurity threats.

Failing to prevent or properly

respond to a cybersecurity attack could expose to civil liability, cause us to lose customers or suppliers, impair its ability to

maintain continuous operations, and inhibit our ability to meet regulatory requirements.

If we fail to comply with United States and

foreign laws related to privacy, data security, and data protection, it could adversely affect our operating results and financial condition.

We, either directly or through our customers,

collaborators or end-users of our products, are or may become subject to a variety of laws and regulations regarding privacy, data protection,

and data security.

This includes the European Union’s (“EU”) General Data Protection Regulation (the “EU GDPR”)

and the United Kingdom’s General Data Protection Regulations (the “UK GDPR”) (collectively, the “GDPR”)

and Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”).

Other countries where we may

seek to do business also may have data privacy laws we will be required to comply with.

These laws and regulations are continuously evolving

and developing.

The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting,

particularly with respect to foreign laws.

The application of these laws and regulations can arise from our e-commerce platform, social

media activities, drone technology and applications, relationships with third parties and their operations, or from other activities

we undertake now or that we may undertake in the future.

Data privacy and protection regulations are frequently broad in terms of scope

of the information protected, activities affected, and geographic reach.

In the United States federal, state, and local

governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data and privacy laws,

consumer protection laws and other similar laws.

states have enacted comprehensive consumer privacy laws that impose significant

and costly obligations on covered business, including providing specific disclosures in privacy notices and affording residents with certain

rights concerning their personal data.

As applicable, such rights may include the right to access, correct or delete certain personal

data, and to opt-out of certain data processing activities, such as targeted advertising, profiling and automated decision-making.

exercise of these rights may impact our business and ability to effectively provide our products and services..

Moreover, specific states also impose more stringent

requirements for processing certain personal data, including sensitive information, such as conducting data privacy impact assessments.

These state laws allow for statutory fines for noncompliance.

For example, the California Consumer Privacy Act of 2018 applies to personal

data of consumers, business representatives and employees who are California residents, and requires businesses subject to the law to

provide specific disclosures in privacy notices and respond to requests of such individuals to exercise certain privacy rights.

2025, (and effective January 1, 2026) California amended the CCPA to (i) regulate technologies that replace or substantially replace human

decisions, (ii) require comprehensive risk assessment reports that address specific processing activities that present a significant risk

to a consumer’s privacy, and (iii) clarify when a cyber security audit must be conducted.

These updated regulations expand the scope

and compliance obligations of the CCPA.

The CCPA provides for fines of up to $2,500 per unintentional violation and up to $7,500 per intentional

violation (as adjusted from time to time) and allows individuals affected by certain data breaches to recover statutory damages up to

$750 per consumer per incident.

The costs of compliance with, and other burdens imposed by, the CCPA, GDPR, and similar laws may limit

the use and adoption of our products and services and/or require us to incur substantial compliance costs, which could have an adverse

impact on our business.

As noted, in addition to the CCPA, the United

States currently has a number of states that have data privacy laws in place, or data privacy laws set to soon take effect ranging from

narrow to comprehensive in nature.

During the 2025 legislative cycle, comprehensive privacy reform was not prevalent in state legislatures,

but several states with existing privacy statutes expanded the scope of their privacy frameworks, including Colorado, Connecticut, Virginia,

Utah, Texas, Oregon, Montana, and Kentucky.

This patchwork approach to privacy legislation could pose compliance and liability risks for

companies that have multistate operations.

Proposed and enacted bills in various states have similar rights in preexisting privacy legislation

but differ in implementation and enforcement.

Outside of the United States, an increasing number

of laws, regulations and industry standards govern data privacy and security.

For example, the EU GDPR, the UK GDPR, and PIPEDA (as well

as various related provincial laws) impose strict requirements for processing personal data.

Specifically, in Europe and the United Kingdom,

companies may face temporary or definitive bans on data processing and other corrective actions including fines of up to €20 million

under the EU GDPR, £17.5 million under the UK GDPR or, in each case, 4% of annual global revenue, whichever is greater or private

litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized

at law to represent their interests.

In Europe, the Network and Information Security Directive (“NIS2”) regulates resilience

and incident response capabilities of entities operating in a number of sectors.

Non-compliance with NIS2 may lead to administrative fines

of up to €10 million or up to 2% of the total worldwide revenue of the preceding fiscal year.

We seek to comply with all applicable laws, policies,

legal obligations, and industry codes of conduct relating to privacy, data security, and data protection.

Our cash resources may adversely

affect our compliance effort.

Given that the scope, interpretation, and application of these laws and regulations are often uncertain

and may be in conflict across jurisdictions, it is possible that these obligations may be interpreted and applied in a manner that is

inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

Any failure or perceived failure by

us, customers, or third-party vendors or end-users involved with our products to comply with our privacy or security policies or privacy-related

legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, may result in

governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial

Governments are continuing to focus on privacy

and data security, and it is possible that new privacy or data security laws will be passed or existing laws will be amended in a way

that is material to our business.

Any significant change to applicable laws, regulations, or industry practices regarding the personal

data of our employees, agents or customers could require us to modify our practices and may limit our ability to expand or sustain our

salesforce or bring our products to market.

Changes to applicable laws and regulations in this area could subject us to additional regulation

and oversight, any of which could significantly increase our operating costs and materially affect our operating results and financial

If we are involved in litigation, it could

8 unchanged sentences

breach of contract and product warranty claims, intellectual property infringement, regulatory violations and sanctions, and data privacy

issues, any of which can result in costly and time-consuming litigation which would divert our limited human and capital resources and

could cause other adverse impacts on our business such as reputational harm and loss of future business.

While disputes from time-to-time

are not uncommon, we may not be able to resolve such disputes on terms favorable to us which could have a material adverse impact on our

results of operations and financial condition.

issues, any of which can result in costly and time-consuming litigation which would divert our limited management team and could cause

other adverse impacts on our business such as reputational harm and loss of future business.

While disputes from time-to-time are not

uncommon, we may not be able to resolve such disputes on terms favorable to us which could have a material adverse impact on our results

of operations.

Among other things, claims could be brought against

us if use and misuse of our products causes personal injury or death.

If a consumer causes damage to a person or property using our drone,

we as a reseller of the drone could be sued for selling an allegedly defective product.

The possibility that the foregoing events occur

from events involving our products is particularly high, because we supply technology used in the operation of drones which is relatively

novel and are frequently operated at high speeds and altitudes, and often in densely populated areas and/or by individuals who lack a

high level of experience operating them.

These characteristics increase the probability that injury or damage to personal property might

occur, even absent a defect.

Additionally, because our products are used as ancillary or supplemental components of a drone’s functions,

we may become involved in disputes arising from a third party’s actions or products that utilize its technology, even if we were

not the direct cause of the issue.

Any claims against us, regardless of their merit, could severely harm our financial condition, strain

our management and other resources.

If a consumer causes damage to a person or property using a Rotor

Riot drone, it as a reseller of the drone could be sued for selling an allegedly defective product.

The possibility that the foregoing

events occur from events involving our B2B and business to consumer (“B2C”) channels products is particularly high, because

we supply technology used in the operation of drones which is relatively novel.

Drones are frequently operated at high speeds and altitudes,

and often in densely populated areas and/or by individuals who lack a high level of experience operating them.

These characteristics increase

the probability that injury or damage to personal property might occur, even absent a defect.

Additionally, because our enterprise products

are used as ancillary or supplemental components of a drone’s functions, it may become involved in disputes arising from a third

party’s actions or products that utilize its technology, even if we were not the direct cause of the issue.

Any claims against us,

regardless of their merit, could severely harm our financial condition, strain our management and other resources.

Product liability claims might be brought against

5 unchanged sentences

· impairment of our business reputation;

costs due to related litigation especially since we do not have product liability insurance;

distraction of management’s attention from our primary business;

substantial monetary awards to claimants or civil penalties imposed by governments;

regulatory scrutiny and product recalls, withdrawals or labeling, marketing or promotional restrictions;

· costs due to related litigation especially since

we do not have product liability insurance;

· distraction of management’s attention from

our primary business;

· substantial monetary awards to claimants or civil

penalties imposed by governments;

· regulatory scrutiny and product recalls, withdrawals

or labeling, marketing or promotional restrictions;

· decreased demand for our products.

We anticipate the risk of product liability and

other claims related to our products and their uses will grow as our products begin to be used.

We are unable to predict if we will be

able to obtain or maintain insurance for such claims.

other claims related to our products and their uses will grow as our business expands.

We are unable to predict if we will be able to

obtain or maintain insurance for such claims.

Insurance coverage is becoming increasingly expensive.

We do not have such insurance

and we may not be able to obtain it at a reasonable cost or in sufficient amounts to protect us against losses due to liability.

We do not have such insurance and

we may not be able to obtain it at a reasonable cost or in sufficient amounts to protect us against losses due to liability.

product liability claim or series of claims brought against us could cause our stock price to decline and, would adversely affect our

results of operations and business.

Our business is highly dependent upon our brand

recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation, including due to our high reliance

on online and social media platforms, would likely adversely affect our business and operating results.

We believe that maintaining and enhancing Fat

Shark and Rotor Riot brand identity, and our reputation are critical to our relationships with customers and strategic partners and to

our ability to attract new customers and strategic partners.

We also believe that the importance of our brand recognition and reputation

will continue to increase as competition in our market continues to develop.

Our success in this area will depend on a wide range of factors,

some of which are beyond our control, including the following:

the efficacy of our marketing efforts;

our ability to obtain new customers and retain and/or expand sales or upsell to existing customers;

our ability to maintain high customer satisfaction;

the quality and perceived value of our products;

our ability to obtain,

maintain and enforce patents and trademarks and other indicia of origin, will be critical to our business plan;

our ability to successfully differentiate from competitors’ products;

actions of competitors and other third parties;

our ability to provide customer support and professional services;

positive or negative publicity;

litigation or regulatory related developments.

Any of the foregoing developments or an inability

to navigate these or other challenges to establish and grow our brand recognition and current and future product popularity could materially

We face competition from larger companies

that have substantially greater resources which challenges our ability to establish market share, grow the business, and reach profitability.

The markets in which we operate include a range

of established manufacturers, distributors, and emerging companies that develop and supply components used in small unmanned aerial systems.

These components include flight controllers, electronic speed controllers, motors, FPV cameras, video transmission systems, and related

Competitors in these markets include companies such as ePropelled, ARK Electronics, ModalAI, Orqa, Lumenier, and other drone

and FPV component manufacturers, as well as a large number of smaller private companies that specialize in individual components or subsystems

within the drone ecosystem.

Some competitors have significantly greater financial,

manufacturing, technical, and marketing resources than we do.

These companies may benefit from established global supply chains, broader

product portfolios, larger engineering teams, and greater brand recognition.

Larger competitors may also be able to leverage economies

of scale to offer products at lower prices or devote greater resources to research and development and marketing.

At the same time, the

industry includes numerous smaller competitors that may operate with lower overhead costs, narrow product specialization, or established

relationships within specific drone markets or communities.

Competition in our industry is driven by several

factors, including product performance and reliability, pricing, product availability, supply chain stability, speed of product development,

customer support, and brand reputation.

Rapid technological development in the drone industry results in frequent product introductions

and relatively short product life cycles.

As a result, companies must continuously invest in product development and manufacturing capabilities

to remain competitive.

In addition, regulatory developments and government

procurement requirements are influencing the competitive landscape for drone components.

Certain government and commercial customers increasingly

require components that comply with U.S.

regulatory frameworks, including the NDAA and related procurement requirements.

Recent regulatory

actions by U.S.

agencies, including the Federal Communications Commission, as well as government initiatives intended to strengthen domestic

drone manufacturing capabilities, may further shape the market for drone components.

Our strategy includes developing and manufacturing

certain drone components in the United States and pursuing compliance with applicable regulatory frameworks.

However, there can be no

assurance that these efforts will provide a competitive advantage or that customers will adopt such products at scale.

Our ability to compete effectively will depend

on a number of factors, including our ability to develop and introduce new products, maintain product quality and reliability, manage

manufacturing and supply chain operations, expand production capacity, maintain effective sales and distribution channels, and provide

responsive customer support.

Increased competition could result in pricing pressure, reduced margins, or loss of market share, any of

which could have a material adverse effect on our business, financial condition, and operating results.

We operate in an emerging and rapidly evolving

industry which makes it difficult to evaluate our business and future prospects.

The drone industry is relatively new and is growing

As a result, it is difficult to evaluate our business and future prospects.

We cannot accurately predict whether, and even when,

demand for our products will increase, if at all.

The risks, uncertainties and challenges encountered by companies operating in emerging

and rapidly growing industries include:

· generating sufficient revenue to cover operating

costs and sustain operations;

· acquiring and maintaining market share;

· attracting and retaining qualified personnel;

· successfully developing and commercially marketing

new products;

· complying with challenging supply chain issues

which may arise;

· complying with developing regulatory requirements;

· the possibility that favorable estimates or projections

prove to be incorrect;

· responding effectively to changing technology,

evolving industry standards, and changing customer needs or requirements.

As such, our current expectations and projects

about future events and trends may be different from the actual results.

Furthermore, if we are unable to address any of the above challenges

successfully, our business, financial condition, results of operations, and prospects may be adversely affected by such failure.

If we fail to respond

to commercial industry cycles in terms of its cost structure, manufacturing capacity, and/or personnel needs, our business could be seriously

The timing, length, and severity of the up-and-down

cycles in the commercial and defense industries are difficult to predict.

This cyclical nature of the industries in which we operate affects

our ability to accurately predict future revenue, and in some cases, future expense levels.

During down cycles in its industry, the financial

results of our customers may be negatively impacted, which could result not only in a decrease in orders but also a weakening of their

financial condition that could impair our ability to recognize revenue or to collect on outstanding receivables.

When cyclical fluctuations

result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary

in order for us to remain competitive and financially sound.

We must be in a position to adjust its cost and expense structure to reflect

prevailing market conditions and to continue to motivate and retain its key employees.

If we fail to respond to fluctuating market conditions

its business could be seriously harmed.

In addition, during periods of rapid growth, we must be able to increase engineering and manufacturing

capacity and personnel to meet customer demand.

We can provide no assurance that these objectives can be met in a timely manner in response

to industry cycles.

Each of these factors could adversely impact our operating results and financial condition.

If the tariffs or other factors result in increased

inflation and a recession, our business may be materially harmed .

A direct impact from rising tariffs on our business

has been increases in the prices of inventory we acquire and an increase in our selling prices (with one exception relating to our Unusual

Machines branded B2C products).

Further, due to the tariffs, possibly large cuts in the size of the government and possibly artificial

intelligence (“AI”), there may be increased unemployment and other economic factors which could result in a recession.

such event, our B2C business may be materially and adversely affected.

Further, our enterprise business including our manufacturing of

drone components in the United States may also be adversely affected by a recessionary economy and inflation caused not only by tariffs

but also by United States interest rate cuts.

The uncertainty and change in U.S.

Tariff Policy could adversely affect our business.

Recent judicial rulings

have introduced significant uncertainty regarding the legal basis for U.S.

tariff policy.

On February 20, 2026, the U.S.

Supreme Court

held that the International Emergency Economic Powers Act (“IEEPA” ) does not authorize the President to impose

broad tariffs, invalidating major tariff measures that had been implemented under that statute.

The decision emphasized that tariff-setting

authority resides with Congress and that IEEPA does not include an express grant of such authority.

As a result, tariffs collected under

IEEPA may be subject to refund actions, and lower courts may provide further guidance on refunds and enforcement.

Although the ruling applies

to tariffs imposed under IEEPA, the President has publicly signaled intentions to pursue alternative tariff measures (such as a 15% tariff

on imported goods) under other statutory frameworks.

These alternative legal authorities (e.g., provisions of the Trade Act of 1974 , Trade

Expansion Act, or other trade statutes) may be subject to legal challenge, statutory limitations, procedural requirements, and potential

judicial scrutiny.

There is no assurance that such alternative tariffs will withstand litigation, will not be delayed, will be upheld

by courts, or will not be amended or repealed by future administrations or Congress.

The implementation, alteration,

or invalidation of tariffs and other trade measures could materially and adversely affect the Company’s business, including

by increasing the cost of imported goods and components, disrupting supply chains, altering competitive conditions in domestic and international

markets, triggering retaliatory measures by trading partners, and increasing volatility in foreign currency and commodity markets.

developments could materially impact revenues, operating costs, margins, and overall financial performance.

Uncertainty in U.S.–China

Trade Policy and Tariff Authority Could Disrupt Our Supply Chain and Increase Our Costs.

Our manufacturing operations

depend on the timely procurement of raw materials, subcomponents, and finished parts, some of which are sourced from suppliers located

Recent developments in U.S.

trade policy have introduced significant legal and regulatory uncertainty.

On February 20, 2026,

the Supreme Court of the United States held that the IEEPA does not authorize the imposition of broad-based tariffs.

Following that decision,

the President issued an executive order on February 24, 2026 imposing a 10% tariff on all countries for certain imported goods based on

an alternative statutory authority and indicated a potential future increase to 15%.

Although the recent ruling

addressed tariffs imposed under IEEPA, the Administration may seek to impose tariffs under other trade statutes, including Section 301

of the Trade Act of 1974 or Section 232 of the Trade Expansion Act of 1962, each of which carries distinct procedural requirements and

legal standards.

Any such tariffs may be subject to additional legal challenges, modifications, delays, or reversal by courts, Congress,

or future administrations.

The imposition, expansion,

modification, or invalidation of tariffs on imports from China, or retaliatory measures by China or other trading partners, could materially

and adversely affect our business in several ways:

· Increased input costs.

Tariffs could increase the cost of imported components and raw materials,

which may compress margins if we are unable to pass increased costs through to customers in a timely manner, or at all.

· Supply shortages and delays.

Trade restrictions, customs enforcement actions, port congestion,

export controls, or supplier disruptions in China could delay shipments or reduce available supply, potentially interrupting our production

· Supplier concentration risk.

Certain specialized components may be available from a limited

number of qualified suppliers, some of which are located in China.

Rapid transition to alternative suppliers may not be feasible due to

tooling, qualification, regulatory, contractual, capacity, or cost constraints.

· Operational disruption.

Uncertainty regarding tariff rates and enforcement may complicate

procurement planning, inventory management, pricing decisions, and long-term supply agreements.

· Retaliatory actions and geopolitical risk.

Escalation of trade tensions between the United

States and China could result in additional duties, export restrictions, licensing requirements, sanctions, or other governmental measures

that disrupt cross-border supply chains.

Given the evolving nature of U.S.–China

trade policy and ongoing legal and political developments, we cannot predict the scope, timing, or duration of future trade measures.

Any of the foregoing developments could materially disrupt our supply chain, increase our operating costs, reduce demand for our products,

and materially and adversely affect our business, financial condition, and results of operations.

If the United States experiences significant inflation, it could

adversely affect our business and financial results.

Following the end of the COVID 19 pandemic, the

United States experienced significant inflationary pressures.

Though the current rate of inflation in the United States is much lower,

if inflationary pressures occur again, including as a result of future United States interest rate declines, such inflation can adversely

affect us in a variety of ways.

A rise in inflation can adversely affect us by increasing our operating costs, including by increasing

the costs of materials, freight and labor.

The Company has not identified, planned or taken any actions to mitigate inflationary pressures.

Further, in the United States, the Federal Reserve has historically responded by increasing interest rates to combat inflation.

such increases may result in a reduced demand for our products and/or an economic downturn.

In a highly inflationary environment, or any

recession or economic downturn that may result, we may be unable to adjust our business is a manner that adequately addresses these challenges,

and these developments could materially and adversely affect our business, results of operations and financial condition.

Risks Related to Government Regulation of

Our Operations and Industry

If we fail to have other drone products approved

for the Department of War’s Blue UAS Cleared List which we refer to as the “Blue List”, our future results of operations

may be materially and adversely affected.

We have had multiple United States made drone

products that have been approved and added to the Department of War’s Blue List.

By virtue of being on the Blue List, it enables

us to receive orders from agencies of the United States federal government.

It also provides credibility to potential enterprise customers

who might be interested in purchasing drone components from us.

We are seeking to add additional products to the Blue List.

If these additional

products are not added to the Blue List, our future results of operations may be materially and adversely affected.

If we fail to obtain necessary regulatory approvals

from the FAA or other governmental agencies or limitations are put on the use of drones in response to public privacy or safety concerns,

it may prevent us from expanding the sales of our drone components in the United States.

The regulation of drones and drones component

parts such as those we offer is subject to substantial change, with regulators including potential alterations, enhancements and additions

to existing laws and regulations, and the ultimate treatment is uncertain.

A substantial majority of our products are subject to drone-related

regulations enforced by the FAA, either directly or due to their inclusion in drones offered by third parties.

Further, adverse regulatory

actions such as enforcement proceedings affecting customers and other third parties with which we do business can also adversely affect

us, even if the violation or harm alleged did not arise from our conduct or products.

Generally, under current FAA regulations the failure

to register a drone, including model aircraft, in accordance with these rules may result in regulatory and criminal sanctions.

may assess civil penalties up to $33,333.

Criminal penalties include fines of up to $250,000 and/or imprisonment for up to three years.

However, the FAA and other government bodies and agencies are considering changes to address the drone industry, which is relatively new

and rapidly evolving.

In addition, there exists public concern regarding the privacy and safety implications of the use of drones.

concern has included calls to develop explicit written policies and procedures establishing usage limitations.

There is no assurance that

the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of drones

and related products and technologies in certain markets.

These developments, and any additional regulatory or other burdens imposed on

our business and industry due to public health and safety or other concerns presently faced by the drone industry, could harm us and our

customers and suppliers by increasing compliance costs and restricting our operations and product offerings and uses, which could materially

adversely affect us.

In addition, particularly with respect to Rotor

Riot, we are highly dependent on online social media platforms such as Facebook, Instagram and YouTube to advertise our products, market

our brand and develop and maintain customer loyalty.

Each of these platforms requires that users adhere to strict terms and conditions

governing content, communications and other activities on their platform, which are generally heightened for commercial uses such as ours.

If we or third parties such as drone pilots who Rotor Riot uses to market our products online fail to adhere to these requirements, we

could be limited, restricted or banned from some or all uses, which would materially adversely affect our business.

Future growth and ability to generate and grow

revenue and achieve or maintain profitability may be adversely affected if our marketing initiatives are not effective in generating sufficient

levels of brand awareness.

Our future growth and profitability will depend

in large part upon the effectiveness and efficiency of our marketing efforts, including our ability to:

create awareness of brands and products;

convert awareness into actual product purchases;

effectively manage marketing costs (including creative and media) in order to maintain acceptable operating margins and return on marketing investment;

successfully offer to sell products or license technology to third-party companies for sale.

Planned marketing expenditures are unknown and

may not result in increased total sales or generate sufficient levels of product and brand name awareness.

We may not be able to manage

marketing expenditures on a cost-effective basis.

Product quality issues and a higher-than-expected

number of warranty claims or returns could harm our business and operating results.

The products that we sell could contain defects

in design or manufacture.

There can be no assurance we will be able to detect and remedy all defects in the hardware we sell, which could

result in product recalls, product redesign efforts, loss of revenue, reputational damage and significant warranty and other remediation

Similar to other mobile and consumer electronics, our products have a risk of overheating in the course of usage or upon malfunction.

Any such defect could result in harm to property or in personal injury.

If we determine that a product does not meet product quality standards

or may contain a defect, the launch of such product could be delayed until we remedy the quality issue or defect.

The costs associated

with any protracted delay necessary to remedy a quality issue or defect in a new product could be substantial.

We generally provide a one-year warranty on all

of our Fat Shark products, except in certain European countries where it can be two years for some consumer-focused products.

The occurrence

of any material defects in our products could expose us to liability for damages and warranty claims in excess of our current reserves,

and we could incur significant costs to correct any defects, warranty claims or other problems.

In addition, if any of our product designs

are defective or are alleged to be defective, we may be required to participate in a recall campaign.

In part due to the terms of our

warranty policy, any failure rate of our products that exceeds our expectations may result in unanticipated losses.

Any negative publicity

related to the perceived quality of our products could affect our brand image and decrease retailer, distributor and consumer confidence

and demand, which could adversely affect our operating results and financial condition.

Further, accidental damage coverage and extended

warranties are regulated in the United States at the state level and are treated differently within each state.

Additionally, outside

of the United States, regulations for extended warranties and accidental damage vary from country-to-country.

Changes in interpretation

of the regulations concerning extended warranties and accidental damage coverage on a federal, state, local or international level may

cause us to incur costs or have additional regulatory requirements to meet in the future in order to continue to offer our support services.

Our failure to comply with past, present and future similar laws could result in reduced sales of our products, reputational damage, penalties

and other sanctions, which could harm our business and financial condition.

Estimated future product

warranty claims may be based on a variety of factors including the expected number of field failures over the warranty commitment period,

the term of the product warranty period, and the costs for repair, replacement and other associated costs.

Because of the foregoing or

other contingencies, these estimates could prove to be incorrect, such that our warranty obligations are higher than anticipated.

warranty obligations may be affected by product failure rates, claims levels, material usage and product re-integration and handling costs.

Should actual product failure rates, claims levels, material usage, product re-integration and handling costs, defects, errors, bugs or

other issues differ from original estimates, we could end up incurring materially higher warranty or recall expenses than we anticipate,

which would materially adversely affect our business.

Risks Related to Acquisitions

Because Aloft may not meet closing conditions we may not be successful

in consummating the Merger

On February 1, 2025, the Company entered into

a Merger Agreement to acquire Aloft.

The merger is for $14.5 million payable, almost entirely in the Company’s Common Stock with

the issuance of approximately 1,204,319 shares of Common Stock and approximately $100,000 in cash.

Customary closing conditions by the

parties must be completed before closing the merger which include Aloft obtaining stockholder approval, the delivery by Aloft of its audited

financial statements acceptable to the Company, and the receipt of certain third-party consents.

There can be no assurances that the Aloft

merger will close.

If we are successful in consummating the Merger,

the integration of our business and the Aloft business may disrupt or have a negative impact on our business.

Achieving the anticipated benefits of the Merger

will depend in significant part upon whether we are able to integrate our combined business in an efficient and effective manner.

actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized.

The companies may not be able to accomplish the integration process smoothly, successfully or on a timely basis.

The necessity of coordinating

geographically separated organizations, managements, systems of controls, and facilities and addressing possible differences in business

backgrounds, corporate cultures and management philosophies may increase the difficulties of integration.

We and Aloft operate numerous

systems and controls, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits,

payroll and regulatory compliance.

The integration of operations following the Merger and future acquisitions will continue to require

the dedication of significant management and external resources, which may distract management’s attention from the day-to-day business

of the Company and be costly.

Employee uncertainty and lack of focus during the integration process may also disrupt our business.

inability of management to successfully and timely integrate the operations of the two companies could have a material adverse effect

on our business and results of operations.

In addition, for the year ended December 31, 2024, Aloft had a net loss of $841,112 and net

cash used in operating activities was negative $419,591.

Accordingly, the Merger could have a negative impact on our cash flow.

Future acquisitions could disrupt our business

and adversely affect our operating results, financial condition and cash flows.

We may make acquisitions that could be material

to our business, operating results, financial condition and cash flows.

Our ability as an organization to successfully acquire and integrate

technologies or businesses is unproven.

Acquisitions involve many risks, including the following:

an acquisition may negatively affect our operating results, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;

We may incur substantial costs and deploy a significant amount of time and other resources towards a prospective transaction that does not close, either of which could materially harm our financial condition;

we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, contracts, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us;

an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company;

we may encounter difficulties in, or may be unable to, successfully sell any acquired products;

an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions;

the potential strain on our financial and managerial controls and reporting systems and procedures;

potential known and unknown liabilities associated with an acquired company, including due to a non-disclosure or failure to identify such liabilities during the due diligence process prior to closing an acquisition;

if we incur debt to fund such acquisitions, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants;

the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions;

to the extent that we issue a significant amount of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease;

managing the varying intellectual property protection strategies and other activities of an acquired company.

We may not succeed in addressing these or other

risks or any other problems encountered in connection with the integration of any acquired business.

The inability to successfully integrate

the business, technologies, products, personnel or operations of any acquired business, or any significant delay in achieving integration,

could have a material adverse effect on our business, operating results, financial condition and cash flows.

We are or may become subject to governmental

export and import controls, economic sanctions and other laws and regulations that could subject us to liability and impair our ability

to compete in international markets.

During 2024, we commenced sales of our Blue UAS

products including to a European customer as part of a larger order.

The United States and various foreign governments have imposed controls,

export license requirements and restrictions on the import or export of some technologies.

Our products are subject to United States export

controls, including the Commerce Department’s Export Administration Regulations and various economic and trade sanctions regulations

established by the Treasury Department’s Office of Foreign Assets Controls, and exports of our products must be made in compliance

with these laws.

Furthermore, United States export control laws and economic sanctions prohibit the provision of products and services

to countries, governments, and persons targeted by United States sanctions.

Even though we take precautions to prevent our products from

being provided to targets of United States sanctions, our products, including our firmware updates, could be provided to those targets

or provided by our customers despite such precautions.

Further, the manufacture and sale of our products

in certain states and countries may subject us to environmental and other regulations.

For example, many of our products rely on electricity

generated by lithium-ion batteries, which implicate a variety of environmental and other regulations designed to control the production,

use, and transportation of hazardous materials such as lithium and other components and minerals deployed in these batteries.

the global focus on climate change, including greenhouse gas (“GHG”) emissions, has resulted in legislative and regulatory

efforts to address the causes and impacts of climate change, and any new and more strict laws and regulations to reduce GHG emissions

and address other aspects of climate change, including carbon taxes, cap and trade programs, GHG reduction requirements, requirements

for the use of green energy, and changes in procurement requirements, may result in increased operational and compliance obligations,

which could adversely affect our financial condition and results of operations.

Our failure to obtain required import or export

approval or to comply with other applicable domestic or international laws and regulations for our products or operations could harm our

international and domestic sales and adversely affect our revenue, or could subject us to costly proceedings, penalties or damages and

negative publicity.

Risks Related to Intellectual Property Protection

13 unchanged sentences

Numerous United States and foreign issued patents

and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing product development and

As the consumer electronics and drone industries expand and more patents are issued, the risk increases that our current and future

products may be subject to claims of infringement of the patent rights of third parties.

and pending patent applications, which are owned by third parties, exist in the drone business in which we are pursuing product development

As the drone industries and consumer electronics expand and more patents are issued, the risk increases that our current and

future products may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that we are employing

42 unchanged sentences

(“UAV”) a wholly-owned

subsidiary of Red Cat, in each case with a non-exclusive, non-sublicensable royalty free perpetual license back to UAV for Red Cat to

make, use and sell products subject to such assigned patents and applications solely with respect to military and defense drone applications.

subsidiary of Red Cat Holdings, Inc.

(“Red Cat”), in each case with a non-exclusive, non-sublicensable royalty free perpetual

license back to UAV for Red Cat to make, use and sell products subject to such assigned patents and applications solely with respect to

military and defense drone applications.

We will apply for patents covering our products,

9 unchanged sentences

Moreover, we cannot be certain whether:

we were the first to conceive, reduce to practice, invent, or file the inventions covered by each of our issued patents and pending patent applications;

others will independently develop similar or alternative products, technologies, services or designs or duplicate any of our products, technologies, services or designs;

any patents issued to us will provide us with any competitive advantages, or will be challenged by third parties;

we will develop additional proprietary products, services, technologies or designs that are patentable;

the patents of others will have an adverse effect on our business.

· we were the first to conceive, reduce to practice,

invent, or file the inventions covered by each of our issued patents and pending patent applications;

· others will independently develop similar or

alternative products, technologies, services or designs or duplicate any of our products, technologies, services or designs;

· any patents issued to us will provide us with

any competitive advantages, or will be challenged by third parties;

· we will develop additional proprietary products,

services, technologies or designs that are patentable;

· the patents of others will have an adverse effect

on our business.

The patents we own or license and those that may

21 unchanged sentences

provisions will provide us with the protection sought.

Further, any third parties with whom we do not execute such agreements, such as

certain of our suppliers, could attempt to dispute our intellectual property rights or misappropriate our technology or trade secrets.

Policing unauthorized use of our proprietary information and technology is difficult and can be costly, and our efforts to do so may not

prevent misappropriation of our technologies.

We may become engaged in litigation to protect or enforce our patent and other intellectual

property rights or in International Trade Commission proceedings to abate the importation of goods that would compete unfairly with our

products and, if unsuccessful, these actions could result in the loss of patent or other intellectual property rights protection for the

key technologies on which our business strategy depends.

In addition to the inadvertent loss of a trade secret due to the failure to enter

into a confidentiality agreement, the language of a particular confidentiality agreement may not protect our intellectual property.

any third parties with whom we do not execute such agreements, such as certain of our suppliers, could attempt to dispute our intellectual

property rights or misappropriate our technology or trade secrets.

Policing unauthorized use of our proprietary information and technology

is difficult and can be costly, and our efforts to do so may not prevent misappropriation of our technologies.

We may become engaged in

litigation to protect or enforce our patent and other intellectual property rights or in International Trade Commission proceedings to

abate the importation of goods that would compete unfairly with our products and, if unsuccessful, these actions could result in the loss

of patent or other intellectual property rights protection for the key technologies on which our business strategy depends.

We also rely in part on unpatented proprietary

technology, and others may independently develop the same or similar technology or otherwise obtain access to our unpatented technology.

We plan to require employees, contractors, consultants, financial advisors, suppliers, and strategic partners to enter into confidentiality

We generally requires employees, contractors, consultants, financial advisors, suppliers, and strategic partners to enter into confidentiality

and intellectual property assignment agreements (as appropriate), but these agreements may not provide sufficient protection for our trade

secrets, know-how or other proprietary information.

secrets, know-how or other proprietary information and a failure to obtain such an agreement could have serious adverse consequences.

The laws of certain countries do not protect intellectual

9 unchanged sentences

business concerns.

Additionally, we may provoke third parties to assert claims against us, which could invalidate or narrow the scope

of our own intellectual property rights.

We may not prevail in any proceedings or lawsuits that we initiate and the damages or other remedies

awarded, if any, may be significant.

The occurrence of any of these events may adversely affect our business, financial condition and

operating results.

We will register for certain of our trademarks

19 unchanged sentences

and prevent consumer confusion.

Significant inflation could adversely affect our business and financial

The high rate of inflation and resulting pressures

on costs and pricing of business such as ours focused on the manufacture and sale of electronics products could adversely impact our business

and financial results.

While inflation has created some salary pressure with our employees who wish to mitigate the impact of inflation,

we have not yet suffered inflationary pressures in procurement of our products.

A rise in inflation can adversely affect us by increasing

our operating costs, including by increasing the costs of materials, freight and labor.

The Company has not identified, planned or taken

any actions to mitigate inflationary pressures.

Further, in the United States, the Federal Reserve has responded by increasing interest

rates to combat inflation, however such increases may result in a reduced demand for our products and/or an economic downturn.

inflationary environment, or any recession or economic downturn that may result, we may be unable to adjust our business is a manner that

adequately addresses these challenges, and these developments could materially adversely affect our business, results of operations and

financial condition.

Risks Related to Government Regulation of

Our Operations and Industry

If we fail to have other drone products approved

for the Department of Defense’s Blue Framework, our future results of operations may be materially and adversely affected.

We have had multiple United States made drone products that have been

approved and added to the Department of Defense’s Blue Framework.

By virtue of being on the Blue Framework, it enables us to receive

orders from agencies of the United States federal government.

It also provides credibility to potential B2B customers who might be interested

in purchasing drone components from us.

We are seeking to add additional products to the Blue List.

If these additional products are not

added to the Blue Framework, our future results of operations may be materially and adversely affected.

If we fail to obtain necessary regulatory approvals

from the FAA or other governmental agencies by us, our customers, or others who use our products, or limitations put on the use of unmanned

aircraft systems, or UAS in response to public privacy or safety concerns, may prevent us from expanding the sales of our drone solutions

in the United States.

The regulation of UAS

and drone solutions and component parts such as those we offer is subject to substantial change, with regulators including potential alterations,

enhancements and additions to existing laws and regulations, and the ultimate treatment is uncertain.

A substantial majority of our products

are subject to drone-related regulations enforced by the FAA, either directly or due to their inclusion in UAS offered by third parties.

Further, adverse regulatory actions such as enforcement proceedings affecting customers and other third parties with which we do business

can also adversely affect us, even if the violation or harm alleged did not arise from our conduct or products.

Generally, under current

FAA regulations the failure to register a UAS, including model aircraft, in accordance with these rules may result in regulatory and criminal

The FAA may assess civil penalties up to $33,333.

Criminal penalties include fines of up to $250,000 and/or imprisonment for

up to three years.

However, the FAA and other government bodies and agencies are considering changes to address the drone industry, which

is relatively new and rapidly evolving.

In addition, there exists public concern regarding the privacy and safety implications of the

This concern has included calls to develop explicit written policies and procedures establishing usage limitations.

assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the

adoption of UAS and related products and technologies in certain markets.

These developments, and any additional regulatory or other burdens

imposed on our business and industry due to public health and safety or other concerns presently faced by the drone industry, could harm

us and our customers and suppliers by increasing compliance costs and restricting our operations and product offerings and uses, which

could materially adversely affect us.

We are subject to a number of supply risks

concerning our Blue UAS products which could adversely impact our ability to deliver such products to the United States Department of

Defense and commercial customers.

We purchase certain Blue UAS products from a privately-held

United States based manufacturer pursuant to purchase orders.

We are subject to a number of risks including:

We do not have a supply agreement requiring the manufacturer to produce a specified volume per year;

The manufacturer expects to deliver product quantities to us over a pre-determined period which increases the likelihood we may be unable to meet a large order from one or more customers;

Beyond the initial purchase orders, we have no assurances on future pricing which means future costs could adversely affect our marketing and future gross margins;

Because we have no non-compete from the manufacturer,

it could manufacture the same products for our competitors;

We have no representations from the manufacturer on its intellectual property ownership of our products;

Because we are not the manufacturer, we are subject to a number of risks including timely deliveries and quality control.

We are or may become subject to governmental

export and import controls, economic sanctions and other laws and regulations that could subject us to liability and impair our ability

to compete in international markets.

While we understand we have had minimal sales

outside of the United States, we expect to seek to market our products outside of the United States.

During 2024, we commenced sales of

our Blue UAS products including to a European customer as part of a larger order.

The United States and various foreign governments have

imposed controls, export license requirements and restrictions on the import or export of some technologies.

Our products are subject

to United States export controls, including the Commerce Department’s Export Administration Regulations and various economic and

trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls, and exports of our products

must be made in compliance with these laws.

Furthermore, United States export control laws and economic sanctions prohibit the provision

of products and services to countries, governments, and persons targeted by United States sanctions.

Even though we take precautions to

prevent our products from being provided to targets of United Staets sanctions, our products, including our firmware updates, could be

provided to those targets or provided by our customers despite such precautions.

Further, the manufacture and sale of our products

in certain states and countries may subject us to environmental and other regulations.

For example, many of our products rely on electricity

generated by lithium-ion batteries, which implicate a variety of environmental and other regulations designed to control the production,

use, and transportation of hazardous materials such as lithium and other components and minerals deployed in these batteries.

the global focus on climate change, including greenhouse gas (“GHG”) emissions, has resulted in legislative and regulatory

efforts to address the causes and impacts of climate change, and any new and more strict laws and regulations to reduce GHG emissions

and address other aspects of climate change, including carbon taxes, cap and trade programs, GHG reduction requirements, requirements

for the use of green energy, and changes in procurement requirements, may result in increased operational and compliance obligations,

which could adversely affect our financial condition and results of operations.

Our failure to obtain required import or export

approval or to comply with other applicable domestic or international laws and regulations for our products or operations could harm our

international and domestic sales and adversely affect our revenue, or could subject us to costly proceedings, penalties or damages and

negative publicity.

If we fail to comply with United States and

foreign laws related to privacy, data security, and data protection, it could adversely affect our operating results and financial condition.

We, either directly or through our customers,

collaborators or end-users of our products, are or may become subject to a variety of laws and regulations regarding privacy, data protection,

and data security.

This includes the European Union’s (“EU”) General Data Protection Regulation (the “EU GDPR”)

and the United Kingdom’s General Data Protection Regulations (the “UK GDPR”) as a result of our sales in the EU.

laws and regulations are continuously evolving and developing.

The scope and interpretation of the laws that are or may be applicable

to us are often uncertain and may be conflicting, particularly with respect to foreign laws.

The application of these laws and regulations

can arise from our e-commerce platform, social media activities, drone technology and applications, relationships with third parties and

their operations, or from other activities we undertake now or that we may undertake in the future.

Data privacy and protection regulations

are frequently broad in terms of scope of the information protected, activities affected, and geographic reach.

In particular, there are numerous United States

federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing,

disclosure, and protection of personal data.

Such laws and regulations often vary in scope, may be subject to differing interpretations,

and may be inconsistent among different jurisdictions.

For example, the GDPR includes operational requirements for companies that receive

or process personal data of residents of the EU that are broader and more stringent than those previously in place in the EU and in most

other jurisdictions around the world.

The GDPR includes significant penalties for non-compliance, including fines of up to €20 million

or 4% of total worldwide revenue.

Additionally, in June 2018, California enacted the California Consumer Privacy Act (the “CCPA”).

In November 2020, the CCPA was amended by Proposition 24, the California Consumer Privacy Act, which extends the CCPA.

The CCPA requires

covered companies to provide California consumers with new disclosures and will expand the rights afforded consumers regarding their data.

Fines for noncompliance may be up to $7,500 per violation.

The costs of compliance with, and other burdens imposed by, the GDPR, CCPA,

and similar laws may limit the use and adoption of our products and services and/or require us to incur substantial compliance costs,

which could have an adverse impact on our business.

Since the CCPA was enacted,

the United States currently has at least 20 states – California, Colorado, Connecticut, Delaware, Indiana, Iowa, Kentucky, Maryland,

Minnesota, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Rhode Island, Tennessee, Texas, Utah and Virginia, that have comprehensive

data privacy laws in place, or enacted comprehensive data privacy laws set to soon take effect.

An additional seven states have enacted

narrower privacy laws – Florida, Maine, Michigan, Nevada, New York, Vermont, Washington and Wisconsin.

During the 2024 legislative

cycle, at least six states have introduced comprehensive privacy bills that address a range of issues, including protecting biometric

identifiers and health data, or governing the activities of specific entities.

However, this patchwork approach to privacy legislation

could pose compliance and liability risks for companies that have multistate operations.

Proposed and enacted bills in various states

have similar rights in preexisting privacy legislation but differ in implementation and enforcement.

In June 2024, the American Privacy

Rights Act of 2024 was introduced in the United States House of Representatives and was subsequently referred to the House Committee on

Energy and Commerce has and is not yet adopted.

As introduced, this proposed legislation would establish requirements for how companies

handle personal data by, among other things, limiting the collection, processing, and transfer of personal data, prohibiting companies

from transferring individuals’ personal data without their affirmative express consent, establishing a right to access, correct,

and delete personal data, requiring companies to provide individuals with a means to “opt out” of the transfer of non-sensitive

covered data and the right to opt out of the user of their personal information for targeted advertising, requiring companies to implement

security practices aimed at protecting personal data, and imposing enforcement actions and the possibility of civil proceedings for violations.

Proposed federal legislation, will likely continue to be debated and, at some point, may be enacted in some form.

We intend to strive to comply with all applicable

laws, policies, legal obligations, and industry codes of conduct relating to privacy, data security, and data protection.

resources may adversely affect our compliance effort.

Given that the scope, interpretation, and application of these laws and regulations

are often uncertain and may be in conflict across jurisdictions, it is possible that these obligations may be interpreted and applied

in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

Any failure or perceived

failure by us, customers, or third-party vendors or end-users involved with our products to comply with our privacy or security policies

or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data,

may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results

and financial condition.

Governments are continuing to focus on privacy

and data security, and it is possible that new privacy or data security laws will be passed or existing laws will be amended in a way

that is material to our business.

Any significant change to applicable laws, regulations, or industry practices regarding the personal

data of our employees, agents or customers could require us to modify our practices and may limit our ability to expand or sustain our

salesforce or bring our products to market.

Changes to applicable laws and regulations in this area could subject us to additional regulation

and oversight, any of which could significantly increase our operating costs and materially affect our operating results and financial

Risks Related to our Financial Condition

Because the Company has a limited operating

history, any investment in us is highly speculative.

We essentially had no business operations or revenue

until we acquired Fat Shark and Rotor Riot simultaneously with the closing of our initial public offering (the “IPO”) in February

Both companies, prior to the completion of the acquisitions, were operated by Red Cat since their acquisition by Red Cat in 2020.

Since the IPO, we have grown rapidly particularly in 2025 which growth is continuing this year.

Unusual Machines must be considered in light of

the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations, and growth

For all these reasons, we may be unable to achieve or maintain profitability in a timely manner or at all.

We have incurred net losses since inception

and may fail to achieve or maintain profitability.

Since inception, we have incurred net losses for

each reported quarter other than the quarter ended September 30, 2025.

In the quarter ended September 30, 2025, we incurred net income

of $1,603,465, which was related to an unrealized gain in short-term investments rather than our core operations.

For the year ended December

31, 2025, we sustained an operating loss of $25,152,060 and a net loss of $19,193,617.

We will need to generate higher revenues and control

operating costs in order to attain profitability.

There can be no assurances that we will be able to do so or to reach profitability.

We expect to continue to incur losses for the

foreseeable future and expects costs to increase in future periods as we expend substantial financial and other resources on, among other

from 18 employees as of March 31, 2025 to 80 employees as of December 31, 2025 to approximately

141 employees as of March 6, 2026;

· Opening four new production facilities during

2025 and Q1 2026;

· Ordering new manufacturing equipment and acquiring

inventory in advance of purchase orders;

· general and administrative expenditures, including

significantly increasing expenses to support the growth;

· training and integrating new employees;

· competing with other companies that are currently

in, or may in the future enter, the markets in which we compete;

· maintaining high customer satisfaction and ensuring

product and service quality;

· maintaining the quality of our technology infrastructure;

· establishing and increasing market awareness

of our Company and enhancing our brand;

· consummating and integrating acquisitions;

· maintaining compliance with applicable governmental

regulations and other legal obligations, including those related to intellectual property and drones.

These expenditures may not result in additional

revenue or the growth of our business in the manner or to the extent anticipated or intended or at all.

If we fail to grow revenue or

to achieve or sustain profitability, our business, financial condition, results of operations, and prospects could be materially adversely

affected and the market price of our Common Stock could be adversely affected.

Future operating results and key metrics may

fluctuate significantly from period-to-period due to a wide range of factors, which makes our future results difficult to predict.

Our operating results and key metrics could vary

significantly from period-to-period as a result of various factors, some of which are outside of our control, including:

· delays in the receipt of orders from customers

that are dependent on government orders;

· the effect that tariffs, a trade war and a potential

recession may have on our business;

· delays in getting U.S.

Department of War Blue

List approval for additional drone components that we develop;

· the expansion or contraction of our customer

base and the amount of products ordered;

· the size, duration and terms of our contracts

with both existing and new customers, including distributors we may contract with;

· enterprise customers ordering of products that

may be affected by their budgets and fiscal years;

· seasonality of retail sales which generally has

experienced higher sales volumes in the fourth quarters than in other three-month periods as a result of holiday purchases and its e-commerce

· Our ability to sell inventory that we purchased for anticipated orders

which orders may or may not be received;

· sales cycles which fluctuate and often include

delays between the end of one product or solution’s cycle and the launch of a new product or solution to replace or supplement the

prior offering;

· the introduction of products and product enhancements

by competitors, and changes in pricing for products offered by us or our competitors;

· customers delaying purchasing decisions in anticipation

of new products or product enhancements by us or our competitors or otherwise;

· changes in customers’ budgets;

· the amount and timing of payment for expenses,

including infrastructure, research and development, sales and marketing expenses, employee benefit and stock-based compensation expenses;

· costs related to the hiring, training and maintenance

of our employees;

· any future impact from the ongoing geopolitical military conflicts (including

the wars in Ukraine and the Middle East and instability in Latin America, and tensions between China and Taiwan).

In particular, there

is a risk that rising oil prices caused by the Middle East war could be disruptive and have follow-on effects that could impact the economy;

· supply chain issues;

· political unrest affecting our relationship with

China and future tariffs;

· our lack of long-term agreements (including “requirements

agreements”) with our suppliers which can affect the availability of parts and future costs;

· changes in laws and regulations or other regulatory

developments that impact our business.

Any one of these or other factors discussed elsewhere

in these Risk Factors may result in fluctuations in our operating results, meaning that period-to-period comparisons may not necessarily

be indicative of our future performance.

Risks Related to our Common Stock

The market price of our shares of Common Stock

is subject to fluctuation.

The market price of shares of our Common Stock

may fluctuate and has fluctuated significantly in response to factors, some of which are beyond our control, including:

the conversion of formerly outstanding preferred stock and exercise

of warrants and the sales of Common Stock issued under such instruments;

our ability to generate material sales in the B2B sector;

The market price of our common stock has been

volatile, which could result in substantial losses for investors holding our shares.

The trading price of our common stock has been

volatile and may fluctuate substantially as it has in the past.

The price of our common stock in the market may be higher or lower than

the price you paid, depending on many factors, some of which are beyond our control and may not be related to our operating performance.

These fluctuations could cause you to lose part or all of your investment in our common stock.

Factors that could cause fluctuations in

the trading price of our common stock include, but are not limited to the other Risk Factors included in this Report and also include:

· the impact of the United States tariff

policy and resulting litigation;

· our ability to manage our rapid growth;

· our success in managing our new drone motor,

headset and other manufacturing facilities, the impact of bugs or defects in the equipment we are purchasing and the drone motors, headsets

and camera components that we will manufacture, and our ability to recruit qualified employees for such facilities;

· our failure to adequately increase production

capacity and achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business;

· our facing significant risks in the management

of our inventory, and failure to effectively manage the inventory levels may result in supply imbalances that could harm our business.

· our facilities and information technologies systems

and those of our key suppliers could be damaged as a result of disasters or unpredictable events which could have an adverse effect on

our business operations;

· if critical components or raw materials used

to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing

and delivery of our products and in completing our development programs, which could damage our business;

· our ability to stay competitive within our markets

may be dependent upon increasing manufacturing capacity to support anticipated growth and achieving cost reductions and projected economies

of scale from increasing manufacturing quantities of our products;

· any softening in the economy and increases in

inflation in the United States;

· the announcement of new products by our competitors;

our ability to obtain patents for our products and defend our intellectual property from misappropriation and competitive use;

progress and publications of the commercial acceptance of similar technologies to those we utilize;

our ability to grow revenues and achieve consistent profitability;

actual or anticipated variations in operating results;

additions or departures of key personnel including our executive officers;

business disruptions caused by natural disasters and uncontrollable events such as severe weather conditions or geopolitical turmoil;

disclosure of cyber security attacks or data privacy issues involving our products or operations;

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, significant contracts, or other material developments that may affect our prospects;

· our ability to obtain patents for our products

and defend our intellectual property from misappropriation and competitive use;

· progress and publications of the commercial acceptance

of similar technologies to those we utilize;

· our ability to grow revenues and achieve profitability

from operations;

· additions or departures of key personnel including

our executive officers;

· actual or anticipated variations in operating

· business disruptions caused by natural disasters

and uncontrollable events such as severe weather conditions including hurricanes or geopolitical turmoil;

· disclosure of cybersecurity attacks or data privacy

issues involving our products or operations;

· announcements by us or our competitors of significant

acquisitions, strategic partnerships, joint ventures, capital commitments, significant contracts, or other material developments that

may affect our prospects;

· adverse regulatory developments;

the possibility of a recession or market down-turn or inflation;

general market conditions including factors unrelated to our operating performance

Recently, following the announcement of the imposition

of tariffs and substantial planned reductions in the size of the federal government, the stock market, has experienced extreme price fluctuations

and a major sell off involving United States.

Continued market fluctuations could result in extreme market volatility in the price of

our Common Stock which could cause a decline in the value of our Common Stock below its recent price.

Our stock price may be volatile, which could

result in substantial losses to investors.

In addition to changes to market prices based

on our results of operations and the factors discussed elsewhere in this “Risk Factors” section, the market price of and trading

volume for our Common Stock (including any stock-run ups or price declines) may change for a variety of other reasons, not necessarily

related to our actual operating performance.

The capital markets have experienced extreme volatility particularly with small public companies

with relatively smaller public floats that has often been unrelated to the operating performance of particular companies.

market fluctuations may adversely affect the trading price of our Common Stock.

In addition, the average daily trading volume of the securities

of small companies can be very low, which may contribute to future volatility.

Factors that could cause the market price of our

Common Stock to fluctuate significantly include:

the results of operating and financial performance and prospects of other companies in our industry;

strategic actions by us or our competitors, such as acquisitions or restructurings;

announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors;

the public’s reaction to our press releases, other public announcements, and filings with the SEC;

lack of securities analyst coverage or speculation in the press or investment community about us or market opportunities in the drone industry;

changes in government policies in the United States and, as our international business increases, in other foreign countries;

changes in earnings estimates or recommendations by securities or research analysts who track our Common Stock or failure of our actual results of operations to meet those expectations;

market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

changes in accounting standards, policies, guidance, interpretations or principles;

any lawsuit involving us or our products;

arrival and departure of key personnel;

sales of Common Stock by us, our investors or members of our management team;

changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters.

Any of these factors, as well as broader market

and industry factors, may result in large and sudden changes in the trading volume of our Common Stock (including stock run ups or price

declines) and could seriously harm the market price of our Common Stock, regardless of our operating performance.

This may prevent you

from being able to sell your shares at or above the price you paid for your shares, if at all.

In addition, following periods of volatility

in the market price of a company’s shares, shareholders often institute securities class action litigation against that company.

Our involvement in any class action suit or other legal proceeding could divert our senior management’s attention and could adversely

affect our business, financial condition, results of operations and prospects.

We are incurring significant additional costs

as a result of being a public company, and our management will be required to devote substantial time to compliance with our public company

responsibilities and corporate governance practices.

We are incurring increased costs associated with

corporate governance requirements that will become applicable to us as a public company, including rules and regulations of the SEC under

the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010, and the Securities Exchange Act

of 1934 (the “Exchange Act”), as well as the rules of the NYSE American.

These rules and regulations have increased our accounting,

legal and financial compliance costs and make some activities more time consuming, including due to increased training of our current

employees, additional hiring of new employees, and increased assistance from consultants.

The SEC’s cybersecurity rules will increase

our compliance costs.

We also expect these rules and regulations to make it more expensive for us to maintain directors’ and officers’

liability insurance.

As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as

executive officers.

Furthermore, these rules and regulations will increase our legal and financial compliance costs and will make some

activities more time-consuming and costly.

We cannot predict or estimate the amount of additional costs we will incur as a public

company or the timing of such costs.

In addition, our management team will need to devote substantial attention to interacting with the

investment community and complying with the increasingly complex laws pertaining to public companies, which may divert attention away

from the day-to-day management of our business, including operational, research and development and sales and marketing activities.

Increases in costs incurred or diversion of management’s attention as a result of becoming a publicly traded company may adversely

affect our business, prospects, financial condition, results of operations, and cash flows.

Our failure to maintain effective disclosure

controls and internal controls over financial reporting could have an adverse impact on us .

· general market conditions including factors unrelated

to our operating performance

These factors may adversely affect the trading

price of our common stock, regardless of our actual operating performance and could prevent you from selling your common stock at or above

your purchase price.

In addition, the stock markets may experience extreme price and volume fluctuations that may be unrelated or disproportionate

to a company’s operating performance.

Because our common stock is listed on the NYSE

American, we are subject to additional regulations and continued listing requirements.

Because our common stock is listed on the NYSE

American, we are required to meet the continued listing standards for NYSE American.

If we fail to meet NYSE American’s listing

standards, its common stock may be delisted.

To maintain a listing on NYSE American, we must satisfy minimum financial and other continued

listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’

equity, and certain corporate governance requirements.

If we are unable to satisfy these requirements standards, our common stock could

be subject to delisting.

Delisting would have a negative effect on the price of our common stock and would impair your ability to sell

our common stock when you wish to do so.

If we fail to maintain effective disclosure

controls and internal controls over financial reporting, it could have an adverse impact on us .

We are required to establish and maintain appropriate

disclosure controls and internal controls over financial reporting.

Failure to establish those controls, or any failure of those controls

once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations.

In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need

to be addressed or other matters that may raise concerns for investors.

Any actual or perceived weaknesses and conditions that need to

be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over

financial reporting may have an adverse impact on the price of our Common Stock.

In our Form 10-K for the year ended December 31, 2024,

we reported that we did not maintain effective disclosure controls or internal controls over financial reporting and that we had not remediated

those material weaknesses.

Investors may not purchase or hold our Common Stock as a result of these failures, which may result in lower

Because our Common Stock is listed on NYSE

American, we are subject to additional regulations and continued requirements.

Because our Common Stock trades on the NYSE American,

we are required to meet the continued listing standards for NYSE American.

If we fail to meet NYSE American’s listing standards,

our Common Stock may be delisted.

The NYSE American requires that the average closing price of its listed common stock remain above $1.00

over a 30 consecutive day period, in order to remain listed.

In addition, to maintain a listing on NYSE American, we must satisfy minimum

financial and other continued listing requirements and standards, including those regarding director independence and independent committee

requirements, minimum stockholders’ equity, and certain corporate governance requirements.

If we are unable to satisfy these requirements

standards, our Common Stock could be subject to delisting.

Delisting would have a negative effect on the price of our Common Stock and

would impair your ability to sell our Common Stock when you wish to do so.

Our Board may authorize and issue shares of

new series of preferred stock that could be superior to or adversely affect current holders of our Common Stock.

Our Board has the power to authorize and issue

shares of classes of stock, including preferred stock that have voting powers, designations, preferences, limitations and special rights,

including preferred distribution rights, conversion rights, redemption rights and liquidation rights without further stockholder approval

which could adversely affect the rights of the holders of our Common Stock.

In addition, our Board could authorize the issuance of a series

of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease

the relative voting power of our Common Stock or result in dilution to our existing common stockholders.

Any of these actions could significantly adversely

affect the investment made by holders of our Common Stock.

Holders of Common Stock could potentially not receive dividends that they might

otherwise have received.

In addition, holders of our Common Stock could receive less proceeds in connection with any future sale of the

Company, in liquidation or on any other basis.

If we raise capital in the future, it may dilute

our existing stockholders’ ownership and/or have other adverse effects on us, our securities or our operations.

If we are required to raise additional capital

by issuing equity securities, our existing stockholders’ percentage ownership will decrease, and these stockholders may experience

substantial dilution.

Additionally, the issuance of additional shares of Common Stock or other securities could result in a decline in

our stock price.

Further, if we are required to raise additional funds by issuing debt instruments, these debt instruments could impose

significant restrictions on our operations, including liens on our assets and negative covenants prohibiting us from engaging in certain

transactions or corporate actions that may have the effect of limiting our ability to pursue our business strategy and growth objectives.

Common Stock eligible for future sale may adversely

affect the market.

We have in the past consummated private placements

to accredited investors whereby we were obligated to enter into a registration rights agreement with each selling stockholder.

in the future enter into similar agreements in connection with our fundraising efforts.

Future sales of substantial amounts of our Common

Stock in the public market, or the anticipation of these sales, could materially and adversely affect market prices prevailing from time-to-time,

and could impair our ability to raise capital through sales of equity or equity-related securities.

In addition, the market price

of our Common Stock could decline as a result of sales of a large number of shares of our Common Stock in the market or the perception

that these sales may occur.

If securities or industry analysts do not publish

research or reports about our business, or if they adversely change their recommendations regarding our Common Stock, the market price

for our Common Stock and trading volume could decline.

In the past we have identified material weaknesses in our internal

controls over financial reporting, which have been remediated.

Our current controls and any new controls that

we develop may become inadequate because of changes in the conditions in our business, including our rapid growth.

Further, we may discover

weaknesses in our disclosure controls or our internal controls over financial reporting.

Any failure to develop or maintain effective

controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail

to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.

Any failure to implement

and maintain effective internal control over financial reporting could also adversely affect the results of management reports.

disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our

reported financials and other information, which would likely have a negative effect on the market price of our common stock.

If securities or industry analysts adversely

change their recommendations regarding our common stock, the market price for our common stock and trading volume could decline.

The trading market for our common stock will be

influenced by research or reports that industry or securities analysts publish about our business.

We do not currently have any analysts

publish research reports about us, and we cannot assure you that any will.

If analysts do, and one or more analysts who cover us downgrade

our Common Stock, the market price for our Common Stock would likely decline.

We and our investors face the implications

of our status as an emerging growth company under the federal securities laws and regulations.

If one or more analysts who cover us

downgrade ours common stock, the market price for our common stock would likely decline.

Because we are an emerging growth company under

the federal securities laws and regulations, we do not have to comply with certain disclosure requirement.

We qualify as an “emerging growth company”

9 unchanged sentences

the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least $1.235 billion;

last day of our fiscal year following February 16, 2029;

more than $1.0 billion in non-convertible debt;

or (d) the date on which we are deemed to be a “large accelerated filer” under

the Exchange Act, which would occur as of the end of any fiscal year if the market value of our Common Stock that are held by non-affiliates

exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

Once we cease to be an emerging

growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

We have never paid dividends and we do not

expect to pay dividends for the foreseeable future.

We intend to retain earnings, if any, to finance

the growth and development of our business and do not intend to pay cash dividends on shares of our Common Stock in the foreseeable future.

The payment of future cash dividends, if any, depend upon, among other things, conditions then existing including earnings, financial

condition and capital requirements, restrictions in financing agreements, business opportunities and other factors.

As a result, capital

appreciation, if any, of our Common Stock, will be your sole source of gain for the foreseeable future.

fifth anniversary of the completion of our IPO;

$1.0 billion in non-convertible debt;

or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities

Exchange Act of 1934 (the “Exchange Act”), which would occur as of the end of any fiscal year if the market value of share

of our common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second

fiscal quarter.

Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed

Our Board may authorize and issue shares of

a new series of preferred stock that could be superior to or adversely affect current holders of our Common Stock.

Our Board has the power to authorize and issue

shares of classes of stock, including preferred stock that have voting powers, designations, preferences, limitations and special rights,

including preferred distribution rights, conversion rights, redemption rights and liquidation rights without further stockholder approval

which could adversely affect the rights of the holders of our common stock.

In addition, our Board could authorize the issuance of a series

of preferred stock that has greater voting power than the common stock or that is convertible into our common stock, which could decrease

the relative voting power of our common stock or result in dilution to its existing common stockholders

Any of these actions could significantly adversely

affect the investment made by holders of our common stock.

Holders of common stock could potentially not receive dividends that they might

otherwise have received.

In addition, holders of our common stock could receive less proceeds in connection with any future sale of the

Company, in liquidation or on any other basis.

Our Articles of Incorporation

contains certain provisions which may result in difficulty in bringing actions against or on behalf of the Company or its affiliates.

Section 7 of our Articles

of Incorporation provides that the internal affairs of the Company, including derivative actions, shall be brought exclusively in the

courts located in Clark County, Nevada.

To the extent that any such action asserts a claim under the Exchange Act, that claim must be

brought in federal court.

Section 7 also provides that the United States federal courts generally shall have exclusive jurisdiction over

claims brought under the Securities Act, the effect of which is that an action under the Securities Act with respect to the Company may

only be brought in the federal courts, whereas absent such provision the federal and commonwealth courts would otherwise have concurrent

jurisdiction over such a matter.

Any claim seeking relief under the Exchange Act may only be brought in federal court.

Further, Section

7 also provides for the United States District Court for the District of Nevada as the exclusive venue for any cause of action under either

the Securities Act or the Exchange Act, meaning such federal court is the only court in which such a case may be brought and heard.

provisions may have the effect of precluding stockholders from bringing suit in their forum or venue of choice.

Further, these provisions

may give rise to a potential ambiguity as to which courts – state or federal – should preside over certain cases such as cases

with overlapping claims under both Nevada corporate law and the Securities Act and the rules and regulations thereunder.

contain certain provisions which may result in difficulty in bringing actions against or on behalf of the Company or its affiliates.

Section 7 of our Articles of Incorporation provides

that our internal affairs, including derivative actions, shall be brought exclusively in the courts located in Clark County, Nevada.

the extent that any such action asserts a claim under the Exchange Act, that claim must be brought in federal court.

Section 7 also provides

that the United States federal courts generally shall have exclusive jurisdiction over claims brought under the Securities Act, the effect

of which is that an action under the Securities Act with respect to the Company may only be brought in the federal courts, while absent

such provision the federal and state courts would otherwise have concurrent jurisdiction over such a matter.

Further, Section 7 also provides

for the United States District Court for the District of Nevada as the exclusive venue for any cause of action under either the Securities

Act or the Exchange Act, meaning such federal court is the only court in which such a case may be brought and heard.

These provisions

may have the effect of precluding stockholders from bringing suit in their forum or venue of choice.

Further, these provisions may give

rise to a potential ambiguity as to which courts – state or federal – should preside over certain cases such as cases with

overlapping claims under both Nevada corporate law and the Securities Act and the rules and regulations thereunder.

While the Supreme

8 unchanged sentences

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-K

Item 1A. Risk Factors