Item 1. Business
Item
1.
Business
Background of Unusual Machines
Unusual Machines, Inc. (“Unusual Machines”
or the “Company”) is a Nevada corporation organized in 2024 which is a successor to a Puerto Rican corporation organized in
2019. The Company is engaged in the commercial drone industry, with its principal place of business in Orlando, Florida. In September
of 2025, the Company acquired Rotor Lab Pty. Ltd., an Australian company (“Rotor Lab”).
Unusual Machines manufactures and sells drone
components and drones across a diversified brand portfolio through business-to-business (“B2B”) sales and a curated retail
channel. There is strong brand recognition of the Unusual Machines, Rotor Riot, and Fat Shark brands, particularly in the first person
view (“FPV”) and small military sub-segments of the drone market. Unusual Machines is rapidly growing its business by onshoring
the manufacturing of critical drone components in the United States. With the transition to onshoring drone component production, the
Company is expanding B2B sales to customers that require a National Defense Authorization Act (“NDAA”)-compliant domestic
supply chain.
A key factor in Unusual Machines’ component
production is the validation of newly supply chains to meet defense and federal procurement requirements. The Defense Contract Management
Agency audits new drone components for supply chain and cybersecurity risks. Components that pass the audit can then be put on the actively
maintained Blue Framework list. Since August 2024, Unusual Machines has developed six components (and variants) that have been approved
and added to the Blue Framework. The Company intends to continue developing and certifying new components through this process to ease
acquisition requirements for domestic drone manufacturers, which are ultimately significant customers.
The Drone Industry
The drone industry continues to expand as a powerful
business, defense, and public safety tool, as well as a popular recreational activity, with growth occurring broadly across our targeted
industries. According to Drone Industry Insights’ Global Drone Market Report 2025–2030, the global drone market is projected
to reach approximately U.S. $57.8 billion by 2030. A Fact.MR report indicates the drone accessories market was valued at approximately
$25.2 billion in 2024 and is projected to reach ~$156 billion by 2034 at a ~20% CAGR. Furthermore, the global drone flight controller
system market was approximately $7.14 billion in 2024 and is expected to reach around $13.05 billion by 2029 (CAGR ~12.8%) according to
the Business Research Company. Similarly, Global Market Insights reports that the drone motor market was valued at ~$4.7 billion in 2024
and is forecast to grow to ~$9.2 billion by 2030, and ~$15.9 billion by 2034 at a ~13.1% CAGR. Fortune Business Insights likewise forecasts
the motor market at $6.7 billion in 2025, with expansion toward $16.3 billion by 2034 as commercial and industrial drone deployment increases.
Unusual Machines intends to pursue strategic acquisition
targets that are cash flow positive and manufacture and sell drone components or enable us to domestically produce them. The Company believes
that very promising companies (both public and private) are, in many instances, underfunded and unable to scale their innovative products
and solutions. We believe that unlocking this potential will be key to industry consolidation. The Company’s acquisition strategy
is intended to support broader industry shifts toward U.S.-manufactured and NDAA-compliant drone systems, while maintaining a deliberate
approach to capital allocation and integration risk.
Low Cost and Attritable Drone Market Segment
Unusual Machines principally operates and manufactures
components in the Group 1 Unmanned Aerial Systems (“UAS”) which is often referred to as the small drone segment of the drone
industry. These drones are known for being light weight, high speed, and low-cost attritable drones where responsiveness and situational
awareness are essential. In the defense sector, these drones are primarily used for tactical missions with real time intelligence, surveillance,
and reconnaissance. In the commercial and consumer sector, these drones are used for freestyle, racing, cinematic production, mapping
and commercial use.
1
This also includes FPV drones where pilots use
wearable display devices or screens that provide real-time, first-person video feed from a camera mounted on the drone, creating an immersive
operating experience in which the pilot interacts with the aircraft through visual immersion. This experience is enabled by live-streamed
video transmitted with ultra-low latency from the drone to the pilot via radio links, enabling precise pilot control. FPV systems integrate
onboard cameras, video transmission modules, flight controllers, motors, and pilot display devices that operate as an integrated system
over radio communications. While FPV video transmission has historically relied on analog signals, digital transmission systems are increasingly
adopted as reliability, range, and image quality improve. These systems require sophisticated electronics capable of maintaining low-latency,
reliable performance during flight.
Plans for Growth, Development, and Expansion
Unusual Machine’s intends to strengthen
its market position through continued organic revenue growth while expanding its role as a U.S. supplier of critical drone components.
The Company’s growth strategy emphasizes disciplined execution, increased operational scale, and expansion of its B2B component
sales to commercial and defense-oriented customers.
The Company’s business strategy includes
(i) increasing its overall customer base through broader adoption of its products across consumer, commercial, and mission-oriented applications;
(ii) investing in the development and expansion of hardware products that support increased performance, reliability, and manufacturability;
(iii) growing revenue from its existing customer base using a “land-and-expand” approach that establishes initial relationships
and deepens engagement over time through consistent product delivery and service; (iv) selectively pursuing acquisitions and partnerships
that enhance domestic manufacturing capabilities, supply chain control, or component offerings; and (v) making strategic investments in
emerging leaders in the U.S. drone ecosystem that would help us broaden our pipeline and relationships with our suppliers and customers
and thereby support the American drone ecosystem.
Customers
Historically, Unusual Machines generated a significant
portion of its revenue through direct-to-consumer sales via its Rotor Riot e-commerce platform. As Unusual Machines continues to expand
its B2B component offerings, enterprise sales have grown to represent a larger portion of total revenue. In 2025, enterprise customers
became the Company’s primary revenue driver.
The Company’s enterprise customer base consists
primarily of U.S.-based drone manufacturers and system integrators that purchase components for use in consumer, commercial, and mission-oriented
drone platforms. Unusual Machines expects continued growth in this customer base as demand for domestically sourced, reliable, and compliant
drone components increases, supported by expanding manufacturing capacity and broader component availability.
Competition
Unusual Machines operates in a highly competitive
drone and drone components market characterized by rapid technological change, pricing pressure, and the presence of large, well-capitalized
international manufacturers. Competition varies by product category and end market, particularly between consumer-facing products and
enterprise-focused component sales.
In the global drone market, SZ DJI Technology
Co., Ltd. (“DJI”) is the dominant manufacturer, with industry research firms estimating that DJI accounts for a majority of
global consumer and prosumer drone sales. DJI’s scale and vertical integration create competitive pressure across the industry,
while evolving regulatory requirements and customer demand for U.S.-based, compliant supply chains have created opportunities for alternative
suppliers. See “Government Regulation and Federal Policy” below for recent information relating to DJI.
Within the drone components market, Unusual Machines
competes with domestic and international manufacturers, including T-Motor, Orqa, ModalAI, and ARK Electronics. Competition is based on
price, performance, reliability, availability, and compliance.
Unusual Machines differentiates itself by offering
price-competitive, domestically manufactured and assembled drone components designed to meet NDAA requirements and align with Department
of Defense procurement frameworks, including the Blue UAS ecosystem, while focusing on supply chain control and execution reliability.
2
The Company’s Drone Component Manufacturing
The Company operates multiple manufacturing facilities located near
its headquarters in Orlando, Florida. As of March 2026, Unusual Machines operates five facilities in the Orlando area to support domestic
drone component production and assembly, one of which is our corporate office. These facilities manufacture a variety of drone components,
including motors, headsets, and other critical components. The components support consumer, defense, and enterprise customers. The Company
expects to continue to expand its production footprint in the Orlando area in a planful and deliberate manner, including the potential
addition of new product categories, such as batteries and cameras, as operational capacity and customer demand support such expansion. See “ Item 1A. Risk Factors .”
Suppliers
Unusual Machines sources inventory from approximately
70 suppliers, some of which are subject to varying tariffs. Since 2019, the United States has implemented and continuously increased tariffs
on certain imported goods, which Unusual Machines is currently subject to, ranging from 2% to 30%. These tariffs can increase the cost
of goods, reducing the Company’s profit margins or increasing the total price for our customers.
Certain competitors in the drone retail and components
markets are subject to the same tariffs and rely on supply chains that include a greater mix of foreign-sourced products, including components
manufactured in China. Unusual Machines’ increasing use of domestically manufactured components may reduce relative exposure to
tariffs on imported goods and improve supply chain resilience. In addition, evolving trade policies have led some U.S. drone manufacturers
to place greater emphasis on domestic sourcing, which the Company believes has supported increased customer interest in U.S.-based component
suppliers, including Unusual Machines, that are actively onshoring, although such impacts remain subject to market conditions and policy
developments.
For a discussion of risks related to tariffs and
international trade policy, see “ Item 1A. Risk Factors —Risks Related to Our Business and Financial Condition.”
Government Regulation and Federal Policy
National Defense Authorization Act and American
Security Drone Act
In December 2023, Congress passed the NDAA, which
includes provisions commonly referred to as the American Security Drones Act (“ASDA”). These provisions are intended to restrict
the procurement and use of certain unmanned aircraft systems (“UAS”) manufactured or assembled by foreign entities identified
as national security threats, including certain Chinese manufacturers. The ASDA has been enacted and is being implemented through federal
regulations and agency guidance. Specifically, the American Security Drone Act:
·
Prohibits federal departments and agencies from procuring and operating certain foreign commercial off-the-shelf drones or covered unmanned aircraft systems manufactured or assembled in countries identified as national security threats, and establishes a phased timeline to discontinue the use of such systems currently in operation, subject to applicable waivers and implementation guidance.
·
Restricts the use of federal funds awarded through certain contracts, grants, or cooperative agreements to state or local governments for (i) the procurement of a covered unmanned aircraft system that is manufactured or assembled by a covered foreign entity or (ii) the operation of such system.
·
Requires the Comptroller General of the United
States to submit a report to Congress detailing the extent to which federal departments and agencies have procured or operated foreign-manufactured
commercial off-the-shelf drones or covered UAS sourced from countries identified as national security threats.
On November 21, 2025, the White House Office of
Management and Budget issued Memorandum M-26-02 implementing Section 1829 of ASDA and related provisions. The memorandum requires federal
civilian agencies, within 180 days of issuance, to integrate specified information security and risk assessment procedures into UAS procurements
and into grants and cooperative agreements that fund UAS acquisitions. In addition, consistent with ASDA and the Federal Acquisition Regulation,
federal agencies are prohibited from procuring or operating certain “FASC-prohibited” unmanned aircraft systems manufactured
or assembled by designated foreign entities, subject to statutory exemptions and case-by-case waivers. Beginning December 22, 2025, federal
funds awarded through grants, cooperative agreements, or other federal awards may not be used to procure or operate such systems except
where an applicable exemption or approved waiver applies. We anticipate that this will stimulate additional demand for domestically made
drones and drone components.
Implementation of these provisions is occurring
through federal rulemaking, including amendments to the Federal Acquisition Regulation (“FAR”), and is subject to agency-specific
guidance, exemptions, and transition periods.
3
FCC Equipment Authorization and Countering
CCP Drones Act
In December 2024, Section 1709 of the National
Defense Authorization Act was enacted. This provision expands the authority of the Federal Communications Commission (“FCC”),
in coordination with national security agencies, to conduct security reviews of certain foreign-manufactured drone systems.
The legislation directs the Nation Security Agencies
to conduct a national security determination of the two largest Chinese drone companies (DJI and Autel), within a one year period. If
these manufacturers are deemed an unacceptable national security threat, or if a determination is not completed within one year, the
FCC may place the entities on its Covered List, which proscribes granting any future FCC licenses, which are necessary for the importation
and marketing of UAS in the United States.
In October 2025, the FCC voted unanimously (3-0)
to adopt a rule allowing the agency to retroactively ban equipment, including previously authorized wireless devices, if the manufacturer
is deemed a national security threat.
On December 23, 2025, the FCC issued guidance
of implementation of Section 1709. Going forward UAS seeking FCC approvals must have at least 65% of components, based on value, and must
be domestically sourced (under the March 2022 changes to Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements).
This pertains to drones made in any country other than the United States. The FCC specifically includes motors and batteries. Without
meeting this standard, a company must seek a waiver from the FCC in order to receive a license. The FCC updated its Covered List to include
drones and drone components produced abroad. The Covered List identifies communications equipment and services that are deemed to pose
an unacceptable risk to the national security of the U.S. or the safety and security of U.S. persons. Equipment on the Covered List is
prohibited from receiving FCC authorization. The FCC’s updated restrictions apply to new device models but do not prohibit the import,
sale or use of any existing models previously authorized by the FCC.
On January 7, 2026, the FCC partially reversed
the restriction to exempt drones and drones components on the Pentagon’s Blue List of cleared UAS aircraft, such as components produced
by foreign manufacturers including Sony, Nvidia and Panasonic. However, DJI, the world’s drone manufacturer, is based in China and
was not included on the Blue UAS List.
As a result of the December restrictions, DJI
filed a petition in the U.S. Court of Appeals for the Ninth Circuit challenging the FCC’s decision to add foreign drones and components
to the Covered List. DJI alleges that the FCC’s actions violate the Fifth Amendment and exceed the FCC’s statutory authority
and that it will sustain severe harm as the FCC has used the ruling to justify restrictions on its ability to import its existing products,
as well as new products outside the scope of the ruling, into the U.S. We cannot predict the outcome of this litigation.
While the scope, timing, and outcome of these
reviews remain subject to FCC implementation and agency discretion, any resulting restrictions on new equipment authorizations could
limit the introduction of new drone models from affected manufacturers into the U.S. market. Such restrictions will apply across consumer,
commercial, and enterprise use cases and could increase demand for compliant drone systems and components from U.S.-based suppliers,
including Unusual Machines, subject to regulatory interpretation and future policy developments.
Department of Defense Policy and the Drone
Dominance Initiative
In parallel with legislative and regulatory actions,
in December 2025, the Department of War (“DoW”) announced Drone Dominance, an iterative $1.0 billion plan to purchase small,
lethal drones over the next two years. This program is designed to accelerate the development, procurement, and deployment of secure,
scalable, and cost-effective unmanned systems sourced from domestic and allied suppliers. This and other initiatives emphasize rapid
manufacturing, resilient supply chains, and the availability of compliant components suitable for defense and allied applications.
Collectively, these developments reflect a broader
federal effort to reduce reliance on foreign-manufactured drone systems and to strengthen the U.S. drone industrial base. While the timing
and scope of implementation may vary, the Company believes these actions are contributing to increased demand for U.S.-manufactured and
compliant drone components, subject to regulatory interpretation and future policy developments.
Environmental Considerations
Compliance with applicable environmental laws
since inception has not had a material effect upon the Company’s capital expenditures, earnings or competitive position. However,
drones are battery operated which use electricity for charging. To that extent, except for users who use solar and other non-electrical
power to charge drones, users of drones the company sells burn carbon which negatively affects the environment.
Employees and Human Capital Resources
As of March 6, 2026, the Company had 141 full-time
employees and 3 full-time contractors, including our Chief Executive Officer, whose services are performed under a consulting agreement.
4
Property
The Company’s headquarters
are in Orlando, Florida. As of March 2026, we lease five facilities in Orlando, Florida which are utilized for manufacturing, warehousing
and a corporate office. We also lease a facility in Canberra, Australia which is utilized for motor manufacturing. Our leases total 62,500
square foot in the aggregate.
Intellectual Property
The Company has consolidated
its IP into a subsidiary, UMAC IP Holdings Corp. The IP portfolio primarily includes design and utility patents related to FPV headsets.
None of the patents are currently licensed and IP is generated in the general course of doing engineering design.
The following table summarizes currently issued
patents (indicated by “Issued”) including the grant dates thereof, and patent applications (indicated by “Pending or
Published”). As the chart indicates, some of these patents are in the U.S., where when issued the patent protection generally applies
for 20 years from the date the patent application was made (subject to potential extension, if applied for and granted). In general, patent
protection provides the patent holder with a monopoly on the invention within its scope for the duration of the patent.
Country
Status
Patent No
Application Date
Grant Date
Title
United States
Issued
D825,381
7/13/2017
8/14/2018
UNMANNED AERIAL VEHICLE (Design
Canada
Issued
179088
1/10/2018
5/30/2019
UNMANNED AERIAL VEHICLE (Design)
China
Issued
CN304757327S
1/9/2018
8/3/2018
UNMANNED AERIAL VEHICLE (Design)
EU
Issued
004665040
1/12/2018
1/12/2018
UNMANNED AERIAL VEHICLE (Design)
GB
Issued
90046650400001
1/12/2018
1/12/2018
UNMANNED AERIAL VEHICLE (Design)
Korea
Issued
30-963991
1/11/2018
7/3/2018
UNMANNED AERIAL VEHICLE (Design)
United States
Issued
10,179,647
8/23/2017
1/15/2019
UNMANNED AERIAL VEHICLE (Utility)
China
Issued
109421925
8/8/2018
3/12/2024
UNMANNED AERIAL VEHICLE (Utility)
France
Issued
3446974
6/25/2018
11/6/2024
UNMANNED AERIAL VEHICLE (Utility)
Germany
Issued
602018076194.2
6/25/2018
11/6/2024
UNMANNED AERIAL VEHICLE (Utility)
Switzerland
Issued
3446974
6/25/2018
11/6/2024
UNMANNED AERIAL VEHICLE (Utility)
United Kingdom
Issued
3446974
6/25/2018
11/6/2024
UNMANNED AERIAL VEHICLE (Utility)
United States
Issued
D848,383
7/13/2017
5/14/2019
PRINTED CIRCUIT BOARD (Design)
Canada
Issued
179089
1/10/2018
5/30/2019
PRINTED CIRCUIT BOARD (Design)
China
Issued
304758049S
1/9/2018
8/3/2018
PRINTED CIRCUIT BOARD (Design)
EU
Issued
004665032
1/12/2018
1/12/2018
PRINTED CIRCUIT BOARD (Design)
United Kingdom
Issued
90046650320001
1/12/2018
1/12/2018
PRINTED CIRCUIT BOARD (Design)
Korea
Issued
30-965570
1/11/2018
7/13/2018
PRINTED CIRCUIT BOARD (Design)
China
Issued
110376734
4/12/2018
11/19/2021
SINGLE-PANEL HEAD-MOUNTED DISPLAY (Utility)
EU
Pending
19159958.8
2/28/2019
SINGLE-PANEL HEAD-MOUNTED DISPLAY (Utility)
United States
Issued
10,819,973
6/7/2018
10/27/2020
SINGLE-PANEL HEAD-MOUNTED DISPLAY (Utility)
China
Issued
113359293
3/6/2020
11/25/2025
APPARATUS FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET (Utility)
United States
Issued
12,294,808
2/28/2021
5/6/2025
APPARATUS FOR ATTACHING ACCESSORIES TO A FIRST-PERSON VIEW HEADSET (Utility)
United States
Issued
D991,255
5/17/2021
7/4/2023
HEADSET (Design)
China
Issued
CN308594144S
11/11/2021
4/19/2024
VR GLASSES (Design)
Canada
Issued
DM/218 069
11/9/2021
11/9/2021
HEADSET (Design)
EU
Issued
DM/218 069
11/9/2021
11/9/2021
HEADSET (Design)
Japan
Issued
DM/218 069
11/9/2021
11/9/2021
HEADSET (Design)
GB
Issued
DM/218 069
11/9/2021
11/9/2021
HEADSET (Design)
5
Trademark Portfolio
The following table summarizes current registered
trademarks (indicated by “Registered”) including the registration dates. As the chart indicates, these trademarks are registered
in the United States and abroad.
Country
Status
Trademark
Reg. No.
Reg. Date.
App. No.
App. Date.
Classes
Next Deadline
US
Registered
ROTOR RIOT
5,175,159
4/4/2017
87/074,341
6/16/16
16, 25, 35, 41
Renewal due 4/4/2027
Australia
Registered
ROTOR RIOT
1814854
4/18/2017
1814854
12/9/16
16, 25, 35, 41
Renewal due 12/9/2026
Canada
Registered
ROTOR RIOT
TMA1013525
1/22/2019
1813182
12/8/16
16, 25, 35, 41
Renewal due 1/22/2034
EU
Registered
ROTOR RIOT
016152688
5/14/2017
016152688
12/12/16
16, 25, 35, 41
Renewal due 12/12/2026
UK
Registered
ROTOR RIOT
UK00916152688
5/14/2017
UK00916152688
12/12/16
16, 25, 35, 41
Renewal due 12/12/2026
US
Registered
Rotor Riot Logo
5,175,160
4/4/2017
87/074,378
6/16/16
16, 25, 35, 41
Renewal due 4/4/2027
Australia
Registered
Rotor Riot Logo
1814855
4/18/2017
1814855
12/9/16
16, 25, 35, 41
Renewal due 12/9/2026
Canada
Registered
Rotor Riot Logo
TMA1013624
1/22/2019
1813183
12/8/16
16, 25, 35, 41
Renewal due 1/22/2034
EU
Registered
Rotor Riot Logo
016152837
5/14/2017
016152837
12/12/16
16, 25, 35, 41
Renewal due 12/12/2026
UK
Registered
Rotor Riot Logo
UK00916152837
5/14/2017
UK00916152837
12/12/16
16, 25, 35, 41
Renewal due 12/12/2026
US
Registered
BYTE FROST
6,318,131
4/13/2021
88/574,951
8/12/19
9
AOU due 4/13/2027
US
Registered
DOMINATOR
5,446,501
4/17/2018
87/513,286
6/30/17
9
Renewal due 4/17/2028
US
Registered
FAT SHARK
6,037,513
4/21/2020
87/513,291
6/30/17
9, 12
AOU due 4/21/2026
Australia
Registered
FAT SHARK
1892862
7/18/2018
1892862
7/12/17
9, 12
Renewal due 7/12/2027
UK
Registered
FAT SHARK
UK00917653122
6/12/2018
UK00917653122
12/27/17
9, 12
Renewal due 12/28/2027
EU
Registered
FAT SHARK
17653122
6/12/2018
17653122
12/28/17
9, 12
Renewal due 12/28/2027
China
Registered
FAT SHARK
28347095
3/7/2019
28347095
12/27/17
9
Renewal due 3/6/2029
China
Registered
FAT SHARK
28347096
12/7/2018
28347096
12/27/17
12
Renewal due 12/6/2028
6
S. Korea
Registered
FAT SHARK
40-1429232
12/20/2018
40-20170165133
12/22/17
9, 12
Renewal due 12/20/2028
Japan
Registered
FAT SHARK
6128494
3/8/2019
2017162207
12/11/17
9, 12, 28
Renewal due 3/8/2029
US
Registered
Shark Head Logo
5,921,613
11/26/2019
87/792,917
2/10/18
9, 25
AOU due 11/26/2025
UK
Registered
Shark Head Logo
UK00917938426
12/26/2018
UK00917938426
7/31/18
9, 12, 25
Renewal due 7/31/2028
EU
Registered
Shark Head Logo
17938426
12/26/2018
17938426
7/31/18
9, 12, 25
Renewal due 7/31/2028
China
Registered
Shark Head Logo
32458836
4/7/2019
3248836
7/25/18
9
Renewal due 4/6/2029
China
Registered
Shark Head Logo
32458835
4/7/2019
32458835
7/25/18
12
Renewal due 4/6/2029
China
Registered
Shark Head Logo
32458837
4/7/2019
32458837
7/25/18
25
Renewal due 4/6/2029
US
Registered
SHARK BYTE
6,631,683
2/1/2022
90/337,500
11/23/20
9
AOU due 2/1/2028
UK
Registered
SHARK BYTE
UK00003597165
9/3/2021
UK00003597165
2/18/21
9
Renewal due 2/18/2031
EU
Registered
SHARK BYTE
018402699
11/5/2021
018402699
2/19/21
9
Renewal due 2/19/2031
China
Registered
SHARK BYTE
53741813
10/14/2022
53741813
2/20/21
9
Renewal due 10/27/2031
United States
Pending
Unusual Machines Logo
N/A
N/A
99/550,396
12/16/2025
N/A
N/A
United States
Pending
Unusual Machines Logo
N/A
N/A
99/550,399
12/16/2025
N/A
N/A
United States
Pending
Unusual Machines Logo
N/A
N/A
99/550,405
12/16/2025
N/A
N/A
Research and Development
Research and development activities are part of
Unusual Machine’s business, and the Company will follow a disciplined approach to investing capital and resources to create new
drone technologies and solutions. Research and development costs were approximately $202,585 and $90,584, for the years ended December
31, 2025 and 2024, respectively and primarily related to developing NDAA compliant products including our Brave F7 flight controller,
Brave 55A ESC and the Fat Shark Aura FPV Camera. A fundamental part of this approach is a well-defined screening process that helps us
identify commercial opportunities that support desired technological capabilities in the markets we serve.
7