What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-14 compared with 2025-11-06 · 165 added, 337 removed, 25 unchanged (95% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should

be read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report

and our audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December

The following discussion and analysis should be

read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report and

our audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31,

2025, which was filed with the SEC on March 12, 2026.

The following discussion contains forward-looking statements that are subject

to risks and uncertainties.

See “Special Note Regarding Forward-Looking Statements” for a discussion of the uncertainties,

risks, and assumptions associated with those statements.

Actual results could differ materially from those discussed in or implied by

forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report and

of our Annual Report on Form 10-K for the year ended December 31, 2024, particularly in the section entitled “Risk Factors.”

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company”

refer to Unusual Machines, Inc.

The following discussion contains forward-looking statements that are subject to

risks and uncertainties.

See “Special Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks,

and assumptions associated with those statements.

Actual results could differ materially from those discussed in or implied by forward-looking

statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report and of our Annual Report

on Form 10-K for the year ended December 31, 2025, particularly in the section entitled “Risk Factors.” Unless we state otherwise

or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer

to Unusual Machines, Inc.

and its subsidiaries.

All amounts presented in tables, other than per share amounts, are in thousands

unless otherwise noted.

Company Overview

We are a Nevada corporation with our principal

place of business in Orlando, Florida.

We sell and manufacture drones and drone components across a diversified brand portfolio, which

includes Fat Shark, the leader in FPV (first-person view) ultra-low latency video goggles for drone pilots.

We also retail small, acrobatic

FPV drones and equipment directly to consumers through the curated Rotor Riot e-commerce store.

Beginning in the second half of 2024,

we launched our business-to-business (“B2B”) channel selling drone parts to commercial customers.

With a changing regulatory

environment, we seek to be a dominant Tier-1 parts supplier to the fast-growing multi-billion-dollar U.S.

drone industry.

recently opened a drone motor manufacturing facility in Orlando, Florida, is expecting to open a fulfillment facility in Orlando, Florida

in December 2025, and expects to open a drone manufacturing facility in the coming months in Orlando, Florida.

Recent Developments, Challenges and Uncertainties

At the Market Agreement

On August 28, 2025, we entered into a Capital

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

to which we may issue and sell over time and from time to time up to $300,000,000 worth of shares of our common stock (the "Shares”).

Sales of the Shares, if any, may be made by any method permitted by law deemed to be an "at the market” offering as defined

in Rule 415 of the Securities Act of 1933 (the "Securities Act”), including without limitation sales made directly on or through

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

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

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

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

Jones will use commercially reasonable efforts to sell on behalf of us all

the Shares requested to be sold by us, consistent with its normal trading and sales practices, subject to the terms of the Sales Agreement.

Under the Agreement, Jones will be entitled to

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

In addition, we have agreed to

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

In addition, we shall reimburse Jones

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

The Shares are being offered and sold pursuant to

a prospectus supplement filed with the SEC.

During the month of October 2025, we sold 4,666,600

shares of common stock at an average price of $15.46 per share under the Agreement for total gross proceeds of approximately $72.1 million.

We paid Jones approximately $2.2 million related to the sales of common stock under the Sales Agreement.

On July 14, 2025, we entered into a securities

purchase agreement with certain investors for the purchase and sale of 5,000,000 shares of common stock in a registered direct offering

at a public offering price of $9.70 per share.

On July 15, 2025, the offering closed and we received aggregate gross proceeds of $48.5

million before deducting placement agent fees and other related expenses.

The Company intends to use the proceeds of this offering for

the purchase of our drone motor manufacturing equipment which we estimate to be approximately $4.0 million, general corporate purposes

and working capital.

With the funds received from our recent offerings,

we are focusing on growing both our enterprise and retail revenue channels and investing in drone component manufacturing in the United

During the first quarter of 2025, we added both the Rotor Riot Brave 55A ESC (electronic speed controller), and the Fat Shark

Aura FPV (first-person view) Camera to the U.S.

Department of Defense Innovation Units Blue UAS Framework (“DIU Blue Framework”).

In addition, in July 2025, we added the Fat Shark Aura Video Transmitter (VTX) to the DIU Blue Framework.

In furtherance of our B2B business,

we have entered into a new lease of a 17,000 square foot facility in Orlando, Florida effectively August 1, 2025, where we recently opened

a drone motor manufacturing plant.

See Note 7 to Consolidated Financial Statements.

While we continued to see top line revenue growth

during the first half of 2025, our continued future plans for retail revenue growth and margins are subject to uncertainties outside of

our control, including changes to trade policy with respect to tariffs and other impacts to our global supply chain cost structure.

are continually evaluating the tariff landscape and working to find reliable and high quality suppliers in multiple countries including

the United States and Taiwan that we anticipate will have the least amount of impact to our retail costs and overall margin.

the tariff uncertainties, we cannot predict the impact tariff policies in the United Staes and other countries will have on our business.

But our consumer business (“B2C”) relies heavily on China so retaliatory tariffs can adversely affect us especially our B2C

See “Item 1A – Risk Factors” for more information on the risks associated with the uncertainty of the imposition

of tariffs on our business.

Rotor Lab Acquisition

On June 12, 2025, we entered into a Share Purchase

Agreement (“SPA”) to acquire 100% of the capital stock of Rotor Lab Pty Ltd., an Australian company (“Rotor Lab”)

from its existing shareholders.

We agreed to issue the sellers a total of $4,000,000 of shares of our common stock, plus additional earnout

consideration of up to $3,000,000 worth of shares of our common stock.

$800,000 of the initial consideration will be restricted and subject

to forfeiture in the event of a breach of representations and warranties and indemnification.

The acquisition of Rotor Lab was finalized

on September 3, 2025 with the issuance of 656,642 shares of our common stock.

Recent Customer Purchase

On October 15, 2025, we secured an order from

Army’s 101 st Airborne Division for 3,500 NDAA-compliance motors produced at our new U.S.

based manufacturing

The motors will support the Division’s deployment of the new Attritable Battlefield Enabler V1.01 drones.

also indicated plans to expand procurement, targeting an additional order of 20,000 components including motors from us in 2026.

On October 3, 2025, we secured an $800,000 purchase

order for high-performance drone components from Red Cat.

The order includes several of our Blue UAS products and motors that will be

integrated into Red Cat’s FANG™ drones, supporting ongoing demand for U.S.

made, NDAA compliant systems in defense, public

safety, and other government agency applications.

On September 30, 2025, we secured a $12.8 million

defense purchase order supplying Strategic Logix’s RRSL Drone Systems.

We are the primary supplier of NDAA compliant components

including our Blue UAS listed Aura Analog Camera, Aura VTX, Brave Flight Controller, and Brace ESCs for the RRSL line.

The RRSL developed

by Strategic Logix is an interoperable UAV platform with configurations starting at $800, including manual, autonomous, and fiber enabled

The order covers more than 160,000 of our manufactured components, including ground control systems, highlighting both the demand

scale and our central role in enabling production.

Recent Investments

On September 29, 2025, we entered into a Securities

Purchase Agreement with Kopin Corporation (“Kopin”) pursuant to which we purchased 2,380,952 shares of Kopin’s common

stock at a purchase price of $2.10 per share, for an aggregate purchase price of $5.0 million In addition, on September 29, 2025, Kopin

and Unusual Machines entered into a Registration Rights Agreement, pursuant to which Kopin agreed to file a registration statement with

the SEC on or prior to the 40th calendar day following the date of the Securities Purchase Agreement.

On September 16, 2025, we entered into a Securities

Purchase Agreement with Lightpath Technologies, Inc.

(“Lightpath”) pursuant to which we purchased 800,000 of Lightpath’s

common stock at a purchase price of $5.00 per share for an aggregate purchase price of $4.0 million.

On October 1, 2025, Lightpath filed

a registration statement on Form S-3 to register the issuance of such shares of common stock.

On August 19, 2025, we entered into a Securities

Purchase Agreement with Safe Pro Group Inc.

(“Safe Pro”) pursuant to which we purchased for an aggregate purchase price of

$2.0 million an aggregate of:

(i) 500,000 shares of Safe Pro’s common stock, and (ii) three-year warrants to purchase up to 500,000

shares of Safe Pro’s common stock (the “Warrants”).

The Warrants were issued on August 21, 2025, have an initial exercise

price equal to $6.00 per share, are immediately exercisable, and will expire three years from the date of issuance.

The combined purchase

price of one share of common stock and one accompanying Warrant was $4.00.

The issuance of the shares of common stock and the shares of

common stock underlying the warrants are registered pursuant an effective registration statement (No.

333-290107) and are freely tradeable.

On October 1, 2025, Unusual Machines appointed

Al Ducharme as Vice President of Engineering.

Ducharme has more than 25 years of experience in photonics, optics, embedded systems,

and unmanned aerial vehicle (UAV) technologies.

At Hoverfly, he grew the company from startup to global supplier, launching more than

20 products, including one of the world's first drone flight controllers.

He holds 30 U.S.

and international patents and a proven record

in product development, IP strategy, and scaling engineering teams.

In his new role, Ducharme wil report to COO Andrew Camden and partner

with Unusual Machines' production team to align design and engineering, focusing on speed, quality, and anticipating customer needs.

On September 19, 2025, Unusual Machines

appointed Mr.

Nathaniel Kennedy as Vice President of Marketing.

With over 25 years of experience in e-commerce, consumer, enterprise,

and licensing, Mr.

Kennedy has led digital transformation, forged high-profile partnerships-including a NASCAR collaboration-and scaled

businesses into national leaders.

At Unusual Machines, he will oversee marketing for Rotor Riot, Fat Shark, and the broader portfolio,

in addition to supporting enterprise and defense growth.

On September 4, 2025, Unusual Machines appointed

Craig McIntyre as Vice President of Enterprises Sales.

McIntyre brings more than 20 years of leadership in sales and business

development, including senior roles building drone solutions ecosystems and navigating government procurement.

Most recently, he served

as Head of Commercial Market Development for Drone Solutions at BT Group, where he oversaw counter UAS and infrastructure contracts, introduced

the world's first 4G drone SIM, and launched national drone survey services.

He has also founded and scaled multiple start-ups focused

on UAV, counter-UAS, and emerging technology markets.

On August 11, 2025, Unusual Machines appointed

Tom Mercier as Vice President of Headsets.

Mercier brings deep technical and operational experience in developing and scaling

specialty optical systems-from early prototypes through high-yield manufacturing.

His leadership at Magic Leap, Google, and Broadcom demonstrates

his ability to bring sophisticated hardware to market efficiently, with an emphasis on yield, quality, and operational discipline.

On July 7, 2025, Unusual Machines promoted Stacey

Wright to executive Vice President of Revenue.

Wright joined Rotor Riot in 2020 as Vice President and was promoted to President in

2024 following its acquisition by Unusual Machines.

She has been instrumental in scaling operations and laying the foundation for sustained

At the time she joined, Rotor Riot's annual revenue stood at $1.7 million.

All amounts presented in tables, other than per share amounts, are in thousands unless

otherwise noted.

Recent Developments

Confidentially Marketed Public Offering

On March 23, 2026, we completed a confidentially marketed

public offering in which we sold 8,823,529 shares of common stock at $17.00 per share resulting in gross proceeds of approximately $150.0

million, prior to payment of placement agent fees of $10.5 million, and 0.7 million in other offering expenses resulting in net proceeds

of approximately $138.8 million.

We intend to use the net proceeds from the offering to acquire additional inventory, working capital

needs and general corporate purposes.

Inventory Purchase

During the month of May, we are initiating purchase

orders of inventory estimated to be approximately $75.0 million to secure materials and inventory across our drone component product lines.

We are continuing to see significant demand increase across the industry and these purchase orders help position the Company and its inventory

availability to meet customer demand through supply chain planning.

These purchases are expected to be made over the next several months.

Definitive Agreement to acquire Upgrade Energy

On May 7, 2026, we signed a definitive agreement

to acquire DroneNX, LLC which operates as Upgrade Energy (“Upgrade Energy”), a manufacturer of battery and power systems solutions

for unmanned aerial systems.

The transaction purchase price is estimated at $52.0 million, which includes (i) a fixed quantity of 1,792,012

shares of the Company’s common stock at $13.9508 per share which was based on the preceding 5 day volume weighted average share

price of the Company’s common stock prior to signing the definitive agreement, which is estimated to be approximately $25.0 million,

which could be subject to change based on the Company’s common stock price at the time of closing, (ii) $1.0 million in cash upon

closing of the transaction, and (iii) an additional $26.0 million in cash based on the Company recognizing $10.0 million in revenue related

to internally manufactured batteries during the first two years after the acquisition closing date.

The acquisition is subject to customary

closing conditions, including Upgrade Energy completing their financial audit.

The acquisition adds battery expertise to our

domestic manufacturing and engineering capabilities, adds additional drone components to our product mix, and strengthens our overall

domestic supply chain and manufacturing capabilities.

Results of operations

Three Months Ended September 30, 2025 compared

to the Three Months Ended September 30, 2024

During the three months ended September 30, 2025

we generated revenues totaling $2,134,588 compared to $1,531,264 during the three months ended September 30, 2024, representing an increase

of $603,324 or 39%.

The growth in revenue is primarily driven from growth in our enterprise channel as we are manufacturing Blue UAS products

along with growth in our retail channel.

Cost of Goods Sold & Gross Profit

During the three months ended September 30, 2025,

our cost of goods sold was $1,294,200 compared to $1,131,777 during the three months ended September 30, 2024, resulting in an increase

of $162,423 or 14%.

The increase is cost of goods sold relates to our increase in sales during the period.

During the three months ended September 30, 2025,

our gross profit was $840,388 compared to $399,487 during the three months ended September 30, 2024, resulting in an increase of $440,901

Our gross margin, as a percentage of sales, totaled 39.4% during the three months ended September 30, 2025, compared to gross

margin of 26.1% during the three months ended September 30, 2024.

We try and maintain margins in the 20% - 30% range on majority of our

products and anticipate our gross profit to fluctuate period to period depending on certain promotions and products that are sold during

the period and the mix of retail and enterprise sales that are sold during the period.

We continue to see higher gross margins on our

enterprise sales.

Our gross margin is also subject to additional fluctuations based on the increased tariffs being imposed on certain

products, which have been passed on to customers and will have an overall impact on our gross margin.

Operating Expenses

During the three months ended September 30, 2025,

operations expenses totaled $636,705 compared to $218,126 during the three months ended September 30, 2024, resulting in an increase of

$418,579 or 192%.

Operations expense relate to expenses incurred for fulfilling orders and warehouse related expenditures including our

warehouse personnel, supplies, and shipping expenses.

The increase primarily relates to additional costs incurred related to the opening

of our motor factory and its pre-opening operations along with additional shipping costs from the increase in revenue.

During the three months ended September 30, 2025,

research and development expenses totaled $39,369 compared to $15,000 for the three months ended September 30, 2024, resulting in a increase

of $24,369 or 162%.

Research and development expense primarily relates to new product development and is subject to fluctuations based

on specific research and development projects ongoing during the period.

During the three months ended September 30, 2025,

sales and marketing expenses totaled $373,539 compared to $252,253 for the three months ended September 30, 2024, resulting in an increase

of $121,286 or 48%.

The increase primarily relates to additional costs related to marketing of our retail operations and additional staff

that we’ve hired during the quarter.

During the three months ended September 30, 2025,

general and administrative expenses totaling $4,730,063 compared to $1,374,989 for the three months ended September 30, 2024, resulting

in an increase of $3,355,074 or 244%.

The increase primarily relates to the increase in non-cash stock compensation expense which was

approximately $2.1 million for the quarter and an increase in professional fees and other public company expenses.

During the three months ended September 30, 2025,

non-cash depreciation and amortization expenses totaled $22,449 compared to $171 for the three months ended September 30, 2024, resulting

in an increase of $22,278.

The increase relates to an increase in depreciation expense for equipment acquired from the Rotor Lab acquisition

and amortization related to intangibles.

Our net income for the three months ended September

30, 2025, totaled $1,603,465 compared to a net loss of $2,144,250 for the three months ended September 30, 2024, resulting in an increase

in net income of $3,747,715 or 174%.

The increase in net income relates to the unrealized gain from our short term investments for approximately

$5.8 million offset by an increase in SG&A expenses.

With our minority investments in public companies, we are required to mark to

market our portfolio and report the corresponding gain or loss.

Results of Operations – Nine Months

Ended September 30, 2025 compared to the Nine Months Ended September 30, 2024

During the nine months ended September 30, 2025

we generated revenues totaling $6,300,857 compared to $3,561,303 during the nine months ended September 30, 2024, representing an increase

of $2,739,554 or 77%.

The growth in revenue is driven from growth in our existing retail channel and the expansion of our enterprise sales.

Three Months Ended March 31, 2026 and 2025

During the three months ended March 31, 2026 we generated

revenues totaling $8,095,836 compared to $2,042,300 during the three months ended March 31, 2025, representing an increase of $6,053,536

The increase in revenue over the last 12 months primarily relates to the increase and establishment of our B2B business and revenue

related to our NDAA and Blue UAS products.

Our B2B revenue was $7,318,256 for the three months ended March 31, 2026 compared to $34,030

for the three months ended March 31, 2025..

See Note 2 to our Consolidated Financial Statements We recently started manufacturing production

on certain products including drone motors and we continue to see significant increased interest and demand in our manufactured products

in the first quarter and the remaining of 2026.

We expect our revenue to continue to grow quarter over quarter in 2026 as we continue

to build out our capacity including our manufacturing facilities and products as well increasing our staffing to handle additional demand

from the market.

Cost of Goods Sold

During the nine months ended September 30, 2025,

we incurred cost of goods sold of $4,168,984 compared to $2,569,209 during the nine months ended September 30, 2024, resulting in an increase

of $1,599,775 or 62%.

Cost of goods sold primarily relate to product costs from our sales, but also include certain shipping and other

direct product costs.

The increase in cost of goods sold is driven entirely by the increase in our revenue.

During the nine months ended September 30, 2025,

our gross margin was $2,131,873 compared to $992,094 during the nine months ended September 30, 2024, resulting in an increase of $1,139,779

Our gross margin, as a percentage of sales, totaled 33.8% during the nine months ended September 30, 2025, compared to 27.9%

during the nine months ended September 30, 2024.

We anticipate our gross margin to fluctuate period to period depending on certain promotions

and products that are sold during the period and the mix of retail and enterprise sales during the period.

The margins we generated during

the quarter are in line with our expectations and normal operating margins.

During the three months ended March 31, 2026,

our cost of goods sold was $5,441,729 compared to $1,545,493 during the three months ended March 31, 2025, resulting in an increase of

$3,896,236 or 252%.

Cost of goods sold primarily relate to product costs from our sales, but also include certain shipping and other direct

product costs including tariffs.

During the first quarter of 2026, cost of goods sold also include direct payroll costs, a portion of

rent expense and depreciation expense related to our manufactured products.

We did not incur these costs in 2025 as we did not have manufactured

products at that time.

The increase in cost of goods sold is primarily driven by the increase in our revenue and growth in B2B sales.

We expect our total cost of goods sold to increase in 2026 in conjunction with our revenue increases as we sell additional product.

During the three months ended March 31, 2026, our

gross profit was $2,654,107 compared to $496,807 during the three months ended March 31, 2025, resulting in an increase of $2,157,300

Our gross margin, as a percentage of sales, totaled 32.8% during the three months ended March 31, 2026, compared to 24.3% during

the three months ended March 31, 2025.

While the margins we generated during the year are in line with our expectations and normal operating

margins, we do anticipate continued fluctuations in our manufactured products into 2026 as we continue to improve our manufacturing process

and become more efficient.

We anticipate our gross margins to have fluctuations in 2026 as we start scaling our manufacturing process.

We anticipate our gross margins will have a decline in the first two quarters of 2026 as we bring on and train our staff, work to scale

production, increase to multiple shifts, and build out efficiencies.

We anticipate our margins will improve in the second half of 2026

as we have more trained staff and efficient processes and as we bring on our highly-automated production line for motors.

Operating Expenses

During the nine months ended September 30, 2025,

operations expenses totaled $1,343,584 compared to $544,220 during the nine months ended September 30, 2024, resulting in an increase

of $799,364 or 147%.

During the three months ended March 31, 2026,

operations expenses totaled $1,948,899 compared to $302,602 during the three months ended March 31, 2025, resulting in an increase of

$1,646,297 or 544%.

Operations expenses primarily relate to our direct operations including our warehouse personnel and warehouse expenses.

In addition, we have started incurring additional operations related expenses as we start incurring costs related to our motor production

During the nine months ended September 30, 2025,

research and development expenses totaled $110,002 compared to $42,078 for the nine months ended September 30, 2024, resulting in an increase

In addition, we have started incurring additional operations related expenses as we start incurring non-product costs related to our

motor production and headset facilities.

We expect our operations expense to increase as we continue to hire additional staff to support

our operations including engineering staff to help improve process and gain efficiencies.

We are also setting up our headset factory

and anticipate building out a battery facility and camera facility in the second half of 2026.

During the three months ended March 31, 2026,

research and development expenses totaled $91,143 compared to $7,903 for the three months ended March 31, 2025, resulting in an increase

of $83,240 or 1,053%.

1 unchanged sentence

to bring drone component manufacturing to the United States.

During the nine months ended September 30, 2025,

sales and marketing expenses totaled $883,513 compared to $795,643 for the nine months ended September 30, 2024, resulting in an increase

of $87,870 or 11%.

Sales and marketing expenses primarily relate to advertising spend related to Rotor Riot and payroll expenses.

increase relates mainly to adding additional staffing in our sales team.

During the nine months ended September 30, 2025,

general and administrative expenses totaling $15,151,160 compared to $3,728,749 for the nine months ended September 30, 2024, resulting

in an increase of $11,422,411 or 306%.

The increase relates primarily to increased non-cash expenses totaling $9,522,260 related to stock

based compensation expense compared to the expense in 2024 of $759,673 and the additional increase is from increase in professional fees

and other public company related expenses.

During the nine months ended September 30, 2025,

depreciation and amortization expenses totaled $63,635 compared to $513 for the nine months ended September 30, 2024, resulting in an

increase of $63,122.

The increase relates to depreciation during the third quarter from the acquisition of Rotor Lab assets and amortization

related to intangible assets.

Our net loss for the nine months ended September

30, 2025, totaled $8,627,553 compared to $4,862,490 for the nine months ended September 30, 2024, resulting in an increase in net loss

We expect our research and development expenses to increase some as we continue

to build out our products, however, we do not anticipate a significant growth as compared to revenue and other costs.

During the three months ended March 31, 2026, selling

and marketing expenses totaled $580,039 compared to $207,616 for the three months ended March 31, 2025, resulting in an increase of $372,423

Sales and marketing expenses primarily relate to advertising spend related to Rotor Riot, marketing events and payroll expenses

for our sales and marketing team.

The increase relates mainly to adding additional staffing to our sales and marketing team.

We anticipate

our sales and marketing costs to increase in 2026 related to building out our enterprise sales team, however, we expect these increases

to be at a lower rate than our revenue and other expenses as our enterprise sales are more dedicated efforts, while our retail revenue

is driven off of advertising sales.

During the three months ended March 31, 2026, general

and administrative expenses totaling $7,228,201 compared to $3,225,904 for the three months ended March 31, 2025, resulting in an increase

of $4,002,297 or 124%.

The increase primarily relates to an increase of approximately $8.7 million increase over year 2024 in non-cash

stock based compensation expense offset by unrealized gains from short term investments of approximately $5.8 million.

Cash Flow Analysis

Our future cash flows

from operating activities will be significantly impacted by revenues received, our investment in sales and marketing to drive growth,

and general and administrative expenses related to operating a public company.

Our ability to meet future liquidity needs will be driven

by our operating performance and the extent of continued investment in our operations.

Failure to generate sufficient revenues and related

cash flows could have a material adverse effect on our ability to achieve our business objectives.

General and administrative expenses incurred include expenses related to operations for a public company including

legal and other professional fees, public company insurance expense, and other costs associated with being public.

We’ve also increased

our headcount to support our growth which includes building out our accounting, HR, and facilities staff.

The above amount includes $3,939,979

in non-cash stock compensation expense during the first three months of 2026 as compared to $1,906,373 during 2025.

We expect our general

and administrative expenses to increase during 2026 as we continue to build out our infrastructure with additional hires and systems.

We also anticipate things like professional fees and other expenses related to being a public company to increase.

In addition, we anticipate

our non-cash stock compensation expense to be higher in 2026.

We do not anticipate the increase in our general and administrative expenses

to increase at the same rate as our revenue as we start to gain operational efficiencies at scale.

Other Income (Loss)

During the three months ended March 31, 2026,

other income totaled $17,541,980 compared to $1,532 during the three months ended March 31, 2025, resulting in an increase of $17,540,448.

This increase relates primarily to our unrealized gain from short term investments of $9,492,076, realized gain from short term investments

of $7,264,743, and increase in interest income of $790,546.

Operating Income (Loss)

Our operating loss for the three months ended

March 31, 2026 was $7,258,987, compared to an operating loss for the three months ended March 31, 2025 of $3,267,811.

This increase followed

our rapid expansion as we began to apply the cash we had raise to the expansion of our drone components business.

Operating Activities

Net cash used in operating activities was $17,412,987

during the nine months ended September 30, 2025, compared to net cash used in operating activities of $2,718,513 during the nine months

ended September 30, 2024, representing an increase of $8,675,781 or 319%.

This increase in net cash used in operating activities primarily

resulted from our increase in net loss of $3,765,063, increase in inventory of $2,083,662, prepaid inventory of $5,697,419, other assets

of $1,037,670, and unrealized gain on trading securities of $5,849,713, offset by the change in share based compensation expense of $8,762,588

and customer deposits of $951,877.

during the three months ended March 31, 2026, compared to net cash used in operating activities of $1,193,628 during the three months

ended March 31, 2025, representing an increase of $16,219,359.

The increase was primarily attributable to changes in working capital,

including increase in inventory of $8,510,541, prepaid and deposits for inventory of $3,817,595, accounts receivable of $1,817,598, and

a decrease in accounts payable and accrued expenses of $435,307 .

The Company recorded unrealized gains on short term investments of $9,492,076

and realized gains of $7,264,743, which were partially offset by share-based compensation expense of $3,939,979.

Investing Activities

Net cash used in investing activities was $12,457,633

during the nine months ended September 30, 2025 compared to net cash used in investing activities of $852,801 during the nine months ended

September 30, 2024, representing an increase of $11,604,832 or 1,361%.

The cash used in investing activities during the nine months ended

September 30, 2025 related to the purchasing of equipment related to our motor factory and our investment in short-term equity securities

of $11.0 million.

Net cash used in investing activities was $5,383,494 during the three

months ended March 31, 2026 compared to net cash used in operating activities of $0 during the three months ended March 31, 2025.

increase consisted of $17,500,000 used in our strategic short term investments, $698,237 in purchases of property and equipment, partially

offset by proceeds from sales of short term investments of $12,814,743

Financing Activities

Net cash provided by financing activities totaled

$84,378,076 during the nine months ended September 30, 2025, compared to net cash provided by financing activities of $4,362,313 during

the nine months ended September 30, 2024, resulting in an increase in net cash provided by financing activities of $80,015,763.

primarily relates to net proceeds received from our common stock offerings totaling $81,397,000 after deducting offering expenses.

$142,455,327 during the three months ended March 31, 2026, compared to $2,436,966 during the three months ended March 31, 2025, resulting

in an increase in net cash provided by financing activities of $140,018,362 or 5,745%.

Our first quarter 2026 proceeds are from a public

offering of common shares of $149,999,993 offset by offering costs of $11,200,000 and proceeds from warrant exercises of $3,395,000

Liquidity and capital

As of September 30, 2025, we had current assets

totaling $91,704,048 primarily consisting of cash balances of $64,285,750, short-term investments of $16,849,713, accounts receivable

of $309,544, inventory of $3,118,491, other current assets of $218,871 and deposits for inventory of $6,921,679.

Our current liabilities

as of September 30, 2025 totaled $5,933,935, primarily consisting of accounts payable and accrued expenses of $1,167,242, deferred revenue

of $1,518,736,current operating lease liability of $247,957, and contingent consideration related to the Rotor Lab acquisition of $3,000,000.

Our net working capital as of September 30, 2025 was $85,770,113.

During the month of October 2025, we sold 4,666,600

shares of common stock at an average price of $15.46 per share under our At The Market Agreement and after deducting fees and other expenses,

we received approximately $69.9 million in net cash proceeds.

On July 15, 2025, we completed a registered direct

offering in which we sold 5,000,000 shares of our common stock at $9.70 per share and after deducting underwriting discounts and expenses,

we received approximately $44.9 million in net cash proceeds.

On May 7, 2025, we completed a confidentially

marketed public offering in which we sold 8,000,000 shares of our common stock at $5.00 per share and after deducting underwriting discounts

and expenses, we received approximately $36.5 million in cash proceeds.

On February 26, 2025, multiple investors exercised

1,224,606 warrants at $1.99 per warrant from the October 2024 Private Placement and we issued 1,224,606 shares of our Common Stock and

received cash proceeds of $2,436,966.

As of November 6, 2025, we have approximately

$133.0 million in cash.

We believe that the net proceeds from our financings, warrant exercises, revenues, and existing cash balances

will be sufficient to fund our current operating plans through more than the next 12 months.

With the approximately $69.9 million of net

proceeds we received in October 2025 from our ATM, the $3.2 million we received iu November 2025 in relation to certain warrant exercises,

and our existing cash balances, we have substantial liquidity to support our business.

For more information about our ATM, see “Item

II – Other Information – Item 5”.

As of March 31, 2026, we had current assets totaling

$315,205,571 primarily consisting of cash balances of $222,939,674, investments of $60,656,983, inventory of $13,827,189 and deposits

for inventory of $13,566,078.

Our current liabilities as of March 31, 2026 totaled $2,458,193, primarily consisting of accounts payable

and accrued expenses of $1,071,486 and deferred revenue and current operating lease liability of $1,386,707.

Our net working capital as

of March 31, 2026 was $312,747,378.

Subsequent to March 31, 2026, we placed inventory orders of approximately $75 million.

On January 9, 2026, we

received $3,395,000 in proceeds related to the 350,000 warrants that were exercised from the July 2025 Registered Direct Offering.

On March 23, 2026, we completed a public offering

for the sale of 8,823,529 shares of Common Stock at a price of $17.00 per share for aggregate gross proceeds of approximately $150.0

million before deducting fees to the placement agent and other expenses payable by us in connection with the offering.

We retained approximately

$138.8 million in net proceeds after offering expenses.

We believe that our existing cash balances will be sufficient to fund

our current operating plans through more than the next 12 months.

Critical Accounting Policies and Estimates

5 unchanged sentences

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting

pronouncements that are in effect.

These pronouncements did not have any material impact on the financial statements unless otherwise

disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have

a material impact on its financial position or results of operations.

The Company has implemented all new accounting pronouncements

that are in effect.

These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and

the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact

on its financial position or results of operations.

Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined

by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

We are a smaller reporting company as defined by Rule

12b-2 of the Exchange Act and are not required to provide the information required under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis