Core Insights - Unusual Machines has appointed Nathaniel Kennedy as Vice President of Marketing to lead its multi-brand marketing strategy [1] - The company is advancing its domestic production capabilities, which aligns with its focus on NDAA-compliant drone components [1] Company Developments - Nathaniel Kennedy will report directly to Stacy Wright, the Executive Vice President of Revenue [1] - The appointment is part of Unusual Machines' strategy to enhance its marketing efforts across multiple brands [1]

Summary of Unusual Machines (NYSEAM:UMAC) 2025 Conference Call Company Overview - **Company Name**: Unusual Machines Incorporated - **Ticker Symbol**: UMAC - **Industry**: Small Drones and Drone Parts Manufacturing - **Focus**: Onshoring production of drone parts, particularly FPV (First-Person View) goggles, with a significant emphasis on defense applications due to geopolitical factors, especially the conflict in Ukraine [5][6][14] Key Points and Arguments - **Growth and Revenue**: Unusual Machines has experienced substantial growth, achieving its highest revenue quarter ever, with B2B sales of parts increasing by 30% in the last quarter [6][21] - **Market Dynamics**: The small drone market is being driven by geopolitical tensions and U.S. legislation aimed at reducing reliance on Chinese manufacturers. The company has positioned itself to capitalize on this shift by onshoring production [6][14][18] - **Production Strategy**: The company is focusing on producing drone parts in the U.S., particularly in Orlando, to ensure quality and reduce dependency on Chinese suppliers. This includes a robust electronics production infrastructure [12][13][25] - **Defense Market Opportunity**: The U.S. Department of War has allocated approximately $750 million for small drones in the current budget, with an estimated total addressable market for parts around $250 million [14][15] - **Competitive Positioning**: Unusual Machines aims to compete in the value segment of the drone parts market, offering products at lower prices compared to premium competitors [16][23] - **Future Growth Plans**: The company plans to expand its product offerings and production capabilities, including a new facility for headset production and ramping up motor production to meet demand [19][20][21] Additional Important Insights - **Market Consolidation**: The drone industry is expected to consolidate significantly, with projections of reducing the number of companies from around 300 to 20 over the next few years due to capital access and market dynamics [30][42] - **Legislative Impact**: Recent legislation, such as the American Security Drone Act, is expected to further restrict Chinese companies like DJI from the U.S. market, creating opportunities for domestic manufacturers [17][18] - **Financial Position**: The company has a strong financial position with $80 million to $90 million in cash and a low cash burn rate of less than $1 million per quarter, indicating a healthy operational status [21][22] - **Customer Base**: The company serves both military and consumer markets, with a significant portion of sales coming from hobbyists and drone enthusiasts [45] Conclusion Unusual Machines is strategically positioned to leverage the growing demand for domestic drone parts amidst geopolitical tensions and legislative changes. The company’s focus on onshoring production, expanding its product line, and targeting both military and consumer markets presents a compelling investment opportunity in the evolving drone industry [25][30][45]

Core Viewpoint - Safe Pro Group Inc. has secured a private placement with strategic investors to enhance its AI-powered defense solutions, particularly in the drone market, which is projected to grow significantly due to increased government funding and new legislation [1][4]. Company Summary - Safe Pro Group Inc. is a leader in AI-enabled defense and security solutions, focusing on drone imagery processing and advanced situational awareness tools for various sectors including defense and humanitarian applications [8][9]. - The company has developed patented technologies such as the Safe Pro Object Threat Detection (SPOTD) and the Navigation Observation Detection Engine (NODE), which are designed to improve operational efficiency in military and commercial markets [3][5]. Investment Details - The private placement involves the sale of 2,000,000 shares at $4.00 per share, along with warrants for an additional 2,000,000 shares at an exercise price of $6.00, potentially raising up to $20 million [3]. - This investment is expected to strengthen Safe Pro's financial position and facilitate the commercialization of its AI technologies [3]. Market Context - The U.S. Senate Appropriations Committee has proposed a $617 million increase in funding for small unmanned aircraft systems (SUAS), alongside the One Big Beautiful Bill Act (OBBBA) which allocates up to $30 billion for new drone and AI spending [4]. - The global drone accessories market is currently valued at $17.5 billion and is projected to exceed $115 billion by 2032, indicating a robust growth trajectory for the industry [11]. Strategic Partnerships - Safe Pro has partnered with Ondas Holdings Inc. and Unusual Machines Inc., both leaders in the drone industry, to enhance its technological capabilities and market reach [1][6]. - These partnerships aim to accelerate the development and deployment of advanced AI solutions in the unmanned systems sector, contributing to the removal of landmines and enhancing U.S. leadership in the global drone market [6].

Company Performance - Unusual Machines, Inc. reported a quarterly loss of $0.32 per share, significantly worse than the Zacks Consensus Estimate of a loss of $0.07, marking an earnings surprise of -357.14% [1] - The company posted revenues of $2.12 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.19%, and showing an increase from $1.41 million in the same quarter last year [2] - Over the last four quarters, the company has exceeded consensus revenue estimates three times, but has only surpassed EPS estimates once [2] Stock Performance - Shares of Unusual Machines, Inc. have declined approximately 37.7% since the beginning of the year, contrasting with a 10% gain in the S&P 500 [3] - The current consensus EPS estimate for the upcoming quarter is -$0.07 on revenues of $2.76 million, and for the current fiscal year, it is -$0.36 on revenues of $10.38 million [7] Industry Outlook - The Technology Services industry, to which Unusual Machines, Inc. belongs, is currently ranked in the top 37% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - The performance of Unusual Machines, Inc. may be influenced by the overall industry outlook, as empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions [5][8]

Financial Data and Key Metrics Changes - The company reported record revenue of $2,120,000 for the second quarter, representing a 51% increase compared to the same quarter last year [6][7] - Year-to-date revenue reached $4,200,000, marking a 65% increase from the previous year [12] - Gross margin improved from 25% to 31% year-to-date, with a current gross margin of 37% for the quarter [12][14] - The company ended the quarter with $38,900,000 in cash, raising an additional $44,900,000 in the following quarter, resulting in a cash position exceeding $80,000,000 [9][15] Business Line Data and Key Metrics Changes - Enterprise sales accounted for over 30% of total sales, contributing to the overall revenue growth despite weak consumer demand [7][12] - The company experienced an increase in operating expenses due to the setup of a new motor factory, which is expected to continue in the upcoming quarters [13][14] Market Data and Key Metrics Changes - The U.S. drone market is anticipated to grow significantly, with government orders expected to start materializing soon [30][33] - The company is well-positioned to capitalize on favorable market conditions for the American drone subsegment [18][30] Company Strategy and Development Direction - The company plans to aggressively grow its operations, including scaling motor and headset manufacturing capabilities [10][20] - A new facility for headset production is being established in Orlando, with plans for final assembly of Fat Shark headsets [24][25] - The acquisition of Rotor Lab in Australia is expected to close in the third quarter, enhancing production capabilities [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving cash flow positivity by 2026, with expectations of reaching $20 to $30 million in annual revenue to support this goal [33] - The company is optimistic about the future, citing strong demand indicators and the potential for significant government orders [30][33] Other Important Information - The company has a strong balance sheet with no debt, positioning it well for future growth opportunities [15][16] - Management emphasized the importance of maintaining a low cash burn rate while expanding operations [10][14] Q&A Session Summary Question: Can you expand upon the announcement of the new facility for headsets? - The company will start final assembly of existing product lines to ramp up manufacturing capabilities before introducing new headset developments [37][38] Question: Are you expecting to see any new legislation? - Management does not anticipate new legislation but believes current regulations are favorable for market growth [40][41] Question: What is the company's position regarding government drone demand? - The company is involved in supplying components for various government programs, including a significant FPV program [41][42] Question: Do you expect any additional equity raises this year? - Management does not foresee the need for additional capital for operations, given the current cash position [52] Question: What production run rate do you foresee? - The company expects to produce tens of thousands of units in the short term, with the ability to scale further as demand increases [97] Question: What are the plans for when the China ban happens? - The company is well-prepared for potential supply chain disruptions and expects to benefit from increased demand if competitors face challenges [93][94]

[Letter to Shareholders](index=1&type=section&id=Letter%20to%20Shareholders) The letter highlights strong Q2 2025 operational and financial performance, a strengthened balance sheet, favorable regulatory impacts, and clear strategic priorities for future growth and profitability [Operations Update](index=1&type=section&id=Operations%20Update) The company achieved record Q2 2025 revenue and gross margins, driven by enterprise sales, while GAAP net loss was significantly impacted by non-cash equity compensation Q2 2025 Key Performance Indicators | Metric | Value | Note | | :--- | :--- | :--- | | Revenue | ~$2.12 million | 51% YoY increase, 5th consecutive record quarter | | Enterprise Sales | ~31% of Q2 Revenue | Key driver of growth | | Gross Margin | 37% | Highest quarterly margin to date | | GAAP Net Loss | ~$6.9 million | Driven mostly by equity compensation expenses | | Non-GAAP Adjusted Net Loss | ~$0.8 million | After non-cash and non-recurring adjustments | - The company expects the trend of increasing **gross margins** and **enterprise sales** to continue through 2025 and into 2026[3](index=3&type=chunk) [Cash Position and Capital Structure](index=1&type=section&id=Cash%20Position%20and%20Capital%20Structure) The company significantly strengthened its balance sheet in Q2 with substantial cash from financings, maintaining zero debt and a diversified shareholder base Cash Position Change in Q2 2025 | Item | Amount (in millions) | | :--- | :--- | | Starting Cash (Q2) | $5.0 | | Financing Raised (Q2) | $40.0 | | Ending Cash (Q2) | $38.9 | | Subsequent Financing (Q3) | $48.7 | - The company's capitalization table now shows **30.2 million shares outstanding**, with over **$81 million in cash** (including Q3 financing) and **$0 in debt**[5](index=5&type=chunk) - The company aims to achieve a **positive cash flow in 2026**[4](index=4&type=chunk) [Regulatory Impacts](index=1&type=section&id=Regulatory%20Impacts) The dynamic regulatory environment, including tariffs, is creating favorable market conditions for domestic drone companies, leading to increased enterprise interest and operational adjustments - Regulatory changes are creating market conditions that strongly favor domestic drone companies, leading to a major uptick in **enterprise-side interest**[7](index=7&type=chunk) - The company has adjusted to tariffs by increasing inventory orders to secure better component pricing and is pushing for **onshoring to improve margins**[6](index=6&type=chunk) - Management expects to see GAAP validation of the benefits from regulations in Q3 and Q4 as U.S. Government contracts are issued to its customers[7](index=7&type=chunk) [Looking Ahead](index=2&type=section&id=Looking%20Ahead) The company's forward-looking strategy focuses on aggressive revenue growth, scaling operations, and achieving positive cash flow by 2026 with a target annual revenue run rate - Strategic priorities are clearly defined as: * **Grow Revenue:** Aggressively invest in Rotor Riot, introduce more U.S. made components, and scale a new motor factory in Orlando * **Grow the Company:** Expand the team from **20 to 50 employees** and add Fat Shark headset assembly to a new facility * **Get to Cash Flow Positive:** Target positive cash flow in **2026** with an estimated annual revenue run rate of **$20-30 million**[9](index=9&type=chunk) [Second Quarter Financial Results](index=3&type=section&id=Second%20Quarter%20Financial%20Results) This section details the company's strong Q2 and H1 2025 revenue growth and improved gross margins, alongside increased net losses primarily due to non-cash stock compensation, and a significantly strengthened cash position [Financial Highlights](index=3&type=section&id=Financial%20Highlights) Q2 2025 saw significant revenue growth and improved gross margins, though net loss increased due to substantial non-cash stock compensation, while the cash position dramatically strengthened Q2 & H1 2025 Financial Performance vs. 2024 | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 (Pro Forma) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $2.12 million | $1.41 million | +51% | $4.17 million | $2.52 million | +65% | | Gross Margin | 37% | N/A | N/A | 31% | N/A | N/A | | Loss from Operations | ($7.2 million) | ($1.6 million) | +350% | N/A | N/A | N/A | | Net Loss | ($6.9 million) | ($1.6 million) | +331% | N/A | N/A | N/A | | EPS | ($0.32) | ($0.16) | +100% | N/A | N/A | N/A | - The significant increase in loss from operations and net loss was primarily driven by a non-cash stock compensation expense of **$5.5 million** in Q2 2025, compared to just **$0.4 million** in Q2 2024[15](index=15&type=chunk) - Cash position increased dramatically to **$38.9 million** as of June 30, 2025, from **$3.7 million** as of December 31, 2024, mainly due to a public offering in May 2025[15](index=15&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents the company's Q2 2025 financial statements, detailing the reconciliation of GAAP to non-GAAP results, a strengthened balance sheet, increased operating and net losses due to expenses, and a significant cash increase from financing activities [Reconciliation of GAAP to Non-GAAP Results](index=5&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Results) The company provides a reconciliation of its GAAP net loss to a non-GAAP adjusted net loss to offer a clearer view of core operating results, adjusting for non-cash and non-recurring expenses Q2 2025 GAAP to Non-GAAP Net Loss Reconciliation | Description | Amount (in millions) | | :--- | :--- | | **Net Loss (GAAP)** | **($6.9)** | | Non-cash stock compensation expense | $5.5 | | Non-recurring investor relations | $0.4 | | Non-recurring filing & legal fees | $0.2 | | **Adjusted Net Loss (Non-GAAP)** | **($0.8)** | [Consolidated Condensed Balance Sheets](index=6&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) The balance sheet as of June 30, 2025, shows a substantial increase in financial strength compared to December 31, 2024, driven by a surge in cash and cash equivalents, leading to significantly higher stockholders' equity Balance Sheet Comparison (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $38.9 | $3.8 | | Total Current Assets | $42.2 | $6.1 | | **Total Assets** | **$52.4** | **$16.1** | | Total Liabilities | $1.1 | $1.3 | | **Total Stockholders' Equity** | **$51.3** | **$14.8** | [Consolidated Condensed Statement of Operations](index=7&type=section&id=Consolidated%20Condensed%20Statement%20of%20Operations) For Q2 2025, revenues increased **51% YoY to $2.1 million**, and gross margin nearly doubled, but a sharp rise in operating expenses, primarily General and Administrative costs, led to a significant operating and net loss Statement of Operations - Q2 Comparison (in thousands) | Line Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Revenues | $2,124 thousand | $1,411 thousand | | Gross Margin | $795 thousand | $388 thousand | | Total Operating Expenses | $7,985 thousand | $1,960 thousand | | Loss from Operations | ($7,190 thousand) | ($1,572 thousand) | | **Net Loss** | **($6,965 thousand)** | **($1,612 thousand)** | [Consolidated Condensed Statement of Changes in Stockholders' Equity](index=8&type=section&id=Consolidated%20Condensed%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity significantly increased from **$14.8 million** at the end of 2024 to **$51.3 million** by June 30, 2025, primarily driven by a public offering and warrant exercises, partially offset by net loss - Total stockholders' equity grew to **$51.3 million** as of June 30, 2025, a significant increase from **$14.8 million** at December 31, 2024[28](index=28&type=chunk) - Key activities impacting equity in H1 2025 included a public offering raising **$36.5 million**, warrant exercises adding **$2.4 million**, and stock compensation expense of **$7.4 million**, offset by a net loss of **$10.2 million**[28](index=28&type=chunk)[30](index=30&type=chunk) [Consolidated Condensed Statement of Cash Flows](index=10&type=section&id=Consolidated%20Condensed%20Statement%20of%20Cash%20Flows) For H1 2025, the company used **$3.9 million** in cash from operating activities, but a substantial **$39.3 million** from financing activities led to a net increase in cash, bringing the balance to **$38.9 million** Cash Flow Summary - Six Months Ended June 30, 2025 | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Net Cash Used in Operating Activities | ($3.9) | | Net Cash Used in Investing Activities | ($0.3) | | Net Cash Provided by Financing Activities | $39.3 | | **Net Increase in Cash** | **$35.2** | | Cash, End of Period | $38.9 |

PART I – FINANCIAL INFORMATION This section presents Unusual Machines, Inc.'s unaudited financial statements and management's analysis [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section provides Unusual Machines, Inc.'s unaudited consolidated financial statements and notes for Q2 2025 [Consolidated Condensed Balance Sheets](index=4&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) This section details the company's financial position, including assets, liabilities, and equity at period-end Consolidated Condensed Balance Sheet Highlights: | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------- | :-------------- | :---------------- | :----- | :------- | | **Assets:** | | | | | | Cash and cash equivalents | $38,933,059 | $3,757,323 | $35,175,736 | 936.2% | | Total current assets | $42,222,934 | $6,095,629 | $36,127,305 | 592.7% | | Total non-current assets | $10,223,780 | $10,011,946 | $211,834 | 2.1% | | **Total assets** | **$52,446,714** | **$16,107,575** | **$36,339,139** | **225.6%** | | **Liabilities:** | | | | | | Total current liabilities | $821,698 | $933,669 | $(111,971) | -12.0% | | Total non-current liabilities | $317,555 | $355,964 | $(38,409) | -10.8% | | **Total liabilities** | **$1,139,253** | **$1,289,633** | **$(150,380)** | **-11.7%** | | **Stockholders' Equity:** | | | | | | Total stockholders' equity | $51,307,461 | $14,817,942 | $36,489,519 | 246.2% | | **Total liabilities and stockholders' equity** | **$52,446,714** | **$16,107,575** | **$36,339,139** | **225.6%** | - The company experienced a significant increase in cash and cash equivalents, rising from **$3.76 million** at December 31, 2024, to **$38.93 million** at June 30, 2025, a **936.2% increase**[16](index=16&type=chunk) - Total assets more than tripled, growing from **$16.11 million** to **$52.45 million**, primarily driven by the increase in cash[16](index=16&type=chunk) - Total liabilities decreased by **11.7%**, from **$1.29 million** to **$1.14 million**, mainly due to a reduction in current liabilities[16](index=16&type=chunk) - Total stockholders' equity saw a substantial increase of **246.2%**, from **$14.82 million** to **$51.31 million**, reflecting new capital infusions[16](index=16&type=chunk) [Unaudited Consolidated Condensed Statements of Operations](index=6&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Operations) This section outlines the company's financial performance, detailing revenues, expenses, and net loss Consolidated Condensed Statements of Operations Highlights: | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change | % Change | | :-------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | | Revenues | $2,123,970 | $1,411,124 | $712,846 | 50.5% | | Cost of goods sold | $1,329,291 | $1,022,684 | $306,607 | 30.0% | | Gross Margin | $794,679 | $388,440 | $406,239 | 104.6% | | Total operating expenses | $7,985,152 | $1,960,144 | $6,025,008 | 307.4% | | Loss from operations | $(7,190,473) | $(1,571,704) | $(5,618,769) | 357.5% | | Net loss | $(6,964,739) | $(1,612,238) | $(5,352,501) | 332.0% | | Basic and diluted net loss per share | $(0.32) | $(0.16) | $(0.16) | 100.0% | | Weighted average common shares outstanding | 21,771,954 | 10,040,741 | 11,731,213 | 116.8% | | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change | % Change | | :-------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Revenues | $4,166,270 | $2,030,039 | $2,136,231 | 105.2% | | Cost of goods sold | $2,874,784 | $1,437,432 | $1,437,352 | 100.0% | | Gross Margin | $1,291,486 | $592,607 | $698,879 | 117.9% | | Total operating expenses | $11,749,770 | $3,250,664 | $8,499,106 | 261.4% | | Loss from operations | $(10,458,284) | $(2,658,057) | $(7,800,227) | 293.5% | | Net loss | $(10,231,018) | $(2,718,240) | $(7,512,778) | 276.4% | | Basic and diluted net loss per share | $(0.54) | $(0.34) | $(0.20) | 58.8% | | Weighted average common shares outstanding | 18,853,428 | 8,053,299 | 10,800,129 | 134.1% | - Revenues increased by **50.5%** for the three months ended June 30, 2025, and **105.2%** for the six months ended June 30, 2025, compared to the same periods in 2024[18](index=18&type=chunk) - Gross Margin more than doubled for both the three-month (**104.6% increase**) and six-month (**117.9% increase**) periods, reflecting higher sales and improved gross margin percentage[18](index=18&type=chunk) - Net loss significantly widened by **332.0%** for the three-month period and **276.4%** for the six-month period, primarily due to a substantial increase in general and administrative expenses, largely driven by non-cash stock compensation[18](index=18&type=chunk) [Unaudited Consolidated Condensed Statements of Changes in Shareholders' Equity](index=7&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section details changes in the company's equity, reflecting capital transactions and net income/loss Consolidated Condensed Statements of Changes in Stockholders' Equity Highlights: | Metric | December 31, 2024 | June 30, 2025 | Change | | :-------------------------- | :---------------- | :-------------- | :----- | | Common Stock Value | $151,221 | $252,877 | $101,656 | | Additional Paid-In Capital | $50,580,235 | $97,199,116 | $46,618,881 | | Accumulated Deficit | $(35,913,514) | $(46,144,532) | $(10,231,018) | | Total Stockholders' Equity | $14,817,942 | $51,307,461 | $36,489,519 | - Total stockholders' equity increased significantly from **$14.8 million** at December 31, 2024, to **$51.3 million** at June 30, 2025, primarily driven by a substantial increase in additional paid-in capital[23](index=23&type=chunk) - Additional paid-in capital grew by **$46.6 million**, reflecting proceeds from public offerings, warrant exercises, and stock compensation expenses[23](index=23&type=chunk) - The accumulated deficit increased by **$10.2 million**, corresponding to the net loss incurred during the six months ended June 30, 2025[23](index=23&type=chunk) [Unaudited Consolidated Condensed Statements of Cash Flows](index=9&type=section&id=Unaudited%20Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) This section presents cash flows from operating, investing, and financing activities over specific periods Consolidated Condensed Statements of Cash Flows Highlights (Six Months Ended June 30): | Cash Flow Activity | 2025 | 2024 | Change | | :-------------------------------- | :------------- | :------------- | :----- | | Net cash used in operating activities | $(3,862,349) | $(2,181,840) | $(1,680,509) | | Net cash used in investing activities | $(262,751) | $(852,801) | $590,050 | | Net cash provided by financing activities | $39,300,836 | $4,362,313 | $34,938,523 | | Net increase in cash | $35,175,736 | $1,327,672 | $33,848,064 | | Cash, end of period | $38,933,059 | $2,222,445 | $36,710,614 | - Net cash used in operating activities increased by **77%** to **$3.86 million** in 2025, primarily due to changes in accounts receivable, inventory, and prepaid expenses, partially offset by non-cash stock compensation[26](index=26&type=chunk)[154](index=154&type=chunk) - Net cash used in investing activities decreased by **69%** to **$0.26 million** in 2025, as 2024 included significant cash outlays for business acquisitions[26](index=26&type=chunk)[155](index=155&type=chunk) - Net cash provided by financing activities surged to **$39.30 million** in 2025, driven by proceeds from a public offering, warrant exercises, and employee stock option exercises[26](index=26&type=chunk)[156](index=156&type=chunk) - The company's cash balance at the end of the period significantly increased to **$38.93 million** in 2025 from **$2.22 million** in 2024[26](index=26&type=chunk) [Notes to Unaudited Consolidated Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Condensed%20Financial%20Statements) This section provides detailed explanations and additional information supporting the financial statements [Note 1 – Organization and nature of business](index=10&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20nature%20of%20business) This note describes the company's reincorporation, drone business, IPO, and recent acquisitions - Unusual Machines, Inc. reincorporated from Puerto Rico to Nevada on April 22, 2024, and operates in the commercial drone industry[28](index=28&type=chunk) - The company completed its Initial Public Offering (IPO) on February 16, 2024, issuing **1,250,000 shares** at **$4.00 per share**, and simultaneously acquired Fat Shark Holdings Ltd. and Rotor Riot, LLC[29](index=29&type=chunk) [Note 2 – Summary of significant accounting policies](index=10&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20significant%20accounting%20policies) This note outlines the key accounting principles and estimates used in preparing the financial statements - The consolidated financial statements include the accounts of Unusual Machines, Inc. and its wholly-owned subsidiaries, Fat Shark and Rotor Riot, since their acquisition on February 16, 2024[30](index=30&type=chunk) - The company applies GAAP, requiring management estimates for items such as stock-based compensation, fair value of acquired assets, credit losses, impairment of long-lived assets, lease liabilities, and deferred tax valuation allowances[32](index=32&type=chunk)[33](index=33&type=chunk) - Revenue is recognized when products are shipped, and the performance obligation is met, in accordance with ASC 606[52](index=52&type=chunk)[60](index=60&type=chunk) - The company operates as a single reportable segment, selling drones and drone-related components[64](index=64&type=chunk) [Note 3 – Acquisitions](index=15&type=section&id=Note%203%20%E2%80%93%20Acquisitions) This note details the acquisition of Fat Shark and Rotor Riot, including strategic rationale and price - On February 16, 2024, the Company acquired Fat Shark and Rotor Riot from Red Cat Holdings, Inc. and Jeffrey Thompson, aiming to leverage their brand recognition and retail channel in the FPV drone market and expand into B2B channels with onshore production[68](index=68&type=chunk)[69](index=69&type=chunk) - The total consideration paid for the acquisitions was **$22.1 million**, consisting of **$1.1 million** in cash, a **$4.0 million** promissory note, and **4,250,000 shares** of common stock valued at **$17.0 million**[70](index=70&type=chunk) Fair Value Allocation of Fat Shark and Rotor Riot Purchase Price: | Asset/Liability | Amount (USD) | | :------------------------------------ | :------------- | | Cash | $147,200 | | Accounts receivable | $6,798 | | Inventories (on hand and prepaid) | $2,611,583 | | Other current assets | $10,892 | | Right of use asset – operating | $378,430 | | Other long-term assets | $59,426 | | Goodwill | $17,476,232 | | Intangible assets | $2,297,007 | | **Total assets** | **$22,987,568** | | Accounts payable and accrued liabilities | $287,544 | | Deferred revenue | $114,441 | | Deferred tax liability | $107,153 | | Operating lease liability – current and long-term | $378,430 | | **Total liabilities** | **$887,568** | | **Total purchase price** | **$22,100,000** | - Goodwill and intangible assets primarily relate to Fat Shark and Rotor Riot's market leadership, established brands, and patents, which are expected to provide a strategic advantage for B2B drone component sales[73](index=73&type=chunk) [Note 4 – Inventories](index=17&type=section&id=Note%204%20%E2%80%93%20Inventories) This note provides a breakdown of the company's inventory and prepaid inventory balances Inventories and Prepaid Inventory: | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :---------------- | :-------------- | :---------------- | :----- | :------- | | Inventories | $1,609,117 | $1,335,503 | $273,614 | 20.5% | | Prepaid inventory | $1,314,592 | $904,728 | $409,864 | 45.3% | - Inventories, consisting solely of finished goods, increased by **20.5%** to **$1.61 million** at June 30, 2025, from **$1.34 million** at December 31, 2024[75](index=75&type=chunk) - Prepaid inventory also saw a significant increase of **45.3%** to **$1.31 million** at June 30, 2025, from **$0.90 million** at December 31, 2024[75](index=75&type=chunk) [Note 5 – Other Current Assets](index=17&type=section&id=Note%205%20%E2%80%93%20Other%20Current%20Assets) This note details the components and changes in other current and non-current assets Other Current Assets: | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :------------------ | :-------------- | :---------------- | :----- | :------- | | Prepaid insurance | $149,512 | $31,500 | $118,012 | 374.6% | | Prepaid expenses | $41,266 | $0 | $41,266 | N/A | | Other current assets | $2,000 | $0 | $2,000 | N/A | | **Total other current assets** | **$192,778** | **$31,500** | **$161,278** | **512.0%** | | Non-current other assets | $84,693 | $59,426 | $25,267 | 42.5% | - Total other current assets increased significantly by **512%** to **$192,778** at June 30, 2025, primarily due to increases in prepaid insurance and new prepaid expenses[76](index=76&type=chunk) - Non-current other assets, mainly rent deposits for Orlando facilities, increased by **42.5%** to **$84,693**[76](index=76&type=chunk) [Note 6 – Property and Equipment, net](index=17&type=section&id=Note%206%20%E2%80%93%20Property%20and%20Equipment,%20net) This note presents the company's property and equipment, net of depreciation, and related commitments Property and Equipment, net: | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------- | :-------------- | :---------------- | :----- | :------- | | Computer equipment | $7,738 | $7,738 | $0 | 0.0% | | Motor equipment | $247,434 | $0 | $247,434 | N/A | | Tenant improvements | $15,317 | $0 | $15,317 | N/A | | Total Property and Equipment | $270,489 | $7,738 | $262,751 | 3395.6% | | Accumulated depreciation | $(7,510) | $(7,168) | $(342) | 4.8% | | **Total property and equipment, net** | **$262,979** | **$570** | **$262,409** | **46036.7%** | - Total property and equipment, net, increased dramatically from **$570** to **$262,979**, primarily due to the acquisition of motor equipment (**$247,434**) and tenant improvements (**$15,317**) in 2025[77](index=77&type=chunk) - Depreciation expense for the six months ended June 30, 2025, was **$342**, compared to **$171** in the prior year[77](index=77&type=chunk) - The company has open commitments of approximately **$3.0 million** for motor equipment and **$0.5 million** for tenant improvements, expected to be placed into service in Q3 2025[77](index=77&type=chunk) [Note 7 – Operating Leases](index=17&type=section&id=Note%207%20%E2%80%93%20Operating%20Leases) This note describes the company's operating lease agreements, assets, liabilities, and payments - The company assumed a five-year operating lease for **6,900 square feet** of warehouse and office space in Orlando, FL, commencing November 2023 and valued at **$378,430** as of February 16, 2024[78](index=78&type=chunk) Operating Lease Right-of-Use Asset and Liability (June 30, 2025): | Metric | Amount (USD) | | :------------------------------------ | :------------- | | Operating lease right-of-use assets | $378,430 | | Less: accumulated amortization | $(89,914) | | **Operating lease right-of-use assets, net** | **$288,516** | | Operating lease liability | $378,430 | | Less: accumulated reduction | $(81,099) | | **Operating lease liability, net** | **$297,331** | | Current operating lease liability | $73,569 | | Non-current operating lease liability | $223,762 | Summary of Future Lease Payments: | Year | Future Lease Payments (USD) | Discount (USD) | Operating Lease Liability (USD) | | :--- | :-------------------- | :------- | :------------------------ | | 2025 | $50,901 | $(15,741) | $35,160 | | 2026 | $105,178 | $(25,468) | $79,710 | | 2027 | $109,037 | $(15,985) | $93,052 | | 2028 | $94,185 | $(4,776) | $89,409 | | **Total** | **$359,301** | **$(61,970)** | **$297,331** | - In June 2025, the company signed a new lease for an additional **17,000 square feet** in Orlando, FL, for motor production, commencing August 1, 2025, and running through August 21, 2030[80](index=80&type=chunk) [Note 8 – Goodwill and Intangible Assets](index=18&type=section&id=Note%208%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) This note provides information on goodwill and intangible assets, including amortization expenses - The carrying value of goodwill remained unchanged at **$7,402,906** as of June 30, 2025[81](index=81&type=chunk) Intangible Assets (June 30, 2025): | Type | Gross Value (USD) | Accumulated Amortization (USD) | Net Value (USD) | | :---------------- | :---------- | :----------------------- | :-------- | | Patents/IP (Finite-lived) | $816,877 | $(112,321) | $704,556 | | Trademark (Indefinite-lived) | $1,480,130 | $0 | $1,480,130 | | **Total intangible assets, net** | **$2,297,007** | **$(112,231)** | **$2,184,686** | - Amortization expense for patents was **$40,844** for the six months ended June 30, 2025, and **$20,422** for the three months ended June 30, 2025[83](index=83&type=chunk) [Note 9 – Promissory and Convertible Notes](index=19&type=section&id=Note%209%20%E2%80%93%20Promissory%20and%20Convertible%20Notes) This note details promissory and convertible note transactions, including conversion and interest expense - In February 2024, the company issued a **$2.0 million** promissory note to Red Cat Holdings, Inc. in conjunction with the Fat Shark and Rotor Riot acquisition, which was later increased to **$4.0 million** in July 2024 due to a working capital adjustment[84](index=84&type=chunk) - The promissory note was exchanged for new **4% Convertible Notes** (August Notes) in August 2024, which were subsequently converted into **1,507,538 shares** of common stock in December 2024 at a fixed **$1.99 conversion price**, resulting in a net gain on debt extinguishment of **$1.64 million**[86](index=86&type=chunk)[88](index=88&type=chunk) - Total interest expense was **$0** for the six months ended June 30, 2025, compared to **$60,183** for the same period in 2024, reflecting the conversion of all outstanding debt[89](index=89&type=chunk) [Note 10 – Earnings Per Share and Stockholders' Equity](index=19&type=section&id=Note%2010%20%E2%80%93%20Earnings%20Per%20Share%20and%20Stockholders'%20Equity) This note details the company's capital structure, including stock issuances, warrant exercises, and compensation - As of June 30, 2025, and December 31, 2024, there were no issued and outstanding Series A, B, and C Preferred Stock, with all designations withdrawn on April 10, 2025[90](index=90&type=chunk)[92](index=92&type=chunk) - In 2025, the company issued **8,000,000 shares** of common stock in a public offering for net proceeds of **$36.50 million**, and **1,224,606 shares** from warrant exercises for **$2.44 million**[96](index=96&type=chunk)[97](index=97&type=chunk) - Stock compensation expense for the six months ended June 30, 2025, included **$3.04 million** for restricted shares issued to executive officers and employees, and **$1.50 million** for restricted shares awarded to the CEO[95](index=95&type=chunk)[102](index=102&type=chunk) - As of August 14, 2025, **30.44 million shares** of common stock were outstanding[5](index=5&type=chunk) [Note 11 – Share Based Awards](index=22&type=section&id=Note%2011%20%E2%80%93%20Share%20Based%20Awards) This note outlines the company's stock option, restricted stock, and warrant activity and expenses Stock Option Activity (Six Months Ended June 30, 2025): | Metric | Non-Qualified Options | Weighted Average Exercise Price (USD) | | :-------------------------- | :-------------------- | :------------------------------ | | Outstanding - December 31, 2024 | 330,000 | $1.24 | | Granted | 177,500 | $5.36 | | Forfeited/canceled | (30,000) | $1.20 | | Exercised | (94,650) | $3.89 | | **Outstanding – June 30, 2025** | **382,850** | **$2.50** | | Exercisable – June 30, 2025 | 100,350 | $3.71 | - The company recognized **$599,771** in stock-based compensation expense related to stock options during the six months ended June 30, 2025, with **$494,070** unrecognized expense remaining[111](index=111&type=chunk) Restricted Stock Activity (Six Months Ended June 30, 2025): | Metric | Restricted Stock Awards | Weighted Average Grant Date Fair Value - RSA (USD) | Restricted Stock Units | Weighted Average Grant Date Fair Value - RSU (USD) | | :-------------------------- | :---------------------- | :------------------------------------------- | :--------------------- | :------------------------------------------- | | Unvested - December 31, 2024 | 227,723 | $1.20 | 150,000 | $4.40 | | Granted | 696,512 | $10.78 | 200,000 | $9.43 | | Vested | (644,235) | $6.86 | (300,000) | $6.49 | | **Unvested – June 30, 2025** | **280,000** | **$12.00** | **50,000** | **$12.00** | - Total value of restricted stock awards and units granted was **$9.39 million**, with **$6.82 million** recognized as compensation expense during the six months ended June 30, 2025[113](index=113&type=chunk) Warrant Activity (Six Months Ended June 30, 2025): | Metric | Warrants Outstanding | Weighted Average Exercise Price (USD) | | :-------------------------- | :------------------- | :------------------------------ | | Outstanding - December 31, 2024 | 1,397,579 | $2.01 | | Granted | 640,000 | $5.00 | | Exercised | (1,224,606) | $1.99 | | **Outstanding – June 30, 2025** | **812,973** | **$4.39** | - The aggregate intrinsic value of outstanding warrants was **$3.40 million** as of June 30, 2025, with a weighted average remaining contractual life of approximately **2.47 years**[115](index=115&type=chunk) [Note 12 – Related Party Transactions](index=23&type=section&id=Note%2012%20%E2%80%93%20Related%20Party%20Transactions) This note discloses transactions and agreements involving related parties, including acquisitions and services - The acquisition of Fat Shark and Rotor Riot in February 2024 involved Red Cat and Jeffrey Thompson, the Company's former CEO and current director, who also held a significant stake in Unusual Machines prior to the acquisition[116](index=116&type=chunk)[117](index=117&type=chunk) - The Company entered into a two-year Management Services Agreement with 8 Consulting LLC for the services of CEO Dr. Allan Evans, with an annual fee of **$250,000** and a grant of **488,000 fully vested restricted common shares**[118](index=118&type=chunk)[119](index=119&type=chunk) - In October 2024 and May 2025, the Company's CEO and directors invested in private placements and public offerings on identical terms to other investors, acquiring common stock[120](index=120&type=chunk)[121](index=121&type=chunk) [Note 13 – Commitments and Contingencies](index=24&type=section&id=Note%2013%20%E2%80%93%20Commitments%20and%20Contingencies) This note describes the company's contractual commitments, including leases, merger, and acquisitions - The company has an existing five-year operating lease for warehouse and office space in Orlando, FL, and entered into a new lease on June 4, 2025, for an additional **17,000 square feet** for a drone motor manufacturing facility, commencing August 1, 2025[122](index=122&type=chunk)[123](index=123&type=chunk) - The Agreement and Plan of Merger and Reorganization with Aloft Technologies, Inc. was terminated on June 9, 2025, resulting in the forfeiture of a **$100,000 breakup fee**[124](index=124&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - On June 12, 2025, the company entered into a Share Purchase Agreement to acquire Rotor Lab Pty Ltd., an Australian company, for **$4.0 million** in common shares plus up to **$3.0 million** in earnout consideration, subject to regulatory approvals[129](index=129&type=chunk) [Note 14 – Subsequent Events](index=25&type=section&id=Note%2014%20%E2%80%93%20Subsequent%20Events) This note reports significant events after the balance sheet date, including a direct offering and its use - On July 14, 2025, the company entered into a securities purchase agreement for a registered direct offering of **5,000,000 shares** of common stock at **$9.70 per share**, closing on July 15, 2025, and generating aggregate gross proceeds of **$48.5 million**[130](index=130&type=chunk) - The proceeds from the July 2025 offering are intended for the purchase of drone motor manufacturing equipment (estimated **$4.0 million**), general corporate purposes, and working capital[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition, operations, strategy, and liquidity [Company Overview](index=26&type=section&id=Company%20Overview) This section provides an overview of Unusual Machines, Inc.'s drone business, components, and B2B strategy - Unusual Machines, Inc. is a Nevada corporation based in Orlando, Florida, specializing in selling and manufacturing drones and drone components, including Fat Shark FPV goggles and Rotor Riot e-commerce for acrobatic FPV drones[133](index=133&type=chunk) - The company launched its business-to-business (B2B) channel in the second half of 2024, aiming to become a dominant Tier-1 parts supplier to the U.S. drone industry, focusing on domestic production of critical drone components[133](index=133&type=chunk) [Recent Developments, Challenges and Uncertainties](index=26&type=section&id=Recent%20Developments,%20Challenges%20and%20Uncertainties) This section highlights recent strategic initiatives, capital raising, facility expansion, and trade challenges - On July 15, 2025, the company closed a registered direct offering, raising **$48.5 million** in gross proceeds, intended for drone motor manufacturing equipment (**$4.0 million**), general corporate purposes, and working capital[134](index=134&type=chunk) - The company is expanding its B2B business by adding products like the Rotor Riot Brave 55A ESC and Fat Shark Aura FPV Camera and Video Transmitter to the U.S. Department of Defense Innovation Unit's Blue UAS Framework[134](index=134&type=chunk) - A new **17,000 square foot** facility in Orlando, Florida, will open on August 1, 2025, for drone motor manufacturing, supporting the strategy to onshore production[134](index=134&type=chunk) - The company faces uncertainties from changing trade policies and tariffs, particularly impacting its B2C business which relies heavily on Chinese imports, leading to efforts to source from the U.S. and Taiwan[134](index=134&type=chunk) - On June 12, 2025, the company entered into an agreement to acquire Rotor Lab Pty Ltd., an Australian company, for **$4.0 million** in common stock plus up to **$3.0 million** in earnout consideration[135](index=135&type=chunk) [Results of operations – Three Months Ended June 30, 2025 and 2024](index=27&type=section&id=Results%20of%20operations%20%E2%80%93%20Three%20Months%20Ended%20June%2030,%202025%20and%202024) This section analyzes the company's financial performance for Q2 2025 versus Q2 2024 Three Months Ended June 30, 2025 vs 2024 - Key Financials: | Metric | 2025 (USD) | 2024 (USD) | Change (USD) | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Revenues | $2,123,970 | $1,411,124 | $712,846 | 50.5% | | Cost of goods sold | $1,329,291 | $1,022,684 | $306,607 | 30.0% | | Gross Margin | $794,679 | $388,440 | $406,239 | 104.6% | | Gross Margin % | 37.4% | 27.5% | 9.9 pp | 36.0% | | Operations expenses | $404,277 | $213,772 | $190,505 | 89.1% | | Research and development | $62,731 | $10,282 | $52,449 | 510.1% | | Sales and marketing | $302,358 | $386,332 | $(83,974) | -21.7% | | General and administrative | $7,195,193 | $1,349,587 | $5,845,606 | 433.1% | | Net loss | $(6,964,739) | $(1,612,238) | $(5,352,501) | 332.0% | - Revenue increased by **50.5%** to **$2.12 million**, driven by growth in both retail and enterprise channels[136](index=136&type=chunk) - Gross margin percentage improved from **27.5%** to **37.4%**, leading to a **104.6% increase** in gross profit[138](index=138&type=chunk) - General and administrative expenses surged by **433.1%** to **$7.20 million**, primarily due to a **$5.5 million** increase in non-cash stock compensation expense and higher professional fees[142](index=142&type=chunk) - Net loss increased by **332.0%** to **$6.96 million**, mainly attributable to the significant rise in general and administrative expenses[143](index=143&type=chunk) [Results of Operations – Six Months Ended June 30, 2025 compared to the Six Months Ended June 30, 2024](index=28&type=section&id=Results%20of%20Operations%20%E2%80%93%20Six%20Months%20Ended%20June%2030,%202025%20compared%20to%20the%20Six%20Months%20Ended%20June%2030,%202024) This section analyzes the company's financial performance for H1 2025 versus H1 2024 Six Months Ended June 30, 2025 vs 2024 - Key Financials: | Metric | 2025 (USD) | 2024 (USD) | Change (USD) | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Revenues | $4,166,270 | $2,030,039 | $2,136,231 | 105.2% | | Cost of goods sold | $2,874,784 | $1,437,432 | $1,437,352 | 100.0% | | Gross Margin | $1,291,486 | $592,607 | $698,879 | 117.9% | | Gross Margin % | 31.0% | 29.0% | 2.0 pp | 6.9% | | Operations expenses | $706,879 | $326,094 | $380,785 | 116.8% | | Research and development | $70,633 | $27,078 | $43,555 | 160.8% | | Sales and marketing | $509,975 | $543,390 | $(33,415) | -6.1% | | General and administrative | $10,421,097 | $2,353,761 | $8,067,336 | 342.7% | | Net loss | $(10,231,018) | $(2,718,240) | $(7,512,778) | 276.4% | - Revenue more than doubled, increasing by **105.2%** to **$4.17 million**, driven by growth in retail and enterprise channels[144](index=144&type=chunk) - Gross margin percentage slightly improved from **29%** to **31%**, with gross profit increasing by **117.9%**[146](index=146&type=chunk) - General and administrative expenses increased by **342.7%** to **$10.42 million**, primarily due to **$7.42 million** in non-cash stock-based compensation expense[150](index=150&type=chunk) - Net loss widened by **276.4%** to **$10.23 million**, largely due to the substantial increase in non-cash stock-based compensation[151](index=151&type=chunk) [Cash Flow Analysis](index=30&type=section&id=Cash%20Flow%20Analysis) This section analyzes the company's cash flows from operating, investing, and financing activities Cash Flow Analysis (Six Months Ended June 30): | Activity | 2025 (USD) | 2024 (USD) | Change (USD) | | :-------------------------------- | :------------- | :------------- | :----- | | Net cash used in operating activities | $(3,862,349) | $(2,181,840) | $(1,680,509) | | Net cash used in investing activities | $(262,751) | $(852,201) | $590,050 | | Net cash provided by financing activities | $39,300,836 | $4,362,313 | $34,938,523 | - Net cash used in operating activities increased by **77%** to **$3.86 million**, driven by increases in accounts receivable, inventory, and prepaid expenses, partially offset by non-cash stock compensation[154](index=154&type=chunk) - Net cash used in investing activities decreased by **69%** to **$0.26 million**, as 2024 included significant cash outlays for the acquisitions of Rotor Riot and Fat Shark[155](index=155&type=chunk) - Net cash provided by financing activities surged by **$34.9 million** to **$39.30 million**, primarily from a public offering, warrant exercises, and employee stock option exercises[156](index=156&type=chunk) [Liquidity and capital resources](index=30&type=section&id=Liquidity%20and%20capital%20resources) This section assesses the company's current financial position, including cash, working capital, and capital Liquidity and Capital Resources (June 30, 2025): | Metric | Amount (USD) | | :-------------------------- | :------------- | | Current assets | $42,222,934 | | Cash balances | $38,933,059 | | Inventory | $1,609,117 | | Prepaid inventory | $1,314,592 | | Other current assets | $192,778 | | Current liabilities | $821,698 | | Accounts payable and accrued expenses | $608,694 | | Deferred revenue | $139,435 | | Current operating lease liability | $73,569 | | **Net working capital** | **$41,399,236** | - As of June 30, 2025, the company had strong liquidity with **$42.22 million** in current assets and **$41.40 million** in net working capital[157](index=157&type=chunk) - Recent capital raising activities include **$44.9 million** net proceeds from a July 2025 registered direct offering, **$36.5 million** from a May 2025 public offering, and **$2.44 million** from warrant exercises in February 2025[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) - As of August 14, 2025, the company had approximately **$81 million** in cash, which is believed to be sufficient to fund operating plans for more than the next 12 months[162](index=162&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes to critical accounting policies and estimates - There have been no material changes to the company's critical accounting policies and estimates since its Annual Report on Form 10-K for the year ended December 31, 2024[163](index=163&type=chunk) [Recently Issued Accounting Pronouncements](index=31&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section discusses the impact of recently issued accounting pronouncements on financial statements - The company has implemented all new accounting pronouncements in effect and does not anticipate any material impact on its financial statements, except for potential disclosures related to income tax and disaggregation of income statement expenses[164](index=164&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Unusual Machines, Inc. is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide disclosures about market risk[165](index=165&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses disclosure controls and internal control over financial reporting, noting a material weakness [Evaluation of Disclosure Controls and Procedures](index=31&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section evaluates the effectiveness of disclosure controls and procedures, noting a material weakness - As of March 31, 2025, the company's disclosure controls and procedures were deemed ineffective due to a material weakness in internal control over financial reporting[166](index=166&type=chunk) - The material weakness stemmed from insufficient segregation of duties and procedures for identifying, accounting for, evaluating, and disclosing certain transactions, with limited individuals initiating, reviewing, and approving the same transactions[166](index=166&type=chunk) [Changes in Internal Control Over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section describes actions taken to strengthen internal control over financial reporting - During the six months ended June 30, 2025, the company initiated steps to strengthen internal controls, including hiring a Controller to improve segregation of duties and financial reporting processes[167](index=167&type=chunk)[168](index=168&type=chunk) - Implementation of NetSuite led to changes in processes and procedures, expected to strengthen internal financial controls, with ongoing efforts to document the internal control framework[167](index=167&type=chunk) PART II – OTHER INFORMATION This section provides additional information not in financial statements, including legal, risk, and equity [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any legal proceedings or claims expected to materially affect its business - The company is not currently involved in any legal proceedings or claims that are anticipated to have a material adverse effect on its business[170](index=170&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section outlines risk factors including tariffs, inflation, component scarcity, and manufacturing challenges - Rising international tariffs, particularly between the U.S. and China, may materially and adversely affect the company's B2C business, which is dependent on Chinese imports, leading to increased costs and potential price increases[172](index=172&type=chunk) - The company is shifting component sourcing to countries like the United States and Taiwan to mitigate tariff impacts, but this introduces new risks related to geopolitical tensions and potential retaliatory tariffs from other countries[172](index=172&type=chunk)[173](index=173&type=chunk) - Increased inflation and a potential recession could materially harm both the B2C and the new B2B manufacturing businesses, impacting consumer spending and manufacturing costs[174](index=174&type=chunk) - Reliance on a select group of specialized suppliers for critical components, including rare earth metals primarily sourced from China, poses risks of supply shortages, price increases, and manufacturing delays[175](index=175&type=chunk)[179](index=179&type=chunk) - Launching a new drone motor manufacturing business in Orlando, Florida, carries inherent risks such as expending working capital, potential equipment issues, manufacturing defects, cost overruns, and the need to scale capacity efficiently[178](index=178&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued 150,000 common shares to advisors for vested RSUs; no repurchases occurred - On May 22, 2025, the company issued **150,000 shares** of common stock to three advisors for vested restricted stock units, exempt from registration under Section 3(a)(9) of the Securities Act[187](index=187&type=chunk) - The company did not repurchase any of its equity securities during the six months ended June 30, 2025[188](index=188&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Unusual Machines, Inc. reported no defaults upon senior securities during the period - There were no defaults upon senior securities[189](index=189&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Unusual Machines, Inc. has no mine safety disclosures to report - There are no mine safety disclosures[190](index=190&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) The CEO modified his Rule 10b5-1 plan to prohibit stock sales before November 20, 2025 - On May 13, 2025, Dr. Evans, the CEO, modified his Rule 10b5-1 plan to prevent any sales of the company's common stock under the plan before November 20, 2025[191](index=191&type=chunk) - No other director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[191](index=191&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all required exhibits, which are incorporated by reference - The exhibit index lists all required exhibits, which are incorporated by reference[192](index=192&type=chunk)[193](index=193&type=chunk) Signatures This section confirms the official signing of the report by the company's authorized officers [Signatures](index=37&type=section&id=Signatures) The report is signed by Unusual Machines, Inc.'s CEO and CFO as of August 14, 2025 - The report was signed by Allan Evans, Chief Executive Officer, and Brian Hoff, Chief Financial Officer, on August 14, 2025[199](index=199&type=chunk)[200](index=200&type=chunk)

Core Insights - Unusual Machines (UMAC) is set to release its second-quarter 2025 results on August 14, after market close, following a negative earnings surprise of 75% in the first quarter of 2025 [1] Group 1: Q2 Expectations - The Zacks Consensus Estimate for UMAC's revenues in Q2 2025 is $2.1 million, indicating a growth of 50.4% compared to the same quarter last year [2] - The U.S. commercial drone market is projected to grow at a CAGR of 12.5% from 2024 to 2033, which is expected to enhance demand for unmanned aerial systems, positively impacting UMAC's revenue [2] Group 2: Legislative Impact - The Drones of America Act, introduced on June 25, aims to ban Chinese components and is expected to benefit UMAC through increased contract growth [3] - Compliance with the National Defense Authorization Act and the Blue UAS Framework by government agencies and infrastructure providers is likely to favor domestic manufacturers, supporting UMAC's growth [3] Group 3: Earnings Prediction Model - Current analysis indicates that UMAC does not have a conclusive prediction for an earnings beat, with an Earnings ESP of 0.00% and a Zacks Rank of 3 (Hold) [4][5]

Company Overview - Unusual Machines (UMAC) has transitioned from China-based manufacturing to becoming a U.S. manufacturer compliant with the National Defense Authorization Act (NDAA), allowing it to sell to U.S. government agencies and military [1] - The company is a leading provider of advanced drone technology, components, and accessories, positioning itself favorably in a market heavily reliant on China [1] Market Outlook - The U.S. drone market is projected to grow from approximately $11 billion in 2025 at a steady double-digit CAGR, potentially leading to a nearly 200% increase in market size over the next decade [2] - The commercial drone market is expected to be driven by sectors such as media, agriculture, inspection, and delivery, which aligns with Unusual Machines' focus [3] Financial Projections - Analysts predict that Unusual Machines' revenue will grow by at least 100% in 2026, maintaining a nearly triple-digit growth rate in subsequent years [4] - The company is expected to achieve profitability by the end of the decade [4] Stock Performance and Analyst Sentiment - The current stock price is $10.52, with a 12-month price forecast of $19.00, indicating an upside potential of 80.68% [6] - Despite a low institutional ownership of less than 5%, analysts unanimously rate the stock as a Buy, with two bullish ratings [5][6] Challenges and Risks - Short-selling poses a challenge, with short-interest increasing to a record high of 15% by early August [7] - The company raised nearly $50 million by selling five million shares in July, which may dilute shareholder value but also strengthens its cash position [8][9] Earnings Expectations - The forecast for Q2 indicates a significant year-over-year gain, with expectations that results may exceed forecasts due to strong demand trends [11]

Industry Overview - The drone technology sector is experiencing significant advancements due to autonomous technology and AI-powered navigation, making modern drones faster and more versatile [2] - The global drone tech market is projected to grow at a CAGR of 14.3% from 2025 to 2030, while the commercial drone market is expected to grow at a CAGR of 20.8% from 2025 to 2032 [4] Commercial Applications - Drones are being utilized across various sectors, including aerial photography, agricultural mapping, military surveillance, and last-mile delivery, with companies like Walmart and Amazon leading in logistics [3] - Amazon's drone delivery service can deliver packages weighing up to five pounds in less than an hour during daylight, emphasizing its electric and emission-free fleet [3] Key Companies - Draganfly Inc. is a Canadian drone solutions developer with products aimed at military and public safety markets, including the Apex drone, which features dual payload capabilities and AI computing [6][7] - Unusual Machines focuses on manufacturing small drones and essential components, having acquired Fat Shark and Rotor Riot businesses in 2024 [9] - Ondas Holdings designs and markets commercial drone solutions for critical applications, recently securing a $14.3 million order for its Optimus Systems [12][13] Regulatory Environment - The Drones for America Act aims to phase out drones with Chinese components by 2028, benefiting U.S.-based companies and reshaping the industry in favor of domestic producers [10] Financial Highlights - Unusual Machines closed a $40 million equity financing, enhancing its cash position to over $40 million with zero debt, and plans to invest in a drone motor factory in Orlando [11] - Ondas Holdings expects revenues of at least $25 million for the full year, with a significant portion coming from its Ondas Autonomous Systems business unit [13][14]