Unusual Machines(UMAC) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Unusual Machines, Inc.'s unaudited financial statements and management's analysis Item 1. Financial Statements (Unaudited) This section provides Unusual Machines, Inc.'s unaudited consolidated financial statements and notes for Q2 2025 Consolidated Condensed Balance Sheets 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] - Total assets more than tripled, growing from $16.11 million to $52.45 million, primarily driven by the increase in cash[16] - Total liabilities decreased by 11.7%, from $1.29 million to $1.14 million, mainly due to a reduction in current liabilities[16] - Total stockholders' equity saw a substantial increase of 246.2%, from $14.82 million to $51.31 million, reflecting new capital infusions[16] Unaudited Consolidated Condensed Statements of Operations 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] - 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] - 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] Unaudited Consolidated Condensed Statements of Changes in Shareholders' Equity 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] - Additional paid-in capital grew by $46.6 million, reflecting proceeds from public offerings, warrant exercises, and stock compensation expenses[23] - The accumulated deficit increased by $10.2 million, corresponding to the net loss incurred during the six months ended June 30, 2025[23] Unaudited Consolidated Condensed Statements of Cash Flows 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][154] - 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][155] - 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][156] - 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] Notes to Unaudited Consolidated Condensed Financial Statements This section provides detailed explanations and additional information supporting the financial statements Note 1 – Organization and nature of business 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] - 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] Note 2 – Summary of significant accounting policies 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] - 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][33] - Revenue is recognized when products are shipped, and the performance obligation is met, in accordance with ASC 606[52][60] - The company operates as a single reportable segment, selling drones and drone-related components[64] Note 3 – Acquisitions 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][69] - 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] 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] Note 4 – Inventories 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] - 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] Note 5 – Other Current Assets 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] - Non-current other assets, mainly rent deposits for Orlando facilities, increased by 42.5% to $84,693[76] Note 6 – Property and Equipment, net 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] - Depreciation expense for the six months ended June 30, 2025, was $342, compared to $171 in the prior year[77] - 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] Note 7 – Operating Leases 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] 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] Note 8 – Goodwill and Intangible Assets 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] 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] Note 9 – Promissory and Convertible Notes 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] - 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][88] - 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] Note 10 – Earnings Per Share and Stockholders' Equity 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][92] - 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][97] - 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][102] - As of August 14, 2025, 30.44 million shares of common stock were outstanding[5] Note 11 – Share Based Awards 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] 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] 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] Note 12 – Related Party Transactions 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][117] - 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][119] - 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][121] Note 13 – Commitments and Contingencies 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][123] - 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][127][128] - 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] Note 14 – Subsequent Events 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operations, strategy, and liquidity Company Overview 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] - 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] Recent Developments, Challenges and Uncertainties 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] - 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] - 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] - 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] - 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] Results of operations – Three Months Ended June 30, 2025 and 2024 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] - Gross margin percentage improved from 27.5% to 37.4%, leading to a 104.6% increase in gross profit[138] - 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] - Net loss increased by 332.0% to $6.96 million, mainly attributable to the significant rise in general and administrative expenses[143] Results of Operations – Six Months Ended June 30, 2025 compared to the Six Months Ended June 30, 2024 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] - Gross margin percentage slightly improved from 29% to 31%, with gross profit increasing by 117.9%[146] - 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] - Net loss widened by 276.4% to $10.23 million, largely due to the substantial increase in non-cash stock-based compensation[151] Cash Flow Analysis 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] - 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] - 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] Liquidity and capital resources 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] - 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][159][160] - 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] Critical Accounting Policies and Estimates 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] Recently Issued Accounting Pronouncements 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][65][66][67] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures This section addresses disclosure controls and internal control over financial reporting, noting a material weakness Evaluation of Disclosure Controls and Procedures 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] - 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] Changes in Internal Control Over Financial Reporting 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][168] - 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] PART II – OTHER INFORMATION This section provides additional information not in financial statements, including legal, risk, and equity Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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][173] - 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] - 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][179] - 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][182][184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The company did not repurchase any of its equity securities during the six months ended June 30, 2025[188] Item 3. Defaults Upon Senior Securities Unusual Machines, Inc. reported no defaults upon senior securities during the period - There were no defaults upon senior securities[189] Item 4. Mine Safety Disclosures Unusual Machines, Inc. has no mine safety disclosures to report - There are no mine safety disclosures[190] Item 5. Other Information 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] - No other director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[191] Item 6. Exhibits This section lists all required exhibits, which are incorporated by reference - The exhibit index lists all required exhibits, which are incorporated by reference[192][193] Signatures This section confirms the official signing of the report by the company's authorized officers 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][200]