UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended | |
| Or | |
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the transition period from _____________ to _____________ | |
Commission File No.
(Exact Name of Registrant as Specified in Its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| Address of Principal Executive Offices | Zip Code |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant:
(1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller Reporting Company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ☐ No
As of November 5, 2026, shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
UNUSUAL MACHINES, INC.
2026 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| 2 |
Unless we state otherwise or the context otherwise requires, the terms “Unusual Machines,” “we,” “us,” “our” and the “Company” refer to Unusual Machines, Inc., a Nevada corporation.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology.
Forward-looking statements are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include the factors set forth in our Form 10-Q dated November 5, 2026, our Prospectus Supplement dated March 19, 2026 and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025.
These forward-looking statements speak only as of the date of this Form 10-Q and are subject to business and economic risks. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.
| 3 |
PART I – FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Unusual Machines, Inc.
Consolidated Condensed Balance Sheets
| September 30, 2026 (Unaudited) | December 31, 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments at fair value | ||||||||
| Short-term investment at cost | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Note receivable | ||||||||
| Prepaid inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Operating lease liability | ||||||||
| Contingent consideration | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liability – less current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock - $ par value, authorized and and shares issued and outstanding at September 30, 2026 and December 31, 2025, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| - |
See accompanying unaudited notes to the consolidated condensed financial statements.
| 4 |
Unusual Machines, Inc.
Consolidated Condensed Statement of Operations
For the Three and Nine Months Ended September 30, 2026 and 2025
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross Margin | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Operations | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and (expense) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Unrealized gain (loss) from investments | ( | ) | ( | ) | ||||||||||||
| Realized gain from investments | ||||||||||||||||
| Change in contingent consideration for Rotor Lab | ( | ) | ||||||||||||||
| Loss from foreign currency transactions | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ||||||||||||||
| Other income, net | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| STATEMENT OF COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| - | ||
| - |
See accompanying unaudited notes to the consolidated condensed financial statements.
| 5 |
Unusual Machines, Inc.
Consolidated Condensed Statement of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2026 and 2025
(Unaudited)
Three and Nine Months Ended September 30, 2025
| Common Stock | Additional Paid-In | Accumulated | Other Comprehensive Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Value | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, equity incentive plan | ( | ) | ||||||||||||||||||||||
| Issuance of common shares for exercise of warrants | ||||||||||||||||||||||||
| Stock compensation expense - vested stock | – | |||||||||||||||||||||||
| Stock compensation expense | – | |||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, Management/BOD | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Issuance of common shares, Option exercises | ||||||||||||||||||||||||
| Issuance of common shares, consulting services | ( | ) | ||||||||||||||||||||||
| Issuance of common shares, advisory board | ( | ) | ||||||||||||||||||||||
| Issuance of common shares, public offering | ||||||||||||||||||||||||
| Stock option compensation expense | – | |||||||||||||||||||||||
| Stock Compensation expense - vested stock | – | |||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, Management/BOD | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Issuance of common shares, Option exercises | ||||||||||||||||||||||||
| Issuance of common shares, consulting services | ( | ) | ||||||||||||||||||||||
| Issuance of common shares, public offering | ||||||||||||||||||||||||
| Issuance of common shares, Rotor Lab acquisition | ||||||||||||||||||||||||
| Issuance of common shares - warrant exercises | ||||||||||||||||||||||||
| Stock compensation expense | – | |||||||||||||||||||||||
| Stock compensation expense – vested stock | – | |||||||||||||||||||||||
| Net income | – | |||||||||||||||||||||||
| Equity adjustment from foreign currency translation | – | |||||||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| 6 |
Unusual Machines, Inc.
Consolidated Condensed Statement of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2026 and 2025
(Unaudited)
(continued)
Three and Nine Months Ended September 30, 2026
| Common Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||
| Number of Shares | Par Value | Paid-In Capital | Stocks to be Issued | Accumulated Deficit | Comprehensive Income | Total | ||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Issuance of common shares, Management/BOD | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||
| Issuance of common shares, Option exercises | ||||||||||||||||||||||||||||
| Issuance of common shares, consulting services | ( | ) | ||||||||||||||||||||||||||
| Issuance of common shares, CMPO | ||||||||||||||||||||||||||||
| Issuance of common shares, warrants | ||||||||||||||||||||||||||||
| Stock option compensation expense | – | |||||||||||||||||||||||||||
| Stock Compensation expense - vested stock | ||||||||||||||||||||||||||||
| Net income | – | |||||||||||||||||||||||||||
| Equity Adjustment from Foreign Currency Translation | – | |||||||||||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Issuance of common shares, Management/BOD | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||
| Issuance of common shares, Option exercises | ||||||||||||||||||||||||||||
| Issuance of common shares, advisory board | ( | ) | ||||||||||||||||||||||||||
| Issuance of common shares, ATM | ||||||||||||||||||||||||||||
| Stock option compensation expense | – | |||||||||||||||||||||||||||
| Stock Compensation expense - vested stock | – | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Equity Adjustment from Foreign Currency Translation | – | |||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Issuance of common shares, Option exercises | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Stock option compensation expense | – | |||||||||||||||||||||||||||
| Stock Compensation expense - vested stock | – | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Equity Adjustment from Foreign Currency Translation | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2026 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
See accompanying unaudited notes to the consolidated condensed financial statements.
| 7 |
Unusual Machines, Inc.
Consolidated Condensed Statement of Cash Flows
For the Nine Months Ended September 30, 2026 and 2025
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Unrealized loss (gain) on short-term investments | ( | ) | ||||||
| Realized gain on short-term investments | ( | ) | ||||||
| Bad debt | ||||||||
| Contingent consideration | ||||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid inventory | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Right of use asset and lease liabilities | ( | ) | ||||||
| Note Receivable | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of businesses, net of cash received | ||||||||
| Investments in short-term securities | ( | ) | ( | ) | ||||
| Proceeds from sale of short-term investments | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets (patents) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Gross proceeds from issuance of common shares, public offering | ||||||||
| Gross proceeds from issuance of common shares, registered direct offering | ||||||||
| Gross proceeds from issuance of common shares, at the market | ||||||||
| Proceeds from option exercises | ||||||||
| Proceeds from issuance of common shares, warrant exercises | ||||||||
| Common share issuance offering costs | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Effect of exchange rates changes on cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
See accompanying unaudited notes to the consolidated condensed financial statements.
| 8 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
September 30, 2026
Note 1 – Organization and nature of business
Unusual Machines, Inc. (“the Company”) is a Nevada corporation engaged in the commercial drone industry.
On September 3, 2025, the Company acquired Rotor Lab Pty. Ltd., an Australian company (“Rotor Lab). See Note 3 for additional information.
Note 2 – Summary of significant accounting policies
Principles of Consolidation
The consolidated financial statements include accounts of the Company and its wholly owned subsidiaries including UMAC IP Holdings Corp., Unusual Machines of Florida, Inc, Fat Shark, Rotor Riot and Rotor Lab since acquired on September 3, 2025. Intercompany transactions and balances have been eliminated upon consolidation.
Basis of Presentation
The consolidated condensed financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. Accordingly, these condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2026. The results for any interim period are not necessarily indicative of results for any future period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material.
The financial statements include some amounts that are based on management’s best estimates and judgments. Significant estimates reflected in these consolidated condensed financial statements include those used to (i) determine stock-based compensation, (ii) the fair value of assets acquired and liabilities assumed in business combinations, the fair value of shares issued as consideration and the fair value of contingent consideration in business combinations, (iii) reserves and allowances related to accounts receivable, and inventory, (iv) the evaluation of long-lived assets, including intangibles and goodwill, for impairment, (v) the present value of lease liabilities and related right of use assets, (vi) the fair value of short-term investments including the value of unexercised warrants received, (vii) the warranty liability and sales returns reserves, and (viii) the deferred tax asset valuation allowance.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains
cash deposits in multiple commercial banks and financial services companies. These financial institutions are insured by the Federal Deposit
Insurance Corporation up to $250,000. The Company’s cash balance may at times exceed these limits. At September 30, 2026 and December
31, 2025, the Company had approximately $
| 9 |
Accounts Receivable, net
The Company carries its accounts receivable at
invoiced amounts. The Company follows ASC 326, Financial Instruments – Credit Losses and has early adopted in fiscal year 2025,
ASU 2025-05, under which the Company evaluates all credit losses as of the reporting date. On a periodic basis, the Company evaluates
its accounts receivable and establishes an allowance for credit losses based on a history of past write-offs and collections and current
credit conditions. Accounts are written-off as uncollectible at the discretion of management. At September 30, 2026 and December 31, 2025,
the Company considers accounts receivable to be fully collectible; accordingly,
Note Receivable
The Company accounts for its note receivable in accordance with ASC 310, Receivables. The note receivable is carried at cost and is evaluated for credit losses in accordance with ASC 326, Financial Instruments – Credit Losses. The Company evaluates embedded features within convertible notes under ASC 815, Derivatives and Hedging, to determine whether any such features require separate accounting as embedded derivatives. The Company reassesses its conclusions regarding embedded features at each reporting date as facts and circumstances change.
Short-Term Equity Investments at Fair Value
The Company measures its investments in equity securities, consisting of common stock, preferred stock, and non-public warrants at fair value with unrealized changes in value recognized in net income (loss) per ASC 321. The Company has established an Equity Investment Valuation and Quarterly Assessment Policy to ensure consistent application of the applicable accounting guidance, including the evaluation of fair value, observable price changes, and impairment indicators. This policy serves as the basis for management's quarterly investment valuation assessments and related accounting conclusions. The Company holds less than a 5% equity interest in each of the companies it invested in as of September 30, 2026.
Short-Term Equity Investments at Cost
The Company accounts for certain equity investments in privately held companies that do not have readily determinable fair values using the measurement alternative under ASC 321, Investments – Equity Securities. Under the measurement alternative, these investments are measured at cost, less impairment, and adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company evaluates these investments at each reporting date to identify observable transactions that may require an adjustment to the carrying amount and indicators of impairment.
Inventory
Inventories, which consist of finished goods and raw materials, are stated at the lower of cost or net realizable value, and are measured using the first-in, first-out method. Cost components include direct materials, direct labor, an allocation of rent expense and depreciation for manufactured products, as well as in-bound freight. At each balance sheet date, the Company evaluates the net realizable value of its inventory using various reference measures including current product selling prices, as well as evaluating for excess quantities and obsolescence.
Property and equipment, net
Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided utilizing the straight-line method over the estimated useful lives which includes computer and office equipment of three to five years, motor production equipment of ten to fifteen years and tenant improvements of five to fifteen years.
| 10 |
Leases
The Company applies Accounting Standards Codification (ASC) 842, “Leases” which requires the recognition of assets and liabilities associated with lease agreements. The Company recognized a lease liability obligation and a right-of-use asset for the facilities leases in Orlando, FL and for the Canberra Australia lease related to the Rotor Lab acquisition as discussed in Note 3.
The Company determines if a contract is a lease or contains a lease at inception. Operating lease liabilities are measured, on each reporting date, based on the present value of the future minimum lease payments over the remaining lease term. The Company’s leases do not provide an implicit rate. Therefore, the Company used an effective discount rate of 8.24% based on its last proposed debt financings. Operating lease assets are measured by adjusting the lease liability for lease incentives, initial direct costs incurred and asset impairments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with the operating lease asset reduced by the amount of the expense. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets. Lease terms do not include an option to renew.
Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities, and Related Disclosures
The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.
The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The guidance establishes three levels of the fair value hierarchy as follows:
Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
The following table details the fair value measurements of the Company’s financial assets and liabilities as of September 30, 2026:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Short term investments – assets: | ||||||||||||||||
| Common stock | $ | $ | $ | $ | ||||||||||||
| Pre-funded warrants | ||||||||||||||||
| Non-public warrants | ||||||||||||||||
| Total short-term investments – assets | $ | $ | $ | $ | ||||||||||||
| Contingent consideration from Rotor Lab acquisition | $ | $ | $ | $ | ||||||||||||
| 11 |
The Company calculated the fair value for common stock for short-term investments based on the quoted trading price as of the close of the market multiplied by the total shares held by the Company as of September 30, 2026.
The Company calculated the fair value for pre-funded warrants for short-term investments based on the quoted trading price as of the close of the market multiplied by the total common equivalent shares held by the Company as of September 30, 2026.
The fair value of the non-public warrants investment in 2026 was determined using a Black-Scholes pricing model which values the warrants based on the stock price at the valuation date, the expected life of the warrant, the estimated volatility of the stock of the investee, and the risk-free interest rate over the expected life of the warrant.
The Company used the following inputs related to the non-public warrants fair value as of September 30, 2026:
| Supplemental Information | Non-public Warrants | |||
| Expected term of the warrants (years) | ||||
| Stock price | $ | |||
| Warrant exercise price | $ | |||
| Risk free interest rate | ||||
| Volatility | ||||
The contingent consideration from the Rotor
Lab acquisition was based on management’s estimate at the acquisition date of $
Changes in Level 3 financial instruments are as follows:
| December 31, |
Purchases, Issuances and |
Change in | September 30, | |||||||||||||
| 2025 | Settlements | Fair Value | 2026 | |||||||||||||
| Non-public warrants investment | $ | $ | $ | ( |
) | $ | ||||||||||
The Company’s financial instruments mainly consist of cash, receivables, short-term investments, other current assets, accounts payable, and accrued expenses. The carrying amounts of cash, receivables, other current assets, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these instruments.
| 12 |
Short Term Investments
Our short-term investments consisting of investments accounted for at fair value and investments accounted for at cost were as follows as of September 30, 2026:
| Short-term investments at fair value | Cost | Cumulative Unrealized Gains (Losses) | Fair Value | |||||||||
| Common stock | $ | $ | ( | ) | $ | |||||||
| Pre-funded warrants | ||||||||||||
| Non-public warrants | ||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| Short-term investments at cost | Cost | Impairment / Other Adjustments | Adjusted Cost | |||||||||
| Common stock | $ | $ | $ | |||||||||
| Preferred stock | ||||||||||||
| Pre-funded warrants | ||||||||||||
| Total | $ | $ | $ | |||||||||
Accrued Warranty
Fat Shark generally provides a one-year warranty
on all of its products, except in certain European countries where it can be two years for some consumer-focused products from the date
of shipment. If a defect arises during the warranty period, Fat Shark will either (i) repair the affected product at no charge using new
parts or parts that are equivalent to new in performance and reliability; (ii) exchange the affected product with a functionally equivalent
product; or (iii) refund the original purchase price for the affected product. Allowances for estimated warranty costs are recorded during
the period of sale. The determination of such allowances requires the Company to make estimates of product warranty claim rates and expected
costs to repair or to replace the products under warranty. The Company currently establishes warranty reserves based on historical warranty
costs for each product line combined with liability estimates based on the prior 24 months’ sales activities. If actual return rates
and/or repair and replacement costs differ significantly from the Company’s estimates, adjustments to recognize the additional cost
of sales may be required in future periods. Historically the warranty accrual and the expense amounts have been immaterial. The warranty
liability is included in accrued expenses on the accompanying consolidated balance sheets and amounted to $
Rotor Riot does not provide any warranty of any kind for any of the equipment it sells or otherwise distributes. Consumers assume all risk for any products purchased or received from Rotor Riot.
Rotor Lab does not provide any warranty, but does provide for a seven day defect period. Rotor Lab has not had any material defects for products sold.
Effective September 2025, Unusual Machines, the
parent company which manufactures motors has a limited warranty in which it warrants to customers that their products will be free from
defects in material and workmanship under normal use and service for up to 90 days. The limited warranty covers manufacturing defects
and premature failures and extends only to the original customer and is non-transferrable. The warranty liability is included in accrued
expenses on the accompanying consolidated balance sheets and amounted to $
| 13 |
Revenue Recognition
The Company will recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, issued by the Financial Accounting Standards Board (“FASB”). This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including:
Step 1: Identify the contract with a customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when (or as) the Company satisfies a performance obligation at a point in time.
The Company receives revenues from the sale of drone and drone parts to enterprise customers and distributors (“Enterprise Revenue”) and individual consumers (“Retail Revenue”). Revenue is recognized at a point in time when the products are shipped and the price is fixed or determinable, no other significant obligations of the Company exist and collectability is probable. Revenue is recognized when the title to the products has been passed to the customer, which is the date the products are shipped to the customer. This is the date the performance obligation has been met. The Company’s retail return policy allows for certain non-custom or built-to-order products to be returned up to 15 days after the original order is placed so long as it meets specific requirements as outlined in its return policy. The Company’s enterprise return policy allows for returns related to defective product so long as it meets the requirements in its policy. The historical sales returns for retail customers is de minimis and the Company does not have a specific sales return allowance for retail orders. The Company had returns for enterprise orders of $288,000 for the nine-month period ended September 30, 2026. A sales return allowance has not been recorded to date.
Disaggregation of Revenue
The following table presents the Company’s revenue disaggregated by revenue type for the period ended:
| For the Three months Ended September 30 | ||||||||
| 2026 | 2025 | |||||||
| Retail revenue | $ | $ | ||||||
| Enterprise revenue | ||||||||
| Total revenue | $ | $ | ||||||
The following table presents the Company’s revenue disaggregated by revenue type for the period ended:
| For the Nine months Ended | ||||||||
| September 30 | ||||||||
| 2026 | 2025 | |||||||
| Retail revenue | $ | $ | ||||||
| Enterprise revenue | ||||||||
| Total revenue | $ | $ | ||||||
The Company had revenue outside the United States
of approximately $
| 14 |
Deferred Revenue
Deferred revenue relates to orders placed and
payment received, but not yet fulfilled. All deferred revenue is expected to be recognized within one year. Deferred revenue related to
orders placed, but not yet fulfilled totaled $
Cost of Goods Sold
Cost of goods sold includes inventory costs which
includes an allocation for labor and rent for our manufactured products, direct packaging costs and production related depreciation, if
any. Depreciation included in cost of goods sold for the nine months ended September 30, 2026 and 2025 was $
Shipping and Handling Costs
Shipping and handling costs incurred for products
shipped to customers are included in operations expenses and amounted to $
Research and Development
Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development costs, materials, and are expensed as incurred.
Income Taxes
The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realizable in the future. The Company maintains a valuation allowance against its deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. Certain deferred tax liabilities are not available as a source of future taxable income in assessing the realizability of the Company’s deferred tax assets and, accordingly, remain recognized. For the three months ended September 30, 2026, the net change in deferred taxes and the related valuation allowance was immaterial and, accordingly, no income tax expense was recorded.
The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense.
Stock options are valued using the estimated grant-date fair value method of accounting in accordance with ASC Topic 718, Compensation – Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility based on comparative companies through December 31, 2025, and historical volatility beginning of January 1, 2026, expected term using the simplified method and future dividends. The Company recognizes forfeitures as they occur. The fair value of stock grants is based on our stock price on the date of grant. Compensation costs are recognized on a straight-line basis over the requisite service period which is the vesting term.
| 15 |
Warrants
The Company accounts for warrants to purchase shares of its common stock in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies warrants issued for the purchase of shares of its common stock as either equity or liability instruments based on an assessment of the specific terms and conditions of each respective contract. The assessment considers whether the warrants are freestanding financial instruments or embedded in a host instrument, whether the warrants meet the definition of a liability pursuant to ASC 480, whether the warrants meet the definition of a derivative under ASC 815, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants classified as liabilities are recognized as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss.
Foreign Currency
The Company’s wholly owned subsidiary’s functional currency is the Australia dollar (AUD). For financial reporting purposes, the Australia dollar has been translated into the Company’s reporting currency, which is the United States dollar (USD). Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency translations are included in the statement of operations and comprehensive income (loss) as a component of other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of Australian dollars to USD after the balance sheet date. Transaction gains and losses from transactions denominated in a foreign currency are recognized in other income (expense) in the statement of operations.
Changes in the cumulative translation adjustments were as follows:
| Balance as of December 31, 2025 | $ | |||
| Foreign currency translation adjustment related to Rotor Lab | ||||
| Balance as of September 30, 2026 | $ | |||
Basic and diluted net loss per share is calculated based on the weighted-average of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive.
| 16 |
The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders.
| For the Three months Ended | For the Nine months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Weighted average shares used in computing net income per share of common stock, basic | ||||||||||||||||
| Add incremental shares: | ||||||||||||||||
| Stock based awards (options and restricted stock units) | ||||||||||||||||
| Warrants | ||||||||||||||||
| Weighted average shares used in computing net income per share of common stock, diluted | ||||||||||||||||
The following table presents the potentially dilutive shares that were excluded for the nine months ended September 30, 2026 and the nine months ended September 30, 2025 from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:
| For the Nine months Ended | For the Nine months Ended | |||||||
| September 30 | September 30 | |||||||
| 2026 | 2025 | |||||||
| Unvested stock options | ||||||||
| Unvested restricted stock awards | ||||||||
| Warrants | ||||||||
| Total | ||||||||
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Unusual Machines, which sells drones and drone-related components, operates as a reportable segment entity. Our chief operating decision maker, our Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Chief Executive Officer primarily evaluates consolidated total revenues and gross margin, consistent with amounts presented in the consolidated statements of operations, in assessing the Company’s performance, and evaluates the Company’s cash position, consistent with amounts presented in the consolidated balance sheets, when making decisions regarding investing and financing activities.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU No. 2024-03, “Disaggregation of Income Statement Expenses” which requires disaggregated disclosure of income statement expenses into specified categories in disclosures within the footnotes to the financial statements. The standard is effective for annual reporting periods beginning after December 15, 2026. The Company is currently evaluating the effect of this ASU on the consolidated financial statements and disclosures.
In May 2025, the FASB issued ASU No. 2025-4, “Compensation – Stock Compensation and Revenue From Contracts With Customers” which provides clarifications to share-based consideration payable to a customer. The standard is effective for annual reporting periods beginning after December 15, 2026. The Company is currently evaluating the effect of this ASU on the consolidated financial statements and disclosures.
| 17 |
Note 3 – Acquisitions
Rotor Lab
On September 3, 2025, the Company closed on the acquisition of Rotor Lab. Rotor Lab is an Australian developer and manufacturer of electric motors and propulsion systems for unmanned aerial systems (“UAS”). Its product line includes precision-wound electric motors across multiple classes, from sub-400W units for small UAS to high-power motors supporting large rotary and fixed wing platforms.
In addition to the motor production facility in Australia, the Company built out a motor production facility in Orlando, FL and started producing motors for drones in the fourth quarter of 2025. The Company and Rotor Lab have been working together prior to the acquisition on co-developing several motor designs and sizes. The acquisition helps the Company accelerate their goals of building a resilient drone supply chain through their team and technology. In addition, Rotor Lab will continue to serve as the engineering center for the Company’s motor design, prototyping, and low to medium volume production of orders.
The Business Combination was based on a share
purchase agreement (the “Rotor Lab Purchase Agreement”) that was executed on June 12, 2025, subject to customary closing conditions
and was completed on September 3, 2025. Under the terms of the Rotor Lab Purchase Agreement, the consideration paid for the acquired assets
consisted of (i) the issuance of common stock for a value of $
The acquisition met the definition of a business
combination under ASC 805, Business Combinations, and therefore the assets acquired, and liabilities assumed are accounted for at fair
value. The Company issued shares of its common stock based on the formula as noted above, which resulted in an initial purchase
price of $
Such fair value amounts are subject to adjustment during the one-year measurement period.
| 18 |
The following represents the fair value allocation of Rotor Lab Purchase Price:
| Cash | $ | |||
| Accounts receivable | ||||
| Inventories | ||||
| Prepaid expenses | ||||
| Property and equipment | ||||
| Right of use asset – operating | ||||
| Other current assets | ||||
| Customer Relationships | ||||
| Non-Compete Agreements | ||||
| Trade Names | ||||
| Goodwill | ||||
| Total assets | ||||
| Accounts payable and accrued liabilities | ||||
| Deferred revenue | ||||
| Deferred tax liability | ||||
| Operating lease liability – current and long-term | ||||
| Total liabilities | ||||
| Initial consideration | ||||
| Contingent consideration | ||||
| Total purchase price | $ | |||
On September 3, 2025, the Company acquired
Note 4 – Inventories
Inventories, which consist solely of raw materials and finished goods was as follows as of September 30, 2026 and December 31, 2025, respectively.
| September 30, 2026 | December 31, 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
In addition, the Company had prepaid deposits for inventory totaling
$
| 19 |
Note 5 – Other Current Assets
Other current assets included as of:
| September 30, 2026 | December 31, 2025 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid benefits | ||||||||
| Prepaid other | ||||||||
| Interest receivable | ||||||||
| Total other current assets | $ | $ | ||||||
Non-current other assets primarily include rent
security deposits of $
Note 6 – Notes Receivable
On July 31, 2026, the Company entered into a $
The note provides the Company with the option to convert all or a portion
of the outstanding principal and accrued interest into Owl equity securities upon a qualifying equity financing or, if the note remains
unpaid, at or after maturity.
The note receivable is carried at amortized
cost, including consideration of the conversion feature embedded within the note. As of September 30, 2026, the carrying value of
the note receivable was $
| 20 |
Note 7 – Property and Equipment, net
Property and equipment consist of assets with an estimated useful life greater than one year. Property and equipment are reported net of accumulated depreciation, and the reported values are periodically assessed for impairment. Property and equipment as of:
| September 30, 2026 | December 31, 2025 | |||||||
| Computer equipment | $ | $ | ||||||
| Motor production equipment | ||||||||
| Office equipment | ||||||||
| Tenant improvements | ||||||||
| Total Property and Equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense totaled $
Note 8 – Operating Leases
The Company has assumed in the February 2024 business
combination of Rotor Riot, a five-year operating lease for approximately 6,900 square feet of warehouse and office space in Orlando, Florida.
The lease commenced in November 2023 and expires in October 2028. The Company has valued the Right of Use Asset (“ROUA”) and the associated liability, as of
February 16, 2024, at $
In June 2025, Unusual Machines signed a lease
agreement for an additional 17,000 square feet of warehouse/office space in Orlando, FL. This space will be used primarily for motor production.
The lease commencement date is August 1, 2025 and currently runs through August 21, 2030. The Company has valued the ROUA and the associated
liability, as of August 1, 2025, at $
In October 2025, Unusual Machines signed a lease
agreement for an additional 25,000 square feet of warehouse/office space in Orlando, FL. This space will be used primarily for order fulfillment
and inventory storage. The lease commencement date is December 1, 2025 and currently runs through December 31, 2030. The Company has valued
the ROUA and the associated liability, as of December 1, 2025, at $
On December 15, 2025, the Company parent entity
entered into a three-year operating lease agreement for an additional 4,500 square feet of space in Orlando, FL. This space will be used
for headset production. The lease commenced on January 1, 2026 and expires in December 2028. The Company has valued the ROUA and the associated
liability, as of January 1, 2026, at $
| 21 |
On December 10, 2025, the Company parent entity
entered into a three-year operating lease agreement for an additional 9,125 square feet of space in Orlando, FL. This space will be used
as the Company’s corporate headquarters. The lease commenced on January 1, 2026 and expires in February 2029. In addition, the Company
executed an amendment on September 4, 2026 for an additional 10,264 square feet. The Company has valued the ROUA and the associated liability,
as of February 1, 2026, at $
The Company has assumed in the acquisition of
Rotor Lab on September 3, 2025, a three-year operating lease of warehouse and office space in Canberra, Australia. The leased commenced
in May 2024 and expires in April 2027. The Company has valued the ROUA and the associated liability, as of September 3, 2025, at $
The following is a summary of the operating lease right-of-use assets and liabilities at September 30, 2026:
| Operating Lease | ||||
| Operating lease right-of-use assets | $ | |||
| Less: accumulated amortization | ( |
) | ||
| Operating lease right-of-use assets, as of September 30, 2026 | ||||
| Operating lease liability | ||||
| Less: accumulated reduction | ( |
) | ||
| Operating lease liability, as of September 30, 2026 | ||||
| Current operating lease liability | ||||
| Non-current operating lease liability | ||||
| Total operating lease liability | $ | |||
The following is a summary of future lease payments required under the lease agreement:
| Year | Future Lease Payments | Operating Lease Discount | Operating Lease Liability | |||||||||
| 2026 | $ | $ | ( | ) | $ | |||||||
| 2027 | ( | ) | ||||||||||
| 2028 | ( | ) | ||||||||||
| 2029 | ( | ) | ||||||||||
| 2030 | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| Supplemental Information | UMAC | Rotor Riot | Rotor Lab | |||||||||
| Weighted average remaining lease term (in years) | ||||||||||||
| Weighted average discount rate | ||||||||||||
During the nine months ended September 30, 2026, the Company commenced
new lease arrangements resulting in the recognition of operating lease right-of-use assets and corresponding operating lease liabilities
of $
| 22 |
Note 9 – Goodwill and Intangible Assets
Goodwill
There were no changes in the carrying amount of
goodwill during the nine months ending September 30, 2026. The carrying value of goodwill was $
Intangible Assets
As of September 30, 2026, the balances of intangible assets were as follows:
| Type | Gross Value | Accumulated Amortization | Net Value | |||||||||||
| Patents/IP – Fat Shark | Finite-lived | $ | $ | ( | ) | $ | ||||||||
| Trademark – Rotor Riot | Indefinite-lived | – | ||||||||||||
| Trade name – Rotor Lab | Finite-lived | ( | ) | |||||||||||
| Customer relationships – Rotor Lab | Finite-lived | ( | ) | |||||||||||
| Non-Compete Agreements – Rotor Lab | Finite-lived | ( | ) | |||||||||||
| Total intangible assets, net | $ | $ | ( | ) | $ | |||||||||
Patents and intellectual property relate to the
patents and technology know-how from the acquisition of Fat Shark in February 2024. Patents are amortized over
Trade name for Rotor Lab is amortized over
Amortization expense for the nine months ended
September 30, 2026 and 2025 was $
Note 10 – Stockholders’ Equity
Common Stock
2026 Transactions
Common stock for services issued to employees and directors
On January 2, 2026, the Company issued restricted shares of common stock to certain employees of the Company. The shares of restricted stock were granted under the Company’s 2022 Equity Incentive Plan. The restricted shares issued to employees are subject to pro-rata forfeiture over a four-year period. The shares were valued at $13.57 per share, which was the quoted trading price of the Company’s common stock on the date of grant, respectively, for a total of $ to be recognized as stock compensation expense pro-rata over the vesting period.
| 23 |
On January 23, 2026, the Company issued
restricted shares of common stock to executive officers of the Company. The shares of restricted stock were granted under the Company’s
2022 Equity Incentive Plan. The restricted shares issued to executive officers are subject to pro rata forfeiture through December 31,
2026. The shares were valued at $16.70 per share, which was the quoted trading price of the Company’s common stock on the date of
grant, respectively, for a total of $
On January 23, 2026, the Company issued
restricted shares of common stock to certain employees of the Company. The shares of restricted stock were granted under the Company’s
2022 Equity Incentive Plan. The restricted shares issued to employees are subject to pro-rata forfeiture over a four-year period. The
shares were valued at $16.70 per share, which was the quoted trading price of the Company’s common stock on the date of grant, respectively,
for a total of $
On March 13, 2026, the Company issued shares
of common stock related to vested restricted stock units for our certain board members. The restricted stock units are valued at $20.40
per share, the closing price of our common stock as of the date of the grant, for a total value of $
On May 20, 2026, the Company issued shares
of common stock related to vested restricted stock units for our certain board members. The restricted stock units are valued at $14.37
per share, the closing price of our common stock as of the date of the grant, for a total value of $
Common stock issued for services to non-employees
On January 2, 2026, the Company issued
restricted shares of common stock to a consultant for service performed. The shares of restricted stock were granted under the Company’s
2022 Equity Incentive Plan. The restricted shares issued to the consultant are subject to pro-rata forfeiture over a two-year period.
The shares were valued at $13.57 per share, which was the quoted trading price of the Company’s common stock on the date of grant,
respectively, for a total of $
On May 22, 2026, the Company issued shares of common stock related to vested restricted stock units for our advisory board members. The restricted stock units are valued at $16.78 per share, the closing price of our common stock as of the date of the grant, for a total value of $ and expensed on the grant date.
Common stock issued related to option exercises
During the nine months ended September 30, 2026,
several employees of the Company exercised of their vested stock options in which the Company issued shares of common
stock related to these exercises. The Company received total cash proceeds of $
Common stock issued related to warrant exercises
On January 9, 2026 the Company issued
shares of common stock related to warrant holders exercising their warrants. The Company received gross proceeds of $
| 24 |
Common stock issued related to public offering
On March 19, 2026, in a confidentially marketed
public offering the Company sold shares of common stock at $17.00 per share resulting in gross proceeds of $
On May 29, 2026, we completed an at the market
offering for the sale of shares of Common Stock at a price of $30.00 per share for aggregate gross proceeds of approximately
$
2025 Transactions
On January 14, 2025, the Company issued immediately vested restricted shares of common stock to non-employee directors of the Company. The shares of restricted stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $11.99 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of $ to be recognized as stock compensation expense on the grant date.
On February 3, 2025, the Company issued
restricted shares of common stock to executive officers and certain employees of the Company. The shares of restricted stock were granted
under the Company’s 2022 Equity Incentive Plan. The restricted shares issued to executive officers are subject to pro rata forfeiture
through December 31, 2025. The restricted shares issued to certain employees are subject to pro-rata forfeiture over a four-year period.
The shares were valued at $12.00 per share, which was the value of the Company’s common stock on the date of grant, respectively
for a total of $
In February 2025, the Company issued
shares of common stock related to warrant holders exercising their warrants at an exercise price of $
On May 6, 2025, in a confidentially marketed public
offering the Company sold shares of common stock at $5.00 per share resulting in gross proceeds of $
On May 19, 2025, the Company issued immediately vested restricted shares of common stock to non-employee directors of the Company. The shares of restricted stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $5.40 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of approximately $ to be recognized as stock compensation expense during the nine months ended September 30, 2025.
On May 19, 2025, the Company issued immediately vested shares of common stock to a consultant of the Company related to services provided. The shares of common stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $5.40 per share, which was the value the Company’s common stock on the date of grant, respectively for a total of approximately $ to be recognized as stock compensation expense during the nine months ended September 30, 2025.
| 25 |
On May 22, 2025, the Company issued shares
of common stock related to vested restricted stock units for our advisory board members. The restricted stock units are valued at $4.40
per share, the closing price of our common stock as of the date of the grant, for a total value of $
On June 30, 2025, the Board of Directors of the
Company awarded the Company’s Chief Executive Officer restricted shares of the Company’s common stock under the 2022
Equity Incentive Plan as a bonus related to the May 2025 public offering. The restricted shares are valued at $8.57 per share, the closing
price of our common stock as of the date of the grant, for a total value of $
On July 15, 2025, in a registered direct offering
the Company sold shares of common stock at $9.70 per share resulting in gross proceeds of $
On August 1, 2025, the Company issued
shares of common stock related to the delivery of vested restricted stock units under the 2022 Equity Incentive Plan to certain executives
of the Company as a bonus related to the May 2025 public offering. The shares were valued at $
On August 7, 2025, the Company issued
restricted shares of common stock to certain employees of the Company. The shares of restricted stock were granted under the Company’s
2022 Equity Incentive Plan. The restricted shares issued to employees are subject to pro-rata forfeiture over a four-year period. The
shares were valued at $9.59 per share, which was the quoted trading price of the Company’s common stock on the date of grant, respectively
for a total of $
On August 19, 2025, the Company issued immediately vested restricted shares of common stock to non-employee directors of the Company. The shares of restricted stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $9.75 per share, which was the quoted trading price the Company’s common stock on the date of grant, respectively, for a total of approximately $ to be recognized as stock compensation expense during the nine months ended September 30, 2025.
On August 19, 2025, the Company issued immediately vested shares of common stock to a consultant of the Company related to services provided. The shares of common stock were granted under the 2022 Equity Incentive Plan. The shares were valued at $9.75 per share, which was the quoted trading price the Company’s common stock on the date of grant, respectively for a total of approximately $ which is recognized as stock compensation expense during the nine months ended September 30, 2025 and included in stock compensation expense – vested stock on the statement of stockholder’s equity.
On September 2, 2025, the Company issued
restricted shares of common stock to certain employees of the Company. The shares of restricted stock were granted under the Company’s
2022 Equity Incentive Plan. The restricted shares issued to employees are subject to pro-rata forfeiture over a four-year period. The
shares were valued at $9.16 per share, which was the value of the Company’s common stock on the date of grant, respectively for
a total of $
| 26 |
On September 3, 2025, the Company issued
of common stock related to the closing of the Rotor Lab acquisition (see Note 3). The shares were valued at $9.02 per shares which was
the closing trading price of the Company’s common stock on September 3, 2025, the closing date of the acquisition, resulting in
an aggregate value of $
On September 24, 2025, the Company issued
shares of common stock related to warrant holders exercising their warrants. The Company received gross proceeds of $
In September 2025, the Company issued shares of common stock related to the vesting of certain employee restricted stock units in which the Company issued shares of common stock related to the vesting of these restricted stock units.
During the nine months ended September 30, 2025,
several employees of the Company exercised of their vested stock options in which the Company issued shares of common
stock related to these exercises. The Company received total cash proceeds of $
The Company’s Board of Directors has delegated authority to the Chief Executive Officer to grant stock options to employees who are not executive officers. Any issuance of restricted stock awards or restricted stock units must be approved by the Company’s Compensation Committee. Stock options are granted for employees on a monthly to quarterly basis. Restricted stock awards and restricted stock units are granted on a quarterly basis.
Stock Options
During the nine months ended September 30, 2026 and 2025, the Company’s Board of Directors approved the grant of and , respectively of stock options under the Plan to certain employees. The stock options are subject to certain vesting provisions. Standard vesting on stock options have a six-month cliff vesting in which the first two quarters vest at the six-month mark and quarterly thereafter over a total of four years, however, certain stock options may have immediate vesting or shorter periods as approved. Stock options contractual term range from 5 to 10 years.
| 27 |
The following table presents the activity for stock options outstanding:
Non-Qualified Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding - December 31, 2025 | $ | $ | ||||||||||||||
| Granted | – | – | ||||||||||||||
| Forfeited/canceled | ( | ) | – | – | ||||||||||||
| Exercised | ( | ) | – | |||||||||||||
| Outstanding – September 30, 2026 | $ | $ | ||||||||||||||
| Exercisable – September 30, 2026 | $ | $ | ||||||||||||||
The range of assumptions used to calculate the fair value of options granted during the period ended September 30, 2026 was:
| 2026 | ||||
| Exercise Price | $ | – | ||
| Stock Price on date of grant | $ | – | ||
| Risk-free interest rate | % – % | |||
| Dividend yield | ||||
| Expected term (years) | - | |||
| Volatility | % – % | |||
The total grant date fair value of stock options granted was $ and $ during the nine months ended September 30, 2026 and 2025, respectively. The Company recognized $ and $ in stock-based compensation expense related to stock options during the nine months ended September 30, 2026 and 2025, respectively. As of September 30, 2026, there was $ of unrecognized stock-based compensation expense related to unvested stock options to be recognized over the remaining vesting term through 2032.
Restricted Stock
Restricted stock awards are equity grants in which the Company issues restricted common stock awards as of the grant date which are subject to certain vesting and clawback provisions. Restricted stock units are equity grants in which the Company issues a restricted stock unit subject to vesting requirements and common stock is not issued until the vesting requirements have been met. The following table presents the activity for restricted stock awards and restricted stock units outstanding:
| Restricted Stock Awards | Weighted Average Grant Date Fair Value - RSA | Restricted Stock Units | Weighted Average Grant Date Fair Value - RSU | |||||||||||||
| Unvested - December 31, 2025 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited/canceled | ||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||
| Unvested – June 30, 2026 | $ | $ | ||||||||||||||
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The total value of restricted stock and restricted
stock units was $
Warrants
The following table presents the activity for warrants outstanding as of September 30, 2026:
| Weighted | ||||||||
| Warrants | Average | |||||||
| Outstanding | Exercise Price | |||||||
| Outstanding - December 31, 2025 | $ | |||||||
| Granted | ||||||||
| Forfeited/cancelled/restored | ||||||||
| Exercised | ( | ) | ||||||
| Outstanding – September 30, 2026 | $ | |||||||
On January 9, 2026,
Note 12 – Related Party Transactions
On March 13, 2026, the Company issued vested shares of common stock to each of three of its independent directors as compensation for the first quarter 2026; the fourth independent director elected to receive cash compensation. The shares were valued at an aggregate of $ and were immediately recognized as stock compensation expense.
On April 1, 2026, the Company paid $
In January 2026, the Company received a $
On July 24, 2026,
Note 13 – Commitments and Contingencies
There are no currently no open commitments or contingencies as of September 30, 2026.
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Note 14 – Subsequent Events
CEO Warrant Award
On July 24, 2026, the Company entered into a warrant agreement with 8 Consulting LLC, on behalf of Dr. Allan Evans, the Company’s Chief Executive Officer, providing for the issuance of warrants to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price of $25.00 per share, subject to shareholder approval. The warrant award was approved by the Company’s shareholders on October 5, 2026.
The warrants have a five-year contractual term and vest in five equal tranches of 1,000,000 warrants each upon achievement of specified stock-price thresholds of $25, $40, $60, $80, and $100 per share, respectively, based on the average closing price of the Company’s common stock over 20 consecutive trading days.
The Company is evaluating the accounting treatment of the award under ASC 718, Compensation-Stock Compensation, including the determination of the requisite service period. The grant-date fair value is expected to be determined using a Monte Carlo simulation model. The resulting stock-based compensation expense and recognition period will depend on the final assessment of the award’s substantive terms and applicable accounting guidance.
Acquisition of Upgrade Energy
On October 19, 2026, the Company completed its acquisition of Upgrade Energy, a manufacturer of battery products and related technologies for unmanned aircraft systems. The transaction purchase price is estimated at $52.0 million. At closing, the Company (i) issued Matthew Barnard, the former sole shareholder of Upgrade Energy, 1,792,012 shares of the Company’s common stock and (ii) paid him $1 million in cash. The common stock was valued at $13.9508 per share which was based on the preceding 5 day volume weighted average share price of the Company’s common stock prior to signing the definitive agreement. The Company estimated the common stock to be valued at approximately $25.0 million. This valuation for accounting purposes could be subject to change based on the Company’s common stock price at the time of closing. The Company agreed to pay Mr. Barnard up to an additional $26.0 million in cash based on the Company recognizing $10.0 million in revenue related to internally manufactured batteries during the first two years after the closing date. In connection with the closing, the Company entered into a two-year Employment Agreement to act as Chief Executive Officer at an annual base salary of $300,000 per year. The Company also entered into a Registration Rights Agreement with him agreeing to register the common stock it issued to him at the closing.
The Company is in the process of determining the acquisition-date fair values of the assets acquired and liabilities assumed, including inventory, property and equipment, identifiable intangible assets and other working capital balances.
As the acquisition occurred subsequent to September 30, 2026, the transaction has not been reflected in the Company’s condensed consolidated balance sheet as of that date. The purchase consideration and fair value information will be disclosed when the information becomes available.
Rotor Lab Contingent Consideration
In connection with the Company’s acquisition of Rotor Lab Pty. Ltd. on September 3, 2025, the purchase agreement provides for contingent consideration based on qualifying revenue generated from specified internally manufactured motor products during the twelve-month earnout period ending September 2, 2026.
Subsequent to September 30, 2026, the Company issued 137,260 shares of its common stock in settlement of the first earnout tranche, representing contingent consideration of $3.0 million.
The issuance represents settlement of contingent consideration associated with the prior acquisition.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report and our audited financial statements and related notes thereto included in our Prospectus Supplement dated March 19, 2026 and our Annual Report on Form 10-K for the year ended December 31, 2025. The following discussion contains forward-looking statements that are subject to risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with those statements. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report and of our Annual Report on Form 10-K for the year ended December 31, 2025, particularly in the section entitled “Risk Factors.” Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Unusual Machines, Inc. and its subsidiaries. All amounts presented in tables, other than per share amounts, are in thousands unless otherwise noted.
Recent Developments
Acquisition of Upgrade Energy
On October 19, 2026, we closed the previously disclosed acquisition of DroneNX, LLC which operates as Upgrade Energy (“Upgrade Energy”), a manufacturer of battery and power systems solutions for unmanned aerial systems. At the closing, we issued Matthew Bard, the sole owner of Upgrade Energy 1,792,012 shares of the Company’s common stock and paid Mr. Barnard $1 million in cash. We also may also pay him up to an additional $26 million as an earnout based upon future battery sales. See Note 14 to our Consolidated Condensed Financial Statements.
The acquisition adds battery expertise to our domestic manufacturing and engineering capabilities, adds additional drone components to our product mix, and strengthens our overall domestic supply chain and manufacturing capabilities. In addition to Upgrade Energy’s California facility, we expect to open a battery manufacturing facility in Orlando, Florida in either December or January.
We completed the acquisition as of October 19, 2026.
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Results of operations
Three Months Ended September 30, 2026 and 2025
Revenue
During the three months ended September 30, 2026 we generated revenues totaling $13,903,032 compared to $2,134,588 during the three months ended September 30, 2025, representing an increase of $11,768,444 or 551%. The increase in revenue primarily relates to the increase and establishment of our enterprise business and revenue related to our National Defense Authorization Act (“NDAA”) and Blue UAS products. Our enterprise revenue was $12,556,925 for the three months ended September 30, 2026 compared to $976,138 for the three months ended September 30, 2025. We started manufacturing production on certain products including drone motors, headsets, cameras and other drone related products during 2026. As we continue to expand our manufacturing capabilities and the larger drone market develops, we continue to see significant increased interest and demand in our manufactured products in the fourth quarter. We expect our revenue to continue to grow as we continue to build out our capacity including our manufacturing facilities and products and significantly increasing our manufacturing staff to handle additional demand from the market. With the acquisition of Upgrade Energy and the opening of our new Orlando battery manufacturing facility, we see battery manufacturing being a key part of the total mix of sales.
Cost of Goods Sold & Gross Profit
During the three months ended September 30, 2026, our cost of goods sold was $8,986,728 compared to $1,294,200 during the three months ended September 30, 2025, resulting in an increase of $7,692,528 or 594%. Cost of goods sold primarily relate to product costs from our sales, but also include certain shipping and other direct and indirect product costs. The increase in cost of goods sold is driven entirely by the increase in our revenue.
During the three months ended September 30, 2026, our gross profit was $4,916,304 compared to $840,388 during the three months ended September 30, 2025, resulting in an increase of $4,075,916 or 485%. Our gross margin, as a percentage of sales, totaled 35.47% during the three months ended September 30, 2026, compared to gross margin of approximately 39.4% during the three months ended September 30, 2025. Our gross profit is entirely driven based on our growth in top line revenue, while the decrease in margins is driven primarily by our continued and rapid expansion of manufacturing, however, we believe our margins are still within normal operating limits and will continue to increase as our manufacturing process continues to mature.
Operating Expenses
During the three months ended September 30, 2026, operations expenses totaled $2,012,744 compared to $636,705 during the three months ended September 30, 2025, resulting in an increase of $1,376,039 or 216%. Operations expense relate to expenses incurred for fulfilling orders and warehouse related expenditures including our warehouse personnel, supplies, and shipping expenses. The increase primarily relates to additional costs incurred related to our motor factory operations that we are putting in place along with additional shipping costs from the increase in revenue.
During the three months ended September 30, 2026, research and development expenses totaled $350,548 compared to $39,369 for the three months ended September 30, 2025, resulting in an increase of $311,179 or 790%. Research and development expense primarily relates to new product development and is subject to fluctuations based on specific research and development projects ongoing during the period and include both internal and external resources and costs associated with new product development.
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During the three months ended September 30, 2026, sales and marketing expenses totaled $613,614 compared to $373,539 for the three months ended September 30, 2025, resulting in an increase of $240,075 or 64%. The increase primarily relates to the buildout of our sales and marketing teams as our business shifts from retail to enterprise. In addition, we incurred additional expenses during the second quarter related to marketing events and increase in ad spend during the period.
During the three months ended September 30, 2026, general and administrative expenses totaled $10,238,161 compared to $4,730,063 for the three months ended September 30, 2025, an increase of $5,508,098 or 116%. General and administrative expenses include expenses related to operating as a public company, including legal, auditing and other professional fees, public company insurance expense, investor relations and other costs associated with being public. We have also increased our headcount to support our growth, including expanding our accounting, HR, and facilities staff. We expect our general and administrative expenses to increase as we continue to increase our infrastructure with additional hires, systems and processes, and as we become subject to additional compliance related activities. We also anticipate professional fees and other expenses related to being a public company to increase. In addition, we anticipate our non-cash stock compensation expense to be higher in 2026. We do not anticipate our general and administrative expenses to increase at the same rate as our revenue as we start to gain operational efficiencies at scale.
Other Income (Expense)
During the three months ended September 30, 2026, other income and expense totaled other expense of $16,681,327 compared to other income of $6,565,202 during the three months ended September 30, 2025, resulting in a decrease of $23,246,529. This decrease relates primarily to our unrealized loss from short-term investments of $24,231,394 offset by an increase in interest income increase of $985,489.
Net Income (Loss)
Our net loss for the three months ended September 30, 2026, totaled $25,044,948 compared to a net income of $1,603,465 for the three months ended September 30, 2025, resulting in an increase in net loss of $26,648,413 or 1,661%. This increase in net loss primarily relates to the increase in unrealized loss from trading securities of $24,231,394.
Results of Operations – Nine Months Ended September 30, 2026 compared to the Nine Months Ended September 30, 2025
Revenue
During the nine months ended September 30, 2026 we generated revenues totaling $38,721,336 compared to $6,300,857 during the nine months ended September 30, 2025, representing an increase of $32,420,479 or 515%. The growth in revenue is driven from growth in our existing retail channel and expanding our enterprise channel as we are manufacturing additional NDAA and Blue UAS products. Our enterprise revenue was $34,200,305 for the nine months ended September 30, 2026 compared to $1,288,384 for the nine months ended September 30, 2025. We started manufacturing production on certain products including drone motors, headsets, cameras and other drone related products during the first half of 2026. As we continue to expand our manufacturing capabilities and the larger drone market develops, we continue to see significant increased interest and demand in our manufactured products as we head into 2027. We expect our revenue to continue to grow as we continue to build out our capacity including our manufacturing facilities and products and significantly increasing our manufacturing staff to handle additional demand from the market.
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Cost of Goods Sold & Gross Profit
During the nine months ended September 30, 2026, we incurred cost of goods sold of $25,348,791 compared to $4,168,984 during the nine months ended September 30, 2025, resulting in an increase of $21,179,807 or 508%. Cost of goods sold primarily relate to product costs from our sales, but also include certain shipping and other direct and indirect product costs. The increase in cost of goods sold is driven entirely by the increase in our revenue.
During the nine months ended September 30, 2026, our gross profit was $13,372,545 compared to $2,131,873 during the nine months ended September 30, 2025, resulting in an increase of $11,240,672 or 527%. Our gross margin, as a percentage of sales, totaled 34.5% during the nine months ended September 30, 2026, compared to 33.8% during the nine months ended September 30, 2025. We anticipate our gross margin to fluctuate period to period depending on certain promotions and products that are sold during the period and the mix of retail and enterprise sales during the period. The margins we generated during the first half of the year are in line with our expectations and our normal operating margins.
Operating Expenses
During the nine months ended September 30, 2026, operations expenses totaled $5,380,364 compared to $1,343,584 during the nine months ended September 30, 2025, resulting in an increase of $4,036,780 or 300%. Operations expenses primarily relate to our direct operations including our warehouse personnel and warehouse expenses. In addition, we have started incurring additional operations related expenses as we start incurring non-product costs related to our motor production and headset facilities. We expect our operations expense to increase as we continue to hire additional staff to support our operations including engineering staff to help improve process and gain efficiencies. We anticipate additional operating expenses in the fourth quarter as we set up additional battery facilities with the completion of the Upgrade Energy acquisition and look to continue to expand additional operations including anew Orlando, Florida battery manufacturing facility in December or January.
During the nine months ended September 30, 2026, research and development expenses totaled $994,649 compared to $110,002 for the nine months ended September 30, 2025, resulting in an increase of $884,647 or 804%. Research and development expense primarily relates to new product development from both internal and external resources and costs associated with these new products.
During the nine months ended September 30, 2026, sales and marketing expenses totaled $1,983,665 compared to $883,513 for the nine months ended September 30, 2025, resulting in an increase of $1,100,152 or 125%. Sales and marketing expenses primarily relate to advertising spend related to Rotor Riot, marketing events and payroll expenses for our sales and marketing team. The increase relates mainly to adding additional staffing to our sales and marketing team. We anticipate our sales and marketing costs to increase in 2026 related to expanding our enterprise sales team, however, we expect these increases to be at a lower rate than our revenue and other expenses as our enterprise sales are more dedicated efforts, while our retail revenue is driven off of advertising sales.
During the nine months ended September 30, 2026, general and administrative expenses totaled $28,265,622 compared to $15,151,160 for the nine months ended September 30, 2025, an increase of $13,114,462 or 87%. General and administrative expenses include expenses related to operating as a public company, including legal, auditing and other professional fees, public company insurance expense, and other costs associated with being public. We have also increased our headcount to support our growth, including increasing our accounting, HR, and facilities staff. We expect our general and administrative expenses to increase as we continue to build out our infrastructure with additional hires and systems. We also anticipate professional fees and other expenses related to being a public company to increase. In addition, we anticipate our non-cash stock compensation expense to be higher in the fourth quarter of 2026. We do not anticipate our general and administrative expenses to increase at the same rate as our revenue as we start to gain operational efficiencies at scale.
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Other Income (Expense)
During the nine months ended September 30, 2026, other income and expense totaled $911,244 compared to $6,792,468 during the nine months ended September 30, 2025, resulting in a decrease of $5,881,224. The decrease primarily relates to unrealized losses from trading securities of $18,622,853, offset by a realized gain from investments of $9,532,673 and an increase in interest income of $3,370,462.
Net Income (Loss)
Our net loss for the nine months ended September 30, 2026, totaled $22,545,507 compared to a net loss of $8,627,553 for the nine months ended September 30, 2025, resulting in an increase in net loss of $13,917,954 or 161%. The increase primarily relates to unrealized losses from investments of $18,622,853, offset by a realized gain from investments of $9,532,673 and an increase in interest income of $3,370,462.
Cash Flow Analysis
Our future cash flows from operating activities will be significantly impacted by revenues received, our investment in sales and marketing to drive growth, and general and administrative expenses related to operating a public company. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to achieve our business objectives.
Operating Activities
Net cash used in operating activities was $73,554,146 during the nine months ended September 30, 2026, compared to net cash used in operating activities of $11,394,294 during the nine months ended September 30, 2025, representing an increase of $62,159,852 or 545%. The increase was primarily attributable to changes in working capital, including increase in inventory of $35,559,329, prepaid and deposits for inventory of $7,493,589, accounts receivable of $16,801,237, and offset by an increase in accounts payable and accrued expenses of $4,142,716, and an increase in operating lease liabilities of $1,164,495. The Company recorded unrealized loss on short term investments of $12,773,139 and realized gains of $9,532,673.
Investing Activities
Net cash used in investing activities was $68,906,754 during the nine months ended September 30, 2026 compared to net cash used in investing activities of $12,457,633 during the nine months ended September 30, 2025, representing an increase of $56,449,121. This increase consisted of $82,499,998 used in our strategic short-term investments, $6,295,729 in purchases of property and equipment, partially offset by proceeds from sales of short term investments of $20,082,674.
Financing Activities
Net cash provided by financing activities totaled $201,144,130 during the nine months ended September 30, 2026, compared to net cash provided by financing activities of $84,378,076 during the nine months ended September 30, 2025, resulting in an increase in net cash provided by financing activities of $116,766,054. Our 2026 proceeds are from a public offering of common shares of $149,999,993 and our at-the-market offering of $60,000,000 offset by offering costs of $13,001,236. Our 2025 proceeds included a public offering of common stock of $40,000,000 offset by offering costs of $3,504,000. In addition we had proceeds from warrant exercises of $3,395,000, and option exercises of $750,373 during 2026 as compared to $2,479,466 and $501,610, respectively during 2025.
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Liquidity and capital resources
As of September 30, 2026, we had current assets totaling $351,312,208 primarily consisting of cash balances of $161,965,505, short-term investments of $98,391,766, accounts receivable of $18,703,356, inventory of $42,622,077, other current assets of $1,370,481 and deposits for inventory of $23,259,023. As of September 30, 2026, our current liabilities totaled $10,142,634 and consisted primarily of accounts payable and accrued expenses of $6,055,909, deferred revenue of $114,491, the current portion of operating lease liabilities of $972,234, and contingent consideration of $3,000,000 related to the Rotor Lab acquisition. Our net working capital as of September 30, 2026 was $336,169,577.
We believe that our existing cash balances will be sufficient to fund our current operating plans through more than the next 12 months.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2025.
Recently Issued Accounting Pronouncements
For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2025.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of September 30, 2026.
The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2026.
Changes In Controls Over Financial Reporting
During the quarter ended September 30, 2026, the Company continued to strengthen its internal controls, including the implementation of advanced inventory modules within NetSuite for its financial and transactional reporting. In addition, the Company hired additional staff within the accounting, finance, information technology and human resource functions and updated its process documentation for financial reporting. Finally, the Company engaged a professional consulting firm to assist with its Sarbanes-Oxley readiness program, which includes ongoing documentation, testing and evaluation of its internal control over financial reporting. We believe that these changes have remediated the previously disclosed material weaknesses in internal control over financial reporting, which related to insufficient segregation of duties within accounting functions and the lack of written documentation of our internal control policies and procedures.
Other than as discussed above, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II – OTHER INFORMATION
| Item 1. | Legal Proceedings |
From time to time, we may become party to legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceedings that we believe, individually or in the aggregate, would reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
| Item 1A. | Risk Factors |
There have been no material changes to the risk factors disclosed in our Prospectus dated October ___, 2026 and under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025. In addition to the information set forth in this Form 10-Q, you should carefully consider those risk factors.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
All recent sales of unregistered securities have been previously reported.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the nine months ended September 30, 2026.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
None.
| Item 5. | Other Information |
During the three months
ended September 30, 2026, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
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| Item 6. | Exhibits |
The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Report are listed in the Exhibit Index below. The exhibits listed in the Exhibit Index are incorporated by reference herein.
EXHIBIT INDEX
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| + | Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC Staff upon request. |
| # | Indicates management contract or compensatory plan, contract or agreement. |
| (1) | Filed herein |
| (3) | Furnished herein. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Unusual Machines, Inc. | ||
| By: | /s/ Allan Evans | |
|
Allan Evans (Principal Executive Officer) | ||
| By: | /s/ Brian Hoff | |
| Brian Hoff Chief Financial Officer | ||
Date: November 5, 2026
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