Unusual Machines (NYSE American: UMAC) swings to H1 2026 profit amid cash raise
Unusual Machines, Inc., a commercial drone company, reported rapid growth for the quarter and six months ended June 30, 2026. Revenue reached $16.7 million in Q2 and $24.8 million year‑to‑date, up sharply from $2.1 million and $4.2 million in 2025, driven mainly by enterprise customers.
The business remains loss‑making on an operating basis, with an operating loss of $7.8 million in Q2 and $15.1 million for the first half, on operating expenses of $23.5 million that include $9.6 million of stock‑based compensation. Nevertheless, first‑half net income was $2.5 million versus a $10.2 million loss a year earlier, helped by $17.6 million of interest and investment gains, including $9.5 million realized and $5.6 million unrealized on short‑term securities.
Liquidity is substantial: cash was $229.6 million with $39.3 million of short‑term investments at fair value and $47.5 million at cost, against total liabilities of $9.5 million and stockholders’ equity of $388.0 million. Cash was bolstered by a $150.0 million confidentially marketed offering at $17 per share and a $60.0 million at‑the‑market sale at $30 per share. Inventory and prepaid inventory expanded to $42.5 million as the company scales manufacturing and fulfillment capacity, including its Rotor Lab motor operation and multiple new Orlando facilities. Subsequent events include large performance‑based equity awards for executives and employees and a definitive agreement signed on May 7, 2026 to acquire DroneNX, LLC, which operates as Upgrade Energy.
Positive
- Revenue and profitability inflection: First‑half 2026 revenue rose to $24.8 million from $4.2 million, and net income reached $2.5 million versus a $10.2 million loss a year earlier, supported by $17.6 million of investment and interest income.
- Very strong balance sheet: As of June 30, 2026, the company held $229.6 million in cash, $39.3 million of short‑term investments at fair value and $47.5 million at cost, with total liabilities of only $9.5 million.
Negative
- Core operations still deeply loss‑making: Loss from operations was $15.1 million for the first half of 2026 and $7.8 million in Q2 alone, reflecting $23.5 million of operating expenses, including $18.0 million in general and administrative costs.
- Heavy cash burn from operations: Net cash used in operating activities was $38.9 million in the first half of 2026, driven by large increases in accounts receivable, inventories, and prepaid inventory as the company scaled its business.
Filing Explained
Completed offerings left 49,956,505 shares outstanding; later awards were subject to vesting, with CEO warrants also requiring stockholder approval.
Unusual Machines’ unaudited
Those completed issuances increased the share base from
After quarter-end, the company granted the CEO
At
The filing also identifies a battery-production lease that commenced on
Key Figures
Key Terms
contingent consideration financial
Measurement Alternative financial
right-of-use asset financial
Monte-Carlo variable scenario model financial
earnout period financial
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
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Table of Contents
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.) |
|
|
||
| Address of Principal Executive Offices | Zip Code |
(
(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 August
6, 2026,
UNUSUAL MACHINES, INC.
2026 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page No. | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | 4 |
| Unaudited Consolidated Condensed Balance Sheets | 4 | |
| Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) | 5 | |
| Unaudited Consolidated Condensed Statements of Changes in Shareholders’ Equity | 6 | |
| Unaudited Consolidated Condensed Statements of Cash Flows | 7 | |
| Notes to Unaudited Consolidated Condensed Financial Statements | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 34 |
| Item 4. | Controls and Procedures | 34 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 35 |
| Item 1A. | Risk Factors | 35 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 35 |
| Item 3. | Defaults Upon Senior Securities | 35 |
| Item 4. | Mine Safety Disclosures | 35 |
| Item 5. | Other Information | 35 |
| Item 6. | Exhibits | 36 |
| Signatures | 37 | |
| 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 and other federal securities laws. 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 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
| June 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 | ||||||||
| Related party accounts receivable | ||||||||
| Inventories | ||||||||
| 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 12) | – | – | ||||||
| Stockholders’ equity: | ||||||||
| Common stock - $ | ||||||||
| 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 Statements of Operations and Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2026 and 2025
(Unaudited)
| Three months ended June 30, | Six months ended June 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 Statements of Changes in Stockholders’ Equity
For the Three and Six Months Ended June 30, 2026 and 2025
(Unaudited)
| Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Value | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, equity incentive plan | ( | ) | – | – | – | |||||||||||||||||||
| Cash exercise of warrants | – | – | ||||||||||||||||||||||
| Stock compensation expense - vested stock | – | – | – | – | ||||||||||||||||||||
| Stock compensation expense | – | – | – | – | ||||||||||||||||||||
| Net loss | – | – | – | ( | ) | – | ( | ) | ||||||||||||||||
| – | ||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, employees, officers, and directors | ( | ) | – | – | – | |||||||||||||||||||
| 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 compensation expense - options | – | – | – | – | ||||||||||||||||||||
| Stock compensation expense - vested stock | – | – | – | – | ||||||||||||||||||||
| Net loss | – | – | – | ( | ) | – | ( | ) | ||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, employees, officers, and directors | ( | ) | – | – | – | |||||||||||||||||||
| Issuance of common shares, option exercises | – | – | ||||||||||||||||||||||
| Issuance of common shares, consulting services | ( | ) | – | – | – | |||||||||||||||||||
| Issuance of common shares, confidentially marketed public offering, net of offering costs | – | – | ||||||||||||||||||||||
| Issuance of common shares, warrant exercise | – | – | ||||||||||||||||||||||
| Stock compensation expense - options | – | – | – | – | ||||||||||||||||||||
| Stock compensation expense - vested stock | – | – | – | – | ||||||||||||||||||||
| Net income | – | – | – | – | ||||||||||||||||||||
| Foreign Currency Translation | – | – | – | – | ||||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common shares, employees, officers, and directors | ( | ) | – | – | – | |||||||||||||||||||
| Issuance of common shares, option exercises | – | – | ||||||||||||||||||||||
| Issuance of common shares, advisory board | ( | ) | – | – | – | |||||||||||||||||||
| Issuance of common shares, at-the-market offering, net of issuance costs | – | – | ||||||||||||||||||||||
| Stock compensation expense - options | – | – | – | – | ||||||||||||||||||||
| Stock compensation expense - vested stock | – | – | – | – | ||||||||||||||||||||
| Net loss | – | – | – | ( | ) | – | ( | ) | ||||||||||||||||
| Foreign Currency Translation | – | – | – | – | ||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
See accompanying unaudited notes to the consolidated condensed financial statements.
| 6 |
Unusual Machines, Inc.
Consolidated Condensed Statements of Cash Flows
For the Six Months Ended June 30, 2026 and 2025
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Unrealized gain on short-term investments | ( | ) | ||||||
| Realized gain on short-term investments | ( | ) | ||||||
| Bad debt | ||||||||
| Amortization of right of use asset | ( | ) | ||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid inventory | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ||||||
| Contingent consideration | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Investments in short-term securities | ( | ) | ||||||
| Proceeds from sale of short-term investments | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Deposits for property and equipment | ( | ) | – | |||||
| 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, 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.
| 7 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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
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. Prior-year and current-year year-to-date amounts have been conformed to the current presentation where applicable. These reclassifications affect only the presentation of operating expenses among departments and had no impact on total operating expenses, operating loss, net loss, earnings (loss) per share, total assets, liabilities, stockholders' equity, or cash flows.
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.
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 fair 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, (vi) the warranty liability and sales returns reserves, and (vii) the deferred tax asset valuation allowance.
| 8 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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 June 30, 2026 and December
31, 2025, the Company had approximately $
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 June 30, 2026 and December 31, 2025,
the Company considers accounts receivable to be fully collectible; accordingly,
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 holds less than a 5% equity interest in each of the companies it invested in as of June 30, 2026.
Short-Term Equity Investments at Cost
The Company measures its investment in privately held companies without readily determinable fair values using the Measurement Alternative per ASC 321. Investments are recorded at cost and subsequently adjusted only when there is an observable transaction or impairment under the Measurement Alternative.
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.
| 9 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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 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.
Business Combinations
The Company accounts for business combinations under ASC 805 using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions used in valuations and estimates determined by management. Business acquisitions are included in the Company’s consolidated financial statements as of the date of the acquisition.
Goodwill and Long-lived Assets
Goodwill represents the future economic benefit
arising from other assets acquired in an acquisition that are not individually identified and separately recognized. The Company tests
goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”).
Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate
that goodwill might be impaired. ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether
the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely
than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required.
However, if an entity concludes otherwise, then it is required to perform an impairment test. The impairment test involves comparing the
estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill
is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is
recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total
amount of goodwill allocated to the reporting unit.
The estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross margin, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present value based on estimated weighted average cost of capital (i.e., the selected discount rate). Management’s assumptions are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size, geography, and diversity of products and services.
| 10 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
The Company reviews long-lived assets, including
tangible assets and other intangible assets with definitive lives, for impairment whenever events or changes in circumstances indicate
that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance
with ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets”. ASC 360 requires the Company to group assets and liabilities
at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate
the asset group against the sum of the undiscounted future cash flows. Amortizable intangible assets are assessed for impairment upon
triggering events that indicate that the carrying value of an asset may not be recovered. Recoverability is measured by a comparison of
the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of
the intangible assets.
The Company has certain indefinite-lived trademark
assets that are reviewed for impairment by first performing a qualitative analysis in accordance with ASC 350-30 to determine whether
it is more likely than not that the fair value of the indefinite-lived asset is less than its carrying value. If based on this assessment,
management determines that impairment is not more than likely, then no further quantitative testing is required. However, if performing
a qualitative analysis determines that is more likely than not that the fair value is less than its carrying value, then a quantitative
analysis is performed in accordance with ASC 350-30-35, which occurs annually in the fourth quarter, or whenever events or changes in
circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying
amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. The
Company performed only a qualitative analysis for 2025. The Company did
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.
| 11 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
The following table details the fair value measurements of the Company’s financial assets and liabilities as of June 30, 2026:
| Schedule of financial assets and liabilities | ||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
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 June 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 June 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 June 30, 2026:
| Schedule of assumptions used | ||||
| 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:
| Schedule of level 3 financial instruments | ||||||||||||||||
| December 31, | Purchases, Issuances and | Change in | June 30, | |||||||||||||
| 2025 | Settlements | Fair Value | 2026 | |||||||||||||
| Non-public warrants investment | $ | $ | $ | $ | ||||||||||||
| Contingent consideration from Rotor Lab acquisition | $ | $ | $ | $ | ||||||||||||
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 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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 June 30, 2026:
| Schedule of short-term investments | ||||||||||||
| 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 | Adjusted Cost | |||||||||
| Common stock | $ | $ | $ | |||||||||
| Preferred stock | ||||||||||||
| Pre-funded warrants | 30,000,000 | – | 30,000,000 | |||||||||
| 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 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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 does not have any historical returns for enterprise orders and as such has not recorded a sales returns allowance.
Disaggregation of Revenue
The following table presents the Company’s revenue disaggregated by revenue type for the period ended:
| Schedule of disaggregated by revenue | For the Six months Ended June 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 Three months Ended | ||||||||
| June 30 | ||||||||
| 2026 | 2025 | |||||||
| Retail revenue | $ | $ | ||||||
| Enterprise revenue | ||||||||
| Total revenue | $ | $ | ||||||
The Company had revenue outside the United States
of approximately $
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 six months ended June 30, 2026 and 2025 was $
| 14 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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 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-Based Compensation
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.
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.
| 15 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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:
| Schedule of cumulative translation adjustments | ||||
| Balance as of December 31, 2025 | $ | |||
| Foreign currency translation adjustment related to Rotor Lab | ||||
| Balance as of June 30, 2026 | $ | |||
Net Loss per Share
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.
The following table presents the reconciliation of basic and diluted net income (loss) per common share:
| Schedule of income (loss) per share | ||||||||
| For the Six months Ended | ||||||||
| June 30 | ||||||||
| Net (loss) income per common share – basic: | 2026 | 2025 | ||||||
| Net (loss) income | $ | $ | ( | ) | ||||
| Less: other adjustments | ||||||||
| Net (loss) income allocated to common stockholders | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic | ||||||||
| Net (loss) income per common share - basic | $ | $ | ( | ) | ||||
| Net (loss) income per common share – diluted: | ||||||||
| Net (loss) income | $ | $ | ( | ) | ||||
| Add: other adjustments | ||||||||
| Numerator for net (loss) income per common share - diluted | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding - diluted | ||||||||
| Net (loss) income per common share - diluted | $ | $ | ( | ) | ||||
| 16 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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.
| Schedule of reconciliation of basic to diluted weighted average shares | ||||||||
| For the Six months Ended | ||||||||
| June 30 | ||||||||
| 2026 | 2025 | |||||||
| Weighted average shares used in computing net income per share of common stock, basic | ||||||||
| Add incremental shares: | ||||||||
| Unvested restricted stock | ||||||||
| Stock based awards (options) | ||||||||
| 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 three months ended June 30, 2026, from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:
| Schedule of antidilutive shares | For the Three months Ended | For the Three months Ended | ||||||
| June 30 | June 30 | |||||||
| 2026 | 2025 | |||||||
| Unvested stock options | ||||||||
| Unvested restricted stock awards | ||||||||
| Representative warrants | ||||||||
| PIPE 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 single 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 is regularly provided with consolidated revenue and expenses consistent with those presented in the consolidated statements of operations and assets and liabilities consistent with those presented in the consolidated balance sheets.
| 17 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
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.
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
| 18 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
Such fair value amounts are subject to adjustment during the one-year measurement period.
The following represents the fair value allocation of Rotor Lab Purchase Price:
| Schedule of purchase fair value allocation | ||||
| 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
The results of Rotor Lab have been included in
the Consolidated Financial Statements from the date of acquisition. Revenue was $
| Schedule of unaudited pro forma results | ||||||||||||||||
| For the Year Ended | For the Year Ended | |||||||||||||||
| December 31, 2025 | December 31, 2024 | |||||||||||||||
As Reported (unaudited) | Proforma (unaudited) | As Reported (unaudited) | Proforma (unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross profit/(loss) | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net earnings per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 19 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
The unaudited consolidated pro forma financial information is presented for informational purposes only. The unaudited consolidated pro forma adjustments are based on preliminary estimates, information available and certain assumptions, and may be revised as additional information becomes available. In addition, the unaudited pro forma financial information does not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition.
Note 4 – Inventories
Inventories, which consist solely of raw materials and finished goods was as follows as of June 30, 2026 and December 31, 2025, respectively.
| Schedule of inventories | ||||||||
| June 30, 2026 | December 31, 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
In addition, the Company had prepaid deposits
for inventory totaling $
Note 5 – Other Current Assets
Other current assets included as of:
| Schedule of other current assets | ||||||||
| June 30, 2026 | December 31, 2025 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid benefits | ||||||||
| Prepaid other | ||||||||
| Total other current assets | $ | $ | ||||||
Non-current other assets primarily include rent
security deposits of $
Note 6 – 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:
| Schedule of property and equipment | ||||||||
| June 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 $
| 20 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
Note 7 – 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 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 $
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 February 1, 2026 and expires in February 2029. 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 Company has no finance leases.
The following is a summary of the operating lease right-of-use assets and liabilities at June 30, 2026 and 2025:
| Schedule of operating lease right-of-use | ||||||||
| 2026 | 2025 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Operating lease right-of-use assets, as of June 30 | $ | $ | ||||||
| Operating lease liability | $ | $ | ||||||
| Less: accumulated reduction | ( | ) | ( | ) | ||||
| Operating lease liability, as of June 30 | $ | $ | ||||||
| Current operating lease liability | $ | $ | ||||||
| Non-current operating lease liability | ||||||||
| Total operating lease liability | $ | $ | ||||||
| 21 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
The following is a summary of future lease payments required under the lease agreement:
| Schedule of future lease payments | ||||||||||||
| Year | Future Lease Payments | Operating Lease Discount | Operating Lease Liability | |||||||||
| 2026 | $ | $ | ( | ) | $ | |||||||
| 2027 | ( | ) | ||||||||||
| 2028 | ( | ) | ||||||||||
| 2029 | ( | ) | ||||||||||
| 2030 | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| Schedule of supplemental information | ||||||||||||
| Supplemental Information | UMAC | Rotor Riot | Rotor Lab | |||||||||
| Weighted average remaining lease term (in years) | ||||||||||||
| Weighted average discount rate | ||||||||||||
Note 8 – Goodwill and Intangible Assets
Goodwill
There were no changes in the carrying amount of
goodwill during the six months ending June 30, 2026. The carrying value of goodwill was $
Intangible Assets
As of June 30, 2026, the balances of intangible assets were as follows:
| Schedule of intangible assets | ||||||||||||||
| 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 six months ended
June 30, 2026 and 2025 was $
| 22 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
Note 9 – Stockholders’ Equity
Common Stock
2026 Transactions
Common stock for services issued to employees and directors
On January 2, 2026, the Company issued
On January 23, 2026, the Company issued
On January 23, 2026, the Company issued
On March 13, 2026, the Company issued
On May 20, 2026, the Company issued
Common stock issued for services to non-employees
On January 2, 2026, the Company issued
On May 22, 2026, the Company issued
| 23 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
Common stock issued related to option exercises
During the six months ended June 30, 2026, several
employees of the Company exercised 120,830 of their vested stock options in which the Company issued
Common stock issued related to warrant exercises
On January 9, 2026 the Company issued
Common stock issued related to public offering
On March 19, 2026, in a confidentially marketed
public offering the Company sold
On May 29, 2026, we completed an at the market
offering for the sale of
2025 Transactions
On January 14, 2025, the Company issued
On February 3, 2025, the Company issued
In February 2025, the Company issued
On May 6, 2025, in a confidentially marketed public
offering the Company sold
| 24 |
Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
On May 19, 2025, the Company issued
On May 19, 2025, the Company issued
On May 22, 2025, the Company issued
During the six months ended June 30, 2025, several
employees of the Company exercised
On June 30, 2025, the Board of Directors of the
Company awarded the Company’s Chief Executive Officer
Note 10 – Share Based Awards
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
The Plan allows the Company to incentivize key employees and directors with long term compensation awards such as stock options, restricted stock,
and other similar types of awards. The Plan is authorized to issue up to 15% of the outstanding shares on a fully diluted basis giving
effect to the exercise and conversion of all outstanding common stock equivalents issued outside of the Plan. In addition, the Plan has
an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards
under such plan shall be increased on the first day of each year beginning in 2025 and ending in 2032 equal to the lesser of (a) five
percent (5%) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and
(b) such smaller number of shares of stock as determined by our board of directors. The Plan allows for awards to be issued up to a contractual
maximum term of
During the six months ended June 30, 2026 and
2025, the Company’s Board of Directors approved the grant of
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Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
The following table presents the activity for stock options outstanding:
| Schedule of stock option activity | ||||||||||||||||
|
Non-Qualified Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding - December 31, 2025 | $ | $ | ||||||||||||||
| Granted | – | – | ||||||||||||||
| Forfeited/canceled | ( |
) | – | – | ||||||||||||
| Exercised | ( |
) | – | |||||||||||||
| Outstanding – June 30, 2026 | $ | $ | ||||||||||||||
| Exercisable – June 30, 2026 | $ | $ | ||||||||||||||
The range of assumptions used to calculate the fair value of options granted during the period ended June 30, 2026 was:
| Schedule of stock options assumptions | ||||
| 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 $
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:
| Schedule of restricted stock activity | ||||||||||||||||
| 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 | $ | $ | ||||||||||||||
The total value of restricted stock and restricted
stock units was $
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Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
Warrants
The following table presents the activity for warrants outstanding as of June 30, 2026:
| Schedule of warrant activity | ||||||||
| Weighted | ||||||||
| Warrants | Average | |||||||
| Outstanding | Exercise Price | |||||||
| Outstanding - December 31, 2025 | $ | |||||||
| Granted | ||||||||
| Forfeited/cancelled/restored | ||||||||
| Exercised | ( | ) | ||||||
| Outstanding – June 30, 2026 | $ | |||||||
On January 9, 2026,
Note 11 – Related Party Transactions
On April 30, 2024 (“Grant
Date”), the Company entered into a two-year Management Services Agreement (the “Agreement”) with 8 Consulting LLC
(the “Consultant”) for the services of our Chief Executive Officer, Dr. Allan Evans. The Agreement allows Dr. Evans to
receive favorable tax benefits as a resident of the Commonwealth of Puerto Rico who performs such services in Puerto Rico. Pursuant
to the Agreement, Dr. Evans performs the duties and responsibilities that are customary for a chief executive officer of a public
company similar to the Company. The Consultant received a $
On March 13, 2026, the Company issued
On April 1, 2026, the Company paid $
In January 2026, the Company received a
$
Note 12 – Commitments and Contingencies
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Unusual Machines, Inc.
Notes to Consolidated Condensed Financial Statements
June 30, 2026
(Unaudited)
As a part of the business combination that occurred on September 3, 2025 with Rotor Lab, the Company acquired a three-year operating lease of warehouse and office space in Canberra Australia. The lease commenced in May 2024 and expires in April 2027. See Note 7 – Operating Leases for additional information.
Note 13 – Subsequent Events
Equity Grants
On July 24, 2026, the Compensation Committee granted 5,000,000 of unvested five-year warrants to the Company’s Chief Executive Officer. The warrants have exercise price at $25 per share. The closing price of the Company’s common stock on the grant date was $19.36. The warrants will vest in increments of 1,000,000 shares upon any 20-day average closing price of the Company’s common stock at each of the following tranches: $25, $40, $60, $80 and $100. The Company will seek to obtain stockholder approval as required by the NYSE American.
On July 24, 2026 the Compensation Committee granted a total of 1,275,000 five-year stock options, exercisable at $19.36 per share, the closing price of the Company’s stock on the grant date, to the Company’s three other executive officers in increments of 375,000, 375,000 and 525,000 stock options, respectively. The stock options vest quarterly over a three-year period subject to each person, as applicable, remaining to be employed by the Company.
On July 24, 2026, the Company granted approximately 1.6 million five-year stock options, exercisable at $19.36 per share, the closing price of the Company’s stock on the grant date, to specific employees. The options vest over four years of continued service with the Company.
Leases
On June 24, 2026, the Company entered into a three-year operating lease agreement for an additional 14,000 square feet of space in Orlando, FL. This space will be used for battery production. The lease commenced on August 1, 2026 and expires in December 2028.
On July 23, 2026, the Company entered into a lease amendment related to its corporate headquarters in Orlando, FL. The amendment increases the existing space from 9,125 square feet to a total of 19,389. In addition, the original lease term was extended from March 31, 2029 to December 31, 2031. The Company anticipates the additional space to commence on September 1, 2026.
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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
Definitive Agreement to acquire Upgrade Energy
On May 7, 2026, we signed a definitive agreement to acquire DroneNX, LLC which operates as Upgrade Energy (“Upgrade Energy”), a manufacturer of battery and power systems solutions for unmanned aerial systems. The transaction purchase price is estimated at $52.0 million, which includes (i) a fixed quantity of 1,792,012 shares of the Company’s common stock at $13.9508 per share which was based on the preceding 5 day volume weighted average share price of the Company’s common stock prior to signing the definitive agreement, which is estimated to be approximately $25.0 million of purchase price, which the valuation for accounting purposes could be subject to change based on the Company’s common stock price at the time of closing, (ii) $1.0 million in cash upon closing of the transaction, and (iii) an additional $26.0 million in cash based on the Company recognizing $10.0 million in revenue related to internally manufactured batteries during the first two years after the acquisition closing date. The acquisition is subject to customary closing conditions, including Upgrade Energy completing their financial audit, which is expected in September 2026.
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.
At the Market Capital Raise
In May 2026, we sold 2,000,000 shares of common stock at a price of $30.00 per share for total gross proceeds of $60.0 million before deducting fees to the placement agent and other expenses payable by us in connection with the offering. We retained approximately $58.2 million in net proceeds after offering expenses.
Equity Grants
On July 24, 2026, the Compensation Committee granted unvested 5,000,000 five-year warrants, exercisable at $25 per share, to our Chief Executive Officer. The closing price of our common stock on the grant day was $19.36. The warrants will vest in increments of 1,000,000 shares upon any 20-day average closing price of our common stock at each of the following tranches: $25, $40, $60, $80 and $100. The grant is subject to shareholder approval.
On July 24, 2026 the Compensation Committee granted a total of 1,275,000 five-year stock options, exercisable at $19.36 per share, the closing price of our stock on the grant date, to our three other executive officers in increments of 375,000, 375,000 and 525,000 stock options, respectively. The stock options vest quarterly over a three-year period subject to each person, as applicable, remaining, to be employed by the Company.
On July 24, 2026, we issued approximately 1.6 million five-year stock options, exercisable at $19.36 per share, the closing price of our stock on the grant date, to specific employees. The options vest over four years of continued service with the Company.
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Leases
On June 24, 2026, we entered into a three-year operating lease agreement for an additional 14,000 square feet of space in Orlando, FL. This space will be used for battery production. The lease commenced on August 1, 2026 and expires in December 2028.
On July 23, 2026, the Company entered into a lease amendment related to it’s corporate headquarters in Orlando, FL. The amendment increases the existing space from 9,125 square feet to a total of 19,389. In addition, the original lease term was extended from March 31, 2029 to December 31, 2031. The Company anticipates the additional space to commence on September 1, 2026.
Results of operations
Three Months Ended June 30, 2026 and 2025
Revenue
During the three months ended June 30, 2026 we generated revenues totaling $16,722,467 compared to $2,123,970 during the three months ended June 30, 2026, representing an increase of $14,598,497 or 687%. 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 $14,220,865 for the three months ended June 30, 2026 compared to $192,090 for the three months ended June 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 the second half of 2026. 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.
Cost of Goods Sold & Gross Profit
During the three months ended June 30, 2026, our cost of goods sold was $10,920,334 compared to $1,329,291 during the three months ended June 30, 2025, resulting in an increase of $9,591,043 or 722%. 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 June 30, 2026, our gross profit was $5,802,134 compared to $794,679 during the three months ended June 30, 2025, resulting in an increase of $5,007,455 or 630%. Our gross margin, as a percentage of sales, totaled 34.7% during the three months ended June 30, 2026, compared to gross margin of approximately 37.4% during the three months ended June 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.
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Operating Expenses
During the three months ended June 30, 2026, operations expenses totaled $1,540,919 compared to $404,277 during the three months ended June 30, 2025, resulting in an increase of $1,136,642 or 281%. 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 June 30, 2026, research and development expenses totaled $430,759 compared to $62,731 for the three months ended June 30, 2025, resulting in an increase of $368,028 or 587%. 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.
During the three months ended June 30, 2026, sales and marketing expenses totaled $790,012 compared to $302,358 for the three months ended June 30, 2025, resulting in an increase of $487,654 or 161%. 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 June 30, 2026, general and administrative expenses totaling $10,799,261 compared to $7,195,193 for the three months ended June 30, 2025, resulting in an increase of $3,604,068 or 50%. General and administrative expenses incurred include expenses related to operations for a public company including legal and other professional fees, public company insurance expense, investor relations and other costs associated with being public. We’ve also increased our headcount to support our growth which includes building out our accounting, HR, and facilities staff. We expect our general and administrative expenses to increase during 2026 as we continue to build out our infrastructure with additional hires and systems. We also anticipate items like professional fees and other expenses related to being a public company to increase. In addition, we anticipate our non-cash stock compensation expense to be higher in 2026. We do not anticipate the increase in our general and administrative expenses to increase at the same rate as our revenue as we start to gain operational efficiencies at scale.
Other Income (Expense)
During the three months ended June 30, 2026, other income and expense totaled $50,590 compared to $225,734 during the three months ended June 30, 2025, resulting in a decrease of $175,144. This decrease relates primarily to our unrealized loss from short-term investments of $3,883,535 offset by realized gain from short-term investments of $2,267,931 and an interest income increase of $1,594,428.
Net Income (Loss)
Our net loss for the three months ended June 30, 2026, totaled $7,783,553 compared to $6,964,739 for the three months ended June 30, 2025, resulting in an increase in net loss of $818,814 or 12%. This increase in net loss relates to the increase in realized gain of trading securities of $2.2 million plus an increase in interest income of $1.6 million, which was offset by a decrease in operating profit of $643,669 and unrealized loss in trading securities of $3.9 million.
Results of Operations – Six Months Ended June 30, 2026 compared to the Six Months Ended June 30, 2025
Revenue
During the six months ended June 30, 2026 we generated revenues totaling $24,818,304 compared to $4,166,270 during the six months ended June 30, 2025, representing an increase of $20,652,034 or 496%. 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 $21,510,234 for the six months ended June 30, 2026 compared to $312,246 for the six months ended June 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 the second half of 2026. We expect our revenue to continue to grow in 2026 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 six months ended June 30, 2026, we incurred cost of goods sold of $16,362,063 compared to $2,874,784 during the six months ended June 30, 2025, resulting in an increase of $13,487,279 or 469%. 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 six months ended June 30, 2026, our gross profit was $8,456,241 compared to $1,291,486 during the six months ended June 30, 2025, resulting in an increase of $7,164,755 or 555%. Our gross margin, as a percentage of sales, totaled 34.1% during the six months ended June 30, 2026, compared to 31% during the six months ended June 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 six months ended June 30, 2026, operations expenses totaled $3,367,620 compared to $706,879 during the six months ended June 30, 2025, resulting in an increase of $2,660,741 or 376%. 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 second half of 2026 as we set up additional battery facilities with the completion of the Upgrade Energy acquisition and look to continue to expand additional operations.
During the six months ended June 30, 2026, research and development expenses totaled $644,101 compared to $70,633 for the six months ended June 30, 2025, resulting in an increase of $573,468 or 812%. Research and development expense primarily relates to new product development and include both internal and external resources and costs associated with new products.
During the six months ended June 30, 2026, sales and marketing expenses totaled $1,370,051 compared to $509,975 for the six months ended June 30, 2025, resulting in an increase of $806,076 or 169%. Sales and marketing expenses primarily relate to advertising spend related to Rotor Riot, marketing events and payroll expenses for our sales and marketing team. The increase relates mainly to adding additional staffing to our sales and marketing team. We anticipate our sales and marketing costs to increase in 2026 related to building out our enterprise sales team, however, we expect these increases to be at a lower rate than our revenue and other expenses as our enterprise sales are more dedicated efforts, while our retail revenue is driven off of advertising sales.
During the six months ended June 30, 2026, general and administrative expenses totaling $18,027,462 compared to $10,421,097 for the six months ended June 30, 2025, resulting in an increase of $7,606,365 or 73%. General and administrative expenses incurred include expenses related to operations for a public company including legal and other professional fees, public company insurance expense, and other costs associated with being public. We’ve also increased our headcount to support our growth which includes building out our accounting, HR, and facilities staff. We expect our general and administrative expenses to increase during 2026 as we continue to build out our infrastructure with additional hires and systems. We also anticipate things like professional fees and other expenses related to being a public company to increase. In addition, we anticipate our non-cash stock compensation expense to be higher in 2026. We do not anticipate the increase in our general and administrative expenses to increase at the same rate as our revenue as we start to gain operational efficiencies at scale.
Other Income (Expense)
During the six months ended June 30, 2026, other income and expense totaled $17,592,571 compared to $227,266 during the six months ended June 30, 2025, resulting in an increase of $17,365,304. This increase relates primarily to our unrealized gain from short-term investments of $5,608,541, realized gain from short-term investments of $9,532,673, and an interest income increase of $2,384,974.
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Net Income (Loss)
Our net income for the six months ended June 30, 2026, totaled $2,499,441 compared to a net loss of $10,231,018 for the six months ended June 30, 2025, resulting in an increase in net income of $12,730,459 or 124%. The increase primarily relates to unrealized gains from investments of $5.6 million, realized gains from investments of $9.5 million, and an increase in interest income of $2.3 million.
Cash Flows
Operating Activities
Net cash used in operating activities was $38,891,945 during the six months ended June 30, 2026, compared to net cash used in operating activities of $3,862,349 during the six months ended June 30, 2025, representing an increase of $35,029,596 or 907%. The increase was primarily attributable to changes in working capital, including increase in inventory of $16,324,070, prepaid and deposits for inventory of $10,385,385, accounts receivable of $8,713,013, and offset by an increase in accounts payable and accrued expenses of $1,416,814, an increase in operating lease liabilities of $558,619 and an increase in contingent consideration of $153,000. The Company recorded unrealized gains on short term investments of $5,608,541 and realized gains of $9,532,673.
Investing Activities
Net cash used in investing activities was $35,786,762 during the six months ended June 30, 2026 compared to net cash used in investing activities of $262,751 during the six months ended June 30, 2025, representing an increase of $35,524,012. This increase consisted of $52,500,000 used in our strategic short-term investments, $508,336 in purchases of property and equipment and $2,861,101 in deposits for future purchases of property and equipment in 2026 as compared to $262,751, partially offset by proceeds from sales of short term investments of $20,082,674.
Financing Activities
Net cash provided by financing activities totaled $200,981,341 during the six months ended June 30, 2026, compared to net cash provided by financing activities of $39,300,836 during the six months ended June 30, 2025, resulting in an increase in net cash provided by financing activities of $161,680,505. Our first half 2026 proceeds are from a public offering of common shares of $149,999,993 and at the market shares of $60,000,000 offset by offering costs of $13,001,236. Our first half 2025 proceeds included a public offering of common shares 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 $587,584 during 2026 as compared to $2,436,966 and $367,870, respectively during 2025.
Liquidity and capital resources
As of June 30, 2026, we had current assets totaling $370,575,945 primarily consisting of cash balances of $229,598,776, investments of $86,773,449, inventory of $21,914,332 and deposits for inventory of $20,543,732. Our current liabilities as of June 30, 2026 totaled $6,885,146, primarily consisting of accounts payable and accrued expenses of $2,863,569, contingent consideration of $3,000,000, deferred revenue of $286,056, and current operating lease liability of $735,521. Our net working capital as of June 30, 2026 was $363,690,799.
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.
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| 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 June 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.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2026.
Changes In Controls Over Financial Reporting
During the quarter ended June 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 has successfully hired additional staff within the accounting, finance, and human resource functions and the Company has updated their process documentation for financial reporting. We believe that these changes and documentation of our internal controls have remediated the previously disclosed material weaknesses in internal controls which includes sufficient segregation of duties within accounting functions and having 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 June 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 involved in legal proceedings arising in the ordinary course of our business.
| Item 1A. | Risk Factors |
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed in our Prospectus Supplement dated March 19, 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.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On May 20, 2026, the Company issued 2,784 shares of the Company’s common stock to each of three of its independent directors as compensation for the three months ended June 30, 2026.
On May 22, 2026, the Company issued a total of 108,000 shares of the Company’s common stock to three advisors in connection with vested restricted stock units granted pursuant to their corresponding Restricted Stock Unit Agreements dated November 22, 2025.
The shares issued above were exempt from registration under Section 4(a)(2) of the Securities Act of 1933 and Rule 506(b) thereunder.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the six months ended June 30, 2026.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
None.
| Item 5. | Other Information |
During the six months
ended June 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
| Incorporated by Reference | ||||||||||
|
Exhibit No. |
Description |
Filed/Furnished Herewith |
Form |
Exhibit No. |
Filing Date | |||||
| 1.1 | Capital on DemandTM Sales Agreement | 8-K | 1.1 | 8/29/25 | ||||||
| 1.2 | Agreement and Plan of Merger dates as of May 7, 2026, among the Company, the Surviving Company, Upgrade, the Member Representative | 8-K | 1.1 | 5/11/26 | ||||||
| 1.2(a) | Form of Registration Rights Agreement | 8-K | 1.1(a) | 5/11/26 | ||||||
| 2.1 | Agreement and Plan of Merger by and between Unusual machines, Inc., a Puerto Rico corporation and Unusual machines, Inc., a Nevada corporation | 8-K | 2.1 | 4/23/24 | ||||||
| 3.1 | Articles of Incorporation | 8-K | 3.1 | 4/23/24 | ||||||
| 3.2 | Amended and Restated Bylaws | 8-K | 3.1 | 10/8/24 | ||||||
| 3.2(a) | Amendment No. 1 to Amended and Restated Bylaws | 8-K | 3.1 | 2/5/25 | ||||||
| 3.3 | Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock | 8-K | 3.1 | 7/22/24 | ||||||
| 3.3(a) | Certificate of Withdrawal for Series A Convertible Preferred Stock | 10-K | 3.3(a) | 3/12/26 | ||||||
| 3.4 | Certificate of Designation of Series B Convertible Preferred Stock | 8-K | 3.3 | 4/23/24 | ||||||
| 3.4(a) | Certificate of Withdrawal for Series B Convertible Preferred Stock | 10-K | 3.4(a) | 3/12/26 | ||||||
| 3.5 | Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock | 8-K | 3.1 | 8/22/24 | ||||||
| 3.5(a) | Certificate of Withdrawal for Series C Convertible Preferred Stock | 10-K | 3.5(a) | 3/12/26 | ||||||
| 4.1 | Placement Agent Warrant, issued to Dominari Securities LLC | 8-K | 4.1 | 5/7/25 | ||||||
| 10.1 | Agreement and Plan of Merger and Reorganization dated February 1, 2025 | 8-K | 10.1 | 2/4/25 | ||||||
| 10.2 | Placement Agency Agreement, dated as of May 5, 2025, by and between Unusual Machines, Inc. and Dominari Securities, LLC | 8-K | 10.1 | 5/7/25 | ||||||
| 10.3 | Amendment and Waiver to Merger Agreement, dated as of May 6, 2025, by and between Unusual Machines, Inc., Aloft Technologies, Inc., UMAC Merger Sub, Inc., Jon Hegranes and Josh Ziering | 10-Q | 10.9 | 5/8/25 | ||||||
| 10.4 | Form of Restricted Stock Agreement | 8-K | 10.1 | 5/21/25 | ||||||
| 10.5 | Lease Agreement, dated June 4, 2025, between Unusual Machines, Inc. and Icon FL Orlando Industrial Owner Pool 5 GA/FL, LLC | 8-K | 10.1 | 6/10/25 | ||||||
| 10.6 | Rotor Lab Pty Ltd Share Purchase Agreement, dated June 12, 2025 | 8-K | 10.1 | 6/13/25 | ||||||
| 10.7 | Form of Securities Purchase Agreement | 8-K | 10.1 | 7/15/25 | ||||||
| 10.8 | Placement Agency Agreement | 8-K | 10.2 | 7/15/25 | ||||||
| 10.9 | Placement Agent Warrant, issued to Dominari Securities LLC | 8-K | 10.3 | 7/15/25 | ||||||
| 10.10 | Amended and Restated 2022 Equity Incentive Plan # | S-8 | 4.1 | 2/13/26 | ||||||
| 10.11 | Placement Agency Agreement, dated as of March 19, 2026, by and among Unusual Machines, Inc., Dominari Securities, LLC and JonesTrading Institutional Services LLC | 8-K | 10.1 | 3/23/26 | ||||||
| 10.12 | Lease for Battery Facility in Orlando | 8-K | 10.1 | 6/25/26 | ||||||
| 31.1 | Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | (1) | ||||||||
| 31.2 | Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | (1) | ||||||||
| 32.1 | Certification of the Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | (3) | ||||||||
| 32.2 | Certification of the Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | (3) | ||||||||
| 101.INS | Inline XBRL Instance Document | (1) | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema | (1) | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | (1) | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | (1) | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | (1) | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | (1) | ||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | (1) | ||||||||
| + | 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. |
| 36 |
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: August 6, 2026
| 37 |