UMAC 10-K & 10-Q changes, risk factors and insider trading

Risks Related to our Financial Condition

Risks Related to Our Sale of Drone-Related Products and Operations in the Drone Industry

Our failure to effectively manage our rapid growth could harm our business and result in material adverse effects on our future operating results.

Businesses which grow rapidly may have difficulty managing their growth. With our recent enterprise orders and commencement of manufacturing, we are experiencing explosive growth. In addition to our legacy facility which we are presently using to assemble drones for a customer, we have opened two manufacturing facilities and a fulfillment facility. We also plan to open a battery pack assembly and drone camera facility late in 2026. With this growth, we have increased our headcount from 18 employees as of March 31, 2025, to 81 employees as of December 31, 2025, and have approximately 141 employees as of March 6, 2026. This growth will place a strain on our executive management team. We may be unable to effectively manage the growth, oversee our manufacturing facilities and maintain quality control, integrate our new hires into our company culture and effectively deal with any human resource issues that may arise. In addition, with our rapid growth, we need to retain an OSHA consultant to identify, evaluate and control potential workplace hazards to prevent injuries, illnesses and fatalities. We intend to retain a consultant to conduct such an assessment but there can be no assurance that any workplace hazards, injuries, illnesses and fatalities may occur. As a result of these factors, we may face a material adverse effect on our business and future result of operations.

Because we have ordered substantial inventory in some cases prior to receipt of purchase orders, if our assumptions about future purchase orders are incorrect, it is possible that we may have to write off some of the inventory in the future.

Based upon communications with customers and potential customers, we order inventory to not only fulfill actual purchase orders from customers but also to be able to fulfill future customer orders assuming we receive them. If we do not receive the anticipated orders for this inventory and if we are unable to otherwise sell it, we may be required to increase our reserves or write off inventory in the future because it is obsolete. Any such write off could be material.

Increased inventory levels can also increase the potential risk for excess and obsolescence should our forecasts fail to materialize or if there are negative factors impacting our customers’ end markets. Such a risk becomes especially prevalent during a recession and market downturn. If we purchase too much inventory, we may have to record additional inventory reserves or write-off the inventory, which could have a material adverse effect on our gross margins and on our results of operations.

Because of our dependence on significant customers, our failure to generate revenue from those customers may impair our ability achieve projected financial results.

Beginning on September 30, 2025, we obtained a number of new purchase orders from a limited number of customers. On September 30, 2025, we announced a $12.8 million purchase order for components supplying Strategic Logix’s (“SL”) Rapid Reconfigurable Systems Line. There is no formal contract backstopping this purchase order. This purchase order represents the largest order that we have received.

We have, in the past, and expect for the foreseeable future, to be dependent on a small number of customers, to generate a significant portion of our revenue, and these customers may change periodically. As a result, our financial results may be adversely affected if purchase orders from new or existing customers do not meet our assumptions or if there is a default in a significant payment by any of our customers. Furthermore, to the extent that any one customer accounts for a large percentage of our revenue, the loss of that customer, or changes in their buying patterns or decisions, could materially affect our financial results. If our customers experience financial difficulties or business reversals, or lose orders or anticipated orders, which may reduce or eliminate the need for the products which they ordered from us, they may be unable or unwilling to fulfill their contracts with us.

There is also a risk that our customers will attempt to impose new or additional requirements on us that reduce the profitability of the orders placed by those customers with us. Further, even if the orders are not changed, these orders may not generate margins equal to our recent historical or targeted results. If we do not book more orders with existing customers, or develop relationships with new customers, we may not be able to increase, or even maintain, our revenue, and our financial condition, results of operations, business and/or prospects may be materially adversely affected.

In order to grow and increases revenues, we are subject to the following:

If critical components or raw materials used to manufacture our products or used in its development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products, which could damage our business.

Our ability to meet customers’ demands depends, in part, on its ability to obtain timely and adequate delivery of high-quality materials, components and subsystems, many of which are obtained from a select group of specialized suppliers, including some sole-source providers. In order to mitigate potential disruptions, we maintain long-term, non-binding agreements with several key suppliers that help stabilize pricing, reduce lead times and enhance planning accuracy. We do not have long-term agreements with all suppliers that obligate them to continue to sell components, products required to build our systems or products. Our reliance on suppliers without long-term binding contracts involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components or products of sufficient quality, will increase prices for the components or products and will perform their obligations on a timely basis.

If any of our supplier’s face capacity constraints, financial instability, or an unwillingness to provide raw materials or components to us, it may need to seek alternative suppliers or revise its designs, particularly because some of the components are sourced from foreign countries. Locating alternative sources may take significant time, and even then, we may encounter significant delays in manufacturing and shipping and encounter increased costs. Additionally, credit constraints among key suppliers could impact our cash flow. We have also experienced rising costs for components, shipping, tariffs, warehousing, and inventory. Our domestic suppliers have experienced increased demand for their products due to tariffs, which could impact the availability or price of our components. The permanence of these cost increases remains uncertain, and obtaining replacement components within our required time frames may prove challenging. Shortages could lead to excess inventory and potential obsolescence risks.

In addition, certain raw materials and components used in the manufacture of our products and in our development programs, are periodically subject to supply shortages, and our business is subject to the risks of price increases and periodic delays in delivery.

Our ability to stay competitive within our markets may be dependent upon increasing manufacturing capacity to support anticipated growth and achieving cost reductions and projected economies of scale from increasing manufacturing quantities of its products. Failing to adequately increase production capacity and achieve such reductions in manufacturing costs and projected economies of scale could materially and adversely affect our business.

Our future growth depends on increasing manufacturing capacity of its products, and any failure to adequately increase such capacity could have a material adverse impact on our business and operating results. We do not know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes that will enable it to manufacture its products in commercial quantities while meeting the volume, speed, quality, price, engineering, design and production standards required to successfully market such products. Our failure to develop such manufacturing processes and capabilities that can efficiently service its clients and markets could have a material adverse effect on its business, financial condition, results of operations and prospects. Our ability to remain competitive is, in part, dependent upon achieving increased savings from volume purchases of raw materials and component parts, achieving acceptable manufacturing yield and capitalizing on machinery efficiencies.

We are subject to a number of supply risks concerning our Blue List products which could adversely impact our ability to deliver such products to the United States Government and commercial customers.

Because we rely on a limited number of suppliers, for our component parts our business may be adversely affected.

The drone industry relies on limited sources to supply certain components and materials used in the manufacturing of drone components. We are seeking to purchase certain components or sub-components from suppliers based in the United States, which may lead us to pay higher prices, or select parts from a more limited number of suppliers relative to our competitors, which would adversely impact our gross margins and operating results. In addition, the outcome of the United States tariff policies could significantly increase the cost of our component parts. We will also be forced to increase prices to our customers which could result in decreased sales, especially if there is an economic recession. Our operating results could be materially and adversely impacted if our suppliers do not provide the critical components used to assemble our products on a timely basis, at a reasonable price, and in sufficient quantities.

Some of the key components used to manufacture our products come from a limited supply, or by a supplier that could potentially become a competitor. Our contract manufacturers generally purchase these components on our behalf from approved suppliers. We are subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. We order inventory on a purchase order basis, and these firms do not have a contractual obligation to provide adequate supply or acceptable pricing to us on a long-term basis. These suppliers could discontinue sourcing merchandise for us at any time.

If we lose access to components from a particular supplier or experience a significant disruption in the supply of products and components from a current supplier, we may be unable to locate alternative suppliers of comparable quality at an acceptable price, or at all, and our business could be materially and adversely affected. If any of these suppliers were to discontinue its relationship with us, or discontinue providing specific products to us, and we are unable to contract with a new supplier that can meet our requirements, or if they or such other supplier were to suffer a disruption in their production, we could experience disruption of our inventory flow, a decrease in sales and the possible need to re-design our products. Any such event could disrupt our operations and have an adverse effect on our business, financial condition and results of operations. In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity or elect not to meet our needs as they allocate components to other customers. Developing suitable alternate sources of supply for these components may be time-consuming, difficult and costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may adversely affect our ability to fill our orders in a timely or cost-effective manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with the supplier’s quality control, responsiveness and service, financial stability, labor and other ethical practices, and if we seek to source materials from new suppliers, there can be no assurance that we could do so in a manner that does not disrupt the manufacture and sale of our products.

Our reliance on a small number of suppliers involves a number of additional risks, including risks related to supplier capacity constraints, price increases, timely delivery, component quality, failure of a key supplier to remain in business and adjust to market conditions, delays in, or the inability to execute on, a supplier roadmap for components and technologies; and natural disasters, fire, acts of terrorism or other catastrophic events, including global pandemics.

The development and manufacturing of headsets encompasses several complex processes and several steps of our production processes are dependent upon third party vendors, supply chains, the availability of PCBs, optics, and certain chips. Any change in availability of these components, manufacturing or design partners could result in delivery interruptions, which could adversely affect our operating results.

As we continue to develop our products, we must progress through the complex and challenging processes involved in the technology and designs on which Fat Shark and Rotor Riot products are based. Fat Shark and Rotor Riot rely on third party suppliers for the resources needed to navigate these processes and expect to continue to rely on such parties when we manufacture and market our component parts. Our reliance on third-party manufacturers and service providers will entail risks to which we may not be subject if our future operations were more vertically integrated, including:

Any of these factors could result in a material and adverse affect upon our results of operations.

Because our new manufacturing business has inherent risks, such risks may adversely impact us.

We have recently opened drone motor and drone headset manufacturing facilities. We are using our initial facility to assemble drones for a customer, and plan to open a battery pack assembly and drone camera manufacturing facility in late 2026. There are inherent risks in connection with launching our component manufacturing business, which include:

Our products, including motors, batteries, and other advanced components, rely on rare earth metals for their manufacturing, of which a significant majority are sourced from China. Any disruption in the supply of these metals could adversely affect our ability to produce and deliver our products. Factors that might lead to such disruptions include geopolitical tensions, trade restrictions, supply chain bottlenecks, and environmental regulations affecting mining operations. A limited supply or increased cost of rare earth metals could lead to higher production costs, delays in manufacturing schedules, and potential inability to meet customer demand, thereby impacting our revenue and growth plans. Managing these risks necessitates close monitoring of supply chains, diversification of suppliers, and the pursuit of alternative materials or technologies where possible.

Escalating restrictions between the U.S. and China contribute to supply chain complexities. Some of our components sourced from foreign countries, including China, are at risk of further sanctions and other trade restrictive actions, and any escalation in global trade tensions or trade restrictions may hinder our ability to obtain these components from new suppliers. Restrictions on semiconductor manufacturing equipment and raw materials could lead to higher material costs, material unavailability, and transportation uncertainty.

Product quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.

The products that we sell including the new drone motors, headsets and cameras we manufacture could contain defects in design or manufacture. There can be no assurance we will be able to detect and remedy all defects in the products we sell, which could result in product recalls, product redesign efforts, loss of revenue, reputational damage and significant warranty and other remediation expenses. Similar to other mobile and consumer electronics, our products have a risk of overheating in the course of usage or upon malfunction. Any such defect could result in harm to property or in personal injury. If we determine that a product does not meet product quality standards or may contain a defect, the launch of such product could be delayed until we remedy the quality issue or defect. The costs associated with any protracted delay necessary to remedy a quality issue or defect in a new product could be substantial.

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.

Rotor Lab does not provide any warranty, but does provide for a seven day defect period.

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 occurrence of any material defects in our products could expose us to liability for damages and warranty claims in excess of our current reserves, and we could incur significant costs to correct any defects, warranty claims or other problems. In addition, if any of our product designs are defective or are alleged to be defective, we may be required to participate in a recall campaign. In part due to the terms of our warranty policies, any failure rate of our products that exceeds our expectations may result in unanticipated losses. Any negative publicity related to the perceived quality of our products could affect our brand images and decrease retailer, distributor and consumer confidence and demand, which could adversely affect our operating results and financial condition. Further, accidental damage coverage and extended warranties are regulated in the United States at the state level and are treated differently within each state. Additionally, outside of the United States, regulations for extended warranties and accidental damage vary from country-to-country. Changes in interpretation of the regulations concerning extended warranties and accidental damage coverage on a federal, state, local or international level may cause us to incur costs or have additional regulatory requirements to meet in the future in order to continue to offer its support services. Our failure to comply with past, present and future similar laws could result in reduced sales of its products, reputational damage, penalties and other sanctions, which could harm our business.

Estimated future product warranty claims may be based on a variety of factors including the expected number of field failures over the warranty commitment period, the term of the product warranty period, and the costs for repair, replacement and other associated costs. Because of the foregoing or other contingencies, these estimates could prove to be incorrect, such that the warranty obligations are higher than anticipated. Warranty obligations may be affected by product failure rates, claims levels, material usage and product re-integration and handling costs. Should actual product failure rates, claims levels, material usage, product re-integration and handling costs, defects, errors, bugs or other issues differ from original estimates, Fat Shark could end up incurring materially higher warranty or recall expenses than anticipated, which would materially adversely affect our business.

On August 28, 2025, we entered into a Capital on Demand Sales Agreement (the "Sales Agreement”) with Jones Trading Institutional Services LLC ("Jones”), pursuant to which we may issue and sell over time and from time to time up to $300,000,000 worth of shares of our common stock (the "Shares”). Sales of the Shares, if any, may be made by any method permitted by law deemed to be an "at the market” offering as defined in Rule 415 of the Securities Act of 1933 (the "Securities Act”), including without limitation sales made directly on or through the NYSE American, the trading market for the Company’s common stock, or any other existing trading market in the United States for the Company’s common stock, sales made to or through a dealer other than on an exchange or otherwise, sales made directly to Jones as principal in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, and/or in any other method permitted by law. Jones will use commercially reasonable efforts to sell on behalf of us all the Shares requested to be sold by us, consistent with its normal trading and sales practices, subject to the terms of the Sales Agreement.

Under the Agreement, Jones will be entitled to compensation of 3.0% of the gross proceeds from the sales of the Shares sold under the Sales Agreement. In addition, we have agreed to reimburse Jones for the fees and disbursements of its counsel, in an amount not to exceed $55,000. In addition, we shall reimburse Jones for legal fees of its counsel up to $3,750 for each quarterly due diligence update. The Shares are being offered and sold pursuant to a prospectus supplement filed with the Securities and Exchange Commission (the “SEC”).

During the month of October 2025, we sold 4,666,600 shares of common stock at an average price of $15.46 per share under the Agreement for total gross proceeds of approximately $72.1 million. We paid Jones approximately $2.2 million related to the sales of common stock under the Sales Agreement.

Recent Customer Purchase Orders

On January 15, 2026, we secured a $2.1 million order from a customer for domestically assembled drone systems for defense and government applications which includes Rotor Riot Brave flight controllers and ESCs, Fat Shark Aura analog cameras and video transmitters, HDO+ headsets and Unusual Machines motors. The order is expected to be fulfilled over the first two quarters of 2026.

On December 22, 2025, we secured a $3.75 million order from Performance Drone Works (“PDW”) to support the scaling of PDW’s FPV program. The order includes FPV headsets as the Company continues to expand and scale their U.S. based manufacturing including domestic motors and other components.

On October 15, 2025, we secured an order from the U.S. Army’s 101st Airborne Division for 3,500 NDAA-compliance motors produced at our new U.S. based manufacturing facility. The motors will support the Division’s deployment of the new Attritable Battlefield Enabler V1.01 drones. The Army has also indicated plans to expand procurement, targeting an additional order of 20,000 components including motors from us in 2026.

On October 3, 2025, we secured an $800,000 purchase order for high-performance drone components from Red Cat. The order includes several of our Blue UAS products and motors that will be integrated into Red Cat’s FANG™ drones, supporting ongoing demand for U.S. made, NDAA compliant systems in defense, public safety, and other government agency applications.

Recent Investments

During the first quarter of 2026, we have entered into and made several key investments with three different private drone related companies. We invested a total $17.5 million between the three different companies, all of which will include registration rights upon completion of their initial public offering or merger with a publicly traded company.

These investments are ancillary to our core drone components business and were made because we believe the investments will provide future drone related revenues. In all cases, we also believed that apart from the future sales benefits, each investment potential outweighed the risks.

Recent Hires

On February 2, 2026, we appointed Chadd Cole as Vice President of FP&A. Mr. Cole has more than 12 years of experience in financial planning and analysis roles at Verizon, Electronic Arts (EA) and most recently was the Director of FP&A at Carrier. Mr. Cole led the financial planning and analysis function including budgeting, planning and financial reporting through automation and technology.

On January 1, 2026, we promoted Stacy Wright to Chief Revenue Officer. Ms. Wright joined Rotor Riot in 2020 as Vice President and was promoted to President in 2024 following its acquisition by Unusual Machines. She has been instrumental in scaling operations evolve the business from a community-driven e-commerce platform into a diversified revenue operation service enterprise and defense customers.

During the year ended December 31, 2025 we generated revenues totaling $11,199,217 compared to $5,565,319 during the year ended December 31, 2024, representing an increase of $5,633,898 or 101%. Our revenues during 2024 consisted primarily of retail revenue in our B2C business line. The increase in revenue during 2025 primarily relates to the increase and establishment of our B2B business and revenue related to our NDAA and Blue UAS products. During the fourth quarter of 2025, we started manufacturing production on certain products including drone motors and we continue to see increased interest and demand in our manufactured products heading into 2026. We expect our revenue to continue to grow quarterly in 2026 as we continue to build out our capacity including our manufacturing facilities and products as well increasing our staffing to handle additional demand from the market.

During the year ended December 31, 2025, we incurred cost of goods sold of $7,292,370 compared to $4,019,068 during the year ended December 31, 2024, resulting in an increase of $3,273,302 or 81%. Cost of goods sold primarily relate to product costs from our sales, but also include certain shipping and other direct product costs including tariffs. During the fourth quarter of 2025, cost of goods sold also include direct payroll costs, a portion of rent expense and depreciation expense related to our manufactured products. The increase in cost of goods sold is primarily driven by the increase in our revenue and growth in B2B sales along with the increase in tariffs during 2025. We expect our total cost of goods sold to increase in 2026 in conjunction with our revenue increases as we sell additional product.

During the year ended December 31, 2025, our gross profit was $3,906,847 compared to $1,546,251 during the year ended December 31, 2024, resulting in an increase of $2,360,596 or 153%. Our gross margin, as a percentage of sales, totaled 35% during the year ended December 31, 2025, compared to 28% during the year ended December 31, 2024. We anticipate our gross margin to fluctuate period to period depending on certain promotions and products that are sold during the year including the mix between retail and enterprise sales. The increase in gross margin during the year was based on our larger mix of enterprise orders during 2025. While the margins we generated during the year are in line with our expectations and normal operating margins, we do anticipate continued fluctuations in our manufactured products into 2026 as we continue to improve our manufacturing process and become more efficient. We anticipate our gross margins to have fluctuations in 2026 as we start scaling our manufacturing process. We anticipate our gross margins will have a decline in the first two quarters of 2026 as we bring on and train our staff, work to scale production, increase to multiple shifts, and build out efficiencies. We anticipate our margins will improve in the second half of 2026 as we have more trained staff and efficient processes and as we bring on our highly-automated production line for motors.

During the year ended December 31, 2025, operations expenses totaled $3,234,706 compared to $959,740 during the year ended December 31, 2024, resulting in an increase of $2,274,966 or 237%. 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 are also setting up our headset factory and anticipate building out a battery facility and camera facility in the second half of 2026.

Our net loss for the year ended December 31, 2025, totaled $19,193,617. This compared to $31,980,468 for the year ended December 31, 2024, resulting in a decrease in net loss of $12,786,851. The change in net loss primarily consists of an increase in our revenue, offset by a large increase in G&A expenses, mainly from non-cash stock compensation expense of $15.6 million and the net change in other income and expense during the year based on our interest income and realized and unrealized gains from investments during the year. We anticipate our net loss position to improve during 2026 as we start scaling our revenue and gain some operational efficiencies on the general and administrative expenses. This will partially be offset by anticipated fluctuations in our margins during the first half of the year.

Net cash used in operating activities was $21,177,620 during the year ended December 31, 2025, compared to net cash used in operating activities of $3,966,368 during the year ended December 31, 2024, representing an increase of $17,181,252 or 433%. This change in net cash used in operating activities includes a net impact of non-cash adjustments to reconcile our net loss to net cash used in operating activities of $15,666,817 primarily driven by not having an impairment charge on goodwill and change in fair value of derivatives during 2025 and offset by the increase in stock based compensation expense during the year. The net impact of non-cash activities was offset by an increase in our net loss this year of $12,786,852. Our change in assets and liabilities was the other primary driver of the change in net cash used in operating activities with the primarily impact being a result from an increase in prepaid inventory of $8,760,006, inventory of $4,399,358, and accounts receivable of $1,538,774. This was offset by an increase in operating lease liabilities of $2,288,458 with the addition of our additional facilities and increase in our accounts payable and accrued expenses of $479,259.

On May 7, 2025, we completed a confidentially marketed public offering in which we sold 8,000,000 shares of our common stock at $5.00 per share and after deducting underwriting discounts and expenses, we received approximately $36.5 million in net cash proceeds.

On July 14, 2025, we entered into a Securities Purchase Agreement with certain investors for the purchase and sale of 5,000,000 shares of common stock in a registered direct offering at a public offering price of $9.70 per share. We received net cash proceeds of approximately $44.9 million.

During the month of October 2025, we sold a total of 4,666,600 shares of common stock at an average price of $15.46 per share under our Sales Agreement and after deducting fees and other expenses, we received approximately $69.9 million in net cash proceeds.

On November 5, 2025, warrant holders exercised 640,000 warrants at $5.00 per warrant in connection with the May 2025 confidentially marketed public offering and the Company issued 640,000 shares of Common Stock. The Company received cash proceeds of $3.2 million in relation to the exercise.

The Rotor Lab acquisition included a contingent consideration of up to $3.0 million based on the Company producing and recognizing revenue, dollar for dollar related to internally manufactured motors during the first two years after the acquisition closing date. The fair value of contingent consideration is determined using the Monte-Carlo variable scenario model which values the liability at the measurement date using certain assumptions including the expected revenue over the calculation period, a discount rate related to revenue projections, the risk-free interest rate over the earnout period and certain estimates and probabilities of different outcomes.

Investments

We have several short-term investments in other publicly traded drone and drone related companies. Since the investments are not part of the company’s primary business, the Investments are valued under ASC 820 – Fair Value Measurement. Common stock, preferred stock and warrants are both measured at Fair Value each quarter, with changes recognized through net income each reporting period. We value the fair value of preferred stock based on the conversion calculation of preferred shares into common shares outlined in the certificate of designation into a common stock equivalent multiplied by the quoted trading price of the common stock as of the close of market on the reporting period. Due to the warrants being non-tradable, we estimate fair value using a Black-Scholes model based on the current stock price, the exercise price of the warrant, the estimated volatility of the stock, the risk-free interest rate, and the expected life of the warrant.

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.

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.

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.

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.

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.

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.

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.

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.