'Sky's the Limit' for This Drone Co.
Research Report

1. Unusual Machines Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000. 
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Unusual Machines Inc.
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Disclosures for  Litchfield Hills Research LLC, Unusual Machines Inc., February 19, 2025

Disclosures: Analyst Certification We, the Litchfield Hills Research Department, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject company and the underlying securities. FINRA Compliant Research Report We, the Litchfield Hills Research Department, hereby certify that this report is compliant with FINRA research rules 2241, 3110. MiFID II Compliant Research Report Our research is classified as minor non-monetary benefit under MiFID II. This applies to all forms of transmission, including email, website, and financial platforms such as Bloomberg, FactSet, S&P Global, Refinitiv and 13 others. We do not seek payment from the asset management community and do not have any execution function. Investors can continue to receive our research under the MiFID II regime without the need for a contract for services to be put in place. This applies to all forms of transmission, including email, website, and financial platforms. Litchfield Hills Research LLC Rating System BUY: We expect the stock to provide a total return of 15% or more within a 12-month period. HOLD: We expect the stock to provide a total return of negative 15% to positive 15% within a 12-month period. SELL: We expect the stock to have a negative total return of more than 15% within a 12-month period. Total return is defined as price appreciation plus dividend yield. Other Disclosures Litchfield Hills Research, LLC (“LHR”) is not a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission nor a member of Financial Industry Regulatory Authority. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject LHR or any divisions, subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to LHR and the subject company. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied, or distributed to any other party, without the prior express written permission of LHR or the subject company. All trademarks, service marks and logos used in this report are trademarks, service marks, registered trademarks, or service marks of LHR or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. LHR may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable, appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. LHR does not offer advice on the tax consequences of investment, and you are advised to contact an independent tax adviser. LHR believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in this report were obtained or derived from sources LHR believes are reliable, but LHR makes no representations as to their accuracy or completeness. Ownership and Material Conflicts of Interest The analyst owns no shares of the subject company. The analyst and his family have no known material conflicts of interest in authoring this report. Investment Banking and Fees for Services Litchfield Hills Research has not received compensation for advisory or investment banking services from the Company in the past 12 months. Litchfield Hills Research LLC has received compensation from the subject company for distribution and investor targeting services. Market Making Litchfield Hills Research, LLC does not make a market in the subject company's securities. Additional information is available upon request. LHR accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to LHR. This report is not to be relied upon in substitution for the exercise of independent judgment.

On February 19, 2025, Litchfield Hills Research LLC analyst Barry M. Sine initiated coverage of Unusual Machines Inc. (UMAC:NYSEAMERICAN) with a Buy rating and a US$20.00 price target, citing the company's potential to capitalize on the rapidly growing drone components market as Chinese manufacturers face increasing import restrictions in the U.S.

Unusual Machines' current primary business is Rotor Riot, which targets the First-Person View (FPV) hobbyist and racing drone market with approximately 5% share of this US$100 million segment. However, the company's main growth strategy involves manufacturing drone components for itself and other drone makers, a market that could be worth up to US$3 billion. The analyst believes the company can potentially reach US$150 million in components revenue, though he models a more conservative US$40 million for 2026.

The company has already introduced three components — a flight controller, an electric speed controller (ESC), and a camera — which together represent approximately 44% of the cost of an average US$600 mid-sized drone. Two of these components have been certified on the Defense Innovation Unit's "Blue List" of approved drone components for military applications, and the company has secured initial orders for both its controllers and cameras.

Sine highlights the significant market opportunity created by bipartisan U.S. government efforts to reduce dependence on Chinese drone technology. The National Defense Authorization Act (2020) and American Security Drone Act (2024) have already restricted government procurement of foreign drones, while additional regulations targeting components are under consideration by the Commerce Department.

The company recently announced plans to acquire Aloft Technologies for US$14.5 million in stock. Aloft provides drone software and database services, including a platform that manages FAA approvals for drone flights in controlled airspace with a 70% market share.

Financial projections show revenue increasing from an estimated US$5.7 million in 2024 to US$47.5 million in 2026, with the components business expected to grow from just US$100,000 in 2024 to US$40 million by 2026. The company is projected to reach positive EBITDA in 2026.

The analyst notes that with the announcement of Donald Trump Jr. as an advisor in November 2024, the company's share price surged, allowing it to eliminate debt and convert warrants. The balance sheet now shows no debt and approximately US$7 million in cash.

Key risks include execution challenges in introducing and selling components to other manufacturers and successfully integrating acquisitions. The current share price of US$10.96 represents a potential 82% return to the US$20.00 target.