U.S. Maker of Drone Parts Now at Key Inflection Point
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.
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Disclosures for Litchfield Hills Research, Unusual Machines Inc., August 19, 2025

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.

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Unusual Machines Inc.'s (UMAC:NYSEAMERICAN) Q2/25 results were as expected, reflecting "solid execution" and a "clearer mix shift," reported Barry Sine, analyst with Litchfield Hills Research, in an August 19 research note.

"Unusual Machines is standing at the threshold of a major order cycle," Sine wrote. "Execution on defense supply chain integration, combined with domestic production scale-up, could rapidly transform the company's revenue trajectory and margin profile."

99% Upside Potential

Unusual Machines was trading at about US$10.05 per share at the time of Sine's report, "at a compelling risk-reward," the analyst noted. "With its balance sheet fortified, domestic manufacturing advantage, and exposure to defense procurement tailwinds, we believe UMAC offers asymmetric upside as order visibility improves in the coming quarters."

In comparison, Litchfield's target price on the U.S.-based drone components manufacturer is US$20 per share, implying a potential return for investors of 99%.

Unusual Machines remains a Buy.

The company has 30.4 million shares outstanding, a market cap of US$305.9 million (US$305.9M) and a 52-week range of US$1.28–23.62 per share, Sine reported.

Gross Margin Growing

Sine reviewed the key takeaways from Unusual Machines' Q2/25 financials. Revenue was US$2.12M, consistent with estimates. Of this, 61% derived from retail sales and 31% from enterprise sales.

Retail sales were 3.9% higher in Q2/25 than in Q2/24, remaining steady but secondary to enterprise, consistent with management's strategy to focus primarily on enterprise and defense. The company's total addressable retail market, first-person view hobbyists, is small, relatively mature at about US$100M, the analyst pointed out.

"Notably, several retail competitors may ultimately become UMAC component customers as Chinese imports are phased out," Sine wrote.

Litchfield maintained its 2026 revenue forecast of US$21.1M for Unusual Machines and still expects the company to break even in terms of free cash flow by Q4/26.

Unusual Machines' Q2/25 gross margin increased 1,000 basis points year over year to 37.4%, and Litchfield attributed this to more sales of in-house parts, a growing enterprise division and disciplined pricing.

"Management's 50% margin target looks achievable as enterprise becomes the dominant revenue driver," Sine wrote.

Including the one-time financing costs paid during the quarter, the company reported a net loss of US$6.9M. Without that expense, the net loss would have been US$800,000. Litchfield expects a similar outcome in Q3/25 because Unusual Machines raised more capital during the quarter. The two equity offerings generated about US$84M in cash.

Interest income from this capital should offset operating losses, fund near-term cash burn and allow for Unusual Machines' manufacturing ramp-up and potentially even acquisitions. To maximize returns from this capital as it sits, management is working on an updated financial strategy, to exclude cryptocurrencies.

"Execution in deploying this capital into value-accretive initiatives is the next key milestone," wrote Sine.

Focus on Domestic Supply Chain

Unusual Machines is expanding its U.S.-based production, aiming to have it completed before the U.S. ban on Chinese drone products takes effect in January 2026. With respect to UMAC's new 17,000-square-foot motor production facility in Orlando, Fla., commercial runs are to start there in September and steady state maximum output is expected to be achieved by the start of next year.

As for manufacturing of Unusual Machines' Fat Shark headset products, it will be brought back to the U.S. from China.  

"This both strengthens U.S. supply chain independence and positions UMAC as the preferred domestic supplier in a constrained market," Sine wrote.

PBAS Could Be Major Catalyst

The most significant potential near-term catalyst for Unusual Machines, wrote Sine, is the U.S. Pentagon's Purpose-Built Attritable Systems (PBAS), an initiative calling for procurement of about 10,000 low-cost drones per month, designed to be expendable and replaced continually. Each drone needs one controller, costing US$58, and four to five motors, each at US$50, equaling US$250 per drone. For Unusual Machines, PBAS represents about a US$30M-plus annual total addressable market for only two components.

The Pentagon has selected 12 vendors and will pare it down to four. The final decision is set for September but more likely to happen closer to year-end, noted Sine.

Unusual Machines would be a critical supplier to the awarded vendors, Sine explained. The boost in business the company gets as a result of PBAS could be anywhere from modest to material. In a bullish scenario, potential 2026 revenue would be well above Litchfield's current US$21M projection.

"The current environment is best characterized as 'Christmas Eve' for both management and investors; the groundwork is in place, and we are simply awaiting the arrival of what could be transformational contracts," Sine wrote.