US Drone Parts Maker Inks 4th Strategic Investment
Research Report

1. Unusual Machines Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$3,000 and US$6,000.
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Disclosures for Litchfield Hills, Unusual Machines Inc., November 13, 2025

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Unusual Machines Inc. (UMAC:NYSEAMERICAN) invested US$25 million (US$25M) for a 34% stake in XTI Aerospace, gaining exposure to both a long-range vertical take-off and landing (VTOL) aircraft developer and via XTI's simultaneous acquisition of Drone Nerds, the largest U.S. drone distributor, reported Litchfield Hills Research Analyst Barry Sine in a Nov. 13 research note.

"UMAC continues to evolve from a drone components manufacturer into a central node in the emerging American drone and VTOL ecosystem," Sine wrote. "This investment enhances strategic optionality, deepens vertical integration, and offers a uniquely asymmetric risk-reward profile."

133% Return Implied

Litchfield Hills maintained its US$25 per share (US$25/share) target price on the U.S.-based drone components supplier, noted Sine.

"Even without strategic investments, UMAC's core business, positioned for a surge in U.S. drone demand, would justify our valuation," Sine wrote. "Yesterday's announcement simply underscores that UMAC is becoming far more than 'just' a components supplier. It is rapidly positioning itself as a key consolidator in a once-in-a-generation industry shift."

At the time of the analyst's report, Unusual Machines was trading at about US$10.73/share. From that price, the return to target is 133%.

UMAC remains a Buy.

The company has 36.8 million shares outstanding. Its market cap is US$395.7M. Its 52-week range is US$2.34–23.62/share.

About the Transaction

The investment in XTI Aerospace is Unusual Machines' fourth such deal. With this one, UMAC issued 12% Series 10 Convertible Preferred Stock in conjunction with XTI's US$40M acquisition of Drone Nerds, the largest drone retailer and distributor in the U.S.

The structure of UMAC's investment in XTI includes a covenant restricting XTI from raising equity or equity-linked securities below US$2.50/share until after both shareholder approval and registration effectiveness. This protects UMAC from dilution prior to conversion and from opportunistic capital raises that could impede its 34% stake. Also, UMAC's 12% senior preferred shares position provides it with both upside and downside protection.

1940 Investment Act Considerations

Because Unusual Machines' investment in XTI is another investment for a minority interest, UMAC is at risk of becoming an investment company as defined by the Investment Company Act of 1940, Sine pointed out. As such, Litchfield Hills had not expected UMAC to make another investment of this type.

Unusual Machines' legal counsel, however, presented a different view of UMAC's four investments to date. Counsel stated that because all of them were strategic, occurred within the same industry (drones/VTOL) and were or will be integrated into UMAC's core manufacturing and distribution ecosystem, the company should not (and does not) expect to be treated as an investment company.

To this end, Unusual Machines plans to request a Securities and Exchange Commission (SEC) No-Action Letter to formalize this. If granted, UMAC would be able to make additional strategic investments. In the worst-case scenario, Unusual machines would have to register as an investment company or divest an asset to preserve the significant gains already realized from its first three investments.

"A new legal interpretation reduces prior 40 Act concerns, enabling UMAC to treat its holdings as strategic and pursue an SEC No-Action Letter once the government reopens," Sine wrote.

Option on a VTOL Manufacturer

After talking with Unusual Machines Chief Executive Officer Allan Evans about the implications of the XTI Aerospace deal, Sine discussed how UMAC will benefit from it.

Colorado-based XTI Aerospace is developing the TriFan 600, a manned, long-range VTOL aircraft targeting an underserved segment needing a longer range, a higher payload, and hybrid-electric propulsion, noted Sine. The TriFan 600 is in preliminary design review, and XTI is targeting 2027 for critical design review, flight testing, and Federal Aviation Administration type certification. To advance the aircraft to certification, XTI likely will need significant additional capital, about US$200M, according to some experts. Given this is the case, Sine outlined three possible future scenarios for XTI and how UMAC would fare in each.

In the best-case scenario, XTI obtains the certification, starts delivering the TriFan 600, and its equity rerates substantially. UMAC would recognize gains and maintain a strategic stake in a next-generation VTOL manufacturer in a rapidly expanding sector.

In the strategic control scenario, XTI makes technical progress but cannot raise sufficient capital at the required threshold of greater than or equal to US$2.50/share, thereby triggering the covenant. UMAC could fund the gap and acquire de facto control of the combined VTOL-plus-Drone Nerds platform.

The third and downside case is that TriFan 600 cannot be certified, and XTI enters restructuring. Unusual Machines, given its preferred position, could acquire Drone Nerds for US$25M. This would create substantial downside protection and possibly even a positive internal rate of return for UMAC, even amidst XTI's failure.

Stake in Largest U.S. Drone Retailer

With the strategic investment, UMAC immediately becomes the largest shareholder of the biggest U.S. drone retailer/distributor (Drone Nerds) via its XTI-preferred position.

"This creates a powerful channel for U.S.-made drones incorporating UMAC components, particularly as demand shifts sharply away from Chinese platforms," Sine wrote.

Based in Miami, Fla., Drone Nerds is the largest drone retailer and distributor in the U.S., historically of mostly products made by Chinese companies like DJI and Autel Robotics. However, with increasing restrictions on Chinese drone imports by the U.S. and allied nations, Drone Nerds is shifting to American brands such as Red Cat Holdings Ltd.'s (RCAT:NASDAQ) Teal drones and Anzu Robotics' products.

A profitable company, Drone Nerds generates US$100M-plus in annual revenue, now a significant source of operating cash flow and channel strength for XTI Aerospace.

As for Drone Nerds and Unusual Machines, the two companies had a supplier relationship prior to the latter's investment in XTI; UMAC sourced DJI drones through Drone Nerds. So the investment "meaningfully deepens vertical integration across manufacturing, components, and distribution," Sine wrote.

Significance of New Cash Balance

After the XTI transaction, Unusual Machines' cash balance will be about US$110M. This is the amount the company has always said it wants to maintain for a "fortress" balance sheet, vendor reliability for defense prime customers, and execution capacity as U.S. Department of Defense budgets advance.

"Accordingly," Sine wrote, "this [XTI] investment may mark the end of [UMAC's] incremental deal-making unless a high-conviction, transformative opportunity emerges."