Summary of Unusual Machines Incorporated Conference Call Company Overview - **Company**: Unusual Machines Incorporated - **Industry**: Drone industry, focusing on small to medium-sized drones and drone parts - **Key Focus**: Manufacturing NDA compliant drone parts outside of China [4][5] Core Points and Arguments - **Revenue Growth**: Achieved a 59% year-over-year revenue increase in Q1, marking every quarter as the best revenue quarter to date [5] - **B2B Business Launch**: Launched B2B operations in September, with revenue increasing 3.5 times from the first half to the second half of the previous year [6][15] - **Financial Position**: Holds $40 million in cash with no debt, and a quarterly operational cash burn of approximately $850,000 [6][24] - **Market Drivers**: The U.S. drone market is being driven by legislation and geopolitical factors, particularly the exclusion of Chinese drones and the conflict in Ukraine [7][20] - **Legislative Support**: Recent laws, including the American Securities Drone Act and the National Defense Authorization Act, are pushing for domestic drone production and limiting Chinese imports [21][22] - **Production Facility**: Signed a lease for a 17,000 square foot drone motor facility, with expectations to deliver motors to customers by late December [8][16] Market Opportunities - **Total Addressable Market (TAM)**: The market for backpack-sized drones in the U.S. is estimated at over $10 billion, especially with the exit of DJI [16] - **Government Contracts**: Anticipates significant government orders for drone systems, potentially amounting to several hundred million dollars [17][30] - **Competitive Positioning**: Positioned in the value segment of the market, offering lower-cost components compared to competitors [18][19] Strategic Initiatives - **Onshoring Strategy**: Plans to accelerate the onshoring of drone parts and components, leveraging relationships with the Defense Innovation Unit (DIU) [11][27] - **Acquisition Strategy**: Open to smart acquisitions as the market consolidates over the next two to three years [12][46] - **Production Capacity**: Aiming to produce 50,000 motors per month, with an estimated run rate of $30 million [37] Financial Outlook - **Break-even Target**: Aiming to reach break-even with an annual revenue of $20 million within four to six quarters [33] - **Revenue Projections**: Expecting a significant ramp-up in revenue following government contract awards, with deliveries anticipated to start in January [32][34] Additional Insights - **Customer Base**: Maintains a diverse customer base with no single customer accounting for more than 5% of revenue [51] - **Community Development**: Observing the formation of drone industry hubs in various U.S. locations, fostering collaboration and innovation [60] - **Supply Chain Resilience**: Emphasizes the importance of a robust domestic supply chain to mitigate risks from geopolitical events and natural disasters [61][62] Conclusion - Unusual Machines Incorporated is strategically positioned to capitalize on the growing U.S. drone market, driven by legislative support and a focus on domestic production. The company is well-funded, with a clear path to growth through B2B initiatives and government contracts, while also addressing supply chain challenges and competitive pricing.

Financial Data and Key Metrics Changes - The first quarter of 2025 was the highest revenue quarter ever for the company, marking a 59% growth compared to Q1 2024 on a pro forma basis [5][11] - The company ended the quarter with $5 million in cash, up from $3.7 million at the start, and raised an additional $36.6 million, bringing the total cash position to over $40 million [6][14] - Revenue for the quarter was $2 million with a gross margin of 24%, which is a decrease attributed to tariff charges [7][12] Business Line Data and Key Metrics Changes - The enterprise segment held steady at 13% of revenue, which was unexpected given anticipated government budget constraints [9] - The company is focusing on aggressive growth and plans to expand motor production capabilities [10][23] Market Data and Key Metrics Changes - The company is experiencing a chaotic tariff environment, particularly with sanctions affecting major suppliers like T Motor, which has impacted the supply chain [5][25] - Government orders for drones have been slow, but there are signs of increasing demand as contracts begin to flow [26][28] Company Strategy and Development Direction - The company plans to invest in a new drone motor manufacturing facility in Orlando, with expectations for the first motors to be produced by September [24][25] - The strategy includes maintaining a strong cash position to enhance credibility with large government contractors and suppliers [20][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the uncertainty in the operating environment due to tariffs and government spending delays but remains optimistic about growth potential [30][31] - The company aims to achieve cash flow positivity within the next four to six quarters, contingent on government market developments [31][32] Other Important Information - The company has no debt and is in a strong position to pursue its growth strategy [14] - The recent capital raise was executed from a position of desire rather than need, allowing for strategic flexibility [17][18] Q&A Session Summary Question: What needs to happen to hit a September production timeline? - The company has ordered equipment and is finalizing the lease for the new facility, with setup and quality processes expected to take about a month [38][40] Question: What does the demand for new motors look like? - Demand appears strong, but actual orders will depend on government contracts being awarded [41] Question: What is the expected margin expansion? - Margin expansion is anticipated from manufacturing motors internally, which will reduce tariff impacts [44] Question: Can you provide visibility on enterprise customers and the pipeline? - The pipeline looks promising, with several companies sampling parts, but actual orders are pending [49][50] Question: What is the timeline for seeing orders from the defense budget? - Orders typically flow through six to eight weeks after the budget is passed, with a one-quarter delay expected before fulfillment [57][59] Question: How many drone motors can be produced monthly? - The target is to produce hundreds of thousands to millions of motors annually, scaling up as demand increases [62]

Financial Data and Key Metrics Changes - The first quarter of 2025 was the highest revenue quarter ever for the company, achieving a 59% growth compared to Q1 2024 on a pro forma basis [5][10] - The company ended the quarter with $5 million in cash, up from $3.7 million at the start, and raised an additional $36.6 million through financing [6][12] - Revenue for the quarter was $2 million with a gross margin of 24%, which is a decrease attributed to tariff charges [7][11] Business Line Data and Key Metrics Changes - The enterprise segment maintained a steady contribution of 13% to total revenue, despite expectations of a slowdown due to government budget constraints [8] - The company is focusing on aggressive growth and plans to expand its motor production capabilities [9][22] Market Data and Key Metrics Changes - The company is experiencing a chaotic tariff environment, particularly with the sanctioning of T Motor, which has impacted the competitive landscape [5][20] - Government orders for drones have been slow, but there are signs of a potential uptick in enterprise sales as smaller orders begin to flow through [25][29] Company Strategy and Development Direction - The company plans to utilize the recent financing to build a drone motor factory in Orlando, which is expected to enhance production capacity and improve margins [19][23] - The strategy includes maintaining a strong cash position to ensure stability and competitiveness in the supply chain [19][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the uncertainty in the operating environment due to tariffs and government spending but remains optimistic about growth opportunities [26][29] - The company aims to achieve cash flow positivity within the next four to six quarters, contingent on government market developments [29][30] Other Important Information - The company has no debt and is in a strong financial position to pursue its growth strategy [12][13] - The recent public offering was completed at $5 per share, which was below the market average, indicating strong investor interest [16][49] Q&A Session Summary Question: What needs to happen to hit the September production timeline? - The company has ordered equipment and is finalizing the lease for the production space, with setup and quality processes expected to take about a month [35][36] Question: What does the demand for new motors look like? - Demand appears strong, but actual demand will be clearer once government contracts are awarded [38] Question: What are the expected medium to long-term margins? - Margins are expected to improve as the company manufactures its own motors, reducing tariff impacts [41][42] Question: Can you expand on enterprise customers and the pipeline? - The pipeline looks promising with several companies sampling parts, but actual orders depend on customer designs and government contracts [44][46] Question: What is the timeline for seeing orders from the defense budget? - Orders typically flow through six to eight weeks after the budget is passed, with a one-quarter delay expected before fulfillment [54][56] Question: How many drone motors can be produced monthly? - The target is to produce hundreds of thousands to millions of motors annually, scaling up as demand increases [59][60] Question: Is there a possibility of fully U.S.-produced drones? - Final assembly is now in the U.S., but many components still rely on global supply chains, particularly for high-end electronics [67][68]

Financial Performance - Revenue for Q1 2025 reached $2,042,300, a 230% increase from $618,915 in Q1 2024[123] - Gross profit for Q1 2025 was $496,807, up 143% from $204,167 in Q1 2024, with a gross margin of 24.3%[125] - Net loss for Q1 2025 was $3,266,279, an increase of 195% compared to $1,106,001 in Q1 2024[130] Operating Expenses - Operating expenses in Q1 2025 totaled $302,602, a 169% increase from $112,322 in Q1 2024[126] - Research and development expenses decreased by 53% to $7,903 in Q1 2025 from $16,796 in Q1 2024[127] - Selling and marketing expenses increased by 32% to $207,616 in Q1 2025 compared to $157,058 in Q1 2024[128] Cash Flow and Liquidity - Cash used in operating activities was $1,193,628 in Q1 2025, a slight decrease of 0.2% from $1,195,604 in Q1 2024[132] - Current assets as of March 31, 2025, totaled $7,306,327, with cash balances of $5,000,661[135] - As of May 7, 2025, the company had approximately $40.1 million in cash, providing substantial liquidity for operations[139] Mergers and Acquisitions - The company entered into a merger agreement to acquire Aloft for $14.5 million, primarily in common stock[122]

Group 1 - Unusual Machines, Inc. (UMAC) closed at $6.18, with a 0.5% gain over the past four weeks, and has a mean price target of $16, indicating a potential upside of 158.9% [1] - The mean estimate includes three short-term price targets with a standard deviation of $5.29, where the lowest estimate of $10 suggests a 61.8% increase, and the highest estimate of $20 indicates a 223.6% surge [2] - Analysts show strong agreement in revising earnings estimates higher, with a 23.4% increase in the Zacks Consensus Estimate for the current year, indicating a positive outlook for UMAC [11][12] Group 2 - The Zacks Rank for UMAC is 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates, suggesting a solid potential upside [13] - While price targets are often viewed skeptically, the direction implied by the consensus price target may serve as a useful guide for potential price movements [10][11]

Industry Overview - The global agriculture drones market is projected to grow from $2.01 billion in 2024 to $8.03 billion by 2029, indicating significant growth potential driven by the adoption of aerial data collection tools in agriculture [1] - The cereals and grains segment is experiencing substantial growth, with drones playing a crucial role in optimizing yields through aerial surveys, crop health monitoring, and soil condition assessments [2] - The overall agriculture drone market is expected to grow from $6.10 billion in 2024 to $23.78 billion by 2032, at a CAGR of 18.5%, fueled by demand for precision agriculture and advancements in drone technology [4] Company Developments - ZenaTech, Inc. has received FAA Part 137 approval for its ZenaDrone 1000, allowing it to conduct commercial agricultural operations, including crop spraying and precision agriculture [2][3] - ZenaTech plans to utilize a Drone as a Service (DaaS) model to sell its solutions, targeting larger commercial farms and agribusinesses [2] - Unusual Machines, Inc. reported a fourth-quarter revenue of over $2.0 million, marking a 31% increase quarter-over-quarter, with total revenue for FY2024 reaching $5.65 million, exceeding its target by 13% [11] Technological Advancements - The ZenaDrone 1000 features advanced technology, including AI, sensors, and purpose-built attachments for crop spraying, designed for stable flight and heavy lift capabilities [5][6] - Sidus Space has unveiled a near real-time vessel detection and classification capability through its LizzieSat® satellite platform, enhancing space-based maritime intelligence [12][13] - AgriFORCE Growing Systems Ltd. has made progress in its Radical Clean Solutions division, receiving a U.S. patent for a chemical-free solution to reduce mold and extend the shelf life of produce [14][15][16]

Industry Overview - The global unmanned aerial system (UAS) military drones market is experiencing steady growth, driven by rising global defense budgets and geopolitical tensions [1] - Nations are investing in advanced UAS to enhance defense and security capabilities, particularly in regions like Asia-Pacific, the Middle East, and Eastern Europe [1] - Military drones are becoming integral to modern defense strategies, supporting surveillance, intelligence, and tactical operations [1] North America Market Leadership - North America, led by the United States, dominates the military drone market due to significant investments in advanced military technologies and a strong defense budget [2] - The U.S. military is the largest operator of drones, focusing on developing state-of-the-art systems for various missions, including surveillance and combat [2] - Key industry players in the U.S. include General Atomics and Northrop Grumman, which contribute to the technological edge of U.S. military drones [2] Draganfly Inc. Developments - Draganfly Inc. has entered a multi-year agreement with SafeLane Global to provide landmine mapping drones and aerial survey services [2][4] - The partnership aims to enhance the speed, accuracy, and safety of explosive threat detection and removal operations in high-risk environments [4][7] - Draganfly's technology will support humanitarian and defense efforts, particularly in mine-affected regions like Ukraine [5][6] Unusual Machines, Inc. Performance - Unusual Machines reported over $2.0 million in revenue for Q4 2024, marking a 31% quarter-over-quarter increase and the best revenue quarter to date [9] - The total revenue for FY2024 reached $5.65 million, exceeding the target of $5 million by 13% [9] - The company achieved this growth without customer concentration, with no single customer representing more than 5% of total revenue [9] Kratos Defense & Security Solutions Initiatives - Kratos announced the groundbreaking of its Hypersonic System Indiana Payload Integration Facility, a 68,000-square-foot complex to support hypersonic vehicle activities [10] - This facility aims to enhance the U.S. hypersonic infrastructure and accelerate testing capabilities for advanced hypersonic technologies [11] General Dynamics Information Technology Collaboration - General Dynamics Information Technology has expanded its partnership with Amazon Web Services to drive digital modernization and advance government missions [13][14] - The collaboration will focus on developing cybersecurity, artificial intelligence, and cloud migration solutions for defense and intelligence agencies [14]

Financial Data and Key Metrics Changes - The company reported a net loss of $32 million for 2024, but emphasized that it is in the best financial position ever, with more cash in the bank than before and a focus on controlling cash burn [19][20][21] - Cash position improved from $1.7 million at the start of the quarter to $3.8 million at the end, with additional proceeds of about $2.4 million from warrant exercises [11][12][24] - Total revenue for the year reached $5.65 million, exceeding the target of $5 million, with a gross margin of 28% for the fourth quarter [13][23] Business Line Data and Key Metrics Changes - The components business has been initiated and already represents about 15% of total revenue, with significant growth expected [11][35] - Enterprise sales accounted for approximately 15% of fourth quarter B2B sales, indicating a positive trend in this segment [14][35] Market Data and Key Metrics Changes - The U.S. market is seen as favorable for growth in 2025, particularly due to sanctions against T-Motor, which has created a market vacuum for alternative suppliers [40][41] - The company is experiencing accelerated domestic orders, although European market orders have not materialized as expected [36][37] Company Strategy and Development Direction - The company is focusing on aggressive growth, particularly in the components business, and plans to scale production in Orlando [17][41] - The management is optimistic about leveraging tariffs to improve margins and market share against competitors with a larger mix of Chinese products [41][42] Management's Comments on Operating Environment and Future Outlook - The management acknowledges the impact of the political landscape on business growth, with a favorable U.S. market expected in 2025 [33][43] - There is a focus on maintaining cash flow and operational efficiency while pursuing growth opportunities [11][17] Other Important Information - The company has eliminated $4 million in debt and increased its fully diluted share count from 11.2 million to 17 million since the IPO [20][21] - The management is implementing stock sales plans to manage tax obligations related to equity grants [15] Q&A Session Summary Question: Impact of tariffs on 2025 - The CEO indicated that tariffs could lead to a margin expansion of 10% to 15% while allowing for competitive pricing on in-house products [47][48] Question: Key financial metrics to focus on - The CEO emphasized the importance of cash flow, revenue growth, and operational cash burn as critical metrics [49][50] Question: B2B sales pipeline and revenue expectations - The company aims for B2B sales to represent 50% of revenue over the next four to six quarters [53][54] Question: Production capabilities and sourcing - The company is currently working with contract suppliers for motor production while planning to scale in-house capabilities [56][57] Question: Financial targets for 2025 - The management plans to provide more concrete financial targets after assessing Q1 results and the impact of tariffs [59] Question: Cash position for 2025 expansion plans - The company believes it has sufficient cash on hand to fund its expansion plans for 2025 [80]

Financial Data and Key Metrics Changes - The company reported a net loss of $32 million for 2024, but emphasized that it is in the best financial position ever, with more cash in the bank than before and a focus on controlling cash burn [19][20][21] - Cash position improved from $1.7 million at the start of the quarter to $3.8 million at the end, with an additional $2.4 million received from warrant exercises [11][12][24] - Total revenue for the year reached $5.65 million, exceeding the target of $5 million, with a gross margin of 28% for the fourth quarter [13][23] Business Line Data and Key Metrics Changes - The components business started contributing to revenue, representing about 15% of total sales in the fourth quarter [14][35] - Enterprise sales accounted for 15% of the fourth quarter's B2B sales, with expectations to increase this to 50% over the next few quarters [14][54] Market Data and Key Metrics Changes - The U.S. market is seen as favorable for growth in 2025, particularly due to sanctions against T-Motor, which has created a market vacuum for alternative suppliers [40][41] - The company is experiencing accelerated domestic orders, although European market orders have not materialized as expected [36][37] Company Strategy and Development Direction - The company is focusing on aggressive growth, particularly in the components business, and plans to scale production in Orlando [17][41] - Management is optimistic about leveraging tariffs to improve margins and market share against competitors with a larger mix of Chinese products [41][42] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in the company's financial health and growth potential, despite uncertainties in the political landscape affecting defense spending [33][43] - The company is positioned to take advantage of favorable market conditions and is actively working to fill the void left by sanctioned suppliers [40][72] Other Important Information - The company has eliminated $4 million in debt and increased its fully diluted share count from 11.2 million to 17 million since the IPO [21][30] - Management is implementing stock sales plans to manage tax obligations related to equity grants [15] Q&A Session Summary Question: Impact of tariffs on 2025 - Management indicated that tariffs could lead to a 10% to 15% margin expansion while allowing for competitive pricing on in-house products [48] Question: Key financial metrics to focus on - Management emphasized the importance of cash flow, revenue growth, and gross margin as key metrics [49][50] Question: Enterprise sales pipeline and revenue expectations - The internal target is for B2B sales to represent 50% of revenue within four to six quarters [54] Question: Production capabilities and sourcing - The company is initially using contract suppliers for motor production but plans to build in-house capabilities to increase volumes and margins [57] Question: Financial targets for 2025 - Management plans to provide more detailed financial targets after Q1 2025, depending on tariff implementations and market conditions [59] Question: Aloft acquisition timeline - The acquisition is progressing but not prioritized over immediate production needs due to market demands [62] Question: Future growth opportunities from sanctions - Management sees significant opportunities arising from sanctions against Chinese firms, particularly in the motor segment [84] Question: Current sourcing from China - The company has reduced its reliance on Chinese sourcing significantly since the IPO, with a focus on U.S.-made components [91]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Exact name of registrant as specified in its charter) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2024 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ________ to _________ Commission File Number: 001-41961 Unusual Machines, Inc. (State or other jurisdiction of i ...