Dear Shareholders,
We are excited to present our first shareholder letter following our recent IPO. This marks a milestone in our journey and we are incredibly grateful for your support and confidence in Unusual Machines. The IPO, financial results, and recent press releases have led to a significant number of questions from shareholders. We would like to take this opportunity to provide more context and hopefully a deeper of our operations and what these represent for Unusual Machines' future.
Recent IPO and Acquisitions
In our first quarter, we successfully completed our initial public offering (IPO) on the NYSE American, raising gross proceeds of $5 million. Simultaneously, we closed the acquisitions of Rotor Riot and Fat Shark from Red Cat Holdings. The costs associated with our public listing and these strategic acquisitions are detailed in our 10-Q filing. These one-time expenses impact our short-term financials and can make it challenging to discern the basic operations of the company from the financial statements alone.
Cash Position
We view managing our cash position and cash flow as the most important aspect of our business. During the first quarter, we incurred one-time expenses as we finalized our IPO and had costs related to the integration of Fat Shark and Rotor Riot. We will continue to streamline and closely manage our cash spend. We ended the quarter with approximately $3.2 million in cash, which we believe provides sufficient operating capacity to achieve our growth objectives as discussed below.
Operational Overview
Rotor Riot and Fat Shark form the underpinning of Unusual Machines operations. Historically, Rotor Riot has generated revenue through the sale of first-person view (FPV) drones and drone parts via its e-commerce platform. Fat Shark is the basis of our B2B sales, supplying products through the Rotor Riot store and to other retailers. For the 45 days post-acquisition in the first quarter, we generated approximately $619,000 in combined sales. While it is a limited operating period, we achieved over 30% gross margins combined, which we aim to sustain and improve as we scale.
Importantly, the Rotor Riot e-commerce site has consistently grown 20-30% over the past few years. We intend to continue leveraging this platform as our primary consumer sales channel. Meanwhile, Fat Shark will be integrated with our other premium branded products like Hype Train Motors as we expand our customized B2B sales offerings.
Expanding into the Defense Sector
Historically, our operations have focused on producing and selling drone parts to enthusiasts through our e-commerce channel. Recognizing the growing importance of drones in combat, we have initiated a strategic initiative to begin developing NDAA-compliant drone components for the defense sector. The critical role drones have played in recent conflicts, such as in Ukraine and Israel, has heightened the U.S. Department of Defense's demand for cost-effective drones and a reliable non-Chinese supply chain. We are confident that our expertise and partnerships Initiative will position us to start to win business and secure necessary Blue UAS certifications that will enable us to rapidly enter this emerging market.
Corporate Changes
Since our IPO, we have implemented several strategic corporate changes. We relocated our headquarters to Orlando to better align with our operations and reincorporated in Nevada to reduce costs. Additionally, we appointed a new auditor and worked with them to finalize our first quarter 10-Q filing with the SEC. These steps underscore our commitment to financial transparency and integrity as we grow.
Looking Ahead
Our priorities moving forward are clear:
- Rotor Riot: As our primary revenue source, we will continue to invest in and expand Rotor Riot's operations, driving both top-line growth and improved margins while finalizing the transition from Red Cat.
- NDAA-Compliant Production: We are progressing towards domestic production of drone components, with our first product, a flight controller, expected by the end of June. We expect this to be the first product that will get Blue UAS certification. This is a crucial step in accessing the U.S. B2B market.
- Defense Components: Developing products for the defense sector is a focal point for growth. The current demand for drone technology also provides opportunities for non-dilutive financing. This segment is cyclical due to the government fiscal year ending in September so it is our current primary business development focus through the second and third quarters.
We are enthusiastic about the future of Unusual Machines. The acquisitions and our strategic shift towards the defense market present significant opportunities along with some uncertainty. Your support is invaluable, and we thank you for your trust and confidence in our vision. We are a small company and appreciate your feedback. Please reach out with any questions or comments.
Sincerely,
Allan Evans
CEO of Unusual Machines