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Note 3 – Divestiture of Consumer Segment

12 Months Ended

Apr. 30, 2024

Discontinued Operations and Disposal Groups [Abstract]

Note 3 – Divestiture of Consumer Segment

Note 3 – Divestiture of Consumer Segment

On February 16, 2024, the Company closed the sale of Rotor Riot and Fat Shark to Unusual Machines. The sale was conducted pursuant to a Share Purchase Agreement dated November 21, 2022, as amended on April 13, 2023, July 10, 2023, and December 11, 2023 (the “SPA”). The transaction closed concurrently with UMAC’s initial public offering and listing on the NYSE American exchange (“IPO”) under the symbol “UMAC.”

The total consideration received by the Company was valued at $20 million and consisted of i) $1 million in cash, ii) $2 million in a secured promissory note (“Promissory Note”), iii) $17 million in securities of Unusual Machines, and iv) a post-closing adjustment for excess working capital.

Secured Promissory Note

The Promissory Note from Unusual Machines bears interest at a rate of 8% per year, is due 18 months from the date of issue, and requires monthly payments of interest due in arrears on the 15th day of each month. In the event of a Qualified Financing (defined as one or more related debt or equity financings by UMAC resulting in net proceeds of at least $5 million, other than UMAC’s completed IPO), the Company may require payment of this Promissory Note in whole or in part upon written notice given within 10 days of the Qualified Financing. During the occurrence and continuance of any event of default under the Note, The Company may, at its option, convert the amounts due under the Note to common stock of UMAC in whole or in part from time to time. The conversion price will be a 10% discount to the average daily volume weighted average price for UMAC’s common stock over the 10 days preceding the conversion price. Conversions under the Note will be limited such that no conversion may be made to the extent that, after giving effect to the conversion, the Company, together with its affiliates, would beneficially own in excess of 4.99% of UMAC’s common stock. This limit may be increased by the Company upon 61 days written notice.

Unusual Machines Securities

The $17 million worth of UMAC common stock was valued at the IPO price for UMAC’s common stock of $4.00 per share, resulting in 4,250,000 shares of UMAC common stock being issued to the Company (representing approximately 49% of UMAC’s issued and outstanding common stock after giving effect to the IPO and to the issuance of common stock to the Company upon closing of the IPO).

Working Capital

The purchase price was adjusted for working capital as of the closing date. Actual working capital excess amounts increased the principal amount of the Promissory Note dollar for dollar. Working capital as of closing was finalized at $2 million, as further described in Note 22.

The Consumer segment has been classified as Discontinued Operations and reported in accordance with the applicable accounting standards. Set forth below are the results of operations for the Consumer segment for:


		Year ended April 30,
		2024				2023
Revenues		$	4,213,653			$	5,290,946

Cost of goods sold			4,577,980				4,793,430

Gross (Loss) Profit			(364,327	)			497,516

Operating Expenses
Research and development			118,093				346,002
Sales and marketing			1,157,448				862,384
General and administrative			863,361				1,044,435
Total operating expenses			2,138,902				2,252,821
Operating loss			(2,503,229	)			(1,755,305	)

Other expense (income)
Interest expense			22,856				—
Other, net			(152	)			(24,919	)
Other expense (income)			22,704				(24,919	)

Net loss from discontinued operations		$	(2,525,933	)		$	(1,730,386	)

Assets and liabilities for the Consumer segment included:

		April 30, 2024				April 30, 2023
Current assets
Cash		$	—			$	86,656
Accounts receivable, net			—				61,107
Inventory			—				3,065,954
Other			—				2,069,438
Total current assets			—				5,283,155

Intangible assets, net			—				20,000
Other			—				3,853
Operating lease right-of-use assets			—				84,544
Total long term assets			—				108,397

Current liabilities
Accounts payable		$	—			$	606,872
Accrued expenses			—				109,480
Customer deposits			—				244,688
Operating lease liabilities			—				49,461
Total current liabilities			—				1,010,501

Long term liabilities - Operating lease liabilities			—				41,814

Working capital		$	—			$	4,272,654