Correspondence 0001683168-23-001471 from Unusual Machines, Inc. (UMAC)
Unusual Machines, Inc.
Date: March 14, 2023 · CIK: 0001956955 · Accession: 0001683168-23-001471
AI Filing Summary & Sentiment
Letter
Unusual Machines, Inc.
151 Calle De San Francisco
Ste. 200 PMB 2106
San Juan, Puerto Rico 00901
March 14, 2023
Securities and Exchange Commission
Division of Corporation Finance
Office of Manufacturing
100 F Street, NE
Washington, DC 20549
Re: Unusual Machines, Inc., Inc.
Draft Registration Statement on Form S-1
Submitted December 14, 2022
CIK No. 0001956955
Ladies and Gentlemen:
This letter is submitted by Unusual Machines, Inc. (“Unusual” or the “Company”) in response to the comments made by the Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) with respect to the Draft Registration Statement on Form S-1 submitted on December 14, 2022 (the “Registration Statement”).
The Company acknowledges that it will be required to file another amendment containing current financial information for the target companies which go stale later this week. It is engaged in material negotiations with a proposed underwriter and can add the identity in the next amendment. Counsel to the proposed underwriter has authorized the Company to file the Registration Statement.
The Registration Statement has been amended as appropriate to give effect to changes affecting Unusual and the industries in which Unusual operates. In addition, as required, the Company has included its audited financial statements for the year ended December 31, 2022 replacing the 2021 financial statements.
For your convenience, each of the Staff’s comments have been restated below in their entirety, with Unusual’s responses set forth immediately beneath such comment.
The numbers of the responses in this letter correspond to the numbers of the Staff’s comments as set forth in the Comment Letter. In addition to submitting this letter via EDGAR, we are sending this letter and the Prospectus (marked to show changes from the Draft Registration Statement) via EDGAR.
SEC Comment:
General
1. Please explain why Fat Shark Holdings, Ltd. and Rotor Riot LLC are not identified as co-issuers on the registration statement. Refer to Securities Act Rule 140.
Company Response:
Please see a response from our legal counsel attached to this letter as Annex A.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 2
SEC Comment:
2. If your operations have experienced or are experiencing inflationary pressures or rising costs, please expand to identify the principal factors contributing to the inflationary pressures the company has experienced and clarify the resulting impact to the company. Please also revise to identify actions planned or taken, if any, to mitigate inflationary pressures.
Company Response:
Inflation has created some salary pressure with our employees who wish to mitigate the impact of inflation, Rotor Riot and Fat Shark have not suffered inflationary pressures in procurement. The cost increase pressures were associated with the supply chain challenges associated with COVID (or the chip crisis). As a result, the Company has not identified, planned or taken any actions as of the date hereof to mitigate inflationary pressures. The Company has modified the risk factor on page 25 based on the Staff’s comment.
SEC Comment:
3. Please disclose whether and how your business segments, products, lines of service, projects, or operations are materially impacted by supply chain disruptions, especially in light of Russia’s invasion of Ukraine. For example, discuss whether you have or expect to:
· suspend the production, purchase, sale or maintenance of certain items;
· experience higher costs due to constrained capacity or increased commodity prices or challenges sourcing materials (e.g., nickel, palladium, neon, cobalt, iron, platinum or other raw material sourced from Russia, Belarus, or Ukraine);
· experience surges or declines in consumer demand for which you are unable to adequately adjust your supply;
· be unable to supply products at competitive prices or at all due to export restrictions, sanctions, tariffs, trade barriers, or political or trade tensions among countries or the ongoing invasion; or
· be exposed to supply chain risk in light of Russia’s invasion of Ukraine and/or related geopolitical tension or have sought, made or announced plans to “de-globalize” your supply chain.
Explain whether and how you have undertaken efforts to mitigate the impact and where possible quantify the impact to your business.
Company Response:
The Company does not believe that the Russian war in the Ukraine will have a material impact on the consumer drone market except to the extent that the ongoing war could contribute to inflation. The Company believes that they have adequately disclosed the inflation risk, as revised, in the Risk factor entitled “Significant inflation could adversely affect our business and financial results” on page 25 of the Prospectus. Accordingly, the Company has not undertaken efforts to mitigate the impact of the Russian war on Ukraine and does not believe that any additional disclosure is required in response to the Staff’s comment.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 3
SEC Comment:
Cover Page
4. We note that you are attempting to register the resale on behalf of the selling stockholder of 625,000 shares of common stock issuable upon conversion of a Senior Note. Please be advised that we believe it is premature to register for resale shares of your common stock issuable upon conversion of the Senior Note that is not yet outstanding. Accordingly, please amend your registration statement to remove from registration the resale of any shares of common stock that are issuable upon conversion of the Senior Note that is not yet outstanding. Alternatively, provide us with your analysis as to why it is appropriate to register the resale of common stock issuable upon conversion of the Senior Note that is not yet outstanding.
Company Response:
In response to the Staff’s comment, we have amended the Prospectus to remove the registration of the Conversion Shares issuable upon the conversion of the Senior Note, all references to the Secondary Offering and deleted the Selling Stockholder table and related references.
SEC Comment:
5. Please disclose the percentage of shares of common stock of the registrant that Mr. Thompson will own after the offering.
Company Response:
As of the date hereof, the range for the offering price has not been determined by the Company’s underwriters. Accordingly, the Company has added the following language to the cover page and the numbers will be populated by pre-effective amendment to the Prospectus:
“Upon consummation of the Offering, assuming the issuance of ____ shares of our common stock at $___ per share (the anticipated midpoint of the range) Mr. Jeffrey Thompson, our largest stockholder, will beneficially own ___% of our common stock (excluding the exercise of the over-allotment option by the underwriters and the issuance of the warrants to the underwriters, the issuance of the Conversion Shares and the issuance of our Series A Convertible Preferred Stock (referred to in this Prospectus as the “Series A”) as part of the Purchase Price, which Mr. Thompson will not be deemed to beneficially own. See “The Business Combination” and “Principal Stockholders” for more information.”
SEC Comment:
6. We note the disclosure on the cover page that the conversion price of the Senior Note is the lower of $4.00 and the per-share offering price in this offering and the disclosure on page 40 that the Senior Note and Series A Convertible Preferred Stock “will include anti-dilution protection in the case of issuances by us at a price lower than the then applicable conversion price for so long as the Senior Note or Series A remains outstanding under which the conversion price will be reduced to such lower price as the Company shall issue or agree to issue any of its securities.” Please ensure that you disclose in the appropriate sections, such as the Risk Factors and the Description of Securities sections, the number of shares issuable upon conversion of the Senior Note and the Series A based on a reasonable range of prices.
Company Response:
As our counsel discussed with Mr. Tom Jones of the Staff on January 13, 2023, as requested by the Staff, the Company has added risk factor disclosure on page 10 of the Prospectus regarding the potential dilutive impact upon the conversion of the Senior Note, if issued, and the Series A to the extent that there is a conversion price adjustment as a result of a future dilutive issuance.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 4
SEC Comment:
7. Disclose whether your offering is contingent upon on final approval of your NASDAQ listing on your cover page. Please ensure the disclosure is consistent with your underwriting agreement.
Company Response:
The Company has added the disclosure requested by the Staff on the cover page.
SEC Comment:
8. To the extent you intend to proceed with your offering if your NASDAQ listing is denied, revise your cover page to indicate that the offering is not contingent on NASDAQ approval of your listing application and that if the shares are not approved for listing, you may experience difficulty selling your shares. Include risk factor disclosures to address the impact on liquidity and the value of shares.
Company Response:
Since the Offering is contingent on a Nasdaq listing, the Company believes that this comment is no longer applicable.
SEC Comment:
Cautionary Statement Regarding Forward-Looking Statements, page 1
9. We note the reference to the Private Securities Litigation Reform Act of 1995. Please remove the reference since it does not apply to initial public offerings.
Company Response:
As requested by the Staff, the Company has deleted the reference to the Private Securities Reform Act of 1995 on page 1 of the Prospectus.
SEC Comment:
Industry and Market Data, page 1
10. Please tell us whether you commissioned any of the data used in your registration statement.
Company Response:
The Company did not commission any of the data used in the Prospectus. The industry and market data contained in the Prospectus was derived from publicly available information.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 5
SEC Comment:
Prospectus Summary, page 2
11. The Company’s auditors did not issue a going concern opinion in contrast to Fat Shark and Rotor Riot. The Company has expanded the risk factors summary section beginning on page 4 and added a going concern risk factor on page 8 to note that the auditors’ report contains an explanatory paragraph regarding Fat Shark and Rotor Riot’s ability to continue as a going concern and how it may impact the Company.
Company Response:
As requested by the Staff, the Company has expanded the risk factors summary section beginning on page 4 and the Risk Factors section beginning on page 8 to highlight that the auditor’s report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.
SEC Comment:
Risk Factors, page 8
12. We note the disclosure in the last column on page F-3 of the amount of goodwill and intangibles compared to total assets as of April 30, 2022. Please include a risk factor to highlight the risks related to goodwill and intangible assets, such as write downs.
Company Response:
As requested by the Staff, the Company has added a risk factor on page 32 of the Prospectus.
SEC Comment:
13. We note recent instances of extreme stock price run-ups followed by rapid price declines and stock price volatility seemingly unrelated to company performance following a number of recent initial public offerings, particularly among companies with relatively smaller public floats. Revise to include a separate risk factor addressing the potential for rapid and substantial price volatility and any known factors particular to your offering that may add to this risk and discuss the risks to investors when investing in stock where the price is changing rapidly. Clearly state that such volatility, including any stock-run up, may be unrelated to your actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of your stock.
Company Response:
As requested by the Staff, the Company has added a risk factor on page 30 of the Prospectus.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 6
SEC Comment:
Rising threats of international tariffs, page
14. We note your disclosure in this risk factor that you are heavily dependent on Chinese imports for your products and operations, such as "a substantial majority of Rotor Riot’s products are manufactured, directly and indirectly, using Chinese vendors" and "Fat Shark’s principal contract manufactur
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Unusual Machines, Inc.
151 Calle De San Francisco
Ste. 200 PMB 2106
San Juan, Puerto Rico 00901
March 14, 2023
Securities and Exchange Commission
Division of Corporation Finance
Office of Manufacturing
100 F Street, NE
Washington, DC 20549
Re: Unusual Machines,
Inc., Inc.
Draft Registration Statement on Form S-1
Submitted December 14, 2022
CIK No. 0001956955
Ladies and Gentlemen:
This letter is submitted by Unusual Machines,
Inc. (“Unusual” or the “Company”) in response to the comments made by the Staff of the Division of Corporation
Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) with respect to the Draft Registration
Statement on Form S-1 submitted on December 14, 2022 (the “Registration Statement”).
The Company acknowledges that it will be required to file another amendment
containing current financial information for the target companies which go stale later this week. It is engaged in material negotiations
with a proposed underwriter and can add the identity in the next amendment. Counsel to the proposed underwriter has authorized the Company
to file the Registration Statement.
The Registration Statement has been amended as
appropriate to give effect to changes affecting Unusual and the industries in which Unusual operates. In addition, as required, the Company
has included its audited financial statements for the year ended December 31, 2022 replacing the 2021 financial statements.
For your convenience, each of the Staff’s
comments have been restated below in their entirety, with Unusual’s responses set forth immediately beneath such comment.
The numbers of the responses in this letter correspond
to the numbers of the Staff’s comments as set forth in the Comment Letter. In addition to submitting this letter via EDGAR, we
are sending this letter and the Prospectus (marked to show changes from the Draft Registration Statement) via EDGAR.
SEC Comment:
General
1. Please explain why Fat Shark Holdings, Ltd.
and Rotor Riot LLC are not identified as co-issuers on the registration statement. Refer
to Securities Act Rule 140.
Company Response:
Please see a response from
our legal counsel attached to this letter as Annex A.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 2
SEC Comment:
2. If your operations have experienced or are
experiencing inflationary pressures or rising costs, please expand to identify the principal
factors contributing to the inflationary pressures the company has experienced and clarify
the resulting impact to the company. Please also revise to identify actions planned or taken,
if any, to mitigate inflationary pressures.
Company Response:
Inflation has created some salary pressure
with our employees who wish to mitigate the impact of inflation, Rotor Riot and Fat Shark have not suffered inflationary pressures in
procurement. The cost increase pressures were associated with the supply chain challenges associated with COVID (or the chip crisis).
As a result, the Company has not identified, planned or taken any actions as of the date hereof to mitigate inflationary pressures. The
Company has modified the risk factor on page 25 based on the Staff’s comment.
SEC Comment:
3. Please disclose whether and how your business
segments, products, lines of service, projects, or operations are materially impacted by
supply chain disruptions, especially in light of Russia’s invasion of Ukraine. For
example, discuss whether you have or expect to:
· suspend
the production, purchase, sale or maintenance of certain items;
· experience higher costs due to constrained capacity or increased
commodity prices or challenges sourcing materials (e.g., nickel, palladium, neon, cobalt,
iron, platinum or other raw material sourced from Russia, Belarus, or Ukraine);
· experience surges or declines in consumer demand for which you
are unable to adequately adjust your supply;
· be unable to supply products at competitive prices or at all due
to export restrictions, sanctions, tariffs, trade barriers, or political or trade tensions
among countries or the ongoing invasion; or
· be exposed to supply chain risk in light of Russia’s invasion
of Ukraine and/or related geopolitical tension or have sought, made or announced plans to
“de-globalize” your supply chain.
Explain whether and how you have undertaken
efforts to mitigate the impact and where possible quantify the impact to your business.
Company Response:
The Company does not believe that the
Russian war in the Ukraine will have a material impact on the consumer drone market except to the extent that the ongoing war could contribute
to inflation. The Company believes that they have adequately disclosed the inflation risk, as revised, in the Risk factor entitled “Significant
inflation could adversely affect our business and financial results” on page 25 of the Prospectus. Accordingly, the Company has
not undertaken efforts to mitigate the impact of the Russian war on Ukraine and does not believe that any additional disclosure is required
in response to the Staff’s comment.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 3
SEC Comment:
Cover Page
4. We note that you are attempting to register
the resale on behalf of the selling stockholder of 625,000 shares of common stock issuable
upon conversion of a Senior Note. Please be advised that we believe it is premature to register
for resale shares of your common stock issuable upon conversion of the Senior Note that is
not yet outstanding. Accordingly, please amend your registration statement to remove from
registration the resale of any shares of common stock that are issuable upon conversion of
the Senior Note that is not yet outstanding. Alternatively, provide us with your analysis
as to why it is appropriate to register the resale of common stock issuable upon conversion
of the Senior Note that is not yet outstanding.
Company Response:
In response to the Staff’s comment,
we have amended the Prospectus to remove the registration of the Conversion Shares issuable upon the conversion of the Senior Note, all
references to the Secondary Offering and deleted the Selling Stockholder table and related references.
SEC Comment:
5. Please disclose the percentage of shares of
common stock of the registrant that Mr. Thompson will own after the offering.
Company Response:
As of the date hereof, the range for
the offering price has not been determined by the Company’s underwriters. Accordingly, the Company has added the following language
to the cover page and the numbers will be populated by pre-effective amendment to the Prospectus:
“Upon consummation of the Offering,
assuming the issuance of ____ shares of our common stock at $___ per share (the anticipated midpoint of the range) Mr. Jeffrey Thompson,
our largest stockholder, will beneficially own ___% of our common stock (excluding the exercise of the over-allotment option by the underwriters
and the issuance of the warrants to the underwriters, the issuance of the Conversion Shares and the issuance of our Series A Convertible
Preferred Stock (referred to in this Prospectus as the “Series A”) as part of the Purchase Price, which Mr. Thompson will
not be deemed to beneficially own. See “The Business Combination” and “Principal Stockholders” for more information.”
SEC Comment:
6. We note the disclosure on the cover page that
the conversion price of the Senior Note is the lower of $4.00 and the per-share offering
price in this offering and the disclosure on page 40 that the Senior Note and Series A Convertible
Preferred Stock “will include anti-dilution protection in the case of issuances by
us at a price lower than the then applicable conversion price for so long as the Senior Note
or Series A remains outstanding under which the conversion price will be reduced to such
lower price as the Company shall issue or agree to issue any of its securities.” Please
ensure that you disclose in the appropriate sections, such as the Risk Factors and the Description
of Securities sections, the number of shares issuable upon conversion of the Senior Note
and the Series A based on a reasonable range of prices.
Company Response:
As our counsel discussed with Mr. Tom
Jones of the Staff on January 13, 2023, as requested by the Staff, the Company has added risk factor disclosure on page 10 of the Prospectus
regarding the potential dilutive impact upon the conversion of the Senior Note, if issued, and the Series A to the extent that there
is a conversion price adjustment as a result of a future dilutive issuance.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 4
SEC Comment:
7. Disclose whether your offering is contingent
upon on final approval of your NASDAQ listing on your cover page. Please ensure the disclosure
is consistent with your underwriting agreement.
Company Response:
The Company has added
the disclosure requested by the Staff on the cover page.
SEC Comment:
8. To the extent you intend to proceed with your
offering if your NASDAQ listing is denied, revise your cover page to indicate that the offering
is not contingent on NASDAQ approval of your listing application and that if the shares are
not approved for listing, you may experience difficulty selling your shares. Include risk
factor disclosures to address the impact on liquidity and the value of shares.
Company Response:
Since the Offering is contingent on
a Nasdaq listing, the Company believes that this comment is no longer applicable.
SEC Comment:
Cautionary Statement Regarding Forward-Looking
Statements, page 1
9. We note the reference to the Private Securities
Litigation Reform Act of 1995. Please remove the reference since it does not apply to initial
public offerings.
Company Response:
As requested by the Staff, the Company
has deleted the reference to the Private Securities Reform Act of 1995 on page 1 of the Prospectus.
SEC Comment:
Industry and Market Data, page 1
10. Please tell us whether you commissioned any
of the data used in your registration statement.
Company Response:
The Company did not commission any
of the data used in the Prospectus. The industry and market data contained in the Prospectus was derived from publicly available information.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 5
SEC Comment:
Prospectus Summary, page 2
11. The
Company’s auditors did not issue a going concern opinion in contrast to Fat Shark and
Rotor Riot. The Company has expanded the risk factors summary section beginning on page 4
and added a going concern risk factor on page 8 to note that the auditors’ report contains
an explanatory paragraph regarding Fat Shark and Rotor Riot’s ability to continue as
a going concern and how it may impact the Company.
Company Response:
As requested by the Staff, the Company
has expanded the risk factors summary section beginning on page 4 and the Risk Factors section beginning on page 8 to highlight that
the auditor’s report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.
SEC Comment:
Risk Factors, page 8
12. We note the disclosure in the last column
on page F-3 of the amount of goodwill and intangibles compared to total assets as of April
30, 2022. Please include a risk factor to highlight the risks related to goodwill and intangible
assets, such as write downs.
Company Response:
As requested by the Staff, the Company
has added a risk factor on page 32 of the Prospectus.
SEC Comment:
13. We note recent instances of extreme stock
price run-ups followed by rapid price declines and stock price volatility seemingly unrelated
to company performance following a number of recent initial public offerings, particularly
among companies with relatively smaller public floats. Revise to include a separate risk
factor addressing the potential for rapid and substantial price volatility and any known
factors particular to your offering that may add to this risk and discuss the risks to investors
when investing in stock where the price is changing rapidly. Clearly state that such volatility,
including any stock-run up, may be unrelated to your actual or expected operating performance
and financial condition or prospects, making it difficult for prospective investors to assess
the rapidly changing value of your stock.
Company Response:
As requested by the Staff, the Company
has added a risk factor on page 30 of the Prospectus.
Securities and Exchange Commission
Division of Corporation Finance
March 14, 2023
Page 6
SEC Comment:
Rising threats of international tariffs, page
26
14. We note your disclosure in this risk factor
that you are heavily dependent on Chinese imports for your products and operations, such
as "a substantial majority of Rotor Riot’s products are manufactured, directly
and indirectly, using Chinese vendors" and "Fat Shark’s principal contract
manufactur