Filed
pursuant to Rule 424(b)(4)
Registration
Nos. 333-248800 and 333-251045
PROSPECTUS
8,564,285
Shares of Common Stock
AMMO,
Inc.
We are offering 8,564,285 shares of our common stock, $0.001 par
value per share at a public offering price of $2.10 per
share.
Our common
stock was previously quoted on the OTCQB under the symbol “POWW”.
Our common stock has been approved for listing on the NASDAQ
Capital Market under the symbol “POWW”, and will begin trading
there on December 1, 2020.
Investing
in our securities involves a high degree of risk. See “Risk
Factors” beginning on page 9 of this prospectus for a discussion of
information that should be considered in connection with an
investment in our securities.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
| |
|
|
Per
Share |
|
|
|
Total |
|
| Public
offering price |
|
$ |
2.10 |
|
|
$ |
17,984,998.50 |
|
| Underwriting
discounts and commissions (1) |
|
$ |
0.179 |
|
|
$ |
1,533,007.02 |
|
| Proceeds,
before expenses to us |
|
$ |
1.921 |
|
|
$ |
16,451,991.48 |
|
(1)
Does not reflect additional compensation to the representative of
the underwriters in the form of warrants to purchase up to 428,214
shares of common stock at an exercise price equal to $2.63 (125% of
the public offering price). We have also agreed to reimburse the
representative of the underwriters for certain expenses. See the
section entitled “Underwriting” for additional description of the
compensation payable to the underwriters.
We have
granted the underwriters an option to purchase up to an additional
1,284,643 shares of common stock from us at the public offering
price per share, less the underwriting discounts and commissions,
exercisable for a period of 45 days from the date of this
prospectus solely to cover over-allotments, if any.
The
underwriters expect to deliver our shares to purchasers in the
offering on or about December 3, 2020.
 |
KINGSWOOD
CAPITAL MARKETS
Division
of Benchmark Investments, Inc.
|
The
date of this prospectus is December 1, 2020.
TABLE
OF CONTENTS
You
should rely only on information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to
provide you with additional information or information different
from that contained in this prospectus. We are not making an offer
of these securities in any state or other jurisdiction where the
offer is not permitted. The information in this prospectus may only
be accurate as of the date on the front of this prospectus
regardless of time of delivery of this prospectus or any sale of
our securities.
No
person is authorized in connection with this prospectus to give any
information or to make any representations about us, the common
stock hereby or any matter discussed in this prospectus, other than
the information and representations contained in this prospectus.
If any other information or representation is given or made, such
information or representation may not be relied upon as having been
authorized by us. This prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy our common stock in any
circumstance under which the offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any distribution of our
common stock in accordance with this prospectus shall, under any
circumstances, imply that there has been no change in our affairs
since the date of this prospectus.
Neither
we nor Alexander Capital, L.P. (the “representative”) have done
anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action
for that purpose is required, other than the United States. You are
required to inform yourself about, and to observe any restrictions
relating to, this offering and the distribution of this
prospectus.
PROSPECTUS SUMMARY
This
summary highlights selected information appearing elsewhere in this
prospectus. While this summary highlights what we consider to be
important information about us, you should carefully read this
entire prospectus before investing in our common stock, especially
the risks and other information we discuss under the headings “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” and our consolidated financial
statements and related notes beginning on page F-1. Our fiscal year
end is March 31 and our fiscal year ended March 31, 2020 is
sometimes referred to herein as fiscal year 2020. Some of the
statements made in this prospectus discuss future events and
developments, including our future strategy and our ability to
generate revenue, income and cash flow. These forward-looking
statements involve risks and uncertainties which could cause actual
results to differ materially from those contemplated in these
forward-looking statements. See “Cautionary Note Regarding
Forward-Looking Statements”. Unless otherwise indicated or the
context requires otherwise, the words “we,” “us,” “our”, the
“Company” or “our Company” refer to AMMO, Inc., a Delaware
corporation.
Our
Business
We
are a designer, producer, and marketer of performance-driven,
high-quality ammunition and ammunition component products for sale
to a variety of consumers, including sport and recreational
shooters, hunters, individuals seeking home or personal protection,
manufacturers, and law enforcement and military agencies. To
enhance the strength of our brands and drive product demand, we
emphasize product innovation and technology to improve the
performance, quality, and affordability of our products while
providing support to our distribution channel and consumers. We
seek to sell products at competitive prices that compete with
high-end, custom, hand-loaded ammunition. Additionally, through our
acquisition of Jagemann Stamping Company’s ammunition casing
manufacturing and sales operations (“Jagemann Casings”), we are now
able to sell ammunition casings products of various types. We
emphasize an American heritage by using predominantly American-made
components and raw materials in our products that are produced,
inspected, and packaged at our facilities in Payson, Arizona and
Manitowoc, Wisconsin.
Our
production processes focus on safety, consistency, precision, and
cleanliness. Each round is developed for a specific purpose with a
focus on a proper mix of consistency, velocity, accuracy, and
recoil. Each round is chamber gauged and inspected with redundant
seven-step quality control processes.
Competition
The
ammunition and ammunition casing industry is dominated by a small
number of companies, a number of which are divisions of large
public companies. We compete primarily on the quality, reliability,
features, performance, brand awareness, and price of our products.
Our primary competitors include Federal Premium Ammunition,
Remington Arms, the Winchester Ammunition division of Olin
Corporation, and various smaller manufacturers and suppliers,
including Black-Hills Ammunition, CBC Group, Fiocchi Ammunition,
Hornady Manufacturing Company, PMC, Rio Ammunition, and
Wolf.
Our
Growth Strategy
Our
goal is to enhance our position as a designer, producer, and
marketer of ammunition products. Key elements of our strategy to
achieve this goal are as follows:
Design, Produce, and Market Innovative, Distinctive,
Performance-Driven, High-Quality Ammunition and Ammunition
Components
We
are focused on designing, producing, and marketing innovative,
distinctive, performance-driven, high-quality products that appeal
to retailers, manufacturers, and consumers that will enhance our
users’ shooting experiences. Our ongoing research and development
activities; our safe, consistent, precision, and clean production
processes; and our multi-faceted marketing programs are critical to
our success.
Continue to Strengthen Relationships with Channel Partners and
Retailers
We
continue to strive to strengthen our relationships with our current
distributors, dealers, manufacturers and mass market and specialty
retailers and to attract additional distributors, dealers,
retailers. The success of our efforts depends on the innovation,
distinctive features, quality, and performance of our products; the
attractiveness of our packaging; the effectiveness of our marketing
and merchandising programs; and the effectiveness of our customer
support.
Emphasis on Customer Satisfaction and Loyalty
We
plan to continue to emphasize customer satisfaction and loyalty by
offering innovative, distinctive, high-quality products on a timely
and cost-attractive basis and by offering effective customer
service. We regard the features, quality, and performance of our
products as the most important components of our customer
satisfaction and loyalty efforts, but we also rely on customer
service and support.
Continuously Improving Operations
We
plan to continue focusing on improving all aspects of our business,
including research and development, component sourcing, production
processes, marketing programs, and customer support. We are
continuing our efforts to enhance our production by increasing
daily production quantities through equipment acquisitions,
expanded shifts and process improvements, increased operational
availability of our equipment, reduced equipment down times, and
increased overall efficiency.
Enhance Market Share, Brand Recognition, and Customer
Loyalty
We
strive to enhance our market share, brand recognition, and customer
loyalty. Industry sources estimate that 70 million to 80 million
people in the United States own more than approximately 300 million
firearms, creating a large installed base for our ammunition
products. We are focusing on the premium segment of the market
through the quality, distinctiveness, and performance of our
products; the effectiveness of our marketing and merchandising
efforts; and the attractiveness of our competitive pricing
strategies.
Pursue Synergetic Strategic Acquisitions and
Relationships
We
intend to pursue strategic acquisitions and develop strategic
relationships designed to enable us to expand our technology and
knowhow, expand our product offerings, strengthen and expand our
supply chain, enhance our production process, expand our marketing
and distribution, and attract new customers.
Our
Offices
We
maintain our principal executive offices at 7681 East Gray Road,
Scottsdale, Arizona 85260. Our telephone number is (480) 947-0001.
Our website is www.ammoinc.com. The information contained on our
website as that can be assessed through our website does not
constitute part of this prospectus.
Recent
Developments
Bridge
Loan
On
January 15, 2020, the Company consummated the initial closing (the
“Initial Closing”) of a private placement offering (the “January
2020 Offering”) whereby pursuant to the Subscription Agreements
(the “Subscription Agreements”) entered into by the Company with
five (5) accredited investors (the “Investors”), the Company issued
certain Convertible Promissory Notes (each a “January 2020 Note,”
and, collectively, the “January 2020 Notes”) for an aggregate
purchase price of $1,650,000 and five (5) year warrants (the
“January 2020 Investor Warrants”) to purchase shares of the
Company’s common stock, par value $0.001 per share (the “Common
Stock”).
On
January 30, 2020, the Company consummated the second closing (the
“Second Closing”) pursuant to the January 2020 Offering whereby the
Company entered into those certain Subscription Agreements with
five (5) accredited investors. Pursuant to the Subscription
Agreements, the Company the Company issued the January 2020 Notes
for an aggregate purchase price of $850,000 and five (5) year
January 2020 Investor Warrants.
Joseph
Gunnar & Co., LLC (“Gunnar”) acted as placement agent for the
January 2020 Offering. Gunnar received cash compensation of
$200,000 and was to be issued five (5) year warrants to purchase a
number of shares of Common Stock equal to five percent (5%) of the
shares underlying the January 2020 Notes and the January 2020
Investor Warrants, at an exercise price equal to 125% of the
conversion price of the January 2020 Notes (the “Gunnar Affiliate
Warrants”).
The
January 2020 Notes accrued interest at a rate of 8% per annum and
matured on October 15, 2020 (for the January 2020 Notes issued on
January 15, 2020) and October 30, 2020 (for the January 2020 Notes
issued on January 30, 2020) (collectively, the “Maturity Date”).
Additionally, the January 2020 Notes contained a mandatory
conversion provision whereby any principal and accrued interest on
the January 2020 Notes, upon the closing of a Qualified Financing
(as defined in this paragraph), automatically converted into shares
of the Common Stock or other units at a conversion price of 66.7%
of the per share purchase price of shares or units in the Qualified
Financing (the “Qualified Financing Conversion Price”). “Qualified
Financing” meant the closing of a firm commitment underwritten
public offering of shares of Common Stock or units consisting of
shares of Common Stock and warrants to purchase shares of Common
Stock which results in gross proceeds of not less than $7.5 million
and the shares of Common Stock being traded on a national
securities exchange. As a Qualified Financing did not occur on or
before 10 days prior to the Maturity Date (the “Voluntary
Conversion Date”), the January 2020 Notes were convertible, in
whole or in part, into shares of Common Stock at the option of the
holder, at any time and from time to time after the Voluntary
Conversion Date (each, a “Voluntary Conversion”) at the Voluntary
Conversion Price. “Voluntary Conversion Price” meant 50.0% of the
arithmetic mean of the VWAP in either (i) the ten consecutive
Trading Days immediately preceding the Voluntary Conversion Date,
if a Voluntary Conversion occurs on or prior to the Maturity Date,
or (ii) the ten consecutive Trading Days immediately preceding
Maturity Date, if a Voluntary Conversion occurs after the Maturity
Date.
Pursuant
to the Subscription Agreements, each Investor was to receive the
number of January 2020 Investor Warrants to purchase shares of
Common Stock equal to the quotient obtained by dividing 50% of the
principal amount of the January 2020 Note by the Maturity Date
Conversion Price or the Qualified Financing Conversion Price of the
January 2020 Note. The January 2020 Investor Warrants were to be
exercisable at the per share purchase price of shares or other
units in the Qualified Financing (the “Qualified Financing Exercise
Price”). As a Qualified Financing did not occur on or before the
Maturity Date, the January 2020 Investor Warrants became
exercisable at a price per share that is equal to the arithmetic
mean of the VWAP in the ten consecutive Trading Days immediately
preceding the Maturity Date (the “Maturity Date Exercise Price”).
The January 2020 Investor Warrants contain an anti-dilution
protection feature, to adjust the exercise price if shares are sold
or issued for a consideration per share less than the exercise
price then in effect.
The
Company agreed to use commercially reasonable best efforts to file
a registration statement on Form S-1 within 30 days of the closing
of the January 2020 Offering registering for resale the shares
issuable upon conversion of the January 2020 Notes and upon
exercise of the January 2020 Investor Warrants. The Company also
agreed to use commercially reasonable efforts to cause such
registration to become effective within 90 days following the
closing date (or 120 days in the event of a “full review” by the
SEC) and to keep such registration statement effective at all times
until no purchaser owns any January 2020 Investor Warrants or
warrant shares issuable upon exercise thereof. The shares of Common
Stock issuable upon conversion of the January 2020 Notes and upon
exercise of the January 2020 Investor Warrants and the Gunnar
Affiliate Warrants were registered in a Resale Registration
Statement, which was declared effective by the Securities and
Exchange Commission in March 2020.
From
October 8, 2020 to October 26, 2020, the Company received notices
for voluntary conversion for the total outstanding principal
($2,500,000) and interest ($146,104) of the January 2020 Notes and
issued 2,157,358 shares of our Common Stock as a result of the
conversion. The principal and interest related to the Initial
Closing and Second Closing were converted at a conversion prices of
$1.21 and $1.26, respectively. Additionally, the Company has
authorized and will issue a total of 1,019,121 warrants to purchase
shares of our Common Stock at exercise prices ranging from $2.19 to
$2.67. Following the closing of this offering, these warrants will
have a $2.10 exercise price.
Additionally, pursuant
to the Subscription Agreements, the Company has authorized and will
issue 152,868 warrants to purchase shares of our Common Stock to
Gunnar with exercise prices ranging from $1.51 to $1.58. The
Company has no further obligation with respect to the January 2020
Notes.
Jagemann Settlement
and Repayment
On March
15, 2019, Enlight Group II, LLC (“Enlight”), a wholly owned
subsidiary of the Company, completed its acquisition of 100% of the
assets of Jagemann Stamping Company’s (“JSC”) ammunition casing,
projectile manufacturing and sales operations (“Jagemann Casings”)
pursuant to the terms of the Amended and Restated Asset Purchase
Agreement (“Amended APA”), dated March 14, 2019. In accordance with
the terms of the Amended APA, Enlight paid to JSC a combination of
$7,000,000 in cash, $10,400,000 delivered in the form of a
Promissory Note (“Seller Note”), and 4,750,000 shares of the Common
Stock. Pursuant to the Amended APA, Enlight acquired JSC’s munition
and casing division assets (including equipment and intellectual
property), and continued the operations at JSC’s Wisconsin
facilities.
On June
26, 2020, the Company, Enlight and JSC entered into a Settlement
Agreement pursuant to which the parties mutually agreed to settle
all disputes and mutually release each other from liabilities
related to the Amended APA occurring prior to June 26, 2020.
Pursuant to the Settlement Agreement, the Company paid JSC
$1,269,977 and provided JSC with: (i) two new promissory notes, a
note of $5,803,800 related to the Seller Note and note of
$2,635,797 for inventory and services, which was reclassified from
accounts payable, both with a maturity date of August 15, 2021
(collectively, the “JSC Notes”) and (ii) general business security
agreements granting JSC a security interest in all personal
property of the Company. Pursuant to the JSC Notes, the Company is
obligated to make monthly payments totaling $204,295 to JSC. In
addition, the JSC Notes have a mandatory prepayment provision that
comes into effect if the Company conducts a registered public
offering. Pursuant to such provision, the Company: (a) upon the
closing of an offering of less than $10,000,000 would be obligated
to pay the lesser of ninety percent (90%) of the offering proceeds
or seventy (70%) of the then aggregate outstanding balance of the
JSC Notes; and (b) upon the closing of an offering of more than
$10,000,000 would be obligated to pay one hundred percent (100%) of
the then aggregate outstanding balance of the JSC Notes. The
Company was granted an option to repurchase up to 1,000,000 of the
shares of the Common Stock issued to JSC under the Amended APA at a
price of $1.50 per share through April 1, 2021 so long as there are
no defaults under the Settlement Agreement. The total balance of
the JSC Notes as of September 30, 2020 was $7,775,298.
On
November 5, 2020, the Company paid $6,000,000 to JSC allocated as
follows: (i) payment in full of Note A, representing the balance
due from the Company to JSC relating to the acquisition of Jagemann
Munition Components in March 2019 and (ii) $592,982 remitted in
partial payment of Note B, resulting in the parties’ execution of
Amended Note B which has a starting principal balance of $1,687,664
(“Amended Note B”). The Amended Note B principal balance carries a
9% per annum interest rate and is amortized equally over the thirty
six (36) month term. As a result of the payment in full of Note A
JSC released the accompanying security interest in Company assets
which secured Note A. Concurrently, upon entry into Amended Note B,
JSC and the Company entered into the First Amendment to General
Business Security Agreement to reflect a revised list of collateral
in which JSC has a security interest.
Forest
Street Note
On
September 23, 2020, the Company and Enlight entered into a
promissory note (the “Forest Street Note”) with Forest Street, LLC
(“Lender”), an Arizona limited liability company wholly owned by
our current Chief Executive Officer, Fred Wagenhals, for the
principal sum of Three Million Five Hundred Thousand & 00/100
Dollars ($3,500,000.00), which accrues interest at 12% per annum.
The Note has a maturity date of September 23, 2022.
Pursuant
to the terms of the Forest Street Note, the Company and Enlight
(collectively, the borrower pursuant to the note) shall pay Lender;
(i) on a monthly basis, beginning October 23, 2020, all accrued
interest (only), (ii) on a quarterly basis, a monitoring fee of 1%
of the principal amount and then accrued interest; and (iii) on the
maturity date, the remaining outstanding principal balance of the
Loan, together with all unpaid accrued interest thereon.
The
note is an unsecured obligation of the Company and is not
convertible into equity securities of the Company.
Lisa
Kay Note
On
November 5, 2020, the Company and Enlight (together, “Borrower”),
entered into a promissory note (the “12% Note”) with Lisa Kay, an
individual, for the principal sum of Four Million & 00/100
Dollars ($4,000,000.00) (“Principal”), which accrues interest at
12% per annum (“Interest”). The 12% Note has a maturity date of
November 5, 2023 (“Maturity Date”).
Pursuant
to the terms of the 12% Note, the Borrower shall pay Ms. Kay: (i)
on a monthly basis, beginning December 10, 2020, all accrued
interest (only), and (ii) on the Maturity Date, the remaining
outstanding principal balance of the Loan, together with all unpaid
accrued interest thereon.
The
12% Note is unsecured and is not convertible into equity securities
of the Company. However, Borrower has agreed that it shall provide
commercially reasonable collateral promptly upon the payment of
that certain JSC Promissory Note and JSC’s contemporaneous release
of security supporting that financial accommodation. The 12% Note
contain terms and events of default customary for similar
transactions. The Company is using the net proceeds from the
transaction to pay a portion of the outstanding balance owed to
JSC.
8%
Unsecured Convertible Promissory Notes
From
November 5, 2020 to November 10, 2020, the Company entered into
Convertible Promissory Notes with three (3) accredited investors
(the “Investors”), for an aggregate purchase price of $1,684,000
(each a “8% Note,” collectively, the “8% Notes”). The 8% Notes
accrue interest at a rate of 8% per annum and mature on November 5,
2022 (the “Maturity Date”). Additionally, the 8% Notes contain a
voluntary conversion mechanism whereby any principal and accrued
interest on the 8% Notes, may be converted in holder’s discretion
into shares of the Common Stock at a conversion price of $2.00 per
share (“Conversion Price”). If not previously paid in full or
converted, on the 180th day following the Maturity Date,
the principal and interest due under the 8% Notes shall
automatically be converted to Common Stock shares at the Conversion
Price The 8% Notes contain customary events of default (each an
“Event of Default”). If an Event of Default occurs, the outstanding
principal amount of the 8% Notes, plus accrued but unpaid interest,
and other amounts owing with respect to the 8% Notes will become,
at the 8% Note holder’s election, due and payable in
cash.
Reverse
Stock Split Approval
On October
22, 2020, the stockholders of the Company approved the granting to
the Board of Directors of the Company (the “Board”) the discretion
to amend the Company’s Certificate of Incorporation to effect a
reverse stock split of our Common Stock, by a ratio of not less
than 1-for-2 and not more than 1-for-4, such ratio and the
implementation and timing of such reverse stock split to be
determined in the sole discretion of the Board.
Nasdaq
Listing
Our Common
Stock has been approved for listing on the NASDAQ Capital
Market (“Nasdaq”) under the symbol “POWW”, and will begin trading
there on December 1, 2020.
THE
OFFERING
| Shares
offered by us: |
|
8,564,285
shares of
our Common Stock, at a public offering price of $2.10 per
share. |
| |
|
|
| Common
Stock outstanding before the offering (1) |
|
50,592,311
shares of Common Stock. |
| |
|
|
| Common
Stock to be outstanding after the offering |
|
59,156,596shares
of Common Stock. If the underwriters’ over-allotment option is
exercised in full, the total number of shares of Common Stock
outstanding immediately after this offering would be
60,441,239. |
| |
|
|
| Option
to purchase additional shares |
|
We
have granted the underwriters a 45-day option to purchase up to an
additional 1,284,463 shares of our Common Stock solely to cover
over-allotments, if any. |
| |
|
|
| Use
of proceeds |
|
We
intend to use the net proceeds of this offering for research and
development activities; sales and marketing, and for general
working capital purposes and
possibly acquisitions of other companies, products or technologies,
though no such acquisitions are currently contemplated. See
“Use of Proceeds” on page 23. |
| |
|
|
| Risk
factors |
|
Investing
in our securities is highly speculative and involves a high degree
of risk. You should carefully consider the information set forth in
the “Risk Factors” section beginning on page 9 before deciding to
invest in our securities. |
| |
|
|
| Trading
symbols |
|
Our
Common Stock has been approved for listing on Nasdaq under the
symbol “POWW”, and will begin trading there on December 1,
2020. |
| |
|
|
| Lock-ups |
|
We
and our directors and officers have agreed with the underwriters
not to offer for sale, issue, sell, contract to sell, pledge or
otherwise dispose of any of our Common Stock or securities
convertible into Common Stock for a period of 180 days after the
date of this prospectus. See “Underwriting” section on page
57. |
(1) The
number of shares of Common Stock outstanding is based on 50,592,311
shares of Common Stock issued and outstanding as of November 30,
2020 and excludes the following:
|
● |
9,442,575
shares of Common Stock issuable upon the exercise of outstanding
warrants having a weighted average exercise price of $2.13 per
share; and |
| |
|
| ● |
the
issuance of 428,214 shares of Common Stock underlying the warrant
to be issued to the underwriters in connection with this offering
with a per share exercise price of $2.63.
|
Except
as otherwise indicated herein, all information in this prospectus
reflects or assumes:
|
|
● |
no
exercise of the outstanding options or warrants described above;
and |
| |
|
|
| |
● |
no
exercise of the underwriters’ over-allotment option. |
SUMMARY CONSOLIDATED FINANCIAL
INFORMATION
The
following summary consolidated statements of operations and balance
sheet data for the fiscal year ended March 31, 2020 and 2019, have
been derived from our audited consolidated financial statements
included elsewhere in this prospectus. Additionally, the three and
six months ended September 30, 2020 and 2019 have been derived from
our unaudited consolidated financial statements included elsewhere
in this prospectus. The summary consolidated balance sheet data as
of September 30, 2020 are derived from our consolidated financial
statements that are included elsewhere in this prospectus. The
historical financial data presented below is not necessarily
indicative of our financial results in future periods, and the
results for the three and six months ended September 30, 2020 is
not necessarily indicative of our operating results to be expected
for the full fiscal year ending March 31, 2021 or any other period.
You should read the summary consolidated financial data in
conjunction with those financial statements and the accompanying
notes and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Our consolidated financial
statements are prepared and presented in accordance with United
States generally accepted accounting principles, or U.S. GAAP. Our
consolidated financial statements have been prepared on a basis
consistent with our audited financial statements and include all
adjustments, consisting of normal and recurring adjustments that we
consider necessary for a fair presentation of the financial
position and results of operations as of and for such
periods.
AMMO,
Inc.
SUMMARY
STATEMENTS OF OPERATIONS DATA
| |
|
For the
Years Ended |
|
| |
|
March
31, |
|
|
|
|
2020 |
|
2019 |
|
| |
|
|
|
|
|
| Net Sales |
|
$ |
14,780,365 |
|
$ |
4,565,652 |
|
| Cost of Goods Sold,
for the years ended March 31, 2020 and 2019 includes depreciation
and amortization of $2,856,471, and $506,159, respectively,
and federal excise taxes of $643,735, and $406,255,
respectively |
|
|
18,455,904 |
|
|
4,795,346 |
|
| Gross
Margin |
|
|
(3,675,539 |
) |
|
(229,694 |
) |
| |
|
|
|
|
|
|
|
| Operating
Expenses |
|
|
|
|
|
|
|
| Selling and
marketing |
|
|
1,192,010 |
|
|
1,414,399 |
|
| Corporate general and
administrative |
|
|
3,731,913 |
|
|
3,385,096 |
|
| Employee salaries and
related expenses |
|
|
3,638,540 |
|
|
3,855,167 |
|
| Depreciation and
amortization expense |
|
|
1,599,491 |
|
|
96,302 |
|
| Total operating
expenses |
|
|
10,161,954 |
|
|
8,750,964 |
|
|
Total
other (expenses) |
|
|
(719,187 |
) |
|
(2,728,754 |
) |
| Loss before Income
Taxes |
|
|
(14,556,680 |
) |
|
(11,709,412 |
) |
| Provision for Income
Taxes |
|
|
- |
|
|
- |
|
| Net Loss |
|
$ |
(14,556,680 |
) |
$ |
(11,709,412 |
) |
| Loss
per share |
|
|
|
|
|
|
|
| Basic and fully
diluted: |
|
|
|
|
|
|
|
| Weighted average
number of shares outstanding |
|
|
45,607,937 |
|
|
33,601,569 |
|
| Loss per
share |
|
$ |
(0.32 |
) |
$ |
(0.35 |
) |
AMMO,
Inc.
SUMMARY
INTERIM STATEMENTS OF OPERATIONS DATA
| |
|
For the
Three Months Ended September 30, |
|
|
For the
Six Months Ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net Sales |
|
$ |
12,012,872 |
|
|
$ |
2,954,555 |
|
|
$ |
21,672,842 |
|
|
$ |
7,253,135 |
|
| Cost of Goods Sold,
for the three and six months ended September 30, 2020 and 2019
includes depreciation and amortization of $780,150, $723,237,
$1,538,652, and $1,336,806 respectively, and federal excise taxes
of $864,570, $121,318, $1,505,693, and $235,603,
respectively |
|
|
10,723,246 |
|
|
|
3,672,599 |
|
|
|
19,311,811 |
|
|
|
8,624,395 |
|
| Gross
Margin |
|
|
1,289,626 |
|
|
|
(718,044 |
) |
|
|
2,361,031 |
|
|
|
(1,371,260 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling and
marketing |
|
|
332,430 |
|
|
|
287,647 |
|
|
|
702,052 |
|
|
|
509,575 |
|
| Corporate general and
administrative |
|
|
1,077,194 |
|
|
|
954,350 |
|
|
|
2,166,178 |
|
|
|
2,053,993 |
|
| Employee salaries and
related expenses |
|
|
1,174,257 |
|
|
|
834,516 |
|
|
|
2,156,746 |
|
|
|
2,052,208 |
|
| Depreciation and
amortization expense |
|
|
415,685 |
|
|
|
450,380 |
|
|
|
826,184 |
|
|
|
905,242 |
|
|
Loss on
purchase |
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
- |
|
|
Total
operating expenses |
|
|
2,999,566 |
|
|
|
2,526,893 |
|
|
|
6,851,160 |
|
|
|
5,521,018 |
|
|
Total
other expenses |
|
|
(628,685 |
) |
|
|
(199,323 |
) |
|
|
(952,285 |
) |
|
|
(393,384 |
) |
| Loss before Income
Taxes |
|
|
(2,338,625 |
) |
|
|
(3,444,260 |
) |
|
|
(5,442,414 |
) |
|
|
(7,285,662 |
) |
| Provision for Income
Taxes |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
| Net Loss |
|
$ |
(2,338,625 |
) |
|
$ |
(3,444,260 |
) |
|
$ |
(5,442,414 |
) |
|
$ |
(7,285,662 |
) |
| Loss
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and fully
diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
number of shares outstanding |
|
|
47,790,105 |
|
|
|
45,416,153 |
|
|
|
47,023,094 |
|
|
|
44,999,342 |
|
| Loss per
share |
|
$ |
(0.05 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.16 |
) |
AMMO,
Inc.
SELECTED
BALANCE SHEET DATA
| |
|
September
30, |
|
|
March
31*, |
|
| |
|
2020 |
|
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
|
|
|
| Cash |
|
$ |
3,413,710 |
|
|
$ |
884,274 |
|
|
$ |
2,181,246 |
|
|
Total
Current Assets |
|
$ |
17,399,018 |
|
|
$ |
9,157,110 |
|
|
$ |
8,626,870 |
|
|
Total
Assets |
|
$ |
47,351,219 |
|
|
$ |
41,105,736 |
|
|
$ |
43,587,164 |
|
|
Total
Current Liabilities |
|
$ |
14,830,115 |
|
|
$ |
12,225,609 |
|
|
$ |
4,482,375 |
|
|
Total
Liabilities |
|
$ |
29,857,133 |
|
|
$ |
21,846,943 |
|
|
$ |
14,058,231 |
|
| Total Shareholders’
Equity |
|
$ |
17,494,086 |
|
|
$ |
19,258,793 |
|
|
$ |
29,528,933 |
|
* Derived
from audited consolidated financial statements.
RISK FACTORS
Purchasing
our Common Stock involves a high degree of risk. You should
carefully consider the following risk factors, together with all of
the information included in this Prospectus, before you decide to
purchase shares of our Common Stock. We believe the risks and
uncertainties described below are the most significant we face.
Additional risks and uncertainties of which we are unaware, or that
we currently deem immaterial, also may become important factors
that affect us. If any of the following risks occur, our business,
operating results, and financial condition could be materially and
adversely affected. In that case, the trading price of our Common
Stock could decline, and you may lose all or part of your
investment.
Risks
Related to Our Business
We
have a limited operating history on which you can evaluate our
company.
We
have a limited operating history on which you can evaluate our
company. Although the corporate entity has existed since 1990, we
have only operated as an ammunition manufacturer since March 2017.
As a result, our business will be subject to many of the problems,
expenses, delays, and risks inherent in the establishment of a new
business enterprise.
Our
performance is influenced by a variety of economic, social, and
political factors.
Our
performance is influenced by a variety of economic, social, and
political factors. General economic conditions and consumer
spending patterns can negatively impact our operating results.
Economic uncertainty, unfavorable employment levels, declines in
consumer confidence, increases in consumer debt levels, increased
commodity prices, and other economic factors may affect consumer
spending on discretionary items and adversely affect the demand for
our products. In times of economic uncertainty, consumers tend to
defer expenditures for discretionary items, which affects demand
for our products. Any substantial deterioration in general economic
conditions that diminish consumer confidence or discretionary
income could reduce our sales and adversely affect our operating
results. Economic conditions also affect governmental political and
budgetary policies. As a result, economic conditions also can have
an effect on the sale of our products to law enforcement,
government, and military customers.
Political
and other factors also can affect our performance. Concerns about
presidential, congressional, and state elections and legislature
and policy shifts resulting from those elections can affect the
demand for our products. In addition, speculation surrounding
control of firearms, firearm products, and ammunition at the
federal, state, and local level and heightened fears of terrorism
and crime can affect consumer demand for our products. Often, such
concerns result in an increase in near-term consumer demand and
subsequent softening of demand when such concerns subside.
Inventory levels in excess of customer demand may negatively impact
operating results and cash flow.
Federal
and state legislatures frequently consider legislation relating to
the regulation of firearms, including amendment or repeal of
existing legislation. Existing laws may also be affected by future
judicial rulings and interpretations firearm products, and
ammunition. If such restrictive changes to legislation develop, we
could find it difficult, expensive, or even impossible to comply
with them, impeding new product development and distribution of
existing products.
War,
terrorism, other acts of violence or natural or manmade disasters
such as a global pandemic may affect the markets in which the
Company operates, the Company’s customers, the Company’s delivery
of products and customer service, and could have a material adverse
impact on our business, results of operations, or financial
condition.
The
Company’s business and supply chain may be adversely affected by
instability, disruption or destruction in a geographic region in
which it operates, regardless of cause, including war, terrorism,
riot, civil insurrection or social unrest, and natural or manmade
disasters, including famine, food, fire, earthquake, storm or
pandemic events and spread of disease (including the recent
outbreak of the coronavirus commonly referred to as “COVID-
19”).
Such
events may cause customers to suspend their decisions on using the
Company’s products and services, make it impossible to access some
of our inventory, and give rise to sudden significant changes in
regional and global economic conditions and cycles that could
interfere with purchases of goods or services and commitments to
develop new products and services. These events also pose
significant risks to the Company’s personnel and to physical
facilities, transportation and operations, which could materially
adversely affect the Company’s financial results.
Any
significant disruption to communications and travel, including
travel restrictions and other potential protective quarantine
measures against COVID-19 by governmental agencies, could make it
difficult for the Company to deliver goods services to its
customers. War, riots, or other disasters may increase the need for
our products and demand by government and military may make it
difficult for use to provide products to customers. Further, travel
restrictions and protective measures against COVID-19 could cause
the Company to incur additional unexpected labor costs and expenses
or could restrain the Company’s ability to retain the highly
skilled personnel the Company needs for its operations. The extent
to which COVID-19 impacts the Company’s business, sales and results
of operations will depend on future developments, which are highly
uncertain and cannot be predicted.
We
believe COVID-19 has not yet negatively affected our operational
results, but could at any time and without notice in the
foreseeable future. As a result of COVID-19, at any time we may be
subject to increased operating costs, supply interruptions, and
difficulties in obtaining raw materials and components. COVID-19
has resulted in restrictions, postponements and cancelations of
meetings, conferences, trade shows and the impact, extent and
duration of the government imposed restrictions on travel and
public gatherings as well as the overall effect of the COVID-19
virus is currently unknown.
We are
engaged in legal proceedings that could cause us to incur
unforeseen expenses and could occupy a significant amount of our
management’s time and attention.
On
September 24, 2019, the Company received notice that an individual
who was former member of the Board of Directors (the “Board”) who
had been removed as a director by majority vote of the stockholders
and who had voluntarily resigned as an employee filed a complaint
against the Company, and certain individuals (the “Complaint”),
with the U.S. Department of Labor (“DOL”). The Complaint alleges
that the individual reported potential violations of SEC rules and
regulations by management and that as a result of such reports, the
individual experienced a hostile work environment; that the Company
lacks sufficient controls internal controls, and that the
individual was the victim of retaliation and constructive discharge
after being removed as a director by majority vote of the
stockholders. The claims were investigated by a newly appointed
Special Committee of the Board made of up independent directors
represented by independent legal counsel. The Special Committee and
independent legal counsel found the claims were unsubstantiated and
there were no SEC violations in the various circumstances detailed
in the complaint. The matter is currently the subject of
administrative investigation by the DOL via the Occupational Safety
and Health Administration. The Company filed a timely Position
Statement with the DOL in October of 2019 in response to the
Complaint. The Company disputes the allegations of wrongdoing and
believes the matters raised in the Complaint are without merit and
therefore has and will continue to aggressively defend its
interests in this matter.
The claims
made to the DOL, and such other litigation or claims that may be
made from time to time, could negatively affect our business
operations and financial position. As we grow, we will likely see a
rise in the number of litigation matters against us. These matters
may include employment and labor claims, product liability, and
other claims related to our products, as well as consumer and
securities class actions, each of which are typically expensive to
defend. Litigation disputes could cause us to incur unforeseen
expenses, result in content unavailability, service disruptions and
otherwise occupy a significant amount of our management’s time and
attention, any of which could negatively affect our business
operations and financial position.
We may
not be able to utilize our net operating loss carry
forwards.
At
September 30, 2020, we had Federal net operating loss carry
forwards (“NOLs”) for income tax purposes of $33,154,268. There
were $5,144,926 of NOLs generated prior to 2018 will begin to
expire in 2036. The Coronavirus Aid, Relief, and Economic Security
Act (“CARES Act”) signed in to law on March 27, 2020 provided that
NOLs generated in a taxable year beginning in 2018, 2019, or 2020,
may now be carried back five years and forward indefinitely. In
addition, the 80% taxable income limitation is temporarily removed,
allowing NOLs to fully offset net taxable income. However, we do
not know if or when we will have any earnings and capital gains
against which we could apply these carry forwards. Furthermore, if
there were a sufficient change in the ownership of our Common
Stock, our ability to use our federal NOLs could be limited under
Internal Revenue Code Section 382. State NOLs are subject to
similar limitations in many cases. As a result, our substantial
NOLs may not have any value to us.
Risks
Related to Our Products and Our Dependence on Third
Parties
Our
success depends upon our ability to introduce new products that
match customer preferences.
Our
success depends upon our ability to introduce new products that
match consumer preferences. Our efforts to introduce new products
into the market may not be successful, and any new products that we
introduce may not result in customer or market acceptance. We
develop new products that we believe will match consumer
preferences. The development of a new product is a lengthy and
costly process and may not result in the development of a
successful product. Failure to develop new products that are
attractive to consumers could decrease our sales, operating
margins, and market share and could adversely affect our business,
operating results, and financial condition.
We
depend on the sale of our ammunition products.
We
manufacture ammunition and ammunition casings for sale to a wide
variety of consumers, including gun enthusiasts, collectors,
hunters, sportsmen, competitive shooters, individuals desiring home
and personal protection, manufacturers, law enforcement and
security agencies and officers in the United States and throughout
the world. The sale of ammunition and ammunition components is
influenced by the sale and usage of firearms. As noted above, sales
of firearms are influenced by a variety of economic, social, and
political factors, which may result in volatile sales. Ammunition
sales represented a substantial amount of our net sales for the
fiscal years ended March 31, 2020 and 2019. If ammunition sales
decline, our financial results could be adversely impacted and the
stock price of our Common Stock could decline.
Our
manufacturing facilities are critical to our
success.
Our
Arizona and Wisconsin manufacturing facilities are critical to our
success, as we currently produce all of our products at these
facilities. The facilities also house our principal research,
development, engineering, and design functions.
Any
event that causes a disruption of the operation of these facilities
for even a relatively short period of time would adversely affect
our ability to produce and ship our products and to provide service
to our customers. We make certain changes in our manufacturing
operations from time to time to enhance the facilities and
associated equipment and systems and to introduce certain
efficiencies in manufacturing and other processes to produce our
products in a more efficient and cost-effective manner. We
anticipate that we will continue to incur significant capital and
other expenditures with respect to these facilities, but we may not
be successful in continuing to improve efficiencies.
Shortages
of components and materials may delay or reduce our sales and
increase our costs, thereby harming our results of
operations.
The
inability to obtain sufficient quantities of raw materials and
components, including casings, primers, gun powder, projectiles,
and brass necessary for the production of our products could result
in reduced or delayed sales or lost orders. Any delay in or loss of
sales or orders could adversely impact our operating results. Many
of the materials used in the production of our products are
available only from a limited number of suppliers. We do not have
long-term supply contracts with any suppliers. As a result, we
could be subject to increased costs, supply interruptions, and
difficulties in obtaining raw materials and components.
Our
reliance on third-party suppliers for various raw materials and
components for our products exposes us to volatility in the
availability, quality, and price of these raw materials and
components. Our orders with certain of our suppliers may represent
a very small portion of their total orders. As a result, they may
not give priority to our business, leading to potential delays in
or cancellation of our orders. A disruption in deliveries from our
third-party suppliers, capacity constraints, production
disruptions, price increases, or decreased availability of raw
materials or commodities could have an adverse effect on our
ability to meet our commitments to customers or increase our
operating costs. Quality issues experienced by third party
suppliers can also adversely affect the quality and effectiveness
of our products and result in liability and reputational
harm.
We
rely on third-party suppliers for most of our manufacturing
equipment.
We
also rely on third-party suppliers for most of the manufacturing
equipment necessary to produce our products. The failure of
suppliers to supply manufacturing equipment in a timely manner or
on commercially reasonable terms could delay our plans to expand
our business and otherwise disrupt our production schedules and
increase our manufacturing costs. Our orders with certain of our
suppliers may represent a very small portion of their total orders.
As a result, they may not give priority to our business, leading to
potential delays in or cancellation of our orders. If any
single-source supplier were to fail to supply our needs on a timely
basis or cease providing us manufacturing equipment or components,
we would be required to locate and contract with substitute
suppliers. We may have difficulty identifying a substitute supplier
in a timely manner and on commercially reasonable terms. If this
were to occur, our business would be harmed.
Our
revenue depends primarily on sales by various retailers and
distributors, some of which account for a significant portion of
our sales.
Our
revenue depends on our sales through various leading national and
regional retailers, local specialty firearms stores, and online
merchants. The U.S. retail industry serving the outdoor recreation
market has become relatively concentrated. Our sales could become
increasingly dependent on purchases by several large retail
customers. Consolidation in the retail industry could also
adversely affect our business. If our sales were to become
increasingly dependent on business with several large retailers, we
could be adversely affected by the loss or a significant decline in
sales to one or more of these customers. In addition, our
dependence on a smaller group of retailers could result in their
increased bargaining position and pressures on the prices we
charge.
The
loss of any one or more of our retail customers or significant or
numerous cancellations, reductions, delays in purchases or changes
in business practices by our retail customers could have an adverse
effect on our business, operating results, and financial
condition.
These
sales channels involve a number of special risks, including the
following:
|
|
● |
we
may be unable to secure and maintain favorable relationships with
retailers and distributors; |
|
|
|
|
|
|
● |
we
may be unable to control the timing of delivery of our products to
end-user consumers; |
|
|
|
|
|
|
● |
our
retailers and distributors are not subject to minimum sales
requirements or any obligation to market our products to their
customers; |
|
|
|
|
|
|
● |
our
retailers and distributors may terminate their relationships with
us at any time; |
|
|
|
|
|
|
● |
our
retailers and distributors market and distribute competing
products; and |
|
|
|
|
|
|
● |
our
retailers may experience closure due to COVID-19 outbreaks in a
particular region. |
We have
one customer that accounted for approximately 15%, of our net sales
for each of the three and six months ended September 30, 2020.
Although we intend to expand our customer base, our revenue would
likely decline if we lost any major customers or if one of these
sizable customers were to significantly reduce its orders for any
reason. Because our sales are made by means of standard purchase
orders rather than long-term contracts, we cannot assure you that
our customers will continue to purchase our products at current
levels, or at all.
In
addition, periods of sluggish economies and consumer uncertainty
regarding future economic prospects in our key markets can have an
adverse effect on the financial health of our customers, which may
in turn have a material adverse effect on our business, operating
results, and financial condition.
We
extend credit to our customers for periods of varying duration
based on an assessment of the customer’s financial condition,
generally without requiring collateral, which increases our
exposure to the risk of uncollectable receivables. In addition, we
face increased risk of order reduction or cancellation when dealing
with financially ailing retailers or retailers struggling with
economic uncertainty. We may reduce our level of business with
customers and distributors experiencing financial difficulties and
may not be able to replace that business with other customers,
which could have a material adverse effect on our business,
operating results, and financial condition.
Our
gross margins depend upon our sales mix.
Our
gross margin is higher when our sales mix is skewed toward our
higher-margin proprietary product lines versus a lower contribution
from mid-market ammunition that we also manufacture. If our actual
sales mix results in a lower overall percentage from our
proprietary lines, our gross margins will be reduced, affecting our
results of operations.
We
face intense competition that could result in our losing or failing
to gain market share and suffering reduced sales.
We
operate in intensely competitive markets that are characterized by
price erosion and competition from major domestic and international
companies. Competition in the markets in which we operate is based
on a number of factors, including price, quality, product
innovation, performance, reliability, styling, product features,
and warranties, and sales and marketing programs. This intense
competition could result in pricing pressures, lower sales, reduced
margins, and lower market share.
Our
competitors include Federal Premium Ammunition, Remington Arms, the
Winchester Ammunition Division of Olin Corporation, and various
smaller manufacturers and importers, including Black Hills
Ammunition, CBC Group, Fiocchi Ammunition, Hornady, PMC, Rio
Ammunition, and Wolf. Most of our competitors have greater market
recognition, larger customer bases, long-term government contracts,
and substantially greater financial, technical, marketing,
distribution, and other resources than we possess and that afford
them competitive advantages. As a result, they may be able to
devote greater resources to the promotion and sale of products, to
invest more funds in intellectual property and product development,
to negotiate lower prices for raw materials and components, to
deliver competitive products at lower prices, and to introduce new
products and respond to consumer requirements more quickly than we
can.
Our
competitors could introduce products with superior features at
lower prices than our products and could also bundle existing or
new products with other more established products to compete with
us. Certain of our competitors may be willing to reduce prices and
accept lower profit margins to compete with us. Our competitors
could also gain market share by acquiring or forming strategic
alliances with other competitors.
Finally,
we may face additional sources of competition in the future because
new distribution methods offered by the Internet and electronic
commerce have removed many of the barriers to entry historically
faced by start-up companies. Retailers also demand that suppliers
reduce their prices on products, which could lead to lower margins.
Any of the foregoing effects could cause our sales to decline,
which would harm our financial position and results of
operations.
Our
ability to compete successfully depends on a number of factors,
both within and outside our control. These factors include the
following:
|
|
● |
our
success in developing, producing, marketing, and successfully
selling new products; |
|
|
|
|
|
|
● |
our
ability to address the needs of our consumer customers; |
|
|
|
|
|
|
● |
the
pricing, quality, performance, and reliability of our
products; |
|
|
|
|
|
|
● |
the
quality of our customer service; |
|
|
|
|
|
|
● |
the
efficiency of our production; and |
|
|
|
|
|
|
● |
product
or technology introductions by our competitors. |
Because
we believe technological and functional distinctions among
competing products in our markets are perceived by many end-user
consumers to be relatively modest, effectiveness in marketing and
manufacturing are particularly important competitive factors in our
business.
Seasonality
and weather conditions may cause our operating results to vary from
quarter to quarter.
Because
many of our products are used for seasonal outdoor sporting
activities, our operating results may be significantly impacted by
unseasonable weather conditions. Accordingly, our operating results
could suffer when weather patterns do not conform to seasonal
norms.
Shipments
of ammunition for hunting are highest during the months of June
through September to meet consumer demand for the fall hunting
season and holidays. The seasonality of our sales may change in the
future. The hunting for our next fiscal year season may be affected
by travel restrictions and other limitations imposed as a result of
COVID-19 that are unpredictable and may not be indicative of prior
or future seasons. Seasonal variations in our operating results may
reduce our cash on hand, increase our inventory levels, and extend
our accounts receivable collection periods. This in turn may cause
us to increase our debt levels and interest expense to fund our
working capital requirements.
We
manufacture and sell products that create exposure to potential
product liability, warranty liability, or personal injury claims
and litigation.
Our
products are used in activities and situations that involve risk of
personal injury and death. Our products expose us to potential
product liability, warranty liability, and personal injury claims
and litigation relating to the use or misuse of our products,
including allegations of defects in manufacturing, defects in
design, a failure to warn of dangers inherent in the product or
activities associated with the product, negligence, and strict
liability. If successful, any such claims could have a material
adverse effect on our business, operating results, and financial
condition. Defects in our products may result in a loss of sales,
recall expenses, delay in market acceptance, and damage to our
reputation and increased warranty costs, which could have a
material adverse effect on our business, operating results, and
financial condition. Although we maintain product liability
insurance in amounts that we believe are reasonable, we may not be
able to maintain such insurance on acceptable terms, if at all, in
the future and product liability claims may exceed the amount of
insurance coverage. In addition, our reputation may be adversely
affected by such claims, whether or not successful, including
potential negative publicity about our products.
Our
business is highly dependent upon our brand recognition and
reputation, and the failure to maintain or enhance our brand
recognition or reputation would likely have a material adverse
effect on our business.
Our
brand recognition and reputation are critical aspects of our
business. We believe that maintaining and further enhancing our
brands, particularly our STREAK VISUAL AMMUNITION™ brands, and our
reputation are critical to retaining existing customers and
attracting new customers. We also believe that the importance of
our brand recognition and reputation will continue to increase as
competition in our markets continues to develop.
We
anticipate that our advertising, marketing, and promotional efforts
will increase in the foreseeable future as we continue to seek to
enhance our brands and consumer demand for our products.
Historically, we have relied on print and electronic media
advertising to increase consumer awareness of our brands to
increase purchasing intent and conversation. We anticipate that we
will increasingly rely on other forms of media advertising,
including social media and e-marketing. Our future growth and
profitability will depend in large part upon the effectiveness and
efficiency of our advertising, promotion, public relations, and
marketing programs. These brand promotion activities may not yield
increased revenue and the efficacy of these activities will depend
on a number of factors, including our ability to do the
following:
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determine
the appropriate creative message and media mix for advertising,
marketing, and promotional expenditures; |
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select
the right markets, media, and specific media vehicles in which to
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identify
the most effective and efficient level of spending in each market,
media, and specific media vehicle; and |
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effectively
manage marketing costs, including creative and media expenses, to
maintain acceptable customer acquisition costs.
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addition, certain of our current or future products may benefit
from endorsements and support from particular sportsmen, athletes,
or other celebrities, and those products and brands may become
personally associated with those individuals. As a result, sales of
the endorsed products could be materially and adversely affected if
any of those individuals’ images, reputations, or popularity were
to be negatively impacted.
Increases
in the pricing of one or more of our marketing and advertising
channels could increase our marketing and advertising expenses or
cause us to choose less expensive but possibly less effective
marketing and advertising channels. If we implement new marketing
and advertising strategies, we may incur significantly higher costs
than our current channels, which in turn could adversely affect our
operating results. Implementing new marketing and advertising
strategies also could increase the risk of devoting significant
capital and other resources to endeavors that do not prove to be
cost effective. We also may incur marketing and advertising
expenses significantly in advance of the time we anticipate
recognizing revenue associated with such expenses and our marketing
and advertising expenditures may not generate sufficient levels of
brand awareness and conversation or result in increased revenue.
Even if our marketing and advertising expenses result in increased
sales, the increase might not offset our related expenditures. If
we are unable to maintain our marketing and advertising channels on
cost-effective terms or replace or supplement existing marketing
and advertising channels with similarly or more effective channels,
our marketing and advertising expenses could increase
substantially, our customer base could be adversely affected, and
our business, operating results, financial condition, and
reputation could suffer.
Regulatory
Risks
We
are subject to extensive regulation and could incur fines,
penalties and other costs and liabilities under such
requirements.
Like
many other manufacturers and distributors of consumer products, we
are required to comply with a wide variety of laws, rules, and
regulations, including those relating to labor, employment, the
environment, the export and import of our products, and taxation.
These laws, rules, and regulations currently impose significant
compliance requirements on our business, and more restrictive laws,
rules and regulations may be adopted in the future.
Our
operations are subject to a variety of laws and regulations
relating to environmental protection, including those governing the
discharge, treatment, storage, transportation, remediation, and
disposal of certain materials and wastes, and restoration of
damages to the environment, and health and safety matters. We could
incur substantial costs, including remediation costs, resource
restoration costs, fines, penalties, and third-party property
damage or personal injury claims as a result of liabilities under
or violations of such laws and regulations or the permits required
thereunder. While environmental laws and regulations have not had a
material adverse effect on our business, operating results,
financial condition, the ultimate cost of environmental liabilities
is difficult to accurately predict and we could incur material
additional costs as a result of requirements or obligations imposed
or liabilities identified in the future.
As a
manufacturer and distributor of consumer products, we are subject
to the Consumer Products Safety Act, which empowers the Consumer
Products Safety Commission to exclude from the market products that
are found to be unsafe or hazardous. Under certain circumstances,
the Consumer Products Safety Commission could require us to
repurchase or recall one or more of our products. In addition, laws
regulating certain consumer products exist in some cities and
states, and in other countries in which we sell our products, and
more restrictive laws and regulations may be adopted in the future.
Any repurchase or recall of our products could be costly to us and
could damage our reputation. If we were required to remove, or we
voluntarily removed, our products from the market, our reputation
could be tarnished, and we could have large quantities of finished
products that we are unable to sell. We are also subject to the
rules and regulations of the Bureau of Alcohol, Tobacco, Firearms
and Explosives, or the ATF. If we fail to comply with ATF rules and
regulations, the ATF may limit our growth or business activities,
levy fines against or revoke our license to do business. Our
business, and the business of all producers and marketers of
ammunition and firearms, is also subject to numerous federal,
state, local, and foreign laws, regulations, and protocols.
Applicable laws have the following effects:
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require
the licensing of all persons manufacturing, exporting, importing,
or selling firearms and ammunition as a business; |
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background checks for purchasers of firearms; |
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impose
waiting periods between the purchase of a firearm and the delivery
of a firearm; |
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prohibit
the sale of firearms to certain persons, such as those below a
certain age and persons with criminal records; |
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regulate
the use and storage of gun powder or other energetic
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our employment of personnel with criminal convictions;
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Also,
the export of our products is controlled by International Traffic
in Arms Regulations, or ITAR, and Export Administration
Regulations, or EAR. The ITAR implements the provisions of the Arms
Export Control Act and is enforced by the U.S. Department of State.
The EAR implements the provisions of the Export Administration Act
and is enforced by the U.S. Department of Commerce. Among their
many provisions, the ITAR and the EAR require a license application
for the export of many of our products. In addition, the ITAR
requires congressional approval for any firearms export application
with a total value of $1 million or higher. Further, because our
manufacturing process includes certain toxic, flammable and
explosive chemicals, we are subject to the Chemical Facility
Anti-Terrorism Standards, as administered by the U.S. Department of
Homeland Security, which require that we take additional reporting
and security measures related to our manufacturing
process.
Several
states currently have laws in effect that are similar to, and, in
certain cases, more restrictive than, these federal laws.
Compliance with all of these regulations is costly and
time-consuming. Inadvertent violation of any of these regulations
could cause us to incur fines and penalties and may also lead to
restrictions on our ability to manufacture and sell our products
and services and to import or export the products we
sell.
Changes
in government policies and firearms legislation could adversely
affect our financial results.
The
sale, purchase, ownership, and use of firearms are subject to
numerous and varied federal, state, and local governmental
regulations. Federal laws governing firearms include the National
Firearms Act, the Federal Firearms Act, the Arms Export Control
Act, and the Gun Control Act of 1968. These laws generally govern
the manufacture, import, export, sale, and possession of firearms
and ammunition. We hold all necessary licenses to legally sell
ammunition in the United States.
Currently,
the federal legislature and several state legislatures are
considering additional legislation relating to the regulation of
firearms and ammunition. These proposed bills are extremely varied.
If enacted, such legislation could effectively ban or severely
limit the sale of affected firearms and ammunition. In addition, if
such restrictions are enacted and are incongruent, we could find it
difficult, expensive, or even practically impossible to comply with
them, which could impede new product development and the
distribution of existing products. We cannot assure you that the
regulation of our business activities will not become more
restrictive in the future and that any such restriction will not
have a material adverse effect on our business.
Any
adverse change to the interpretations of the Second Amendment
(Right to Bear Arms) could impact our ability to conduct business
by restricting the ownership and use of firearms in the United
States.
Risks
Related to our Common Stock
There
is a limited or no public market for our securities.
There
has been a limited public market for our Common Stock and no public
market for our outstanding stock options and warrants. Our Common
Stock is currently quoted on the OTCQB. The daily trading volume of
our Common Stock has been limited.
We
cannot predict the extent to which investor interest in our company
will lead to the development of an active trading market or how
liquid that trading market might become. The lack of an active
trading market may reduce the value of shares of our Common Stock
and impair the ability of our stockholders to sell their shares at
the time or price at which they wish to sell them. An inactive
trading market may also impair our ability to raise capital by
selling our Common Stock and may impair our ability to acquire or
invest in other companies, products, or technologies by using our
Common Stock as consideration.
Although our shares
have been approved for listing on the Nasdaq Capital Market, we can
provide no assurance that our shares will continue to meet the
listing requirements of the Nasdaq Capital Market. If we fail to
comply with these listing requirements, we will be subject to
potential delisting from the Nasdaq Capital Market.
Our
Common Stock has been approved for listing on Nasdaq under the
symbol “POWW, however, if we fail to comply with Nasdaq’s rules for
continued listing, including, without limitation, minimum market
capitalization and other requirements, Nasdaq may take steps to
delist our shares. Failure to maintain our listing, or de-listing
from Nasdaq, would make it more difficult for shareholders to sell
our Common Stock and more difficult to obtain accurate price
quotations on our Common Stock. This could have an adverse effect
on the price of our Common Stock. Our ability to issue additional
securities for financing or other purposes, or otherwise to arrange
for any financing we may need in the future, may also be materially
and adversely affected if our Common Stock is not traded on a
national securities exchange.
Sales
of large numbers of shares could adversely affect the price of our
Common Stock
Most
of our shares of Common Stock that are currently outstanding are
“restricted securities” as that term is defined in Rule 144 under
the Securities Act of 1933, as amended, or the Securities Act. All
outstanding shares of Common Stock are or will be eligible for
resale in the public markets at various times within the next six
months with respect to affiliates, subject to compliance with the
volume and manner of sale requirements of Rule 144 under the
Securities Act of 1933, as amended, and with respect to all
restricted securities held by affiliates.
In
general, under Rule 144 as currently in effect, any affiliate (or
persons whose shares are aggregated for purposes of Rule 144) who
beneficially owns restricted securities with respect to which at
least six months has elapsed since the later of the date the shares
were acquired from us, or from an affiliate of ours, is entitled to
sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of our
Common Stock or the average weekly trading volume in our Common
Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 by affiliates also are subject to certain
manner-of-sale provisions and notice requirements and to the
availability of current public information about us. A person who
is not an affiliate, who has not been an affiliate within three
months prior to sale, and who beneficially owns restricted
securities with respect to which at least six months has elapsed
since the later of the date the shares were acquired from us, or
from an affiliate of ours, is entitled to sell such shares under
Rule 144 without regard to any of the volume limitations or other
requirements described above. Sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing
market prices.
We
are required to register under the Securities Act the resale of
shares of our Common Stock by a number of our security holders. Our
failure to comply with our contractual obligations and timely
register the resale of our Common Stock has resulted in, and will
result in, among other things, the payment of liquidated damages,
and could have a material adverse effect on our ability to raise
additional funds in the future and have a material adverse effect
on our business.
During
the six month period ended September 30, 2020, we sold 1,663,215
shares of Common Stock for gross proceeds of $2,881,871. Pursuant
to subscription agreements with certain of these investors, the
Company agreed to file a registration statement pursuant to the
Securities Act for the resale of these shares of Common Stock on or
before the 75th day following closing. The Company was
unable to meet this obligation and is required to pay a liquidated
damage fee to investors on a monthly basis to avoid default until
such registration statement is filed. Accordingly, the Company paid
$35,000 in the current period and accrued $126,200 for fees payable
subsequent to September 30, 2020. The Company recorded these fees
as issuance costs in Other Expenses. Our failure to timely register
the resale of any shares of our Common Stock may result in
reputational harm for our Company and could have a material adverse
effect on our ability to raise additional funds in the future,
which may have a material adverse effect on our
business.
As
a former shell company, resales of shares of our restricted Common
Stock in reliance on Rule 144 of the Securities Act are subject to
the requirements of Rule 144(i).
We
previously were a “shell company” and, as such, sales of our
securities pursuant to Rule 144 under the Securities Act, cannot be
made unless, among other things, at the time of a proposed sale, we
have filed Form 10 information more than twelve months prior to the
time of a proposed sale, we are subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, or the Exchange Act, and have filed all
reports and other materials required to be filed by Section 13 or
15(d) of the Exchange Act, as applicable, during the preceding 12
months, other than Form 8-K reports. Because, as a former shell
company, the reporting requirements of Rule 144(i) will apply
regardless of holding period, restrictive legends on certificates
for shares of our Common Stock cannot be removed except in
connection with an actual sale that is subject to an effective
registration statement under, or an applicable exemption from the
registration requirements of, the Securities Act. Because our
unregistered securities cannot be sold pursuant to Rule 144 unless
we continue to meet such requirements, any unregistered securities
we issue will have limited liquidity unless we continue to comply
with such requirements.
Although
our Common Stock is not currently a penny stock, it has been a
penny stock in the past and may be considered a penny stock in the
future.
The
SEC has adopted a number of rules to regulate “penny stocks” that
restricts transactions involving stock which is deemed to be penny
stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4,
15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. These rules may have the effect of
reducing the liquidity of penny stocks. “Penny stocks” generally
are equity securities with a price of less than $5.00 per share,
other than securities: (i) registered on certain national
securities exchanges if current price and volume information with
respect to transactions in such securities is provided by the
exchange; (ii) quoted on the Nasdaq Stock Market if current price
and volume information with respect to transactions in such
securities is provided by the system; (iii) issued by an issuer
that has net tangible assets (i.e., total assets less intangible
assets and liabilities) in excess of $2,000,000, if the issuer has
been in continuous operation for at least three years, or
$5,000,000, if the issuer has been in continuous operation for less
than three years; or (iv) issued by an issuer that has average
revenue of at least $6,000,000 for the last three years. As of the
date of our most recent audited financial statements reported on by
an independent public accountant, we have net tangible assets in
excess of $5,000,000 and our Common Stock has been approved for
listing on Nasdaq. As such, our Common Stock is not a penny stock.
Nonetheless, our Common Stock has in the past constituted, and may
again in the future constitute, “penny stock” within the meaning of
the rules. The additional sales practice and disclosure
requirements imposed upon U.S. broker-dealers may discourage such
broker-dealers from effecting transactions in shares of our Common
Stock, which could severely limit the market liquidity of such
shares and impede their sale in the secondary market.
A
U.S. broker-dealer selling penny stock to anyone other than an
established customer or “accredited investor” (generally, an
individual with net worth in excess of $1,000,000 or an annual
income exceeding $200,000, or $300,000 together with his or her
spouse) must make a special suitability determination for the
purchaser and must receive the purchaser’s written consent to the
transaction prior to sale, unless the broker-dealer or the
transaction is otherwise exempt. In addition, the “penny stock”
regulations require the U.S. broker-dealer to deliver, prior to any
transaction involving a “penny stock”, a disclosure schedule
prepared in accordance with SEC standards relating to the “penny
stock” market, unless the broker-dealer or the transaction is
otherwise exempt. A U.S. broker-dealer is also required to disclose
commissions payable to the U.S. broker-dealer and the registered
representative and current quotations for the securities. Finally,
a U.S. broker-dealer is required to submit monthly statements
disclosing recent price information with respect to the “penny
stock” held in a customer’s account and information with respect to
the limited market in “penny stocks”.
Stockholders
should be aware that, according to the SEC, the market for “penny
stocks” has suffered in recent years from patterns of fraud and
abuse. Such patterns include (i) control of the market for the
security by one or a few broker-dealers that are often related to
the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and
misleading press releases; (iii) “boiler room” practices involving
high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (iv) excessive and undisclosed bid-ask
differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, resulting in investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical
limitations to prevent the described patterns from being
established with respect to our securities.
Although
our Common Stock is not currently a penny stock, no assurance can
be given that our Common Stock will maintain its listing on Nasdaq
or our net tangible assets will continue to exceed $5,000,000 for
the next year of operations or that our net tangible assets will
exceed $2,000,000 thereafter such that our Common Stock will remain
a non-penny stock.
Exercise of
warrants, and issuance of incentive stock grants may have a
dilutive effective on our stock, and negatively impact the price of
our Common Stock.
As of
September 30, 2020, we had 8,381,192 warrants outstanding. Each
warrant provides the holder the right to purchase up to one share
of our Common Stock at a predetermined exercise price. The
outstanding warrants consist of (1) warrants to purchase 966,494
shares of Common Stock at an exercise price of $1.65 per share
until April 2025; (2) warrants to purchase 4,518,565 shares of our
Common Stock at an exercise price of $2.00 per share from December
2022 through August of 2024; and (3) warrants to purchase 2,896,133
shares of Common Stock at an exercise price of $2.40 from December
2023 through August of 2024. The shares of Common Stock underlying
these warrants will be able to have their restrictive legend
removed immediately upon exercise due to either the holding period
of Rule 144 having been met or the shares having been registered in
a registration statement declared effective by the SEC.
As
documented in Note 8 of our financial statements for the year ended
March 31, 2020, the Company was due to issue warrants to the
holders of the convertible notes and placement agent as a part of
the January 2020 Offering. As of September 30, 2020, the key terms
of the investor and placement agent warrants were still unknown
such that there was still no grant of the warrants for accounting
purposes. The Company was to determine the fair value of the
warrants at the time the key terms of the warrants became known and
the warrants were issued. Subsequent to September 30, 2020, the
Company has authorized and will issue a total of 1,019,121 warrants
to purchase shares of our Common Stock at exercise prices ranging
from $2.19 to $2.67 to the holders of the January 2020 Notes.
Following the closing of this offering, these warrants will have a
$2.10 exercise price. Additionally, the Company has authorized and
will issue 152,868 warrants to purchase shares of our Common Stock
to Gunnar with exercise prices ranging from $1.51 to
$1.58.
In
November 2017, the Board of Directors approved the 2017 Equity
Incentive Plan, or (“the Plan”). Under the Plan, 485,000 shares of
Common Stock were reserved and authorized to be issued. As of
December 31, 2017, 200,000 shares of Common Stock were approved and
issued under the Plan, and we recognized approximately $250,000 of
related consulting expense. On January 10, 2018, 200,000 shares
were awarded, and we recognized $330,000 of compensation expense.
During the year ended March 31, 2020 there were no shares awarded.
There are 85,000 shares remaining to be issued under the
Plan.
We
plan to adopt an Incentive Stock Plan designed to assist us in
attracting, motivating, retaining, and rewarding high-quality
executives, directors, officers, employees, and individual
consultants by enabling such persons to acquire or increase a
proprietary interest in our company to strengthen the mutuality of
interests between such persons and our stockholders and providing
such persons with performance incentives to expand their maximum
efforts in the creation of stockholder value under the plan. We
will be able to grant stock options, restricted stock, restricted
stock units, stock appreciation rights, bonus stocks, and
performance awards under the plan.
To
the extent that any of the outstanding warrants and options
described above are exercised, dilution to the interests of our
stockholders may occur. For the life of such warrants and options,
the holders will have the opportunity to profit from a rise in the
price of the Common Stock with a resulting dilution in the interest
of the other holders of Common Stock. The existence of such
warrants and options may adversely affect the market price of our
Common Stock and the terms on which we can obtain additional
financing, and the holders of such warrants and options can be
expected to exercise them at a time when we would, in all
likelihood, be able to obtain additional capital by an offering of
our unissued capital stock on terms more favorable to us than those
provided by such warrants and options.
Our
management has concluded that we have material weaknesses in our
internal controls over financial reporting and that our disclosure
controls and procedures are not effective.
A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of a company’s annual or interim financial statements will not be
prevented or detected on a timely basis. During the audit of our
financial statements for the year ended March 31, 2020, our
management identified material weaknesses in our internal control
over financial reporting. If these weaknesses continue, investors
could lose confidence in the accuracy and completeness of our
financial reports and other disclosures.
In
addition, our management has concluded that our disclosure controls
and procedures were not effective due to the size of the Company
and available resources, there are limited personnel to assist with
the accounting and financial reporting function, which results in:
(i) a lack of segregation of duties (ii) ineffective corporative
governance controls (iii) controls that may not be adequately
designed or operating effectively and (iv) ineffective or delayed
communication of certain contracts entered into in the ordinary
course of business, whether written or oral. These material
weaknesses, if not remediated, create an increased risk of
misstatement of the Company’s financial results, which, if
material, may require future restatement thereof. A failure to
implement improved internal controls, or difficulties encountered
in their implementation or execution, could cause future delays in
our reporting obligations and could have a negative effect on us
and the trading price of our Common Stock.
The
Company plans to initiate a program to address the above weakness.
While segregation of duties is very difficult in a small company,
the Company has an internal policy that all major expenditures must
be approved by the CFO and CEO.
To
address the material weaknesses identified, management performed
additional analyses and other procedures to ensure that the
financial statements included herein fairly present, in all
material respects, our financial position, results of operations
and cash flows for the periods presented. Accordingly, we believe
that the financial statements included in this report fairly
present, in all material respects, our financial condition, results
of operations and cash flows for the periods presented.
We
intend to remedy our material weakness with regard to insufficient
segregation of duties by hiring additional employees as funding
becomes available to implement the business plan in order to
segregate duties in a manner that establishes effective internal
controls. As of October 13, 2020, we have hired an additional
experienced accountant to support our Finance Department
operations.
If
we fail to develop or maintain an effective system of internal
controls, we may not be able to accurately report our financial
results or prevent financial fraud. As a result, current and
potential stockholders could lose confidence in our financial
reporting.
We
currently have deficiencies in our internal control structure that
they consider to be “significant deficiencies” and may not be able
to cure the deficiencies anytime in the near future. A “significant
deficiency” is defined as a deficiency, or a combination of
deficiencies, in internal controls over financial reporting such
that there is more than a remote likelihood that a material
misstatement of the entity’s financial statements will not be
prevented or detected by the entity’s internal controls.
Effective
internal controls are necessary for us to provide reliable
financial reports and effectively prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, we could be
subject to regulatory action or other litigation and our operating
results could be harmed. We are required to document and test our
internal control procedures to satisfy the requirements of Section
404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” or
“SOX”), which requires our management to annually assess the
effectiveness of our internal control over financial
reporting.
We
currently are not an “accelerated filer” as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended. Section 404
of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to
include an internal control report with our Annual Report on Form
10-K. That report must include management’s assessment of the
effectiveness of our internal control over financial reporting as
of the end of the fiscal year. This report must also include
disclosure of any material weaknesses in internal control over
financial reporting that we have identified. As of March 31, 2020,
the management of the Company assessed the effectiveness of the
Company’s internal control over financial reporting based on the
criteria for effective internal control over financial reporting
established in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and SEC guidance on conducting such
assessments. Management concluded, during the fiscal year ended
March 31, 2020, that the Company’s internal controls and procedures
were not effective to detect the inappropriate application of U.S.
GAAP rules. Management realized there were deficiencies in the
design or operation of the Company’s internal control that
adversely affected the Company’s internal controls which management
considers to be material weaknesses. A material weakness in the
effectiveness of our internal controls over financial reporting
could result in an increased chance of fraud and the loss of
customers, reduce our ability to obtain financing and require
additional expenditures to comply with these requirements, each of
which could have a material adverse effect on our business, results
of operations and financial condition. For additional information,
see Item 9A – Controls and Procedures.
Our
intended business, operations and accounting are expected to be
substantially more complex than they have been in the past. It may
be time consuming, difficult and costly for us to develop and
implement the internal controls and reporting procedures required
by the Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls and other finance personnel in order
to develop and implement appropriate internal controls and
reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, then we may not be
able to obtain the independent accountant certifications required
by such act, which may preclude us from keeping our filings with
the SEC current.
If we
are unable to maintain the adequacy of our internal controls, as
those standards are modified, supplemented, or amended from time to
time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Failure to
achieve and maintain an effective internal control environment
could cause us to face regulatory action and cause investors to
lose confidence in our reported financial information, either of
which could adversely affect the value of our Common
Stock.
If you
purchase shares of Common Stock in this offering, you will suffer
immediate dilution of your investment.
The public
offering price of our Common Stock is substantially higher than the
as adjusted net tangible book value per share of our Common Stock.
Therefore, if you purchase shares of our Common Stock in this
offering, you will pay a price per share that substantially exceeds
our as adjusted net tangible book value per share after this
offering. To the extent shares subsequently are issued under
outstanding options and/or warrants, you will incur further
dilution. Based on the public offering price of $2.10 per share of
Common Stock being sold in this offering, you will experience
immediate dilution of $1.68 per share, representing the difference
between our as adjusted net tangible book value per share after
giving effect to this offering and the public offering price. See
the section entitled “Dilution” for a more detailed discussion of
the dilution you will incur if you purchase Common Stock in this
offering.
General
Risk Factors
Our
operating results may experience significant
fluctuations.
Many
factors contribute to significant periodic and seasonal quarterly
fluctuations in our results of operations. These factors include
the following:
|
|
● |
the
cyclicality of the markets we serve; |
|
|
|
|
|
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● |
the
timing and size of new orders; |
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|
● |
the
cancellation of existing orders; |
|
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|
● |
the
volume of orders relative to our capacity; |
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|
|
● |
product
introductions and market acceptance of new products or new
generations of products; |
|
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|
|
|
|
● |
timing
of expenses in anticipation of future orders; |
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|
|
|
● |
changes
in product mix; |
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|
● |
availability
of production capacity; |
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● |
changes
in cost and availability of labor and raw materials; |
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|
● |
timely
delivery of products to customers; |
|
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|
● |
pricing
and availability of competitive products; |
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|
● |
new
product introduction costs; |
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|
|
● |
changes
in the amount or timing of operating expenses; |
|
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|
● |
introduction
of new technologies into the markets we serve; |
|
|
● |
pressures
on reducing selling prices; |
|
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|
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|
|
● |
our
success in serving new markets; |
|
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|
|
● |
adverse
publicity regarding the safety, performance, and use of our
products; |
|
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|
● |
the
institution and adverse outcome of any litigation; |
|
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|
● |
political,
economic, or regulatory developments; |
|
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|
|
● |
changes
in economic conditions; and |
|
|
|
|
|
|
● |
COVID-19. |
As a
result of these and other factors, we believe that period-to-period
comparisons of our results of operations may not be meaningful in
the short term, and our performance in a particular period may not
be indicative of our performance in any future period.
We
may not be able to secure additional financing on favorable terms,
or at all, to meet our future capital needs.
In
the future, we may require additional capital to fund the planned
expansion of our business and to respond to business opportunities,
challenges, potential acquisitions, or unforeseen circumstances. We
could encounter unforeseen difficulties that may deplete our
capital resources rapidly, which could require us to seek
additional financing in the near future. The timing and amount of
any additional financing that is required to continue the expansion
of our business and the marketing of our products will depend on
our ability to improve our operating results and other factors. We
may not be able to secure additional debt or equity financing in a
timely basis or on favorable terms, or at all. Such financing could
result in substantial dilution of the equity interests of existing
stockholders. We have no commitments for any additional financing
should the need arise. If we are unable to secure any necessary
additional financing, we may need to delay expansion plans,
conserve cash, and reduce operating expenses. There is no assurance
that any additional financing will be sufficient, that the
financing will be available on terms favorable to us or to existing
stockholders and at such times as required, or that we will be able
to obtain the additional financing required for the continued
operation and growth of our business. Any debt financing obtained
by us in the future could involve restrictive covenants relating to
our capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities. If we
raise additional funds through further issuances of equity,
convertible debt securities, or other securities convertible into
equity, our existing stockholders could suffer significant dilution
in their percentage ownership of our company, and any new equity
securities we issue could have rights, preferences, and privileges
senior to those of holders of our Common Stock. If we are unable to
obtain adequate financing or financing on terms satisfactory to us,
when we require it, our ability to grow or support our business and
to respond to business challenges could be significantly
limited.
We
need to continue as a going concern if our business is to
succeed.
Because
of our recurring losses and limited capital resources, the audit
report of our independent registered public accountants on our
consolidated financial statements for the year ended March 31, 2020
contains an explanatory paragraph stating that there is substantial
doubt about our ability to continue as a going concern. Factors
identified in the report include our historical net losses, and the
need for additional financing to continue our business plan and
service our debt repayments. If we are not able to attain
profitability in the near future our financial condition could
deteriorate further, which would have a material adverse impact on
our business and prospects and result in a significant or complete
loss of your investment. Further, we may be unable to pay our debt
obligations as they become due, which include obligations to
secured creditors. If we are unable to continue as a going concern,
we might have to liquidate our assets and the values we receive for
our assets in liquidation or dissolution could be significantly
lower than the values reflected in our financial statements.
Additionally, we are subject to customary operational covenants,
including limitations on our ability to incur liens or additional
debt, pay dividends, redeem stock, make specified investments and
engage in merger, consolidation or asset sale transactions, among
other restrictions. In addition, the inclusion of an explanatory
paragraph regarding substantial doubt about our ability to continue
as a going concern and our lack of cash resources may materially
adversely affect our share price and our ability to raise new
capital or to enter into critical contractual relations with third
parties.
Our
charter documents and Delaware law could make it more difficult for
a third party to acquire us and discourage a
takeover.
Our
certificate of incorporation, bylaws, and Delaware law contain
certain provisions that may have the effect of deterring or
discouraging, among other things, a non-negotiated tender or
exchange offer for shares of Common Stock, a proxy contest for
control of our company, the assumption of control of our company by
a holder of a large block of Common Stock, and the removal of the
management of our company. Such provisions also may have the effect
of deterring or discouraging a transaction which might otherwise be
beneficial to stockholders. Our certificate of incorporation also
may authorize our board of directors, without stockholder approval,
to issue one or more series of preferred stock, which could have
voting and conversion rights that adversely affect or dilute the
voting power of the holders of Common Stock. Delaware law also
imposes conditions on certain business combination transactions
with “interested stockholders.” Our certificate of incorporation
authorizes our Board of Directors to fill vacancies or newly
created directorships. A majority of the directors then in office
may elect a successor to fill any vacancies or newly created
directorships. Such provisions could limit the price that investors
might be willing to pay in the future for shares of our Common
Stock and impede the ability of the stockholders to replace
management.
The
elimination of monetary liability against our directors, officers,
and employees under Delaware law and the existence of
indemnification rights to our directors, officers, and employees
may result in substantial expenditures by us and may discourage
lawsuits against our directors, officers, and employees. We also
may have entered into contractual indemnification obligations under
employment agreements with our executive officers. The foregoing
indemnification obligations could result in our incurring
substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which we may be unable to
recoup. These provisions and resultant costs may also discourage us
from bringing a lawsuit against our directors and officers for
breaches of their fiduciary duties and may similarly discourage the
filing of derivative litigation by our stockholders against our
directors and officers even though such actions, if successful,
might otherwise benefit our company and our
stockholders.
Our
certification of incorporation designates the Court of Chancery in
the State of Delaware as the sole and exclusive forum for actions
or proceedings that may be initiated by our stockholders, which
could discourage claims or limit stockholders’ ability to make a
claim against the Company, our directors, officers, and
employees.
Our
Amended and Restated Certificate of Incorporation states that
unless the Corporation consents in writing to the selection of an
alternative forum, the Court of Chancery in the State of Delaware
shall be the sole and exclusive forum for any stockholder
(including a beneficial) to bring (i) any derivative action or
proceeding brought on behalf of the Corporation, (ii) an action
asserting a claim of break of fiduciary duty owed by any direction,
officer, or other employee of the Corporation to the Corporation or
the Corporation’s stockholders, (iii) any action asserting a claim
against the Corporation, its directors, officers, or employees
arising pursuant to any provision of the Delaware General
Corporation Law or the Corporation’s certificate of incorporation
or bylaws, or (iv) any action asserting a claim against the
Corporation, its directors, officers, or employees governed by the
internal affairs doctrine, except for, as to each of (i) through
(iv) above, any claim as to which the Court of Chancery determines
that there is an indispensable party not subject to the
jurisdiction of the Court of Chancery (and the indispensable party
does not consent to the personal jurisdiction of the Court of
Chancery within ten days following such determination), which is
vested in the exclusive jurisdiction of a court or forum other than
the Court of Chancery, or for which the Court of Chancery does not
have subject matter jurisdiction.
These
exclusive forum provisions do not apply to claims under the
Securities Act or the Exchange Act. The exclusive forum provision
may discourage claims or limit stockholders’ ability to submit
claims in a judicial forum that they find favorable and may create
additional costs as a result. If a court were to determine the
exclusive forum provision to be inapplicable and unenforceable in
an action, we may incur additional costs in conjunction with our
efforts to resolve the dispute in an alternative jurisdiction,
which could have a negative impact on our results of
operations.
USE OF PROCEEDS
The
net
proceeds from the sale of the Common Stock in the offering will be
approximately $15,876,000 based on the public offering price of
$2.10 per share of Common Stock after deducting the underwriting
discounts and commissions and estimated offering expenses, or
approximately $18,318,000 if the underwriters exercise the
over-allotment option in full.
We
currently expect to use the net proceeds of this offering primarily
for the following purposes:
|
|
● |
Approximately
$5,500,000 for capital expenditures;
|
|
|
● |
Approximately
$1,300,000 for research and development for new products and
improvements to existing products including, but not limited to,
hiring of key personnel, and material costs for research
activities; |
|
|
● |
Approximately
$1,800,000 to upgrade sales and marketing capabilities, including
but not limited to public relations, advertising, software
implementation and adding additional staff; and
|
|
|
● |
The
remainder for working capital, other general corporate purposes,
and possibly acquisitions of
other companies, products or technologies, though no such
acquisitions are currently contemplated.
|
We
believe that the expected net proceeds from this offering, and our
existing cash and cash equivalents, together with interest thereon,
will be sufficient to fund our operations for at least the next 12
months, although we cannot assure you that this will
occur.
The
amount and timing of our actual expenditures will depend on
numerous factors, including the status of our development efforts,
sales and marketing activities and the amount of cash generated or
used by our operations. We may find it necessary or advisable to
use portions of the proceeds for other purposes, and we will have
broad discretion and flexibility in the application of the net
proceeds. Pending these uses, the proceeds will be invested in
short-term bank deposits.
MARKET FOR OUR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Our Common
Stock was quoted on the OTC Markets Group Inc.’s OTCQB Link
quotation platform (the “OTCQB”) under the trading symbol “POWW”
until November 30, 2020. Our Common Stock has been approved for
listing on Nasdaq under the symbol “POWW”, and will begin trading
there on December 1, 2020.
As of
November 30, 2020, there were approximately 443 registered holders
of record of our Common Stock.
Dividend
Policy
To date,
we have not paid any dividends on our Common Stock and do not
anticipate paying any dividends in the foreseeable future. The
declaration and payment of dividends on the Common Stock is at the
discretion of our Board and will depend on, among other things, our
operating results, financial condition, capital requirements,
contractual restrictions or such other factors as our Board may
deem relevant. We currently expect to use all available funds to
finance the future development and expansion of our business and do
not anticipate paying dividends on our Common Stock in the
foreseeable future.
Securities
Authorized for Issuance Under Equity Compensation
Plans
On
November 2017, the Board of Directors approved the 2017 Equity
Incentive Plan, or the Plan. Under the Plan, 485,000 shares of
Common Stock was reserved and authorized to be issued. At December
31, 2017, 200,000 shares of Common Stock were approved and issued
under the Plan, and we recognized approximately $250,000 of related
compensation expenses. On January 10, 2018, 200,000 shares were
awarded, and we recognized $330,000 of compensation expense. There
are 85,000 shares remaining to be issued.
CAPITALIZATION
The
following table sets forth our consolidated cash and cash
equivalents and capitalization as of September 30, 2020. Such
information is set forth on the following basis:
|
|
● |
an
actual basis; |
|
|
● |
an as
adjusted basis, giving effect to the sale of the shares in this
offering at the public offering price of $2.10 per share, after
deducting underwriting discounts and commissions and other
estimated offering expenses payable by us and excluding any
exercise of the underwriters’ over-allotment option. |
The as
adjusted information below has been adjusted based on the actual
public offering price and other terms of this offering determined
at pricing. You should read this table together with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and our audited and unaudited consolidated financial
statements and the related notes appearing elsewhere in this
prospectus.
| |
|
As of
September 30, 2020 |
|
| |
|
Actual |
|
|
As Adjusted(1)(2) |
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
|
Cash |
|
$ |
3,413,710 |
|
|
$ |
19,290,134 |
|
|
Total other assets |
|
|
43,937,509 |
|
|
|
43,937,509 |
|
|
Total liabilities |
|
|
29,857,133 |
|
|
|
29,857,133 |
|
|
Common stock, $0.001 par value, 200,000,000 shares authorized
48,324,347 issued and outstanding at September 30, 2020 |
|
|
48,323 |
|
|
|
56,887 |
|
|
Additional paid-in capital |
|
|
56,895,422 |
|
|
|
72,763,282 |
|
|
Accumulated (deficit) |
|
|
(39,449,659 |
) |
|
|
(39,449,659 |
) |
|
Total stockholders’ equity |
|
|
17,494,086 |
|
|
|
33,370,510 |
|
|
Capitalization |
|
$ |
47,351,219 |
|
|
$ |
63,227,643 |
|
|
(1) |
The number of shares
of Common Stock outstanding is based on 48,324,347 shares of Common
Stock issued and outstanding as of September 30, 2020 and excludes
the following:
|
| |
● |
8,381,192
shares of Common Stock issuable upon the exercise of outstanding
warrants having a weighted average exercise price of $2.10 per
share;
|
| |
|
|
| |
● |
the
issuance of an estimated 428,214 shares of Common Stock underlying
the warrant to be issued to the underwriters in connection with
this offering with a per share exercise price of $2.63;
and
|
| |
|
|
| |
● |
1,284,643 shares of
Common Stock issuable upon the exercise of the underwriters’
over-allotment option.
|
Except
as otherwise indicated herein, all information in this prospectus
reflects or assumes:
|
|
● |
no
exercise of the outstanding options or warrants described above;
and |
| |
|
|
| |
● |
no
exercise of the underwriters’ over-allotment option. |
DILUTION
If
you invest in our Common Stock, your interest will be diluted
immediately to the extent of the difference between the public
offering price per share you will pay in this offering and the
adjusted net tangible book value per share of our Common Stock
after this offering.
The
historical net tangible book value of our Common Stock as of
September 30, 2020 was approximately $8.2 million, or $0.17 per
share based upon 48,324,347 shares of Common Stock outstanding on
such date. Historical net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of
our total liabilities, divided by the total number of shares of
Common Stock outstanding.
Following
this offering, our adjusted net tangible book value of our Common
Stock will be $0.42 per share. Adjusted net tangible book value per
share represents adjusted net tangible book value divided by the
total number of shares outstanding after giving effect to the sale
of the shares in this offering at the public offering price of
$2.10 per share, after deducting underwriting discounts and
commissions and other estimated offering expenses payable by us.
This represents an immediate increase in as adjusted net tangible
book value of $0.22 per share to existing stockholders and an
immediate dilution of $1.71 per share to investors purchasing
shares of Common Stock in this offering at the public offering
price.
The
following table illustrates this dilution on a per share basis to
new investors:
| |
|
September 30, 2020 |
|
|
Pro Forma |
|
|
Public offering price per
share |
|
|
|
|
|
$ |
2.10 |
|
|
Net tangible book value per share as of September 30,
2020 |
|
$ |
0.17 |
|
|
|
|
|
|
Increase in net tangible book value per share attributable to this
offering |
|
$ |
0.25 |
|
|
|
|
|
|
As adjusted net tangible book value per share after giving effect
to this offering |
|
|
|
|
|
$ |
0.42 |
|
|
Dilution in net tangible book value per share to purchasers in this
offering |
|
|
|
|
|
$ |
1.68 |
|
If the
underwriters’ over-allotment option is exercised in full, our
adjusted net tangible book value following the offering will be
$0.46 per share, and the dilution to investors purchasing shares of
Common Stock in this offering will be $1.64 per share.
(1) The
number of shares of Common Stock outstanding is based on 48,324,347
shares of Common Stockissued and outstanding
as of September 30, 2020 and excludes the following:
| |
● |
8,381,192
shares of Common Stock issuable upon the exercise of outstanding
warrants having a weighted average exercise price of $2.10 per
share;
|
| |
|
|
| |
● |
the
issuance of an estimated 428,214 shares of Common Stock underlying
the warrant to be issued to the underwriters in connection with
this offering with a per share exercise price of $2.63;
and
|
| |
|
|
| |
● |
1,284,643 shares of
Common Stock issuable upon the exercise of the underwriters’
over-allotment option.
|
Except
as otherwise indicated herein, all information in this prospectus
reflects or assumes:
|
|
● |
no
exercise of the outstanding options or warrants described above;
and |
| |
|
|
| |
● |
no
exercise of the underwriters’ over-allotment option. |
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do
not relate strictly to historical or current facts. Forward-looking
statements involve risks and uncertainties and include statements
regarding, among other things, our projected revenue growth and
profitability, our growth strategies and opportunity, anticipated
trends in our market and our anticipated needs for working capital.
They are generally identifiable by use of the words “may,” “will,”
“should,” “anticipate,” “estimate,” “plans,” “potential,”
“projects,” “continuing,” “ongoing,” “expects,” “management
believes,” “we believe,” “we intend” or the negative of these words
or other variations on these words or comparable terminology. These
statements may be found under the sections entitled “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and “Business,” as well as in this prospectus
generally. In particular, these include statements relating to
future actions, prospective products, market acceptance, future
performance or results of current and anticipated products, sales
efforts, expenses, and the outcome of contingencies such as legal
proceedings and financial results.
Examples
of forward-looking statements in this prospectus include, but are
not limited to, our expectations regarding our business strategy,
business prospects, operating results, operating expenses, working
capital, liquidity and capital expenditure requirements. Important
assumptions relating to the forward-looking statements include,
among others, assumptions regarding demand for our products, the
cost, terms and availability of components, pricing levels, the
timing and cost of capital expenditures, competitive conditions and
general economic conditions. These statements are based on our
management’s expectations, beliefs and assumptions concerning
future events affecting us, which in turn are based on currently
available information. These assumptions could prove inaccurate.
Although we believe that the estimates and projections reflected in
the forward-looking statements are reasonable, our expectations may
prove to be incorrect.
Important
factors that could cause actual results to differ materially from
the results and events anticipated or implied by such
forward-looking statements include, but are not limited
to:
Important
factors that could cause actual results to differ materially from
the results and events anticipated or implied by such
forward-looking statements include, but are not limited
to:
|
|
● |
changes
in the market acceptance of our products; |
| |
|
|
| |
● |
increased
levels of competition; |
| |
|
|
| |
● |
changes
in political, economic or regulatory conditions generally and in
the markets in which we operate; |
| |
|
|
| |
● |
our
relationships with our key customers; |
| |
|
|
| |
● |
our
ability to retain and attract senior management and other key
employees; |
| |
|
|
| |
● |
our
ability to quickly and effectively respond to new technological
developments; |
| |
|
|
| |
● |
our
ability to protect our trade secrets or other proprietary rights,
operate without infringing upon the proprietary rights of others
and prevent others from infringing on the proprietary rights of the
Company; and
|
| |
|
|
| |
● |
other
risks, including those described in the “Risk Factors” discussion
of this prospectus. |
We
operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for us to
predict all of those risks, nor can we assess the impact of all of
those risks on our business or the extent to which any factor may
cause actual results to differ materially from those contained in
any forward-looking statement. The forward-looking statements in
this prospectus are based on assumptions management believes are
reasonable. However, due to the uncertainties associated with
forward-looking statements, you should not place undue reliance on
any forward-looking statements. Further, forward-looking statements
speak only as of the date they are made, and unless required by
law, we expressly disclaim any obligation or undertaking to
publicly update any of them in light of new information, future
events, or otherwise.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and
results of operations should be read together with our consolidated
financial statements and accompanying notes appearing elsewhere in
this prospectus. This discussion contains forward-looking
statements, based upon our current expectations and related to
future events and our future financial performance, that involve
risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under “Risk
Factors,” “Forward-Looking Statements,” and elsewhere in this
prospectus.
Overview
Our
vision is to modernize the ammunition industry by bringing new
technologies to market. We intend to do that through acquisition
and application of intellectual property that is unique to the
industry and through investing in manufacturing equipment and
processes that enable us to compete globally.
When we
began our operations in early 2017, our focus was to sell the
inventory of ammunition we acquired through an asset purchase of a
private company located in northern Arizona. The inventory
consisted primarily of standard pistol and rifle rounds and two
proprietary lines that had not received much traction in the
market. We sold the remaining inventory at a discount during 2017
to partially fund the development of our manufacturing operations.
This inventory accounted for the majority of our sales through the
end of the third quarter of the calendar year of 2017.
With
the prior inventory successfully sold and new products being
produced, our next objective for the calendar year ending December
31, 2017 was to identify ammunition technologies unique to the
industry that could be quickly implemented by our manufacturing
team. We met with several organizations and projectile
manufacturers looking for innovative products that could be used to
establish us as a niche or high-end manufacturer for the
recreational shooter, the American hunter, law enforcement, and
military forces. Among the first of these technologies to meet our
requirements was STREAK VISUAL AMMUNITION™, a one-way luminescent
or OWL Technology application. We believe our STREAK VISUAL
AMMUNITION™ line is the only non-incendiary tracer round in the
ammunition market today. We secured the exclusive license to
manufacture and sell the STREAK VISUAL AMMUNITION™ line of
ammunition in 2017. We have filed for and received trademark
protection for the STREAK VISUAL AMMUNITION™ product name from the
United States Patent and Trademark Office (USPTO) on July 17, 2018
Additionally, we filed for trademark protection for the O.W.L.
TechnologyTM product name on June 6, 2018.
We
formally introduced the STREAK VISUAL AMMUNITION™ portfolio of
calibers, along with our rebranded One Precise Shot (OPS) and
Stelth subsonic line of suppression ammunition, to the general
public at the SHOT Show in Las Vegas held in January 2018. This
product introduction resulted in the opening of major retail
outlets across the United States and attracted the attention of
distributors in the international community. We believe this was a
critical milestone in establishing us as a significant player in
technology-based ammunition.
To
help promote our new products, we hired new sales and marketing
personnel in late 2017, and early 2018. We also augmented our Board
of Directors to include professionals who could provide guidance
for our teams through their prior experience in the industries we
have targeted: commercial retail – focused on the gun or hunting
enthusiast; US Law Enforcement; the US Military; and international
markets for both military and law enforcement. Together this team
has worked to open sales channels and distribution networks and
capitalize on industry relationships to introduce our products to
the influencers required to grow our sales.
During
the summer of 2018, we also began conversations to acquire a small
technology company named SW Kenetics Inc. (“SWK”). SWK developed an
innovative line of modular projectiles primarily geared toward
tactical military operations. On July 6, 2018 we signed a letter of
intent to purchase SWK, as we believed their designs, coupled with
our STREAK or O.W.L. Technology would position us to more aptly
compete for military contracts. On September 27, 2018, we entered
into a definitive agreement and plan of merger to acquire SWK for a
total of up to $1,500,000 in cash and issue 1,700,002 restricted
shares of the Company’s common stock. The agreement specified that
$1,250,000 of the cash was deferred pending completion of specific
milestones and the 1,700,002 shares of common stock was subject to
clawback provisions to ensure agreed upon objectives were met. The
acquisition was completed on October 5, 2018. As of September 30,
2020, the Company has made $350,000 in payments to the former
shareholders of SWK in connection with the completion of a
milestone. As of September 30, 2020, 1,550,134 shares remain
subject to clawback provisions.
On March
15, 2019, Enlight Group II, LLC, a wholly owned subsidiary of the
Company, completed its acquisition of 100% of the assets of
Jagemann Stamping Company’s ammunition casing, projectile
manufacturing and sales operations (“Jagemann Casings”) pursuant to
the terms of the Amended and Restated Asset Purchase Agreement
dated March 14, 2019 (the “Amended APA”). In accordance with the
terms of the Amended APA, Enlight Group II, LLC paid JSC a
combination of $7,000,000 in cash, $10,400,000 delivered in the
form of a Promissory Note, and 4,750,000 shares of Common
Stock.
This
acquisition was a critical element in the Company’s long-term
strategy as it secures its supply chain for these important
components and creates a more competitive pricing structure that it
can leverage across all its targeted markets. This acquisition also
greatly enhanced the Company’s plant capacity and technical
expertise required for the further development of military grade
projectiles.
The
Company’s innovative line of match grade armor piercing (AP) and
hard armor piercing incendiary (HAPI) tactical rounds, are the
centerpiece of the Company’s strategy to address the unique needs
the armed forces community demands are met by their equipment.
Following the Company’s acquisition of Jagemann Casings in March
2019, the Company has aligned its manufacturing operations to
support the large caliber demand from military personnel, such as
the 12.7mm and .50 caliber BMG configurations.
The
focus for our 2020 fiscal year is to continue to expand our brand
presence into the markets identified above and to continue to grow
our sales within our targeted markets. We intend to do this through
establishing key strategic relationships, enrolling in government
procurement programs, establishing relationships with leading law
enforcement associations and programs, expanding distributor
channels, and revitalized marketing campaigns.
We
also intend to increase our product offerings through potential
acquisitions that bring new technologies that provide solutions for
United States Military requirements. Our first step in this process
is the addition of equipment to support the manufacture of 50
caliber ammunition. Not only is there an increasing demand for
quality ammunition in this category for military applications, it
also has a growing demand from commercial markets, and gun
enthusiasts.
Our
addressable market includes the 8.0 million law enforcement
officers around the world (800,000 domestically and 7.2 million
internationally) who annually recertify with their firearms; 1.3
million enlisted personnel in the U.S. Armed Forces, and more than
72 million handgun owning households in the United States with
later expansion to international markets for civilian purchasers
which, based on industry statistics, represents addressable revenue
of billions of dollars annually. Each of these markets has unique
challenges or barriers to entry. We believe with the strategies we
are developing; we will be well positioned to grow our future
market share based on our commitment to innovation and meeting the
changing needs and demographics of ammunition buyers.
Results
of Operations
Comparison for the
three and six months ended September 30, 2020 and
2019.
Our
financial results for the three and six months ended September 30,
2020 reflect our newly positioned organization. We believe that we
have hired a strong team of professionals, developed innovative
products, and continue to raise capital sufficient to establish our
presence as a high-quality ammunition provider. Although we
continue to focus on growing our top line revenue, and streamlining
our operations, we did experience an increase in our gross profit
margin for the three and six months ended September 30, 2020. This
was the result of a significant increase in sales allowing us to
cover a greater percentage of our fixed manufacturing costs, which
include our non-cash amortization and depreciation
expense.
The
following table presents summarized financial information taken
from our condensed consolidated statements of operations for the
three and six months ended September 30, 2020 compared with the
three and six months ended September 30, 2019:
|
|
|
For
the Three Months Ending |
|
|
For
the Six Months Ending |
|
|
|
|
September
30, 2020 |
|
|
September
30, 2019 |
|
|
September
30, 2020 |
|
|
September
30, 2019 |
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Net
Sales |
|
$ |
12,012,872 |
|
|
$ |
2,954,555 |
|
|
$ |
21,672,842 |
|
|
$ |
7,235,135 |
|
|
Cost
of Products Sold |
|
|
10,723,246 |
|
|
|
3,672,599 |
|
|
|
19,311,811 |
|
|
|
8,624,395 |
|
|
Gross
Margin |
|
|
1,289,626 |
|
|
|
(718,044 |
) |
|
|
2,361,031 |
|
|
|
(1,371,260 |
) |
|
Sales,
General & Administrative Expenses |
|
|
2,999,566 |
|
|
|
2,526,893 |
|
|
|
6,851,160 |
|
|
|
5,521,018 |
|
|
Loss
from Operations |
|
|
(1,709,940 |
) |
|
|
(3,244,937 |
) |
|
|
(4,490,129 |
) |
|
|
(6,892,278 |
) |
|
Other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
(628,685 |
) |
|
|
(199,323 |
) |
|
|
(952,285 |
) |
|
|
(393,384 |
) |
|
Loss
before provision for income taxes |
|
$ |
(2,338,625 |
) |
|
$ |
(3,444,260 |
) |
|
$ |
(5,442,414 |
) |
|
$ |
(7,285,662 |
) |
|
Provision
for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net
Loss |
|
$ |
(2,338,625 |
) |
|
$ |
(3,444,260 |
) |
|
$ |
(5,442,414 |
) |
|
$ |
(7,285,662 |
) |
Non-GAAP
Financial Measures
We
analyze operational and financial data to evaluate our business,
allocate our resources, and assess our performance. In addition to
total net sales, net loss, and other results under generally
accepted accounting principles (GAAP), the following information
includes key operating metrics and non-GAAP financial measures we
use to evaluate our business. We believe these measures are useful
for period-to-period comparisons of the Company. We have included
these non-GAAP financial measures in this prospectus because they
are key measures we use to evaluate our operational performance,
produce future strategies for our operations, and make strategic
decisions, including those relating to operating expenses and the
allocation of our resources. Accordingly, we believe these measures
provide useful information to investors and others in understanding
and evaluating our operating results in the same manner as our
management and board of directors.
Adjusted
EBITDA
| |
|
For the
Three Months Ended |
|
|
For the
Six Months Ended |
|
| |
|
30-Sep-20 |
|
|
30-Sep-19 |
|
|
30-Sep-20 |
|
|
30-Sep-19 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciliation of GAAP
net income to Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Loss |
|
$ |
(2,338,625 |
) |
|
$ |
(3,444,260 |
) |
|
$ |
(5,442,414 |
) |
|
$ |
(7,285,662 |
) |
| Depreciation and
amortization |
|
|
1,195,835 |
|
|
|
1,173,617 |
|
|
|
2,364,836 |
|
|
|
2,242,048 |
|
| Loss on Jagemann
Munition Components |
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
- |
|
| Excise
Taxes |
|
|
864,570 |
|
|
|
121,318 |
|
|
|
1,505,693 |
|
|
|
253,603 |
|
| Interest expense,
net |
|
|
442,085 |
|
|
|
199,323 |
|
|
|
765,685 |
|
|
|
393,384 |
|
| Employee stock
awards |
|
|
220,436 |
|
|
|
173,250 |
|
|
|
475,736 |
|
|
|
506,500 |
|
| Stock
grants |
|
|
70,909 |
|
|
|
178,182 |
|
|
|
147,675 |
|
|
|
379,694 |
|
| Stock for
services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
| Contingent
consideration fair value |
|
|
(29,390 |
) |
|
|
- |
|
|
|
(57,358 |
) |
|
|
- |
|
| Adjusted
EBITDA |
|
$ |
425,820 |
|
|
$ |
(1,598,570 |
) |
|
$ |
758,853 |
|
|
$ |
(3,564,036 |
) |
Adjusted
EBITDA is a non-GAAP financial measures that displays our net loss,
adjusted to eliminate the effect of certain items as described
below.
We
have excluded the following non-cash expenses from our non-GAAP
financial measures: depreciation and amortization, loss on
purchase, share-based compensation expenses, and changes to the
contingent consideration fair value. We believe it is useful to
exclude these non-cash expenses because the amount of such expenses
in any specific period may not directly correlate to the underlying
performance of our business operations.
Adjusted
EBITDA as a non-GAAP financial measure also excludes other cash
interest income and expense, as these items are not components of
our core operations. We have not included adjustment for any
provision or benefit for income taxes as we currently record a
valuation allowance and we have included adjustment for excise
taxes.
Non-GAAP
financial measures have limitations, should be considered as
supplemental in nature and are not meant as a substitute for the
related financial information prepared in accordance with GAAP.
These limitations include the following:
|
|
● |
Employee
stock awards and stock grants expense has been, and will continue
to be for the foreseeable future, a significant recurring expense
in the Company and an important part of our compensation
strategy; |
|
|
● |
the assets
being depreciated or amortized may have to be replaced in the
future, and the non-GAAP financial measures do not reflect cash
capital expenditure requirements for such replacements or for new
capital expenditures or other capital commitments;
|
|
|
● |
non-GAAP
measures do not reflect changes in, or cash requirements for, our
working capital needs; and
|
|
|
● |
other
companies, including companies in our industry, may calculate the
non-GAAP financial measures differently or not at all, which
reduces their usefulness as comparative measures |
Because
of these limitations, you should consider the non-GAAP financial
measures alongside other financial performance measures, including
our net loss and our other financial results presented in
accordance with GAAP.
Net
Sales
The
following table shows our net sales by proprietary ammunition
versus standard ammunition for the three months and six ended
September 30, 2020 and 2019. “Proprietary Ammunition” include those
lines of ammunition manufactured by our facilities that are sold
under the brand names: STREAK VISUAL AMMUNITION™, One Precise Shot
(OPS), Night Ops, Jeff Rann, and Stelth. We define “Standard
Ammunition” as non-proprietary ammunition that directly competes
with other brand manufacturers. Our “Standard Ammunition” is
manufactured within our facility and may also include completed
ammunition that has been acquired in the open market for sale to
others. Also included in this category is low cost target pistol
and rifle ammunition, as well as bulk packaged ammunition
manufactured by us using reprocessed brass casings. Ammunition
within this product line typically carries much lower gross
margins.
| |
|
For the
Three Months Ending |
|
|
For the
Six Months Ending |
|
| |
|
September
30, 2020 |
|
|
September
30, 2019 |
|
|
September
30, 2020 |
|
|
September
30, 2019 |
|
|
Proprietary
Ammunition |
|
$ |
1,582,542 |
|
|
$ |
675,328 |
|
|
$ |
3,477,683 |
|
|
$ |
873,624 |
|
| Standard
Ammunition |
|
|
7,158,738 |
|
|
|
640,428 |
|
|
|
11,675,265 |
|
|
|
1,583,631 |
|
|
Ammunition
Casings |
|
|
3,271,592 |
|
|
|
1,638,799 |
|
|
|
6,519,894 |
|
|
|
4,795,880 |
|
|
Total
Sales |
|
$ |
12,012,872 |
|
|
$ |
2,954,555 |
|
|
$ |
21,672,842 |
|
|
$ |
7,253,135 |
|
Sales for
the three and six months ended September 30, 2020 increased 307%
and 199%, respectively, or approximately $9.1 million and $14.4
million, respectively, over the three and six months ended
September 2019. This increase was the result of approximately $6.5
million and $10.1 million of respective increased sales in bulk
pistol and rifle ammunition, an increase of approximately $900,000
and $2.6 million of respective sales of Proprietary Ammunition and
an increase of approximately $1.6 million and $1.7 million of sales
from our recently acquired casing operations. Management expects
the sales of Proprietary Ammunition to outpace the sales of our
Standard Ammunition.
We
are focused on continuing to grow top line revenue
quarter-over-quarter as we continue to further expand distribution
into commercial markets, introduce new product lines, and initiate
sales to U.S. law enforcement, military, and international
markets.
We
added ammunition casings to our product offerings at March 15, 2019
and expect the ammunition casing sales to continue to be a
significant part of our sales moving forward.
Through
our acquisition of SWK, the Company has developed and deployed a
new line of tactical armor piercing (AP) and hard armor piercing
incendiary (HAPI) precision ammunition to meet the lethality
requirements of both the US and foreign military customers. This
line was formally launched at SHOT Show in Las Vegas, where our
team demonstrated or presented the capability to more than 15
countries around the world. We continue to demonstrate our AP and
HAPI ammunition to military personnel at scheduled and invite only
events, resulting in increased interest and procurement
discussions.
It is
important to note that, although U.S. law enforcement, military and
international markets represent significant opportunities for the
Company, they also have a long sales cycle. The Company’s sales
team has been effective in establishing sales and distribution
channels, both in the United States and abroad, which are
reasonably anticipated to drive sustained sales opportunity in the
military, law enforcement, and commercial markets.
Sales
outside of the United States require licenses and approval from
either the U.S. Department of Commerce or the U.S. State
Department, which typically takes approximately 30 days to receive.
On July 21, 2020, we renewed our registration with the
International Traffic in Arms Regulations (ITAR), which remains
valid through the date of this prospectus. This permits the Company
to export and broker ammunition and other controlled items covered
under ITAR.
Cost
of Goods Sold
Cost of
goods sold increased by approximately $7.0 million and $10.7
million from $3.7 million and $8.6 million to $10.7 million and
$19.3 million, respectively for the three and six months ended
September 30, 2020 compared comparable periods ended in 2019. This
was the result of a significant increase to non-cash depreciation
related to our newly acquired casing operations, expensing of
increased labor, overhead, and raw materials used to produce
finished product during 2020 as compared to 2019. As a percentage
of sales, cost of goods sold decreased by 28.2% and 25.1% when
comparing the three and six months ended September 30, 2020 to the
three and six months ended September 30, 2019.
Gross
Margin
Our gross
margin percentage increased to 10.7% and 10.9% from -24.3% and
-18.9%, respectively, during the three and six months ended
September 30, 2020 as compared to the same period in 2019. This was
a result of increased sales covering our covering allowing us to
cover a greater percentage of our fixed manufacturing costs, which
include our non-cash amortization and depreciation
expense.
We
believe as we continue to grow sales through new markets and
expanded distribution that our gross margins will also increase, as
evidenced by the improvement over this time last year. Our goal in
the next 12 to 24 months is to continue to improve our gross
margins. This will be accomplished through the
following:
|
|
● |
Increased
product sales, specifically of proprietary lines of ammunition,
like the STREAK VISUAL AMMUNITION™, OPS, Stelth and now our
tactical Armor Piercing (AP) and Hard Armor Piercing Incendiary
(HAPI) precision ammunition, all of which carry higher margins as a
percentage of their selling price; |
|
|
|
|
|
|
● |
Introduction
of new lines of ammunition that historically carry higher margins
in the consumer and government sectors; |
|
|
|
|
|
|
● |
Reduced
component costs through acquisition our recent casing operation
acquisition expansion of strategic relationships with component
providers; |
|
|
|
|
|
|
● |
Expanded
use of automation equipment that reduces the total labor required
to assemble finished products |
|
|
|
|
|
|
● |
And,
better leverage of our fixed costs through expanded production to
support the sales objectives. |
Operating
Expenses
Overall,
for the three and six months ended September 30, 2020, our
operating expenses increased by approximately $473,000 and $1.3
million over the three and six months ended September 30, 2019,
respectively, and decreased as a percentage of sales from 85.5% and
76.1% for the three and six months ended September 30, 2019,
respectively to 25.0% and 31.6% for the three and six months ended
September 30, 2020, respectively. The increase was mainly related
to a non-cash adjustment to recognize a loss on $1,000,000 of
Construction in Progress that the Company had previously agreed to
exchange with Jagemann Stamping Company. Our operating expenses
included of non-cash depreciation and amortization expense of
approximately $416,000 and $826,000 for the three and six months
ended September 30, 2020, respectively. Our operating expenses
consisted of cost for the expansion our sales and support team,
stock compensation expense associated with issuance of our Common
Stock in lieu of cash compensation for employees, board members,
and key consultants for the organization during the period, and
trade show and marketing costs associated with introducing our
lines of ammunition. Operating expenses for the six months ended
September 30, 2020 and 2019 included noncash expenses of
approximately $2.4 million and $2.0 million, respectively. We also
experienced increases as a result of new investor and public
relations programs, and professional fees associated with our
acquisition activity, our public filings, and our efforts to uplist
the Company from the OTC to a national exchange. We expect to see
administrative expenditures to continue to decrease as a percentage
of sales in the 2021 fiscal year, as we leverage our work force and
expand our sales opportunities.
During the
three months and six months ended September 30, 2020, our selling
and marketing expenses increased by approximately $45,000 and
$192,000, respectively. The increase was related to reduction in
our advertising expenses and increases to commission on the sale of
our products.
Our
corporate general & administrative expenses increased
approximately $123,000 and $122,000 in the three and six months
ended September 30, 2020, respectively, from the comparable prior
periods mainly due to increased professional and legal fees in
comparison to the prior period and increased general corporate
expenses.
Employee
salaries and related expenses increased approximately $340,000 and
$105,000 for the three and six months ended September 30, 2020,
respectively, compared to the comparable periods ended in
2019.
Depreciation and
amortization expenses for the three and six months ended September
30, 2020 decreased by approximately $35,000 and $79,000 from the
comparable prior periods due to reduced amortization expenses in
connection with the adjusted purchase price of our newly acquired
subsidiary, Jagemann Munition Components.
Interest
and Other Expenses
For the
three and six months ended September 30, 2020, interest expense
increased by approximately $243,000 and $372,000, respectively,
compared with the comparable three and six months ended September
30, 2019. The change from the prior period was mainly due to
approximately $160,000 and $320,000 of interest expense and debt
discount amortization related to Convertible Promissory Notes.
Additionally, for the six months ended September 30, 2020, we
recognized a loss on the purchase of Jagemann Munition Components
for construction in progress that will no longer be transferred to
the Company. For the three and six months ended September 30, 2020,
the Company recorded approximately $187,000 of other expenses
primarily related to liquidation damage fees for being unable to
meet agreed upon registration statement timing obligations. There
were no other expenses in the comparable prior periods.
Net
Loss
As a
result of higher production, selling, and payroll expenses, and the
loss on Jagemann Munition Components, we ended the three and six
months ended September 30, 2020 with a net loss of approximately
$2.3 million and $5.4 million, respectively, compared with a net
loss of approximately $3.4 million and $7.3 million, respectively,
for the three and six months ended September 30, 2019.
Comparison
for the fiscal years ended March 31, 2020 and 2019
Our
financial results for the year ended March 31, 2020 reflect our
newly positioned organization. We believe that we have hired a
strong team of professionals, developed innovative products, and
continue to raise capital sufficient to establish our presence as a
high-quality ammunition provider. Although we continue to focus on
growing our top line revenue, and streamlining our operations, we
did experience a decline in our gross profit margin for the year
ended March 31, 2020. This was the result of a significant increase
in depreciation and amortization expenses related to the addition
of assets from the acquisition of Jagemann Casings, sales of
products that carry lower margins, as well as increases to costs of
raw materials and overhead.
The
following table presents summarized financial information taken
from our consolidated statements of operations for the year ended
March 31, 2020 compared with the year ended March 31,
2019:
| |
|
For the
Year Ended |
|
| |
|
March 31,
2020 |
|
|
March 31,
2019 |
|
| |
|
|
|
|
|
|
| Net Sales |
|
$ |
14,780,365 |
|
|
$ |
4,565,652 |
|
| Cost of Products
Sold |
|
|
18,455,904 |
|
|
|
4,795,346 |
|
| Gross
Margin |
|
|
(3,675,539 |
) |
|
|
(229,694 |
) |
| Sales, General &
Administrative Expenses |
|
|
10,161,954 |
|
|
|
8,750,964 |
|
| Loss from
Operations |
|
|
(13,837,493 |
) |
|
|
(8,980,658 |
) |
| Other income
(expense) |
|
|
|
|
|
|
|
|
| Other income
(expense) |
|
|
(719,187 |
) |
|
|
(2,728,754 |
) |
| Loss before provision
for income taxes |
|
$ |
(14,556,680 |
) |
|
$ |
(11,709,412 |
) |
| Provision for income
taxes |
|
|
|
|
|
|
- |
|
| Net Loss |
|
$ |
(14,556,680 |
) |
|
$ |
(11,709,412 |
) |
Net
Sales
The
following table shows our net sales by proprietary ammunition
versus standard ammunition for the periods ended March 31, 2020 and
March 31, 2019. “Proprietary Ammunition” include those lines of
ammunition manufactured by our facilities that are sold under the
brand names: STREAK VISUAL AMMUNITION™, One Precise Shot (OPS),
Night Ops, Jeff Rann, and Stelth. We define “Standard Ammunition”
as non-proprietary ammunition that directly competes with other
brand manufacturers. Our “Standard Ammunition” is manufactured
within our facility and may also include completed ammunition that
has been acquired in the open market for sale to others. Also
included in this category is low cost target pistol and rifle
ammunition, as well as bulk packaged ammunition manufactured by us
using reprocessed brass casings. Ammunition within this product
line typically carries much lower gross margins.
| |
|
For the
Year Ended |
|
| |
|
March 31,
2020 |
|
|
March 31,
2019 |
|
|
Proprietary
Ammunition |
|
$ |
3,029,911 |
|
|
$ |
2,585,768 |
|
| Standard
Ammunition |
|
|
3,561,285 |
|
|
|
1,399,806 |
|
|
Ammunition
Casings |
|
|
8,189,169 |
|
|
|
580,078 |
|
|
Total
Sales |
|
$ |
14,780,365 |
|
|
$ |
4,565,652 |
|
Sales
for the year ended March 31, 2020 increased 224% or $10,214,713,
over the year ended March 31, 2019. This increase was the result of
$7,609,091 of sales from our recently acquired casing operations,
coupled with $2,161,479 of respective increased sales in bulk
pistol and rifle ammunition, summarized in Standard Ammunition
above and an increase of $444,143 of sales of Proprietary
Ammunition. Management expects the sales of Proprietary Ammunition
to outpace the sales of our Standard Ammunition.
We
are focused on continuing to grow top line revenue
quarter-over-quarter as we continue to further expand distribution
into commercial markets, introduce new product lines, and initiate
sales to U.S. law enforcement, military, and international
markets.
We
added ammunition casings to our product offerings at March 15, 2019
and expect the ammunition casing sales to continue to be a
significant part of our sales moving forward.
Through
our acquisition of SWK, the Company has developed and deployed a
new line of tactical armor piercing (AP) and hard armor piercing
incendiary (HAPI) precision ammunition to meet the lethality
requirements of both the US and foreign military customers. This
line was formally launched at SHOT Show in Las Vegas, where our
team demonstrated or presented the capability to more than 15
countries around the world. We continue to demonstrate our AP and
HAPI ammunition to military personnel at scheduled and invite only
events, resulting in increased interest and procurement
discussions.
It is
important to note that, although United States law enforcement,
military and international markets represent significant
opportunities for the Company, they also have a long sales cycle.
The Company’s sales team has been effective in establishing sales
and distribution channels, both in the United States and abroad,
which are reasonably anticipated to drive sustained sales
opportunity in the military, law enforcement, and commercial
markets.
Sales
outside of the United States require licenses and approval from
either the U.S. Department of Commerce or the U.S. State
Department, which typically takes approximately 30 days to receive.
On April 16, 2019, we received renewal for our registration under
the International Traffic in Arms Regulations (ITAR) with the U.S.
Department of State Directorate of Defense Trade Controls, which
remains valid through the date of this prospectus. This permits the
Company to export and broker ammunition and other controlled items
covered under ITAR.
Cost
of Goods Sold
Cost
of goods sold increased by approximately $13.7 million from $4.8
million to $18.5 million, respectively for the year ended March 31,
2020 compared with the year ended March 31, 2019. This was the
result of a significant increase to non-cash depreciation related
to our newly acquired casing operations, expensing of increased
labor, overhead, and raw materials used to produce finished product
during 2020 as compared to 2019. Although sales increased, when
comparing the year ended March 31, 2020 to the year ended March 31,
2019, they did not meet management’s expectations and did not allow
us to cover a greater percentage of our fixed manufacturing costs,
which include our non-cash amortization and depreciation expense.
As a percentage of sales, cost of goods sold increased by 18.9%
when comparing the year ended March 31, 2020 to the year ended
March 31, 2019.
Gross
Margin
Our
gross margin percentage decreased to -24.9% from -5.0% during the
year ended March 31, 2020 as compared to the same period in 2019.
This was a result of the increased non-cash depreciation related to
our recently acquired casing operations and a level of sales that
did not allow us to cover a greater percentage of our fixed
manufacturing costs, which include our non-cash amortization and
depreciation expense.
Our
production facility was designed to manufacture approximately 200
million rounds of ammunition a year, when fully staffed. To date,
we are operating at a fraction of that volume, while maintaining
equivalent quality systems, regulatory compliance, equipment and
facility costs, as well as plant management.
We
believe as we continue to grow sales through new markets and
expanded distribution that our gross margins will also increase, as
evidenced by the improvement over this time last year. Our goal in
the next 12 to 24 months is to continue to improve our gross
margins. This will be accomplished through the
following:
|
|
● |
Increased
product sales, specifically of proprietary lines of ammunition,
like the STREAK VISUAL AMMUNITION™, OPS, Stelth and now our
tactical Armor Piercing (AP) and Hard Armor Piercing Incendiary
(HAPI) precision ammunition, all of which carry higher margins as a
percentage of their selling price;
|
|
|
● |
Introduction
of new lines of ammunition that historically carry higher margins
in the consumer and government sectors; |
|
|
|
|
|
|
● |
Reduced
component costs through our recent Jagemann Casings acquisition and
expansion of strategic relationships with component
providers; |
|
|
|
|
|
|
● |
Expanded
use of automation equipment that reduces the total labor required
to assemble finished products; and |
|
|
|
|
|
|
● |
Better
leverage of our fixed costs through expanded production to support
the sales objectives. |
Operating
Expenses
Overall,
for the year ended March 31, 2020, our operating expenses increased
by approximately $1.4 million over the year ended March 31, 2019,
but decreased as a percentage of sales from 191.7% for the year
ended March 31, 2019 to 68.8% for the year ended March 31, 2020.
This increase in expenses was the result of non-cash amortization
expense of $1.6 million for the year ended March 31, 2020.
Additionally, the increase was related to the expansion our sales
and support team, stock compensation expense associated with
issuance of our Common Stock in lieu of cash compensation for
employees, board members, and key consultants for the organization
during the period, and trade show and marketing costs associated
with introducing our new lines of ammunition. Operating expenses
for the fiscal years ended March 31, 2020 and 2019 periods included
noncash stock compensation of approximately $1.6 million and $1.9
million, respectively. We also experienced increases as a result of
new investor and public relations programs, and professional fees
associated with our acquisition activity, our public filings, and
our efforts to uplist the Company from the OTC to a national
exchange. We expect to see administrative expenditures decrease as
a percentage of sales in the 2021 fiscal year, as we leverage our
work force and expand our sales opportunities.
During
the year ended March 31, 2020, our selling and marketing expenses
decreased by approximately $250,000. The decrease was related to
efficiencies in our marketing expenses.
Our
corporate general and administrative expenses increased
approximately $258,000 for the year ended March 31, 2020 compared
to the comparable period ended in 2019 mainly due to increased
professional and legal fees, which included noncash stock
compensation of $352,000 and a decrease related to a noncash fair
value adjustment to Contingent Consideration of approximately
$190,000.
Employee
salaries and related expenses decreased approximately $243,000 for
the year ended March 31, 2020 compared to the comparable period
ended in 2019. This was a result of decreased expenses related to
employee stock compensation of approximately $440,000, which was
offset with an increase other payroll related expenses of
$197,000.
Depreciation
and amortization expenses increased approximately $1.0 million from
the period due to amortization expenses in connection with our
newly acquired subsidiary, Jagemann Casings operations.
Interest
and Other Expenses
For
the year ended March 31, 2020, interest expenses increased by
approximately $109,000 compared with the year ended March 31, 2019.
The change from the prior period was mainly due to approximately
$352,000 of accrued interest expense in connection with related
party note payables for the year ended March 31, 2020,
approximately $179,000 of interest expense recognized for our
Factoring Liability, and a decrease of interest expense and debt
discount amortization related to Convertible Promissory notes of
approximately $455,000. Interest expense for the year ended March
31, 2020 included $121,000 of non-cash debt discount amortization
related to the Convertible Promissory Notes in comparison to debt
discount amortization of approximately $152,000 and noncash
interest expense of approximately $424,000 for the year ended March
31, 2019.
We
recognized a loss on the purchase of Jagemann Casings of $2.1
million for the year ending March 31, 2019.
Net
Loss
As a
result of higher production, selling, and payroll expenses, we
ended the year ended March 31, 2020 with a net losses of
approximately $14.6 million compared with respective net losses of
approximately $11.7 million for the year ended March 31,
2019.
Our
goal is to continue to improve our operating results as we focus on
increasing sales and controlling our operating expenses.
Liquidity
and Capital Resources
As of
September 30, 2020, we had $3,413,710 of cash and cash equivalents,
an increase of $2,529,436 from March 31, 2020.
Working
Capital is summarized and compared as follows:
| |
|
September
30,
2020 |
|
|
March
31,
2020 |
|
| Current
assets |
|
$ |
17,399,018 |
|
|
$ |
9,157,110 |
|
| Current
liabilities |
|
|
14,830,115 |
|
|
|
12,225,609 |
|
| |
|
$ |
2,568,903 |
|
|
$ |
(3,068,499 |
) |
Changes
in cash flows are summarized as follows:
Operating Activities
For the
six months ended September 30, 2020, net cash used in operations
totaled $3,750,758. This was primarily the result of a net loss of
$5,442,414, increases in our period end inventories and accounts
receivable of $3,194,958 and $2,349,630, respectively, increases in
accounts payable and accrued liabilities of $1,916,013 and
$1,145,451, respectively, and a loss on Jagemann Munition
Components of $1,000,000. The cash used in operations were
partially offset by the benefit of non-cash expenses for
depreciation and amortization of $2,364,836, employee stock
compensation of $475,736, and stock grants totaling
$147,675.
For the
six months ended September 30, 2019, net cash used in operations
totaled $2,980,635. This was primarily the result of a net loss of
$7,285,662, increases in our period end accounts receivable and
inventories of $1,189,573 and $256,614, respectively, and increases
to our accounts payable and accrued liabilities of $2,398,233. The
cash used in operations were partially offset by the benefit of
non-cash expenses for depreciation and amortization of $2,242,048,
employee stock compensation of $506,500, stock issued for services
of $200,000, and stock grants totaling $379,694.
Investing Activities
During the
six months ended September 30, 2020, we used $2,275,466 in net cash
for investing activities to purchase fixed assets such as new
production equipment.
During the
six months ended September 30, 2019, we used $426,467 in net cash
for investing activities. The $426,467 of cash used to purchase
fixed assets such as new production equipment and to acquire end
cap displays for the sale of our product at retailers.
Financing Activities
During
the six months ended September 30, 2020, net cash provided by
financing activities was $8,555,660. This was the net effect of
$2,881,871 of proceeds from the sale of common stock net of $70,000
of issuance costs, $3,500,000 of proceeds from a related party
note, $2,250,000 generated from our Inventory Credit Facility,
$1,051,985 proceeds from our paycheck protection program notes
payable, and $242,425 was generated from common stock issued for
exercised warrants. Additionally, $15,289,000 was generated from
accounts receivable factoring, which was offset by payments of
$15,220,358. $1,099,030 of cash was used for payments on related
party notes payable, and $270,233 toward our insurance premium
notes payable.
We
financed our operations primarily from the issuance of equity
instruments. During the six months ended September 30, 2019, net
cash provided by financing activities was $1,739,594. This was the
net effect of $2,465,540 generated from the sale of Common Stock,
net of cash payments of $285,981 in conjunction with the Unit
offerings. Additionally, $1,036,273 was generated from accounts
receivable factoring and $375,000 of cash was generated from the
issuance of a related party note payable, These increases to our
financing activities were offset by payment of $1,500,000 on the
related party note to Jagemann Stamping Company, $201,238 toward
our insurance premium note payable and a $150,000 payment of our
Contingent Consideration Payable.
Liquidity and Capital Resources
Existing
working capital, cash flow from operations, bank borrowings, and
sales of equity and debt securities are expected to be adequate to
fund our operations over the next year. Generally, we have financed
operations to date through the proceeds of stock sales, bank
financings, and related-party notes.
We
adopted the Financial Accounting Standards Board’s (“FASB”)
Accounting Standard Codification (“ASC”) Topic 205-40, Presentation
of Financial Statements – Going Concern, which requires that
management evaluate whether there are relevant conditions and
events that, in the aggregate, raise substantial doubt about the
entity’s ability to continue as a going concern and to meet its
obligations as they become due within one year after the date that
the financial statements are issued. Accordingly, management has
concluded that we do not have sufficient funds to support
operations within one year after the date the financial statements
are issued and, therefore, we concluded there was substantial doubt
about the Company’s ability to continue as a going
concern.
To
fund further operations, we will need to raise additional capital.
We may obtain additional financing in the future through
conventional financing relationships and through the continued
sales of our Common Stock. Our ability to continue as a going
concern or meet the minimum liquidity requirements in the future is
dependent on its ability to raise significant additional capital,
of which there can be no assurance. If the necessary financing is
not obtained or achieved, we will likely be required to reduce its
planned expenditures, which could have an adverse impact on the
results of operations, financial condition and our ability to
achieve its strategic objective. There can be no assurance that
financing will be available on acceptable terms, or at
all.
Contractual Obligations
The
Company’s contractual obligations by maturity as of September 30,
2020 are as follows:
| |
|
Total |
|
|
Less than
1 Year |
|
|
2-3
Years |
|
|
4-5
Years |
|
|
More than
5 years |
|
|
Operating
Leases |
|
$ |
2,728,803 |
|
|
$ |
363,140 |
|
|
$ |
1,358,651 |
|
|
$ |
1,007,012 |
|
|
$ |
- |
|
| Related Party Note
Payable (1) |
|
|
12,730,367 |
|
|
|
8,812,700 |
|
|
|
3,917,667 |
|
|
|
- |
|
|
|
- |
|
|
Contingent
Consideration Payable (2) |
|
|
900,000 |
|
|
|
- |
|
|
|
900,000 |
|
|
|
- |
|
|
|
- |
|
| |
|
$ |
16,359,170 |
|
|
$ |
9,175,840 |
|
|
$ |
6,176,318 |
|
|
$ |
1,007,012 |
|
|
$ |
- |
|
(1)
Related Party Note Payable includes interest expenses of
approximately $1,425,871.
(2)
Contingent consideration is to be paid upon achievement of specific
milestones. The date of payment included herein is based upon
management estimates.
Off-Balance Sheet Arrangements
As of
September 30, 2020, we did not have any off-balance sheet
arrangements that have or are reasonably likely to have a current
or future material effect on our financial condition, net sales,
expenses, results of operations, liquidity capital expenditures, or
capital resources.
Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of
operation are based upon our financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments
that affect the reported amounted of assets, liabilities, revenues,
and expenses. We have identified several accounting principles that
we believe are key to the understanding of our financial
statements. These important accounting policies require our most
difficult subjective judgements.
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires us to make estimates and assumptions that affected the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates. Significant estimates made in preparing the consolidated
financial statements include the valuation of allowances for
doubtful accounts, valuation of deferred tax assets, inventories,
useful lives of assets, intangible assets, and stock-based
compensation.
Inventory
We
state inventories at the lower of cost and net realizable value. We
determine cost by using the weighted-average cost of raw materials
method, which approximates the first-in, first-out method and
includes allocations of manufacturing labor and overhead. We make
provisions when necessary, to reduce excess, potential damaged or
obsolete inventories. These provisions are based on our best
estimates. At September 30, 2020 and 2019, we conducted a full
analysis of inventory on hand and expensed all inventory not
currently in use, or for which there was no future
demand.
Research and Development
To
date, we have expensed all costs associated with developing our
product specifications, manufacturing procedures, and products
through our cost of products sold, as this work was done by the
same employees who produced the finished product. We anticipate
that it may become necessary to reclassify research and development
costs into our operating expenditures for reporting purposes as we
begin to develop new technologies and lines of
ammunition.
Revenue Recognition
We
generate revenue from the production and sale of ammunition. We
recognize revenue according to ASC 606. When the customer obtains
control over the promised goods or services, we record revenue in
the amount of consideration that we can expect to receive in
exchange for those goods and services. The Company applies the
following five-step model to determine revenue
recognition:
|
|
● |
Identification
of a contract with a customer |
| |
● |
Identification
of the performance obligations in the contact |
| |
● |
Determination
of the transaction price |
| |
● |
Allocation
of the transaction price to the separate performance
allocation |
| |
● |
Recognition
of revenue when performance obligations are satisfied |
The
Company only applies the five-step model when it is probable that
the Company will collect the consideration it is entitled to in
exchange for the goods or services it transfers to the customer. At
contract inception and once the contract is determined to be within
the scope of ASC 606, we assess the goods or services promised
within each contract and determines those that are performance
obligations, and assesses whether each promised good or service is
distinct. If a contract contains a single performance obligation,
the entire transaction price is allocated to the single performance
obligation. Our contracts contain a single performance obligation
and the entire transaction price is allocated to the single
performance obligation. We recognize as revenues the amount of the
transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is
satisfied. Accordingly, we recognize revenues (net) when the
customer obtains control of the Company’s product, which typically
occurs upon shipment of the product. In the current period, the Company began
accepting contract liabilities or deferred revenue. We included
Unearned Revenue in our accrued liabilities. The Company will
recognize revenue when the performance obligation is
met.
Excise Tax
As a
result of regulations imposed by the Federal Government for sales
of ammunition to non-government U.S. entities, we charge and
collect an 11% excise tax for all products sold into these
channels. During the three months ended September 30, 2020 and
2019, we recognized $864,570 and $121,318 respectively, in excise
taxes. During the six months ended September 30, 2020 and 2019, we
recognized $1,505,693 and $235,603, respectively, in excise taxes.
For ease in selling to commercial markets, excise tax is included
in our unit price for the products sold. We record this through net
sales and expense the offsetting tax expense to cost of goods
sold.
Fair Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to us as of
September 30, 2020. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair
value. These financial instruments include cash, accounts payable,
and amounts due to related parties. Fair values were assumed to
approximate carrying values because they are short term in nature
and their carrying amounts approximate fair values or they are
payable on demand.
Income Taxes
We
follow ASC subtopic 740-10, “Accounting for Income Taxes”) for
recording the provision for income taxes. ASC 740-10 requires the
use of the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets
and liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the
asset or liability each period. If available evidence suggest that
is more likely than not that some portion or all of the deferred
tax assets will not be realized, a valuation allowance is required
to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the
period of change.
Stock-Based Compensation
We
grant stock-based compensation to key employees and directors as a
means of attracting and retaining highly qualified personnel. We
also grant stock in lieu of cash compensation for key consultants
and service providers. We recognize expense related to stock-based
payment transactions in which we receive employee or non-employee
services in exchange for equity. We measure stock compensation
based on the closing fair market value of our Common Stock on the
date of grant.
In
addition to our base of employees, we also use the services of
several contract personnel and other professionals on an “as needed
basis”. We plan to continue to use consultants, legal and patent
attorneys, engineers and accountants as necessary. We may also
expand our staff to support the market roll-out of our products to
both the commercial and government related organizations. A portion
of any key employee compensation likely would include direct stock
grants, which would dilute the ownership interest of holders of
existing shares of our Common Stock.
BUSINESS
Products
We
design, produce, and sell ammunition and ammunition components in a
variety types, sizes, and calibers for use in handguns and long
guns. We ship our ammunition in the form of cartridges (or rounds),
and also ammunition casings. A cartridge consists of four
components: a case made of brass, steel, or copper that holds
together all the other components of the cartridge; the primer,
which is an explosive chemical compound that ignites the gunpowder
when struck by the firing pin; the gun powder, which is a chemical
mixture that burns rapidly and creates an expanding gas when
ignited and pushes the bullet out the barrel; and the bullet, or
projectile, usually containing lead that is fired through the
barrel to strike the target. Some of the bullets we produce for
certain applications have a jacket, or outer shell, of brass or
copper to improve performance and accuracy. We typically produce
centerfire cartridges in which the primer is in the bottom, or
center of the cartridge, rather than rimfire cartridges in which
the primer is in the rim of the cartridge. Through our recent
acquisition of Jagemann Casings we now offer ammunition casings for
pistol ammunition through large rifle ammunition.
STREAK Visual Ammunition
STREAK
VISUAL AMMUNITION™ enables shooters to see the path of the bullets
fired by them. STREAK VISUAL AMMUNITION™ rounds utilize
non-flammable phosphor material that produces a glow by the
utilization of the light emitted during the round discharge to make
STREAK VISUAL AMMUNITION™ glow. The luminescent material is applied
only to the aft end of the projectile, making it visible only to
the shooter and those within a 30-degree viewing window. As a
result, the glow of STREAK VISUAL AMMUNITION™ is not visible to the
target unlike conventional tracers, which we believe is important
to the military and law enforcement. Unlike conventional tracer
ammunition, STREAK VISUAL AMMUNITION™ rounds are not incendiary and
do not utilize burning metals to generate light, thereby
eliminating heat generation and making them safer for use in
various environments and avoiding serious fire hazards. STREAK
VISUAL AMMUNITION™ comes in 380 auto, 9 mm, 40 S&W, 44 magnum,
45 long colt, and 38 special among other calibers.
We hold
the exclusive worldwide sales and distribution rights for the
patented technology used by our STREAK VISUAL AMMUNITION™ and pay a
royalty based on our product sales incorporating this technology.
On October 13, 2020, the Company further expanded its patent
portfolio as a result of the U.S. Patent and Trademark Office
(USPTO)’s issuance of Patent No. 10,801,821 recognizing the
Company’s development of both a protectable and cutting-edge
process to mass-produce luminescent projectiles, as well as the
luminescent projectiles manufactured as a result of the protected
process.
OPS – One Precise Shot
OPS
ammunition is designed to meet a wide variety of demanding
engagement scenarios experienced by law enforcement personnel in
the line of duty. The hollow point lead-free fragile bullet with
hard outer casing and frangible copper core transfers 100% of its
energy into the target. These bullets penetrate a variety of
barriers, such as drywall, plywood, car doors, and auto glass. Upon
entering soft tissue, the jacket and core separate with extensive
force of impact, resulting in mass force trauma. The light weight
projectile reduces recoil and enhances accuracy. OPS ammunition
comes in 9 mm, 40 S&W, 45 auto calibers and a 223 rifle
round.
Stelth Subsonic Ammunition
Stelth
Subsonic ammunition is designed specifically for superior
performance in suppressed firearms. Stelth ammunition finds
applications in which silence is paramount, such as in tactical
training, predator night hunts, and clandestine operations. The
Stelth ammunition is produced to be a clean burning total metal
jacket round to slow baffle corrosion and reduce lead emissions
that collect in the suppressor body. Stelth pistol ammunition comes
in 9mm, 40 S&W, and 45 AC3. It is also available in a 223 rifle
round.
Jesse James Ammunition
Jesse
James ammunition is jacketed hollow point projectiles designed for
self-defense. The load specific development is designed to ensure
accuracy, velocity, and consistency and a low recoil. Jesse James
ammunition comes in 9mm, 40 S&W, 10mm, 357, 45 auto
calibers.
Jeff Rann’s American Hunter and Safari Services
Jeff
Rann’s ammunition is intended for a complete range of game hunting.
This high-end hunting ammunition has been designed by Jeff Rann, a
well-known professional hunter and sports channel host and the
owner of the well-known 777 Ranch in Texas and three ranches in
Africa.
AP and HAPI Ammunition
Our
innovative line of match grade armor piercing (AP) and hard armor
piercing incendiary (HAPI) tactical rounds are the centerpiece of
the Company’s strategy to address the unique needs of the armed
forces community. This ammunition was designed around a match grade
portfolio of projectiles, that include a solid copper boat tail and
armor piercing configuration. The distinction between these rounds
and other sold, is that the manufacturing process was engineered to
ensure extremely tight tolerances between each projectile
manufactured, ensuring for the end user that the ballistic
trajectory remains consistent between rounds without regard to the
actual configuration or round fired. Our AP and HAPI line is also
available with our patented one-way luminescent or O.W.L.
Technology™. Following AMMO’s acquisition of Jagemann Casings in
March 2019, the Company has aligned its manufacturing operations to
support the large caliber demand from military personnel, such as
the 12.7 mm and .50 caliber BMG configurations.
Ammunition Casings – Jagemann Munition
Components
Through
our recently Jagemann Casings acquisition, we now offer ammunition
casings for pistol ammunition through large rifle ammunition.
Jagemann™ is backed by decades of manufacturing experience that
allows the production of high-quality pistol brass and rifle brass
components. Borne from the automotive industry and refined over
time to deliver durable and consistent sporting components,
Jagemann™ Casings, has become one of the largest brass
manufacturers in the country, with the capacity to produce more
than 300 million pieces of brass each year. Proud of its
American-made components and capabilities, the Company now has
complete control over the manufacturing process. This results in a
number of advantages when it comes to the brass that leaves our
state-of-the-art facility.
Marketing
We
market our products to consumers through distributors, dealers,
mass market and specialty retailers, and direct to consumer through
e-commerce. We maintain consumer-focused product marketing and
promotional campaigns, which include print and digital advertising
campaigns; social and electronic media; product demonstrations;
point-of-sales materials; in-store training, and in-store retail
merchandising. Our use of social media includes Instagram,
Facebook, Twitter, and You Tube. We also utilize third-party
endorsements, social influencers, and brand ambassadors, such as
Jesse James, and Jeff Rann.
Manufacturing
We
conduct our research and development, manufacturing, assembly,
inspection, and packaging operations in a 20,000 square foot
facility located in Payson, Arizona. The facility currently
produces 36 million rounds of ammunition annually with the capacity
to scale to 200 million rounds. Our in-house testing operation at
the facility is intended to enhance the performance and reliability
of our products.
Our
ammunition casing research and development, manufacturing, and
inspection operations take place in a 45,000 square foot facility
located in Manitowoc, Wisconsin. The facility can currently produce
300 million cases annually with ability to scale. Our inspection
process is intended to enhance the performance and reliability of
our products.
Research
and Development
We
conduct research and development activities to enhance existing
products and develop new products at our facilities in Payson,
Arizona, and Manitowoc, Wisconsin, utilizing our personnel and
strategic relationships. We expense all costs associated with our
research and development efforts through either our cost of goods
sold, as they are performed by the same employees who produce our
finished product, or through or general and administrative expenses
if the product has not been brought to market.
Suppliers
We
purchase certain of the raw materials and components for our
ammunition products, including brass, steel, or copper casings;
ammunition primers to ignite gun powder; gun powder; and
projectiles. We believe we have reliable sources of supply for all
our raw material and component needs, but from time to time raw
materials and components are subject to shortages and price
increases. Most of our suppliers are U.S.-based and provide us the
materials and components at competitive rates. We recently secured
our supply of ammunition casings through our acquisition of
Jagemann Casings. We plan to broaden our supplier base and secure
multiple sources for all the raw materials and components we
require.
Customers
We sell
our products through “Big Box” retailers, manufacturers, local
ammunition stores, and shooting range operators. We also sell
direct to customers online. Our consumers include sport and
recreational shooters, hunters, competitive shooters, individuals
desiring home and personal protection, manufacturers, and law
enforcement and military agencies, and selected international
markets. We distribute our products under five primary product
lines: Jeff Rann, OPS, Stelth, STREAK VISUAL AMMUNITION™, and
Jagemann Munition Components ammunition casings. One customer
accounted for approximately 15% of our sales for the three and six
months ended September 30, 2020. Quarter to quarter comparisons are
not uniform, for example for the three and six months ended
September 30, 2020, one customer for that period accounted for 15%
of our total sales, and, for the three and six months ended
September 30, 2019, three customers for that period accounted for
39% and 45% of our total sales, respectively.
Competition
The
ammunition and ammunition casing industry is dominated by a small
number of companies, a number of which are divisions of large
public companies. We compete primarily on the quality, reliability,
features, performance, brand awareness, and price of our products.
Our primary competitors include Federal Premium Ammunition,
Remington Arms, the Winchester Ammunition division of Olin
Corporation, and various smaller manufacturers and suppliers,
including Black-Hills Ammunition, CBC Group, Fiocchi Ammunition,
Hornady Manufacturing Company, PMC, Rio Ammunition, and
Wolf.
Employees
As of
November 30, 2020, we had a total of 150 employees. Of these
employees, 119 were engaged in manufacturing, 14 in sales and
marketing, five in finance and accounting, two in research and
development and ten in various executive and administrative
functions. None of our employees are represented by a union in
collective bargaining with us. We believe that our employee
relations are good.
Seasonality
Our
business has not exhibited a material degree of seasonality to
date. Our net sales could be moderately higher in our third and
fourth fiscal quarters because of the fall hunting and holiday
seasons.
Intellectual
Property
We
believe our tradenames, trademarks, and service markets are
important factors in distinguishing our products. In addition, we
regard our trade secrets, technological resources, knowhow,
licensing arrangements, and endorsements as important competitive
factors.
Included
in an acquisition for 600,000 shares of our Common Stock and
$200,000 paid in cash to the former license holder, we acquired the
exclusive license to produce ammunition using the patented “hybrid
luminescence technology” owned by the University of Louisiana at
Lafayette through October 29, 2028. We use that technology in
connection with our STREAK VISUAL AMMUNITION™.
We
are a party to a license agreement with Jesse James, a well-known
motorcycle designer, and Jesse James Firearms, LLC, a Texas limited
liability company, or JJF. The licensing agreement grants us the
exclusive worldwide rights through October 15, 2021 to Mr. James’
image rights and all trademarks associated with him in connection
with the marketing, promotion, advertising, sale, and commercial
exploitation of Jesse James Branded Products. In addition, Mr.
James agreed to make himself available for certain promotional
activities and to promote Jesse James Branded Products through his
own social media outlets. We agreed to pay Mr. James royalty fees
on the sale of ammunition and non-ammunition Branded Products and
to reimburse him for any out-of-pocket expenses and reasonable
travel expenses. We also issued 100,000 shares of our Common Stock
upon the execution of the license agreement with the potential
issuance of up to 75,000 additional shares of Common stock upon
achieving certain gross sales with $15 million in gross sales
required to earn the entire 75,000 shares.
We
are a party to a license agreement with Jeff Rann, a well-known
wild game hunter and spokesman for the firearm and ammunition
industries. The license agreement grants us through February 2022
the exclusive worldwide rights to Mr. Rann’s image rights and
trademarks associated with him in connection with the marketing,
promotion, advertising, sale, and commercial exploitation of all
Jeff Rann Branded Products. Mr. Rann agreed to make himself
available for certain promotional activities and to promote the
Branded Products through his own social media outlets. We agreed to
pay Mr. Rann royalty fees on the sale of ammunition and
non-ammunition Branded Products and to reimburse him for any
out-of-pocket expenses and reasonable travel expenses. We also
issued 100,000 shares of our Common Stock upon the execution of the
license agreement with the potential issuance of 75,000 additional
shares of Common Stock upon achieving certain gross sales with $15
million in gross sales required to earn the entire 75,000
shares.
Through
our acquisition of SWK, we acquired the rights to a patent for
modular projectiles. This technology is used in connection with our
AP and HAPI lines of ammunition. The Company acquired SWK for a
total of up to $1,500,000 in cash and issued 1,700,002 restricted
shares of Common Stock. The agreement specified that $1,250,000 of
the cash was deferred pending completion of specific milestones and
the 1,700,002 shares of Common Stock were subject to clawback
provisions to ensure agreed upon objectives were met. As of
September 30, 2020, the Company has made $350,000 in payments to
the former stockholders of SWK in connection with the completion of
a milestone. As of September 30, 2020, 1,550,134 shares remain
subject to clawback provisions. The patent will be amortized over
15 years.
Included
in the acquisition of Jagemann Casings for $7,000,000 in cash,
$10,400,000 delivered in the form of a Promissory Note, and
4,750,000 shares of our Common Stock, we acquired customer
relationships, intellectual property, and the use of a tradename,
which will be amortized over 3 years, 3 years and 5 years,
respectively. These intangible assets are used in the operation and
production of our ammunition casing business through our wholly
owned subsidiary, Jagemann Munition Components.
Backlog
At
September 30, 2020, we had approximately $80 million in backlog.
The Company expects to fill these orders within the next fiscal
year ending March 31, 2021. We did not have a material amount of
backlog of orders as of September 30, 2019. Backlog consists of
orders for which purchase orders have been received and which are
generally scheduled for shipment within three months. We generally
allow orders that have not yet been shipped to be cancelled. Our
backlog may not be indicative of future sale.
Environmental
Matters
Our
operations are subject to a variety of federal, state, and local
laws and regulations relating to environmental protection,
including those governing the discharge, treatment, storage,
transportation, remediation, and disposal of hazardous materials
and wastes; the restoration of damages to the environment; and
health and safety matters. We believe that our operations are in
material compliance with these laws and regulations. We incur
expenses in complying with environmental requirements and could
incur higher costs in the future as a result of more stringent
requirements that may be enacted in the future.
Some
environmental laws, such as the U.S. federal Superfund law and
similar state laws, can impose liability, without regard to fault,
for the entire cost of the cleanup of contaminated sites on current
or former site owners and operators or parties who sent wastes to
such sites. Based on currently available information, we do not
believe that environmental matters will have a material adverse
effect on our business, operating results, or financial
condition.
Regulatory
Matters
The
manufacture, sale, and purchase of ammunition are subject to
extensive federal, state, local, and foreign governmental laws. We
are also subject to the rules and regulations of the ATF and
various state and international agencies that control the
manufacture, export, import, distribution and sale of firearms,
explosives, and ammunition. Such regulations may adversely affect
demand for our products by imposing limitations that increase the
costs or limit the availability of our products.
Our
failure to comply with applicable rules and regulations may result
in the limitation of our growth or business activities and could
result in the revocation of licenses necessary for our business.
Applicable laws and regulations provide for the
following:
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require
the licensing of all persons manufacturing, exporting, importing,
or selling ammunition as a business; |
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require
serialization, labeling, and tracking of the acquisition and
disposition of certain types of ammunition; |
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regulate
the interstate sale of certain ammunition; |
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restrict
or prohibit the ownership, use, or sale of specified categories of
ammunition; |
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● |
require
registries of so-called “ballistic images” of ammunition fired from
new guns; |
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govern
the sale, export, and distribution of ammunition; |
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regulate
the use and storage of gun powder or other energetic
materials; |
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regulate
the employment of personnel with certain criminal
convictions; |
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restrict
access to ammunition manufacturing facilities for certain
individuals from other countries or with criminal convictions;
and |
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require
compliance with International Traffic in Arms
Regulations. |
The
handling of our technical data and the international sale of our
products may also be regulated by the U.S. Department of State and
Department of Commerce. These agencies can impose civil and
criminal penalties, including denying us from exporting our
products, for failure to comply with applicable laws and
regulations.
In
addition, bills have been introduced in Congress to establish, and
to consider the feasibility of establishing a nationwide database
recording so-called “ballistic images” of ammunition fired from new
guns. Should such a mandatory database be established, the cost to
us, our distributors, and our customers could be significant,
depending on the type of firearms and ballistic information
included in the database. Bills have been introduced in Congress in
the past several years that would affect the manufacture and sale
of ammunition, including bills to regulate the manufacture,
importation, and sale.
We
believe that existing federal, state, and local legislation
relating to the regulation of firearms and ammunition have not had
a material adverse effect on our sales of these products. However,
the regulation of firearms and ammunition may become more
restrictive in the future, and any such developments might have a
material adverse effect on our business, operating results,
financial condition, and cash flows. In addition, regulatory
proposals, even if never enacted, may affect firearms or ammunition
sales as a result of consumer perceptions.
Our History
We were
formed under the name Retrospettiva, Inc. in November 1990 to
manufacture and import textile products, including both finished
garments and fabrics, but ceased operations in 2001. We were
inactive from 2001 until December 2016. On December 15, 2016, our
then principal stockholders sold their outstanding Common Stock to
Fred W. Wagenhals, who is our Chairman of the Board, President,
Chief Executive Officer, and largest stockholder. On the same date,
Mr. Wagenhals became the sole officer and director of our company.
As of December 30, 2016, we changed our trading symbol to POWW; we
merged into a Delaware corporation, thereby changing our state of
incorporation from California to Delaware; we engaged in a 1-for-25
reverse stock split; and we commenced our current business as AMMO,
Inc.
Our
principal stockholder, Fred Wagenhals, had organized another
company on October 13, 2016, which immediately began to take steps
to commence the ammunition business. We combined with that company
in March 2017, resulting in our acquisition of all the shares of
its common stock for 17,285,800 shares of our Common Stock and our
succession to its business.
We
entered into licensing an endorsement agreement with Jesse James, a
well-known motorcycle and gun designer, in October 2016, and a
license and endorsement agreement with Jeff Rann, a well-known wild
game hunter, guide, and spokesman for the firearm and ammunition
industry, in February 2017; received a federal firearms license
from the ATF in February 2017; purchased an ammunition
manufacturing facility in Payson, Arizona in March 2017; and built
a management team and otherwise prepared ourself to participate in
the ammunition industry.
On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona
corporation and our wholly owned subsidiary, merged with Hallam,
Inc., a Texas corporation, with ATI being the survivor. Under the
terms of the Merger, we issued to Hallam, Inc.’s two shareholders,
600,000 shares of our Common Stock, subject to restrictions, and
payment of $200,000. The first payment of $100,000 to the Hallam,
Inc. shareholders was paid on September 13, 2017, and the second
payment of $100,000 was paid on February 6, 2018.
During
the summer of 2018, we also began conversations to acquire a small
technology company named SW Kenetics Inc. (“SWK”). SWK developed an
innovative line of modular projectiles primarily geared toward
tactical military operations. On July 6, 2018 we signed a letter of
intent to purchase SWK, as we believed their designs, coupled with
our STREAK or O.W.L. Technology would position us to more aptly
compete for military contracts. On September 27, 2018, we entered
into a definitive agreement and plan of merger to acquire SWK for a
total of up to $1,500,000 in cash and issue 1,700,002 restricted
shares of the Company’s Common Stock. The agreement specified that
$1,250,000 of the cash was deferred pending completion of specific
milestones and the 1,700,002 shares of Common Stock was subject to
clawback provisions to ensure agreed upon objectives were met. The
acquisition was completed on October 5, 2018. As of September 30,
2020, the Company has made $350,000 in payments to the former
shareholders of SWK in connection with the completion of a
milestone. As of September 30, 2020, 1,550,134 shares remain
subject to clawback provisions.
On March
15, 2019, Enlight Group II, LLC, our wholly owned subsidiary,
completed Jagemann Casings acquisition pursuant to the terms of the
Amended and Restated Asset Purchase Agreement dated March 14, 2019.
In accordance with the terms of the Amended APA, Enlight Group II,
LLC paid Jagemann Stamping Company a combination of $7,000,000 in
cash, $10,400,000 delivered in the form of a Promissory Note, and
4,750,000 shares of our Common Stock.
This
acquisition was a critical element in the Company’s long-term
strategy as it secures its supply chain for these important
components and creates a more competitive pricing structure that it
can leverage across all its targeted markets. This acquisition also
greatly enhanced the Company’s plant capacity and technical
expertise required for the further development of military grade
projectiles.
Legal
Proceedings
There
are no material proceedings to which any director or officer, or
any associate of any such director or officer, is a party that is
adverse to our Company or any of our subsidiaries or has a material
interest adverse to our Company or any of our subsidiaries. No
director or executive officer has been a director or executive
officer of any business which has filed a bankruptcy petition or
had a bankruptcy petition filed against it during the past ten
years. No current director or executive officer has been convicted
of a criminal offense or is the subject of a pending criminal
proceeding during the past ten years. No current director or
executive officer has been the subject of any order, judgment or
decree of any court permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities during the past ten
years. No current director or officer has been found by a court to
have violated a federal or state securities or commodities law
during the past ten years.
However,
from time to time, we may become involved in various lawsuits and
legal proceedings which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse
result in these or other matters may arise from time to time that
may harm our business.
On September 24, 2019, the Company received notice that a former
employee that had voluntarily terminated her employment filed a
complaint against the Company, and certain individuals, with the
U.S. Department of Labor (“DOL”). The Complaint in alleges that the
individual reported potential violations of SEC rules and
regulations by management and that as a result of such disclosures,
the individual experienced a hostile work environment; that the
Company lacks sufficient controls internal controls, and that the
individual was the victim of retaliation and constructive discharge
after being removed as a director by majority vote of the
stockholders. The claims were investigated by a newly appointed
Special Investigative Committee made of up independent directors
represented by special independent legal counsel. The Special
Investigative Committee and legal counsel found the material claims
were unsubstantiated, including those concerning alleged SEC
violations, and recommended enhancements to certain corporate
governance charter documents and processes which the Company
promptly implemented. The matter is currently the subject of
administrative investigation by the DOL via the Occupational Safety
and Health Administration. The Company filed a timely Position
Statement with the DOL in October of 2019 in response to the
Complaint. The Company disputes the allegations of wrongdoing and
believes the matters raised in the Complaint are without merit and
therefore has and will continue to aggressively defend its
interests in this matter.
On February 4, 2020, the Company filed suit against a former
employee who is also a former shareholder of SWK for violating the
merger agreement with SWK, employment agreements, and by unlawfully
retaining property belonging to the Company following their
termination. On March 11, 2020, the former employee filed a
counterclaim against the Company citing breach of contract, breach
of implied covenant of good faith and fair dealing, unjust
enrichment and declaratory judgement. The Company plans to
aggressively pursue its offensive claims in order to recover
economic damages as a result of its claims while seeking dismissal
of the counterclaim.
There
were no other known contingencies at September 30, 2020.
DIRECTORS AND EXECUTIVE
OFFICERS
The
table below lists the current executive officers and directors of
our company. All executive officers serve at the discretion of the
Board of Directors. The term of office of each of our directors
expire at our next annual meeting of stockholders or until their
successors are duly elected and qualified. There are no family
relationships between any of our directors or executive
officers.
|
Name |
|
Age |
|
Position |
|
Fred
W. Wagenhals
7681
E. Gray Road
Scottsdale,
AZ 85260
|
|
79 |
|
Chairman
of the Board, Chief Executive Officer and President |
| |
|
|
|
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| Robert
D. Wiley |
|
29 |
|
Chief
Financial Officer |
| 7681
E. Gray Road |
|
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|
|
| Scottsdale,
AZ 85260 |
|
|
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|
| |
|
|
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| Steve
Hilko |
|
65 |
|
Chief
Operating Officer |
| 7681
E. Gray Road |
|
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|
|
| Scottsdale,
AZ 85260 |
|
|
|
|
| |
|
|
|
|
| Randy
Luth |
|
66 |
|
Director |
| 7681
E. Gray Road |
|
|
|
|
| Scottsdale,
AZ 85260 |
|
|
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|
| |
|
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|
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| Harry
S. Markley |
|
58 |
|
Director |
| 7681
E. Gray Road |
|
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|
|
| Scottsdale,
AZ 85260 |
|
|
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|
| |
|
|
|
|
| Russell
William Wallace, Jr. |
|
64 |
|
Director |
| 7681
E. Gray Road |
|
|
|
|
| Scottsdale,
AZ 85260 |
|
|
|
|
| |
|
|
|
|
| Robert
J. Goodmanson |
|
65 |
|
Director |
| 7681
E. Gray Road |
|
|
|
|
| Scottsdale,
AZ 85260 |
|
|
|
|
Fred Wagenhals has been the Chairman of the Board,
President, and Chief Executive Officer of our company since
December 2016. Mr. Wagenhals was a private investor from August
2005 until December 2016. Mr. Wagenhals served as Chairman,
President, and Chief Executive Officer of Action Performance
Companies, Inc., a Nasdaq-listed marketer and distributor of
licensed motorsports merchandise, from November 1993; Chairman of
the Board and Chief Executive Officer from May 1992 until September
1993; and President from July 1993 until September 1993.
Action-Performance Companies, Inc. was sold in August 2005 to
International Speedway Corp. and Speedway Motorsports. Mr.
Wagenhals is a member of the Die-Cast hall of Fame; was named an
Entrepreneur of the Year for the Retail/Wholesale category by the
Center for Entrepreneurial leadership Inc.; and received the
Anheuser-Bush Entrepreneur in Residence Award at the University of
Arizona College of Business and Public Administration.
Robert D. Wiley has been the Chief Financial Officer of our
company since January 2019. Mr. Wiley has served as the Controller
of the Company since May 2018 and was responsible for our
accounting department, including external financing reporting,
compliance, accounting policy, and tax accounting. Previously, Mr.
Wiley was a Certified Public Accountant at Moss Adams, LLP from
June 2015 through April 2018. Mr. Wiley earned his Master of
Taxation at Arizona State University. Mr. Wiley also received a
Bachelor of Science degree in Accounting from Arizona State
University. Mr. Wiley is a Certified Public Accountant licensed in
the state of Arizona.
Steve Hilko has been the Chief Operating Officer of our
company since March 2017. Mr. Hilko was Vice President of
Development and Logistics for Action International Marketing, a
sports and entertainment license product company from May, 2014
until December, 2016; a principal of the Concept Consortium, an
international consulting firm from May, 2008 until May 2014, and
Vice President of Design and Production of Lionel, a consumer goods
company, from May of 2006 until May, 2008; and Vice President of
Research, Development and Operations of Action Performance
Companies, Inc. from August,1998 until May of 2006.
Robert J. Goodmanson has been a Director of our company
since May 2019. Mr. Goodmanson has more than 30 years’ experience
in the investment industry. He is currently employed at Tealwood
Asset Management, a fully Registered Investment Advisor in
Minneapolis. He founded and was CEO of Maxwell Simon, Inc. a FINRA
registered full service Broker-Dealer and a licensed registered
Investment Advisory firm. Maxwell Simon’s focus was on
institutional fixed income, advisory, private and public equity
transactions. Prior, Rob held senior positions at Tucker Anthony
and Robert W Baird where he was a Divisional Director. For three
years he served on the FINRA Board of Governors for District 4 in
Kansas City.
Randy Luth has been a director of our company since
November 2017. Mr. Luth founded and has served as the president of
Luth-AR-LLC, a producer of products for the AR-15 Market, since
2013. Mr. Luth was the Chief Executive Officer of DPMS Panther
Arms, a producer of AR-15 firearms and firearm components, from
1986 until its sale in December 2007 to the Freedom
Group.
Harry S. Markley has been a director of our company since
March 2018. Mr. Markley served with the Phoenix Police Department
for more than 30 years, most recently as Assistant Chief of the
Patrol Division from 2013 through 2017 and Commander of the Family
Investigations Bureau from 2002 to 2013. Mr. Markley currently
serves as the Law Enforcement Senior Advisor for the United States
of America Department of Commerce.
Russell William “Rusty” Wallace, Jr. has been a director of
our company since June 2017. Mr. Wallace is the principal
shareholder of the Rusty Wallace Automotive Group, a group of eight
automotive dealerships located in Eastern Tennessee, and owns Rusty
Wallace Racing, which has fielded entrees in the NASCAR Cup Series.
Mr. Wallace competed in NASCAR races for more than 16 years and had
55 victories prior to his retirement in 2005. Mr. Wallace serves as
an analyst for ABC and ESPN. He is a member of the NASCAR Hall of
Fame, the International Motorsports, Hall of Fame, the Motorsports
Press Association Hall of Fame, and the Motorsports Hall of Fame of
America.
Each
director serves until the next annual meeting of the stockholders
or their earlier resignation or removal. The Board of Directors
elects officers whose terms of office are at the discretion of the
Board of Directors. Each director serves until a successor is
elected and qualified.
Family
Relationships
The
Company’s Executive Vice President is the son of our Chief
Executive Officer, Fred Wagenhals. There are no other family
relationships among our directors and executive
officers.
Director
Independence and Corporate Governance Matters
Our
Board of Directors will periodically review relationships that
directors have with the Company to determine whether the directors
are independent. Directors are considered “independent” as long as
they do not accept any consulting, advisory or other compensatory
fee (other than director fees) from the Company, are not an
affiliated person of the Company or its subsidiaries (e.g., an
officer or a greater-than-ten-percent stockholder) and are
independent within the meaning of applicable laws, regulations and
the Nasdaq listing rules. In this latter regard, the Board of
Directors uses the Nasdaq listing rules (specifically, Section
5605(a)(2) of such rules) as a benchmark for determining which of
its directors are independent.
Our
Board of Directors has determined, after considering all the
relevant facts and circumstances, that Robert J. Goodmanson, Randy
Luth, Harry S. Markley, and Russell W. Wallace Jr. are independent
directors, as “independence” is defined by the listing standards of
the Nasdaq Capital Market and by the SEC, because they have no
relationship with us that would interfere with their exercise of
independent judgment in carrying out their responsibilities as a
director. Fred Wagenhals is not “independent” as defined by the
listing standards, as he is employed by us and serves as an
employee director.
Board Committees
Our
bylaws authorize our Board of Directors to appoint from among its
members one or more committees consisting of one or more directors.
On April 24, 2018, our Board of Directors established an Audit
Committee, a Compensation Committee, and a Nominations and
Corporate Governance Committee, each consisting entirely of
independent directors as “independence” is defined by the SEC and
Nasdaq.
Committee Charters, Corporate Governance Guidelines, and Codes of
Conduct and Ethics
Our
Board of Directors has adopted charters for the Audit,
Compensation, and Nominations and Corporate Governance Committees
describing the authority and responsibilities delegated to each
committee by our Board of Directors. Our Board of Directors has
also adopted Corporate Governance Guidelines, a Code of Conduct,
and a Code of Ethics for the CEO and Senior Financial Officers. We
post on our website, at www.ammoinc.com, the charters of our Audit,
Compensation, and Nominations and Corporate Governance Committees;
our Corporate Governance Guidelines, Code of Conduct, and Code of
Ethics for the CEO and Senior Financial Officers, and any
amendments or waivers thereto; and any other corporate governance
materials specified by SEC regulations. These documents are also
available in print to any stockholder requesting a copy in writing
from our Secretary at the address of our executive
offices.
The Audit Committee
The
purpose of the Audit Committee includes overseeing the accounting
and financial reporting processes of our company and audits of the
financial statements of our company and providing assistance to our
Board of Directors with respect to its oversight of the integrity
of our company’s financial statements, our company’s compliance
with legal and regulatory requirements, the independent registered
public accountant’s qualifications and independence, and the
performance of our company’s independent registered public
accountant. The primary responsibilities of the Audit Committee are
set forth in its charter and include various matters with respect
to the oversight of our company’s accounting and financial
reporting process and audits of the financial statements of our
company on behalf of our Board of Directors. The Audit Committee
also selects the independent registered public accountant to
conduct the annual audit of the financial statements of our
company; reviews the proposed scope of such audit; approves the
fees for services provided by the independent registered public
accountant, reviews accounting and financial controls of our
company with the independent registered public accountant and our
financial accounting staff; and reviews and approves any
transactions between us and our directors, officers, and their
affiliates.
The
Audit Committee currently consists of Robert J. Goodmanson, Randy
Luth, and Russell W. Wallace Jr. Robert J. Goodmanson, whose
background is detailed in the director biographies on the prior
page, qualifies as the “audit committee financial expert” in
accordance with applicable rules and regulations of the SEC. Mr.
Goodmanson serves as Chair of the Audit Committee.
The Compensation Committee
The
purpose of the Compensation Committee includes determining, or when
appropriate, recommending to our Board of Directors for
determination, the compensation of the Chief Executive Officer and
other executive officers of our company and discharging the
responsibilities of our Board of Directors relating to compensation
programs of our company in light of the goals and objectives of our
compensation program for that year. As part of its
responsibilities, the Compensation Committee evaluates the
performance of our Chief Executive Officer and, together with our
Chief Executive Officer, assesses the performance of our other
executive officers. The Compensation Committee is entitled to
delegate its responsibilities to a subcommittee of the Compensation
Committee, which complies with the applicable rules and regulations
of the Nasdaq Capital Market, the SEC, and other regulatory bodies.
From time to time, the Compensation Committee may retain the
services of independent compensation consultants to review a wide
variety of factors relevant to executive compensation, trends in
executive compensation, and the identification of relevant peer
companies. The Compensation Committee makes all determinations
regarding the engagement, fees, and services of its compensation
consultants, and its compensation consultants report directly to
the Compensation Committee.
The
Compensation Committee currently consists of Russell W. Wallace Jr.
and Harry Marley.
The Nominations and Corporate Governance
Committee
The
purpose of the Nominations and Corporate Governance Committee
includes the selection or recommendation to our Board of Directors
of nominees to stand for election as directors at each election of
directors, the oversight of the selection and composition of
committees of our Board of Directors, the oversight of the
evaluations of our Board of Directors and management, and the
development and recommendation to our Board of Directors of a set
of corporate governance principles applicable to our
company.
The
Nominations and Corporate Governance Committee will consider
persons recommended by stockholders for inclusion as nominees for
election to our Board of Directors if the information required by
our bylaws is submitted in writing in. timely manner addressed and
delivered to our Secretary at the address of our executive offices.
The Nominations and Corporate Governance Committee identifies and
evaluates nominees for our Board of Directors, including nominees
recommended by stockholders, based on numerous factors it considers
appropriate, some of which may include strength of character,
mature judgment, career specialization, relevant technical skills,
diversity, and the extent to which the nominee would fill a present
need on our Board of Directors.
The
Nomination and Corporate Governance Committee currently consists of
Randy Luth and Harry Markley.
Executive Sessions
We
regularly schedule executive sessions in which independent
directors meet without the presences or participation of
management. The chairs of various committees of our Board of
Directors serve as the presiding director of such executive
sessions on a rotating basis.
Risk Assessment of Compensation Policies and
Practices
We
have assessed the compensation policies and practices with respect
to our employees, including our executive officers, and have
concluded that they do not create risks that are reasonably likely
to have a material adverse effect on our company.
Board’s Role in Risk Oversight
Risk
is inherent in every business. As is the case in virtually all
businesses, we face a number of risks, including operational,
economic, financial, legal, regulatory, and competitive risks. Our
management is responsible for the day-to-day management of the
risks we face. Our Board of Directors, as a whole and through its
committees, has responsibility for the oversight of risk
management.
In
its oversight role, our Board of Directors’ involvement in our
business strategy and strategic plans plays a key role in its
oversight of risk management, its assessment of management’s risk
appetite, and its determination of the appropriate level of
enterprise risk. Our Board of Directors receives updates at least
quarterly from senior management and periodically from outside
advisors regarding the various risks we face, including
operational, economic, financial, legal, regulatory, and
competitive risks. Our Board of Directors also reviews the various
risks we identify in our filings with the SEC and risks relating to
various specific developments, such as acquisitions, debt and
equity placements, and new service offerings.
Our
board committees assist our Board of Directors in fulfilling its
oversight role in certain areas of risk. Pursuant to its charter,
the Audit Committee oversees the financial and reporting processes
of our company and the audit of the financial statements of our
company and provides assistance to our Board of Directors with
respect to the oversight and integrity of the financial statements
of our company, our company’s compliance with legal and regulatory
requirements, the independent registered public accountant’s
qualification and independence, and the performance of our
independent registered public accountant. The Compensation
Committee considers the risk of our compensation policies and
practices and endeavors to assure that it is not reasonably likely
that our compensation plans and policies would have a material
adverse effect on our company. Our Nominations and Corporate
Governance Committee oversees governance related risk, such as
board independence, conflicts of interests, and management and
succession planning.
Board Diversity
We
seek diversity in experience, viewpoint, education, skill, and
other individual qualities and attributes to be represented on our
Board of Directors. We believe directors should have various
qualifications, including individual character and integrity;
business experience; leadership ability; strategic planning skills,
ability, and experience; requisite knowledge of our industry and
finance, accounting, and legal matters; communications and
interpersonal skills; and the ability and willingness to devote
time to our company. We also believe the skill sets, backgrounds,
and qualifications of our directors, taken as a whole, should
provide a significant mix of diversity in personal and professional
experience, background, viewpoints, perspectives, knowledge, and
abilities. Nominees are not to be discriminated against on the
basis of race, religion, national origin, sex, sexual orientation,
disability, or any other basis proscribed by law. The assessment of
prospective directors is made in the context of the perceived needs
of our Board of Directors from time to time.
All
of our directors have held high-level positions in business or
professional service firms and have experience in dealing with
complex issues. We believe that all of our directors are
individuals of high character and integrity, are able to work well
with others, and have committed to devote sufficient time to the
business and affairs of our company. In addition to these
attributes, the description of each director’s background set forth
above indicates the specific qualifications, skills, perspectives,
and experience necessary to conclude that each individual should
continue to serve as a director of our company.
Board Leadership Structure
We
believe that effective board leadership structure can depend on the
experience, skills, and personal interaction between persons in
leadership roles and the needs of our company at any point in time.
Our Corporate Governance Guidelines support flexibility in the
structure the Board by not requiring the separation of the roles of
Chairman of the Board and Chief Executive Officer.
Our
Board of Directors currently believes that it is in the best
interests of our company to have our Chief Executive Officer also
serve as the Chairman of the Board. We believe that our Chairman
and Chief Executive Officer provides strong, clear, and unified
leadership that is critical in our relationships with our
stockholders, employees, customers, suppliers, and other
stakeholders. The extensive knowledge of the Chief Executive
Officer regarding our operations and industries and the markets in
which we compete uniquely positions him to identify strategies and
prioritize matters for board review and deliberation. Additionally,
we believe the combined role of Chairman and Chief Executive
Officer facilitates centralized board leadership in one person, so
there is no ambiguity about accountability. The Chief Executive
Officer serves as a bridge between management and the Board,
ensuring that both groups act with a common purpose. This structure
also eliminates conflict between two leaders and minimizes the
possibility of two spokespersons sending difference
messages.
The
Board does not believe that combining the position creates
significant risks, including any risk that the Chairman and Chief
Executive Officer will have excessive or undue influence over the
agenda or deliberations of the Board. We believe we have effective
and active oversight by experienced independent directors and
independent committee chairs, and the independent directors meet
together in executive session at virtually every Board
meeting.
The
Chairman of the Board provides guidance to the Board; facilitates
an appropriate schedule for Board meetings; sets the agenda for
Board meetings; presides over meetings of the Board; and
facilitates the quality, quantity, and timeliness of the flow of
information from management that is necessary for the board to
effectively and responsibly perform its duties.
The
Chief Executive Officer is responsible for the day-to-day
leadership of our company and setting our company’s strategic
direction.
Director and Officer Hedging and Pledging
We
have a policy prohibiting directors and officers from purchasing
financial instruments (including prepaid forward contracts, equity
swaps, collars, and exchange funds) designed to hedge or offset
decreases in the market value of compensatory awards of our equity
securities directly or indirectly held by them. Additionally, we
have a policy prohibiting directors and officers from pledging of
shares.
Stock Ownership Guidelines
Our
Board of Directors believes that the alignment of directors’
interests with those of our stockholders is strengthened when board
members are also stockholders. Therefore, our Board of Directors is
adopting minimum stock ownership guidelines under which
non-employee directors are expected to acquire shares of our Common
Stock with a value, at least equal to the annual retainer paid for
serving on the Board. Non-employee directors will be expected to
satisfy at least the minimum guidelines beginning on the later of
five years following (i) the date the guidelines were adopted or
(ii) the date the individual becomes a non-employee director. This
program is designed to ensure that directors acquire a meaningful
ownership interest in our company during their tenure on the
Board.
Clawback Policy
We
have adopted a clawback policy. In the event we are required to
prepare an accounting restatement of our financial results as a
result of a material noncompliance by us with any financial
reporting requirement under the federal securities laws, we will
have the right to use reasonable efforts to recover from any
current or former executive officers who received incentive
compensation (whether cash or equity) from us during the three-year
period preceding the date on which we were required to prepare the
accounting restatement, any excess incentive compensation awarded
as a result of the misstatement. This policy is administered by the
Compensation Committee of our Board of Directors. The policy is
effective for financial statements for periods beginning on or
after April 1, 2018. Once final rules are adopted by the SEC
regarding the clawback requirements under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, we will review this
policy and make any amendments necessary to comply with the new
rules.
Board and Committee Meetings
Our
Board of Directors held six formal boarding meetings and three
formal Audit Committee meetings during year ended March 31, 2020.
Our Board of Directors held four formal Board of Directors meetings
and four formal Audit Committee meetings, and no other formal
Committee Meetings during the year ended March 31, 2019.
Annual Meeting Attendance
We
encourage each of our directors to attend annual meetings of
stockholders. To that end, and to the extent reasonably
practicable, we will schedule a meeting of our Board of Directors
on the same day as our annual meeting of stockholders.
Communications with Directors
Stockholders
and other interested parties may communicate with our Board of
Directors or specific members of our Board of Directors, including
our independent directors and the members of our various board
committees, by submitting a letter addressed to the Board of
Directors of our company in care of any specified individual
director or directors at the address of our executive offices. Any
such letters are sent to the indicated directors.
Compliance with Section 16(a) of Exchange Act
Section
16(a) of the Exchange Act requires the Company’s directors,
executive officers and persons who beneficially own 10% or more of
a class of securities registered under Section 12 of the Exchange
Act to file reports of beneficial ownership and changes in
beneficial ownership with the SEC. Directors, executive officers
and greater than 10% stockholders are required by the rules and
regulations of the SEC to furnish the Company with copies of all
reports filed by them in compliance with Section 16(a). To the
Company’s knowledge, based solely on a review of reports furnished
to it, all of the Company’s officers, directors and ten percent
holders have made the required filings.
Legal Proceedings
During
the past ten years, none of our current directors or executive
officers has been:
|
● |
the
subject of any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to
that time; |
|
|
|
|
● |
convicted
in a criminal proceeding or is subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses); |
|
|
|
|
● |
subject
to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business,
securities or banking activities; |
|
|
|
|
● |
found
by a court of competent jurisdiction (in a civil action), the SEC
or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, that has not been
reversed, suspended, or vacated; |
|
|
|
|
● |
subject
of, or a party to, any order, judgment, decree or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of a federal or state securities or commodities law or
regulation, law or regulation respecting financial institutions or
insurance companies, law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity;
or |
|
|
|
|
● |
subject
of, or a party to, any sanction or order, not subsequently
reversed, suspended or vacated, of any self-regulatory
organization, any registered entity or any equivalent exchange,
association, entity or organization that has disciplinary authority
over its members or persons associated with a member. |
None
of our directors, officers or affiliates, or any beneficial owner
of 5% or more of our Common Stock, or any associate of such
persons, is an adverse party in any material proceeding to, or has
a material interest adverse to, us or any of our
subsidiaries.
EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table sets forth for the year ended March 31, 2020, and
March 31, 2019, information with respect to compensation for
services in all capacities to us and our subsidiaries earned by the
Company’s Chief Executive Officer and all other executive officers
of the Company and any employee of the Company whose cash
compensation exceeded $100,000. We refer to these executive
officers as our “named executive officers.”
|
Name and
Principal Position |
|
Period
Ended |
|
|
Salary
(1) |
|
|
Bonus
(1) |
|
|
Stock
Awards (2) |
|
|
Option
Awards (2) |
|
|
Nonequity
incentive plan compensation |
|
|
Nonqualified deferred
compensation earnings |
|
|
All
other compensation (3) |
|
|
Total |
|
| Fred W.
Wagenhals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| President, Chief
Executive Officer, |
|
|
3/31/2020 |
|
|
$ |
120,000 |
|
|
$ |
0 |
|
|
$ |
180,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
300,000 |
|
| and
Director |
|
|
3/31/2019 |
|
|
$ |
120,000 |
|
|
$ |
0 |
|
|
$ |
156,375 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
276,375 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Steve Hilko
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chief Operating
Officer |
|
|
3/31/2020 |
|
|
$ |
120,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
120,000 |
|
| |
|
|
3/31/2019 |
|
|
$ |
120,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
120,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Robert D.
Wiley(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chief Financial
Officer |
|
|
3/31/2020 |
|
|
$ |
103,333 |
|
|
$ |
0 |
|
|
$ |
86,794 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
190,127 |
|
| |
|
|
3/31/2019 |
|
|
$ |
77,917 |
|
|
$ |
0 |
|
|
$ |
76,395 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
154,312 |
|
(1)
The amounts
in this column reflect the amounts earned during the fiscal year,
whether or not actually paid during such year.
(2)
The amounts in this column reflect the aggregate grant date fair
value of options awards granted to our named executive officers
during the transition period or fiscal year, as applicable,
calculated in accordance with FASB ASC Topic 718. Stock
Compensation . The valuation assumptions used in determining
such amounts are described in the footnotes to our audited
consolidated financial statements included in this Annual Report on
Form 10-K. The amounts reported in this column reflect our
accounting expense for these awards and do not correspond to the
actual economic value that may be received by our named executive
officers from their option awards.
(3)
The named executive officers participate in certain group life,
health, disability insurance, and medical reimbursement plans not
disclosed in the Summary Compensation Table that are generally
available to salaried employees and do not discriminate in scope,
terms, and operation.
(4)
Mr. Hilko assumed his position in March 2017.
(5)
Mr. Wiley assumed his position in January 2019.
Consulting
Agreements, Employment Agreements and Other
Arrangements
As of
March 31, 2020, other than the foregoing as set forth in the Notes
to Summary Compensation Table, the Company has no agreement that
provides for payment to executive officers at, following, or in
connection with the resignation, retirement or other termination,
or a change in control of Company or a change in any executive
officer’s responsibilities following a change in
control.
Director
Compensation
The
following table sets forth, for the year ended March 31, 2020,
information with respect to compensation for services in all
capacities to us and our subsidiaries earned by our directors, who
are not officers, who served during the year ended March 31,
2020.
|
Name and
Principal Position |
|
Fees
Earned
or
Paid In
Cash
(1)
|
|
|
Stock
Awards (2) |
|
|
Option
Awards (2) |
|
|
Nonequity
incentive plan compensation |
|
|
Nonqualified deferred
compensation earnings |
|
|
All other
compensation (3) |
|
|
Total |
|
| Robert J. Goodmanson
(4) |
|
$ |
0 |
|
|
$ |
80,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
80,000 |
|
| Russell William
Wallace Jr. |
|
$ |
0 |
|
|
$ |
80,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
80,000 |
|
| Randy Luth |
|
$ |
0 |
|
|
$ |
80,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
80,000 |
|
| Harry
Markley |
|
$ |
0 |
|
|
$ |
80,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
80,000 |
|
| Dan O’Connor
(5) |
|
$ |
0 |
|
|
$ |
90,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
90,000 |
|
| Tom Jagemann
(6) |
|
$ |
0 |
|
|
$ |
20,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
20,000 |
|
| Kathy Hanrahan
(7) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
(1)
The amounts in this column reflect the amounts earned during the
fiscal year, whether or not actually paid during such
year.
(2)
The amounts in this column reflect the aggregate grant date fair
value of options awards granted to our directors during the
transition period or fiscal year, as applicable, calculated in
accordance with FASB ASC Topic 718. Stock Compensation. The
valuation assumptions used in determining such amounts are
described in the footnotes to our audited consolidated financial
statements included in our Transition Report on Form 10-K for the
transition period ended December 31, 2017. The amounts reported in
this column reflect our accounting expense for these awards and do
not correspond to the actual economic value that may be received by
our named executive officers from their option awards.
(3) We do not currently pay cash compensation for
services of our directors. Instead we make an annual grant to each
director of 40,000 shares of our Common Stock. We reimburse all
officers and directors for reasonable and necessary expenses
incurred in their capacities as such. The named directors do not
participate in certain group life, health, disability insurance,
and medical reimbursement plans not disclosed in the Summary
Compensation Table that are generally available to salaried
employees and do not discriminate in scope, terms, and
operation.
(4)
Mr. Goodmanson was appointed as a member of the Board of Directors
in through an action by written consent of stockholder on May 23,
2019.
(5)
Mr. O’Connor resigned as a member of the Board of Directors on
November 10, 2019.
(6)
Mr. Jagemann resigned as a member of the Board of Directors on
September 19, 2019.
(7)
Ms. Hanrahan was removed as a member of the Board of Directors in
through an action by written consent of stockholders on May 23,
2019.
Outstanding
Equity Awards at Fiscal Year-end
As of
March 31, 2020 and March 31, 2019, there were no outstanding stock
options or restricted stock units. During the fiscal years ended
March 31, 2020 and March 31, 2019, we did not grant any restricted
stock units or stock options but granted restricted stock to
directors, officers, and others who provided services to our
company.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of November 30, 2020, the number of
shares of Common Stock owned of record and beneficially by our
executive officers, directors and persons who hold 5% or more of
the outstanding shares of Common Stock of the Company.
The
amounts and percentages of our Common Stock beneficially owned are
reported on the basis of SEC rules governing the determination of
beneficial ownership of securities. Under the SEC rules, a person
is deemed to be a “beneficial owner” of a security if that person
has or shares “voting power,” which includes the power to vote or
to direct the voting of such security, or “investment power,” which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of
any securities of which that person has the right to acquire
beneficial ownership within 60 days through the exercise of any
stock option, warrant or other right. Under these rules, more than
one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities
as to which such person has no economic interest. Unless otherwise
indicated, each of the stockholders named in the table below, or
his or her family members, has sole voting and investment power
with respect to such shares of our Common Stock. Except as
otherwise indicated, the address of each of the stockholders listed
below is: c/o AMMO, Inc., 7681 East Gray Road, Scottsdale, Arizona
85260.
Applicable
percentage ownership is based on 50,592,311, shares of Common Stock
outstanding as of November 30, 2020. In computing the number of
shares of Common Stock beneficially owned by a person and the
percentage ownership of that person, we deemed to be outstanding
all shares of Common Stock as held by that person or entity that
are currently exercisable or that will become exercisable within 60
days of November 30, 2020.
|
Name and
Address of Beneficial Owner |
|
Common
Stock Owned Beneficially |
|
|
Percent of
Class |
|
|
Named
Executive Officers and Directors |
|
|
|
|
|
|
|
|
| Fred W. Wagenhals, CEO
and director |
|
|
7,481,700 |
(1) |
|
|
14.79 |
% |
| Robert D.
Wiley |
|
|
— |
|
|
|
— |
|
| Steve
Hilko |
|
|
250,000 |
|
|
|
* |
|
| Randy Luth |
|
|
435,000 |
(2) |
|
|
* |
|
| Harry S.
Markley |
|
|
100,000 |
|
|
|
* |
|
| Russell William
Wallace, Jr. |
|
|
420,000 |
|
|
|
* |
|
| Robert J.
Goodmanson |
|
|
60,000 |
|
|
|
— |
|
| All directors and
officers as a group (9 persons) |
|
|
8,746,700 |
|
|
|
17.29 |
% |
|
5% or
greater stockholders |
|
|
|
|
|
|
|
|
| Jagemann Stamping
Company |
|
|
|
|
|
|
|
|
| 5757 W. Custer St.,
Manitowoc, WI 54220 |
|
|
4,750,000 |
|
|
|
9.39 |
% |
| Total |
|
|
13,496,700 |
|
|
|
26.68 |
% |
*
Less than 1%
(1) Mr.
Wagenhals owns a total of 7,481,700 shares of Common Stock,
7,031,700 shares are held directly and 450,000 indirectly as
follows: 150,000 by the Fred W. Wagenhals Trust and 300,000 by
spouse.
(2) Mr.
Luth owns 260,000 shares directly and 175,000 indirectly through
the Randy E Luth Revocable
Trust.
Changes
in Control
Our
principal stockholder owns 7,481,700 shares, or 14.79% of our
outstanding Common Stock. The principal stockholder serves as an
officer and director. They exercise significance influence over the
control of our Company and may be able to cause or prevent a change
in control.
CERTAIN RELATIONSHIPS AND RELATED
PARTY TRANSACTIONS
From
October 2016 through December 2018, our executive offices were
located on East Thomas Road in Scottsdale, Arizona where we leased
approximately 5,000 square feet under a month-to-month triple net
lease for $3,800 per month. This space housed our principal
executive, administration, and marketing functions. Our Chairman,
President, and Chief Executive Officer owned the building in which
these offices were leased. For the year ended March 31, 2020 and
2019, the Company paid $21,800 and $53,013, respectively in rent
for this space.
During
the year ended March 31, 2020, we paid $184,575 in service fees to
an independent contractor, $6,500 in consulting fees to our
Previous Chief Financial Officer, and 60,000 shares in the
aggregate to the Company’s Advisory Committee members for service
for a total value of $113,000. Additionally, at March 31, 2020, the
Company had a receivable of approximately, $14,700 from its
previous Chief Financial Officer. During the year ended March 31,
2019, we paid approximately $168,000 in consulting fees.
In
connection with the acquisition of Jagemann casings, a promissory
note was executed. The promissory note, under which $500,000 was
paid on March 25, 2019 using funds raised for the acquisition, had
a remaining balance at March 31, 2019 of $9,900,000. On April 30,
2019, the original due date of the note was subsequently extended
to April 1, 2020. The note bears interest per annum at
approximately 4.6% payable in arrears monthly. In May of 2019, the
Company paid $1,500,000 on the balance of the note. As of March 31,
2020 and March 31, 2019, we accrued interest of $352,157 and
$22,196, respectively, related to the note. Subsequent to March 31,
2020, the Company extended the promissory note until August 15,
2021.
In
October of 2019, it was made apparent that certain equipment that
was agreed to be delivered free and clear by JSC was not achievable
as JSC was not able to purchase equipment that JSC had leased.
Accordingly, the remaining value of the promissory note was reduced
by $2,596,200. As a result of the change to the purchase price of
the transaction, the Company reduced Equipment for a net value of
$1,871,306, decreased Other Intangible Assets by $766,068,
increased Accounts Receivable by $31,924, and recorded an increase
to Deposits for $9,250 worth of equipment that the Company agreed
to transfer back to JSC. Consequently, accumulated amortization has
decreased by $159,530. Additionally, the Company entered into a
lease to gain possession of the assets that were originally to be
transferred.
Through
the Administrative and Management Services Agreement between the
Company and JSC, the Company purchased approximately $1.9M in
inventory, incurred $394,128 of rent expenses, and incurred
$153,604 of expenses related to support costs such as engineering
and maintenance, among others for the year ended March 31,
2020.
Subsequent
to March 31, 2020, the Company, Enlight and JSC entered into a
Settlement Agreement pursuant to which the parties mutually agreed
to settle all disputes and mutually release each other from
liabilities related to the Amended APA occurring prior to June 26,
2020. Pursuant to the Settlement Agreement, the Company paid JSC
$1,269,977 and provided JSC with: (i) two new promissory notes, a
note of $5,803,800 related to the Seller Note and note of
$2,635,797 for inventory and services, both with a maturity date of
August 15, 2021, (ii) general business security agreements granting
JSC a security interest in all personal property of the Company.
Pursuant to the Notes, the Company is obligated to make monthly
payments totaling $204,295 to JSC. In addition, the Notes have a
mandatory prepayment provision that comes into effect if the
Company conducts a publicly registered offering. Pursuant to such
provision, the Company: (a) upon the closing of an Offering of less
than $10,000,000 would be obligated to pay the lesser of ninety
percent (90%) of the Offering proceeds or seventy (70%) of the then
aggregate outstanding balance of the Notes; and (b) upon the
closing of an Offering of more than $10,000,000 would be obligated
to pay one hundred percent (100%) of the then aggregate outstanding
balance of the Notes. The Company was granted an option to
repurchase up to 1,000,000 of the shares of the Company’s Common
Stock issued to JSC under the Amended APA at a price of $1.50 per
share through April 1, 2021 so long as there are no defaults under
the Settlement Agreement.
On
November 5, 2020, the Company paid $6,000,000 to JSC allocated as
follows: (i) payment in full of Note A, representing the balance
due from the Company to JSC relating to the acquisition of Jagemann
Munition Components in March 2019 and (ii) $592,982 remitted in
partial payment of Note B, resulting in the parties’ execution of
Amended Note B which has a starting principal balance of
$1,687,664. The Amended Note B principal balance carries a 9% per
annum interest rate and is amortized equally over the thirty six
(36) month term. As a result of the payment in full of Note A JSC
shall release the accompanying security interest in Company assets
which secured Note A. Concurrently, upon entry into Amended Note B,
JSC and the Company entered into the First Amendment to General
Business Security Agreement to reflect a revised list of collateral
in which JSC has a security interest.
On
September 23, 2020, the Company and Enlight entered into a
promissory note (the “Forest Street Note”) with Forest Street, LLC
(“Lender”), an Arizona limited liability company wholly owned by
our current Chief Executive Officer, Fred Wagenhals, for the
principal sum of Three Million Five Hundred Thousand & 00/100
Dollars ($3,500,000.00), which accrues interest at 12% per annum.
The Note has a maturity date of September 23, 2022.
Pursuant
to the terms of the Forest Street Note, the Company and Enlight
(collectively, the borrower pursuant to the note) shall pay Lender;
(i) on a monthly basis, beginning October 23, 2020, all accrued
interest (only), (ii) on a quarterly basis, a monitoring fee of 1%
of the principal amount and then accrued interest; and (iii) on the
maturity date, the remaining outstanding principal balance of the
Loan, together with all unpaid accrued interest thereon.
The note
is an unsecured obligation of the Company and is not convertible
into equity securities of the Company.
DESCRIPTION OF COMMON
STOCK
This
section describes the general terms of our Common Stock. Our Common
Stock and the rights of the holders of our Common Stock are subject
to the applicable provisions of the Delaware General Corporation
Law, which we refer to as “Delaware Law,” our certificate of
incorporation, our bylaws, the rights of the holders of our
preferred stock, if any, as well as some of the terms of any
outstanding indebtedness that we may incur.
As of
November 30, 2020, under our certificate of incorporation, we had
the authority to issue 200,000,000 shares of Common Stock, par
value $0.001 per share, of which 50,592,311 shares of our Common
Stock were outstanding as of that date. Additionally, we had the
authority to issues 10,000,000 shares of preferred stock, par value
$0.001 per share and no shares had been issued to date.
The
following description of our Common Stock may not be complete and
is subject to, and qualified in its entirety by reference to
Delaware law and the actual terms and provisions contained in our
certificate of incorporation and our bylaws, each as amended from
time to time.
Voting
Rights
Each
outstanding share of our Common Stock is entitled to one vote per
share of record on all matters submitted to a vote of stockholders
and to vote together as a single class for the election of
directors and in respect of other corporate matters. At a meeting
of stockholders at which a quorum is present, for all matters other
than the election of directors, a majority of the votes cast
decides all questions, unless the matter is one upon which a
different vote is required by express provision of law or our
amended and restated articles of incorporation or our bylaws.
Directors will be elected by a plurality of the votes of the shares
present at a meeting. Holders of shares of Common Stock do not have
cumulative voting rights with respect to the election of directors
or any other matter.
Warrants
As of
November 30, 2020, we had 9,442,575 warrants outstanding. Each
warrant provides the holder the right to purchase up to one share
of our Common Stock at a predetermined exercise price. The
outstanding warrants consist of (1) warrants to purchase 102,273
shares of Common Stock at an exercise price of $1.51 until October
2025; (2) warrants to purchase 50,595 shares of Common Stock at an
exercise price of $1.58 until October 2025; (3) warrants to
purchase 966,494 shares of Common Stock at an exercise price of
$1.65 per share until April 2025; (4) warrants to purchase
4,457,959 shares of our Common Stock at an exercise price of $2.00
per share consisting of 88% of the warrants until April 2023 and
12% until August 2024; (5) warrants to purchase 337,302 shares of
Common Stock at an exercise price of $2.19 until October 2025; (6)
warrants to purchase 2,846,133 shares of Common Stock at an
exercise price of $2.40 until September 2024 and (7) warrants to
purchase 681,819 shares of Common Stock at an exercise price of
$2.67 until October 2025.
Options
As of
November 30, 2020, there are no outstanding options to purchase our
securities.
Dividends
Holders
of our Common Stock are entitled to receive dividends or other
distributions when, as, and if declared by our board of directors.
The right of our board of directors to declare dividends, however,
is subject to any rights of the holders of other classes of our
capital stock, any indebtedness outstanding from time to time, and
the availability of sufficient funds under Delaware law to pay
dividends.
Preemptive
Rights
The
holders of our Common Stock generally do not have preemptive rights
to purchase or subscribe for any of our capital stock or other
Common Stock.
Redemption
The
shares of our Common Stock are not subject to redemption by
operation of a sinking fund or otherwise.
UNDERWRITING
Alexander
Capital, L.P. is acting as the book running manager of the
offering, and we have entered into an underwriting agreement on the
date of this prospectus, with them as representative of the
underwriters. Subject to the terms and conditions of the
underwriting agreement, we have agreed to sell to each underwriter
named below, and each underwriter named below has severally agreed
to purchase, at the public offering price less the underwriting
discounts set forth on the cover page of this prospectus, the
number of shares of Common Stock listed next to its name in the
following table:
|
Name
of Underwriter |
|
Number
of Shares |
|
|
Alexander
Capital, L.P. |
|
|
5,945,237 |
|
|
Kingswood
Capital Markets |
|
|
2,619,048 |
|
| |
|
|
|
|
| Total |
|
|
8,564,285 |
|
The
underwriters are committed to purchase all the shares of Common
Stock offered by us other than those covered by the option to
purchase additional shares described below, if they purchase any
shares. The obligations of the underwriters may be terminated upon
the occurrence of certain events specified in the underwriting
agreement. Furthermore, pursuant to the underwriting agreement, the
underwriters’ obligations are subject to customary conditions,
representations and warranties contained in the underwriting
agreement, such as receipt by the underwriters of officers’
certificates and legal opinions.
We have
agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect
thereof.
The
underwriters are offering the shares, subject to prior sale, when,
as and if issued to and accepted by them, subject to approval of
legal matters by their counsel and other conditions specified in
the underwriting agreement. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject
orders in whole or in part.
Over-allotment
Option
We have
granted the underwriters an over-allotment option. This option,
which is exercisable for up to 45 days after the date of this
prospectus, permits the underwriters to purchase a maximum of
1,284,643 additional shares (15% of the shares sold in this
offering) from us to cover over-allotments, if any. If the
underwriters exercise all or part of this option, it will purchase
shares covered by the option at the public offering price per share
that appears on the cover page of this prospectus, less the
underwriting discount. If this option is exercised in full, the
total offering price to the public will be $20,682,748.80 and the
total net proceeds, before expenses, to us will be
$18,919,790.60.
Discount
The
following table shows the public offering price, underwriting
discount and proceeds, before expenses, to us. The information
assumes either no exercise or full exercise by the underwriters of
their over-allotment option.
| |
|
Per Share |
|
|
Total Without
Over- Allotment Option
|
|
|
Total With
Over- Allotment Option
|
|
| Public offering price |
|
$ |
2.10 |
|
|
|
17,984,998.50 |
|
|
|
20,682,748.80 |
|
| Underwriting discount (8.5%) |
|
$ |
0.179 |
|
|
|
1,533,007.02 |
|
|
|
1,762,958.11 |
|
| Proceeds, before expenses, to us |
|
$ |
1.921 |
|
|
|
16,451,991.48 |
|
|
|
18,919,790.69 |
|
The
underwriters propose to offer the shares offered by us to the
public at the public offering price per share set forth on the
cover of this prospectus. In addition, the underwriters may offer
some of the shares to other securities dealers at such price less a
concession of $0.084 per share. If all of the shares offered
by us are not sold at the public offering price per share, the
underwriters may change the offering price per share and other
selling terms by means of a supplement to this
prospectus.
We will
pay the out-of-pocket accountable expenses of the underwriters in
connection with this offering. The underwriting agreement, however,
provides that in the event the offering is terminated, any advance
expense deposits paid to the underwriters will be returned to the
extent that offering expenses are not actually incurred in
accordance with FINRA Rule 5110(f)(2)(C).
We have
agreed to pay the underwriters’ non-accountable expenses allowance
equal to 1% of the public offering price of the shares (excluding
shares that we may sell to the underwriters to cover
over-allotments). We have also agreed to pay the underwriters’
expenses relating to the offering, including (a) all filing fees
incurred in clearing this offering with FINRA; (b) fees, expenses
and disbursements relating to background checks of our officers and
directors; (c) all fees, expenses and disbursements relating to the
registration, qualification or exemption of securities offered
under the securities laws of foreign jurisdictions designated by
the underwriters; (d) stock transfer and/or stamp taxes, if any,
payable upon the transfer of shares of our Common Stock to the
underwriters; (e) the costs associated with bound volumes of the
public offering materials as well as Lucite cube mementos; (f) the
cost associated with the underwriter’s use of book-building and
compliance software for the offering, (g) the underwriters’ actual
accountable road show expenses for the offering; and (h) up to
$75,000 for the fees of the underwriters’ counsel; provided, the
maximum amount we have agreed to pay the underwriters for items
(b), (e), (f), (g) and (h) above is $100,000. We have agreed to pay
an expense deposit of $25,000, or the Advance, to the underwriters,
which will be applied against the out-of-pocket accountable
expenses that will be payable by us to the underwriters in
connection with this offering. Any portion of the Advance will be
returned to us in the event it is not actually incurred.
We have
granted to the underwriters a right of first refusal to act as sole
investment banker, sole book-runner and/or sole underwriter in
connection with any public underwriting or private placement of
debt or equity securities until nine (9) months after completion of
this offering, subject to certain exceptions.
We
estimate that the total expenses of the offering payable by us,
excluding underwriting discounts and commissions, will be
approximately $580,000.
Discretionary
Accounts
The
underwriters do not intend to confirm sales of the securities
offered hereby to any accounts over which they have discretionary
authority.
Underwriter
Warrants
We have
agreed to issue to the underwriters warrants to purchase up to a
total of 428,214 shares of Common Stock (5% of the shares of Common
Stock sold in this offering (excluding the shares sold through the
exercise of the over-allotment option)). The warrants are
exercisable at $2.63 per share (125% of the public offering price)
commencing on a date which is 180 days from the effective date of
the offering under this prospectus supplement and expiring on a
date which is no more than five (5) years from the effective date
of the offering in compliance with FINRA Rule 5110(f)(2)(G). The
warrants have been deemed compensation by FINRA and are therefore
subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA.
The underwriters (or their permitted assignees under the Rule) will
not sell, transfer, assign, pledge, or hypothecate these warrants
or the securities underlying these warrants, nor will it engage in
any hedging, short sale, derivative, put, or call transaction that
would result in the effective economic disposition of the warrants
or the underlying securities for a period of 180 days from
effectiveness. In addition, the warrants provide for “piggy-back”
registration rights with respect to the shares underlying the
warrants, exercisable in certain cases for a period of no more than
seven (7) years from the effective date of the offering. We will
bear all fees and expenses attendant to registering the securities
issuable on exercise of the warrants other than underwriting
commissions incurred and payable by the holders. The exercise price
and number of shares issuable upon exercise of the warrants may be
adjusted in certain circumstances including in the event of a stock
dividend, extraordinary cash dividend or our recapitalization,
reorganization, merger or consolidation. However, the warrant
exercise price or underlying shares will not be adjusted for
issuances of shares of Common Stock at a price below the warrant
exercise price.
Electronic Offer,
Sale and Distribution of Shares
A
prospectus in electronic format may be made available on the
websites maintained by the underwriters, if any, participating in
this offering and the underwriters participating in this offering
may distribute prospectuses electronically. The underwriters may
agree to allocate a number of shares for sale to its online
brokerage account holders. Internet distributions will be allocated
by the underwriters that will make internet distributions on the
same basis as other allocations. Other than the prospectus in
electronic format, the information on these websites is not part
of, nor incorporated by reference into, this prospectus or the
registration statement of which this prospectus forms a part, has
not been approved or endorsed by us or the underwriters in their
capacity as underwriters, and should not be relied upon by
investors.
Stabilization
In
connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions,
syndicate-covering transactions, penalty bids and purchases to
cover positions created by short sales.
| |
● |
Stabilizing
transactions permit bids to purchase shares so long as the
stabilizing bids do not exceed a specified maximum and are engaged
in for the purpose of preventing or retarding a decline in the
market price of the shares while the offering is in
progress.
|
| |
● |
Over-allotment
transactions involve sales by the underwriters of shares in excess
of the number of shares the underwriters are obligated to purchase.
This creates a syndicate short position which may be either a
covered short position or a naked short position. In a covered
short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares
in the over-allotment option. The underwriters may close out any
short position by exercising their over-allotment option and/or
purchasing shares in the open market.
|
| |
|
|
| |
● |
Syndicate
covering transactions involve purchases of shares in the open
market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among
other things, the price of shares available for purchase in the
open market as compared with the price at which they may purchase
shares through exercise of the over- allotment option. If the
underwriters sell more shares than could be covered by exercise of
the over-allotment option and, therefore, have a naked short
position, the position can be closed out only by buying shares in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that after pricing there
could be downward pressure on the price of the shares in the open
market that could adversely affect investors who purchase in the
offering.
|
| |
|
|
| |
● |
Penalty
bids permits the underwriters to reclaim a selling concession from
a syndicate member when the shares originally sold by that
syndicate member are purchased in stabilizing or syndicate covering
transactions to cover syndicate short positions.
|
These
stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our shares of Common Stock or preventing or
retarding a decline in the market price of our shares of Common
Stock. As a result, the price of our Common Stock or warrants in
the open market may be higher than it would otherwise be in the
absence of these transactions. Neither we nor the underwriters make
any representation or prediction as to the effect that the
transactions described above may have on the price of our Common
Stock. These transactions may be effected on The Nasdaq Capital
Market, in the over-the-counter market or otherwise and, if
commenced, may be discontinued at any time.
Passive
Market Making
In
connection with this offering, the underwriters may engage in
passive market making transactions in our Common Stock on the
Nasdaq Capital Market in accordance with Rule 103 of Regulation M
under the Exchange Act, during a period before the commencement of
offers or sales of the shares and extending through the completion
of the distribution. A passive market maker must display its bid at
a price not in excess of the highest independent bid of that
security. However, if all independent bids are lowered below the
passive market maker’s bid, then that bid must then be lowered when
specified purchase limits are exceeded.
Other
Relationships
The
underwriters and their respective affiliates may, in the future
provide various investment banking, commercial banking and other
financial services for us and our affiliates for which they have
received, and may in the future receive, customary fees. However,
except as disclosed in this prospectus, we have no present
arrangements with the underwriters for any further
services.
Offer
Restrictions Outside the United States
Other than
in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the securities
offered by this prospectus in any jurisdiction where action for
that purpose is required. The securities offered by this prospectus
may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in
connection with the offer and sale of any such securities be
distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. Persons into whose
possession this prospectus comes are advised to inform themselves
about and to observe any restrictions relating to the offering and
the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any securities offered by this prospectus in any jurisdiction in
which such an offer or a solicitation is unlawful.
LEGAL MATTERS
The
validity of the securities offered hereby has been passed upon for
us by Lucosky Brookman LLP. Cozen O’Connor P.C. is acting as
counsel to the underwriters in connection with certain legal
matters relating to this offering.
INTERESTS OF NAMED EXPERTS AND
COUNSEL
No
expert or counsel named in this prospectus as having prepared or
certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other
legal matters in connection with the registration or offering of
the Common Stock was employed on a contingency basis, or had, or is
to receive, in connection with the offering, a substantial
interest, direct or indirect, in the registrant or any of its
parents or subsidiaries. Nor was any such person connected with the
registrant or any of its parents or subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director,
officer, or employee.
The
consolidated balance sheets as of March 31, 2020 and the related
consolidated statements of operations, stockholders’ equity, and
cash flows included in this prospectus and in the registration
statement have been so included in reliance on the reports of
Marcum LLP, independent registered public accounting firms,
included herein, given on the authority of said firm as experts in
accounting and auditing. The report thereon contains an explanatory
paragraph which describe the conditions that raise substantial
doubt about the Company’s ability to continue as a going concern
and are contained in Note 2 to the consolidated financial
statements.
The
consolidated balance sheets as of March 31, 2019 and the related
consolidated statements of operations, stockholders’ equity, and
cash flows included in this prospectus and in the registration
statement have been so included in reliance on the reports of KWCO,
PC, independent registered public accounting firms, included
herein, given on the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We
file annual, quarterly, and current reports, proxy statements, and
other information with the SEC. Our SEC filings are available to
the public from the SEC’s website at www.sec.gov. The SEC’s
website contains reports, proxy and information statements, and
other information regarding issuers that file electronically with
the SEC.
This
prospectus is part of a registration statement on Form S-1 that we
filed with the SEC to register the securities offered hereby under
the Securities Act. This prospectus does not contain all of the
information included in the registration statement, including
certain exhibits and schedules. For further information with
respect to our company and the securities offered by this
prospectus, as well as the exhibits and schedules to the
registration statement, we refer you to the registration statement,
those exhibits and schedules, and to the information incorporated
by reference in this prospectus. You may obtain the registration
statement and exhibits to the registration statement from the SEC’s
website.
AMMO,
INC.
Index to the
Financial Statements
| Description |
|
Page |
| |
|
|
| Report of Marcum,
LLP |
|
F-2 |
| Report of KWCO,
PC |
|
F-3 |
| Consolidated Balance
Sheets as of March 31, 2020 and March 31, 2019 |
|
F-4 |
| Consolidated
Statements of Operations for the year ended March 31, 2020 and
March 31, 2019 |
|
F-5 |
| Consolidated
Statements of Stockholders’ Equity for the year ended March 31,
2020, and March 31, 2019 |
|
F-6 |
| Consolidated
Statements of Cash Flows for the year ended March 31, 2020 and
March 31, 2019 |
|
F-7 |
| Condensed Consolidated Balance Sheets as of
September 30, 2020 (Unaudited) and March 31,
2020 |
|
F-29 |
| Condensed Consolidated Statements of Operations
(Unaudited) for the three and six months ended September 30, 2020
and 2019 |
|
F-30 |
| Condensed Consolidated Statement of Shareholders’
Equity (Unaudited) for the three and six months ended September 30,
2020 and 2019 |
|
F-31 |
| Condensed Consolidated Statements of Cash flow
(Unaudited) for the six months ended September 30, 2020 and
2019 |
|
F-32 |
| Notes to Condensed Consolidated Financial
Statements (Unaudited) |
|
F-34 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of
AMMO,
Inc.
Opinion
on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
AMMO, Inc. and Subsidiaries (the “Company”) as of March 31, 2020,
the related consolidated statements of operations, stockholders’
equity and cash flows for the year ended March 31, 2020, and the
related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the
Company as of March 31, 2020, and the results of its operations and
its cash flows for the year ended March 31, 2020, in conformity
with accounting principles generally accepted in the United States
of America.
Explanatory
Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more
fully described in Note 2, the Company has incurred significant
losses and needs to raise additional funds to meet its obligations
and sustain its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audit
included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audit provides a reasonable basis for our opinion.
Adoption of New
Accounting Standards
ASU No.
2016-02
As
discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for leases in 2019 due to
the adoption of ASU No. 2016-02, Leases (Topic 842), as
amended, effective January 1, 2019, using the modified
retrospective approach.
|
/s/
Marcum llp |
|
| Marcum llp |
|
We have
served as the Company’s auditor since 2020.
New York,
NY
August 19, 2020
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Ammo, Inc.
Scottsdale, Arizona 85260
Opinion
on the consolidated financial statements
We have
audited the accompanying consolidated balance sheet of Ammo, Inc.
(the Company) as of March 31, 2019, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for
the year ended March 31, 2019, and the related notes (collectively
referred to as the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the
Company as of March 31, 2019, and the consolidated results of its
operations and its cash flows for the year ended March 31, 2019, in
conformity with accounting principles generally accepted in the
United States of America.
Basis
for opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities law and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit
included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.
We have
served as the Company’s auditor since 2016.
Odessa,
Texas
June 28,
2019
Ammo,
Inc.
CONSOLIDATED BALANCE
SHEETS
| |
|
March 31,
2020 |
|
|
March 31,
2019 |
|
| |
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current
Assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
884,274 |
|
|
$ |
2,181,246 |
|
| Accounts receivable,
net of allowance for doubtful account of $62,248 at March 31, 2020
and $129,365 at March 31, 2019 |
|
|
3,004,839 |
|
|
|
1,225,911 |
|
| Due from related
parties |
|
|
15,807 |
|
|
|
19,565 |
|
| Inventories, at lower
of cost or net realizable value, principally average cost
method |
|
|
4,408,073 |
|