Outdoor Holding Co S-3, filed Feb 5, 2021
Outdoor Holding Co (POWW)
As filed with the Securities and Exchange Commission on February 5, 2021
Registration No.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AMMO, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 83-1950534 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
7681 East Gray Road
Scottsdale, Arizona 85260
(480) 947-0001
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Fred W. Wagenhals
President and Chief Executive Officer
7681 East Gray Road
Scottsdale, Arizona 85260
(480) 947-0001
(Address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Joseph M. Lucosky, Esq.
Steven A. Lipstein, Esq.
Lucosky Brookman LLP
101 Wood Avenue South, 5th Floor
Woodbridge, NJ 08830
(732) 395-4400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective on filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. [ ]
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-accelerated filer | [X] | Smaller reporting company | [X] | |
| Emerging growth company | [ ] |
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount of Shares to be Registered (1) | Proposed Maximum Offering Price per Share (2) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | ||||||||||||
| Common Stock, par value $0.001 per share | 2,309,557 | $ | 5.32 | $ | 12,286,843.24 | $ | 1,340.49 | |||||||||
| Common Stock, $0.001 par value per share, issuable upon exercise of the January 2020 Investor Warrants | 282,671 | (3) | $ | 5.32 | $ | 1,503,809.72 | $ | 164.07 | ||||||||
| Total | 2,592,228 | - | $ | 13,790,652.96 | $ | 1,504.56 | ||||||||||
| (1) | Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares of Common Stock (as defined on the cover page of the prospectus) being registered hereunder include such indeterminate number of shares of Common Stock as may be issuable with respect to the shares of Common Stock being registered hereunder as a result of stock splits, stock dividends or similar transactions. |
| (2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) and 457(g) under the Securities Act of 1933, as amended, using the average high and low prices of the common stock on the Nasdaq Capital Market on January 29, 2021 (pursuant to Rule 457(g), the average high and low prices is higher than the exercise price of the January 2020 Investor Warrants (as defined on page 2 of the prospectus)). |
| (3) | Represents the maximum number of shares of common stock that the Registrant expects could be issuable upon the exercise of the January 2020 Investor Warrants, all of which were acquired by the Selling Stockholders. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated February 5, 2021.
PROSPECTUS
AMMO, INC.
2,592,228 Shares of Common Stock
This prospectus relates to the resale, from time to time, of up to 2,592,228 shares (the “Shares”) of our common stock, par value $0.001 per share (“Common Stock”), by the selling stockholders identified in this prospectus under “Selling Stockholders” (the “Offering”) pursuant to the January 2020 Offering (as defined on page 2 of the prospectus) (282,671 shares underlying the January 2020 Investor Warrants (as defined on page 2 of the prospectus), 48,413 shares issued pursuant to the exercise of the January 2020 Investor Warrants, and 5,429 shares issued pursuant to the exercise of the Gunnar Affiliate Warrants (as defined on page 3 of the prospectus)), the Summer 2020 Subscriptions (1,605,715 shares), and the TE Shares (as defined on page 6 of the prospectus) (650,000 shares). We are not selling any shares of our Common Stock under this prospectus and will not receive any proceeds from the sale of the Shares. We will, however, receive proceeds from any January 2020 Investor Warrants that are exercised through the payment of the exercise price in cash. The Selling Stockholders will bear all commissions and discounts, if any, attributable to the sale of the Shares. We will bear all costs, expenses and fees in connection with the registration of the Shares.
The Selling Stockholders may sell the Shares from time to time on terms to be determined at the time of sale through ordinary brokerage transactions or through any other means described in this prospectus under “Plan of Distribution.” The prices at which the Selling Stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. No securities may be sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering of such securities.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE THE “RISK FACTORS” ON PAGE 8 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our Common Stock is listed on the Nasdaq Capital Market under the symbol “POWW”. On February 4, 2021, the last reported sale price of our Common Stock on the Nasdaq Capital Market was $7.34 per share.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8 in 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 passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is February , 2021.
TABLE OF CONTENTS
| i |
This prospectus is part of a registration statement on Form S-3 that we filed with the U.S. Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. You should read this prospectus and the information and documents incorporated by reference carefully. Such documents contain important information you should consider when making your investment decision. See “Where You Can Find More Information” and “Incorporation of Certain Information by Reference” in this prospectus.
This prospectus may be supplemented from time to time to add, to update or change information in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in a prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus. This prospectus and any future prospectus supplement do not constitute an offer to sell or a solicitation of an offer to buy any securities in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus or any prospectus supplement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or such prospectus supplement or that the information contained by reference to this prospectus or any prospectus supplement is correct as of any time after its date.
This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”
The Selling Stockholders are offering the Shares only in jurisdictions where such offer is permitted. The distribution of this prospectus and the sale of the Shares in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the distribution of this prospectus and the sale of the Shares outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the Shares by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement, you should rely on the prospectus supplement. Before purchasing any securities, you should carefully read both this prospectus and the applicable prospectus supplement, together with the additional information described under the heading “Where You Can Find More Information; Incorporation by Reference.”
We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and the applicable prospectus supplement to this prospectus is accurate as of the date on its respective cover, and that any information incorporated by reference is accurate only as of the date of the document incorporated by reference, unless we indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.
When we refer to “Ammo,” “we,” “our,” “us” and the “Company” in this prospectus, we mean Ammo, Inc., unless otherwise specified. When we refer to “you,” we mean the holders of the applicable series of securities.
| ii |
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
is prospectus contains forward-looking statements. These forward-looking statements contain information about our expectations, beliefs or intentions regarding our product development and commercialization efforts, business, financial condition, results of operations, strategies or prospects, and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements may be identified by words such as “expects,” “plans,” “projects,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,” and other words of similar meaning.
These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this prospectus, in any related prospectus supplement and in any related free writing prospectus.
Any forward-looking statement in this prospectus, in any related prospectus supplement and in any related free writing prospectus reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus, any related prospectus supplement and any related free writing prospectus and the documents that we reference herein and therein and have filed as exhibits hereto and thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
This prospectus, any related prospectus supplement and any related free writing prospectus also contain or may contain estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated size of those markets and their projected growth rates. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.
| iii |
This summary highlights certain information about us, this offering and information appearing elsewhere in this prospectus and in the documents we incorporate by reference. This summary is not complete and does not contain all of the information that you should consider before investing in our securities. To fully understand this offering and its consequences to you, you should read this entire prospectus carefully, including the information referred to under the heading “Risk Factors” in this prospectus beginning on page 8, the financial statements and other information incorporated by reference in this prospectus when making an investment decision. This is only a summary and may not contain all the information that is important to you. You should carefully read this prospectus, including the information incorporated by reference therein, and any other offering materials, together with the additional information described under the heading “Where You Can Find More Information.”
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.
| 1 |
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 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 Common Stock.
| 2 |
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 (the ten (10) investors are collectively referred to herein as the “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 issued a total of 1,019,121 January 2020 Investor Warrants at exercise prices ranging from $2.19 to $2.67. As of February 1, 2021, 736,450 January 2020 Investor Warrants have been exercised. Four of the Investors hold 282,671 January 2020 Investor Warrants and are Selling Stockholders in this Offering.
| 3 |
Additionally, pursuant to the Subscription Agreements, the Company issued a total of 152,868 Gunnar Affiliate Warrants with exercise prices ranging from $1.51 to $1.58.
The form of the January 2020 Investor Warrants is incorporated as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference. The summary of such January 2020 Investor Warrants contained in this prospectus is qualified in its entirety by reference to its text. We urge you to read the form of January 2020 Investor Warrants in full.
Summer 2020 Subscriptions
In June 2020 and in August 2020, the Company entered into Subscription Agreements (the “Summer 2020 Subscription Agreements”) with a total of nine (9) investors whereby the Company sold and the investors purchased 1,605,715 shares of Common Stock at a price per share of $1.75 for total gross proceeds to the Company of $2,809,996. The sale of the 1,605,715 shares of Common Stock is referred to herein as the “Summer 2020 Subscriptions.”
The form of the Summer 2020 Subscription Agreements is incorporated as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference. The summary of such Summer 2020 Subscription Agreements contained in this prospectus is qualified in its entirety by reference to its text. We urge you to read the form of Summer 2020 Subscription Agreements in full.
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 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.
| 4 |
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. On February 2, 2021 the Company completed the repurchase of 1,000,000 shares of Common stock issued to Jagemann Stamping for $1,500,000 or $1.50 per share. The Company subsequently retired the 1,000,000 of repurchased shares.
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 (the “Maturity Date”).
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.
On December 14, 2020, the Company entered into a Debt Conversion Agreement (the “Agreement”) with Forest Street, LLC, whereby the Company and Forest Street agreed to convert Two Million One Hundred Thousand & 00/100 Dollars ($2,100,000.00) of the Forest Street Note’s principal into one million (1,000,000) shares of the Company’s common stock (the “Share Issuance”). The Share Issuance occurred on December 15, 2020. As a result of the Agreement, the principal of the Forest Street Note is now One Million Four Hundred Thousand & 00/100 Dollars ($1,400,000.00) and the Maturity Date remains the same.
On January 14, 2021, the Company repaid the $1.4 million balance remaining on the Forest Street Note.
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 used 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 four (4) accredited investors (the “Investors”), for an aggregate purchase price of $1,989,000 (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 Company’s 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.
| 5 |
Underwritten Offering
On November 30, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P. (“Alexander Capital”), as representative of the underwriters listed therein (the “Underwriters”), pursuant to which the Company agreed to sell to the Underwriters in a firm commitment underwritten public offering (the “Underwritten Offering”) an aggregate of 8,564,285 shares of the Common Stock, at a public offering price of $2.10 per share. In addition, the Underwriters were granted an over-allotment option (the “Over-allotment Option”) for a period of 45 days to purchase up to an additional 1,284,643 shares of Common Stock. The Underwritten Offering closed on December 3, 2020. The Over-allotment Option closed on December 11, 2020.
The Company conducted the Underwritten Offering pursuant to a Registration Statement on Form S-1 (File No. 333- 248800), as amended, which was declared effective by the United States Securities and Exchange Commission on November 30, 2020 (the “S-1 Registration Statement”).
The net proceeds to the Company from the Underwritten Offering, after deducting the underwriting discount, the underwriters’ fees and expenses and the Company’s estimated Underwritten Offering expenses, were approximately $15,876,000. The Company anticipates using the net proceeds from the Underwritten Offering as follows: (i) approximately $5,500,000 for capital expenditures; (ii) 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; (iii) approximately $1,800,000 to upgrade sales and marketing capabilities, including but not limited to professional relations, advertising, software implementation and adding additional staff; and (iv) the remainder for other general corporate purposes, and possibly acquisitions of other companies, products or technologies, though no such acquisitions are currently contemplated.
The net proceeds to the Company from the Over-allotment option, after deducting the underwriting discount, were approximately $2,468,000.
The Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, the Company (for a period of one year after the date of the Underwriting Agreement), and each director and executive officer of the Company (for a period of six months after the date of the final prospectus relating to the Public Offering), have agreed, subject to customary exceptions, not to sell, transfer or otherwise dispose of securities of the Company, without the prior written consent of Alexander Capital.
On December 3, 2020, pursuant to the Underwriting Agreement, the Company entered into an Underwriter’s warrant agreement (the “Underwriters’ Warrant Agreement”) with the Underwriters and certain affiliates of the Underwriters. Pursuant to the Underwriters’ Warrant Agreement, the Company provided the Underwriters and certain affiliates of the Underwriters with a warrant to purchase 428,214 shares of Common Stock in the aggregate. Such warrant may be exercised beginning on May 29, 2021 (the date that is 180 days after the date on which the S-1 Registration Statement became effective) until November 30, 2025 (the date that is five years after the date on which the S-1 Registration Statement became effective). The initial exercise price of the Underwriters’ Warrant Agreement is $2.63 per share.
Nasdaq Listing
The Common Stock began trading on the Nasdaq Capital Market under the symbol POWW on December 1, 2020 following the pricing (and the entering into the Underwriting Agreement) of the Underwritten Offering.
Trending Equities
From November 2020 to January 2021, the Company entered agreements (“TE Agreements”) with Trending Equities (“TE”). Per the terms of the TE Agreements, the Company issued 650,000 shares to TE (the “TE Shares”) at $1.75 for a total value of $1,137,500. TE assisted the Company with developing a strategic timeline, and the organization and presentation of materials related to the Company’s most recent offering roadshow. TE served as a conduit between the Company and the investment community and provided corporate governance advisory services to help the Company implement best practices to meet Nasdaq’s corporate governance requirements. All of the 650,000 shares are being registered in the registration statement of which this prospectus forms a part with a total of 300,000 of these shares having been assigned to Mike Baron, RW Cabo LLC, and Lucid Technologies.
The TE Agreements are incorporated as an exhibit to the registration statement of which this prospectus forms a part and is incorporated herein by reference. The summary of TE Agreements contained in this prospectus is qualified in its entirety by reference to their text. We urge you to read the TE Agreements in full.
| 6 |
| Issuer | Ammo, Inc. | |
| Shares of Common Stock offered by us | None | |
| Shares of Common Stock offered by the Selling Stockholders | 2,592,228 Shares (1) | |
| Shares of Common Stock outstanding before the Offering | 69,180,325 shares (2) | |
| Shares of Common Stock outstanding after completion of this offering, assuming the sale of all shares offered hereby | 69,462,996 shares | |
| Use of proceeds | We will not receive any proceeds from the resale of the Shares by the selling stockholders. | |
| Market for Common Stock | Our Common Stock is listed on The Nasdaq Capital Market under the symbol “POWW.” | |
| Risk Factors | Investing in our securities involves a high degree of risk. See the “Risk Factors” section of this prospectus on page 8 and in the documents we incorporate by reference in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our securities. |
| (1) | This amount consists of (i) 1,605,715 shares of Common Stock issued to nine (9) of the Selling Stockholders in the Summer 2020 Subscriptions; (ii) 282,671 shares of Common Stock underlying the January 2020 Investors Warrants, issued to four (4) of the Selling Stockholders in the January 2020 Offering, (iii) 48,413 shares of Common Stock issued to one (1) of the Selling Shareholders pursuant to the exercise of the January 2020 Investor Warrants, (iv) 5,429 shares of Common Stock issued to one (1) of the Selling Shareholders pursuant to the exercise of the Gunnar Affiliate Warrants and (v) 650,000 shares of Common Stock issued to four (4) of the Selling Stockholders of TE Shares. |
| (2) | The number of shares of Common Stock outstanding before and after the Offering is based on 69,180,325 shares outstanding as of February 1, 2021 and excludes the following: |
| ● | 4,207,301 shares of Common Stock issuable upon the exercise of outstanding warrants having a weighted average exercise price of $2.16 per share; | |
| ● | 50,000 shares of Common Stock underlying convertible notes; and | |
| ● | 4,302,085 shares of Common Stock reserved for future issuance under the Company’s Ammo, Inc. 2017 Equity Incentive Plan, as amended. |
| 7 |
Investment in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. You should carefully consider the risk factors incorporated by reference to our Registration Statement on Form S-1, filed with the SEC on September 15, 2020, as amended, our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K we file after the date of this prospectus, and all other information contained or incorporated by reference into this prospectus, as updated by our subsequent filings under the Exchange Act, and the risk factors and other information contained in the applicable prospectus supplement before acquiring any of such securities. The occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities.
Risks Relating to the Offering
You may lose all of your investment.
Investing in our Common Stock involves a high degree of risk. As an investor, you might never recoup all, or even part of, your investment and you may never realize any return on your investment. You must be prepared to lose all your investment.
The market price of our Common Stock may be highly volatile, you may not be able to resell your shares at or above the public offering price and you could lose all or part of your investment.
The trading price of our Common Stock may be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
| ● | actual or anticipated fluctuations in our revenue and other operating results; | |
| ● | actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; | |
| ● | issuance of our equity or debt securities, or disclosure or announcements relating thereto; | |
| ● | the lack of a meaningful, consistent and liquid trading market for our Common Stock; | |
| ● | additional shares of our Common Stock being sold into the market by us or our stockholders or the anticipation of such sales; | |
| ● | announcements by us or our competitors of significant events or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| ● | changes in operating performance and stock market valuations of companies in our industry; | |
| ● | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; | |
| ● | lawsuits threatened or filed against us; | |
| ● | regulatory developments in the United States and foreign countries; and | |
| ● | other events or factors, including those resulting from the impact of COVID-19 pandemic, war or incidents of terrorism, or responses to these events. |
| 8 |
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating performance.
We do not intend to pay dividends on our Common Stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividend on our Common Stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Additionally, any credit and security agreement that we may enter into in the future will likely contain covenants that will restrict our ability to pay dividends. Any return to stockholders will therefore be limited to the appreciation of their stock.
Sales of a substantial number of shares of our Common Stock in the public market by certain of our stockholders could cause our stock price to fall.
Sales of a substantial number of shares of our Common Stock in the public market or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock.
An active trading market for our Common Stock may not be maintained.
Our Common Stock is currently traded on The Nasdaq Capital Market, but we can provide no assurance that we will be able to maintain an active trading market on this or any other exchange in the future. If an active market for our Common Stock is not maintained, it may be difficult for our stockholders to sell or purchase shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and impair our ability to acquire other companies or technologies using our shares as consideration.
| 9 |
All proceeds from the resale of the Shares offered by this prospectus will belong to the Selling Stockholders. We will not receive any proceeds from the resale of the Shares by the Selling Stockholders.
We will receive proceeds from any cash exercise of the January 2020 Investor Warrants. If all such January 2020 Investor Warrants are fully exercised on a cash basis, we will receive gross cash proceeds of approximately $565,342. We expect to use the proceeds from the exercise of such January 2020 Investor Warrants, if any, for general corporate purposes. General corporate purposes may include providing working capital, funding capital expenditures, or paying for acquisitions. We currently do not have any arrangements or agreements for any acquisitions. We cannot precisely estimate the allocation of the net proceeds from any exercise of the warrants for cash. Accordingly, in the event the January 2020 Investor Warrants are exercised for cash, our management will have broad discretion in the application of the net proceeds of such exercises. There is no assurance that the January 2020 Investor Warrants will ever be exercised for cash.
| 10 |
This prospectus relates to the resale, from time to time, of up to 2,592,228 shares (the “Shares”) of our common stock, par value $0.001 per share (“Common Stock”), by the selling stockholders identified in this prospectus under “Selling Stockholders” (the “Offering”) pursuant to the January 2020 Offering (282,671 shares underlying the January 2020 Investor Warrants, 48,413 shares issued pursuant to the exercise of the January 2020 Investor Warrants, and 5,429 shares issued pursuant to the exercise of the Gunnar Affiliate Warrants), the Summer 2020 Subscriptions (1,605,715 shares), and the TE Shares (650,000 shares).
All expenses incurred with respect to the registration of the Common Stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or other expenses incurred by the Selling Stockholders in connection with the sale of such shares.
Except as indicated below, neither the Selling Stockholders nor any of their associates or affiliates has held any position, office, or other material relationship with us in the past three years.
The following table sets forth the names of the Selling Stockholders, the number of shares of Common Stock beneficially owned by the Selling Stockholders as of the date hereof and the number of shares of Common Stock being offered by the Selling Stockholders. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Stockholders may offer all or part of the shares for resale from time to time. However, the Selling Stockholders are under no obligation to sell all or any portion of such shares. All information with respect to share ownership has been furnished by the Selling Stockholders. The “Number of Shares Beneficially Owned After the Offering” column assumes the sale of all shares offered.
The common stock being offered by the Selling Stockholders are those owned by the Selling Stockholders and those issuable to the Selling Stockholders, upon exercise of the Warrants. We are registering the shares of common stock in order to permit the Selling Stockholders to offer these shares for resale from time to time. Except for the investment in the shares of Common Stock the Selling Stockholders have not had any material relationship with us within the past three years.
The table below lists the Selling Stockholders and other information regarding the beneficial ownership of the shares of common stock by each of the Selling Stockholders. The second column lists the number of shares of common stock beneficially owned by each Selling Stockholder, based on its ownership of the shares of common stock and warrants, as of the date hereof. The third column lists the shares of common stock being offered by this prospectus by the Selling Stockholders.
| 11 |
| Name of Investor | Number of Shares of Common Stock Owned Prior to Offering | % of Shares of Common Stock Owned Prior to Offering | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1) | Number of shares of Common Stock Owned After the Offering | |||||||||||||||
| Mill City Ventures III LTD | 1,000,000 | * | 1,000,000 | - | - | |||||||||||||||
| John Kresevic | 157,143 | * | 157,143 | - | - | |||||||||||||||
| Brandon Glickstein and Charles K Bortz | 42,858 | * | 42,858 | - | - | |||||||||||||||
| Justin Meek | 142,858 | * | 142,858 | - | - | |||||||||||||||
| Ron Wiley | 20,000 | * | 20,000 | - | - | |||||||||||||||
| Evan Williams | 57,140 | * | 57,140 | - | - | |||||||||||||||
| Shane Haglin | 42,858 | * | 42,858 | - | - | |||||||||||||||
| Michael Atkinson | 57,143 | * | 57,143 | - | - | |||||||||||||||
| Jason Mitchell | 85,715 | * | 85,715 | - | - | |||||||||||||||
| Trending Equities | 350,000 | * | 350,000 | - | (2) | - | ||||||||||||||
| Mike Baron | 50,000 | * | 50,000 | - | - | |||||||||||||||
| RW Cabo LLC | 200,000 | * | 200,000 | - | (3) | - | ||||||||||||||
Lucid Technologies | 50,000 | * | 50,000 | - | - | |||||||||||||||
| Stephen A. Stein | 5,429 | * | 5,429 | - | - | |||||||||||||||
| Richard W. Baskerville Lvg Trust | - | * | - | 103,306 | (4) | - | ||||||||||||||
| Dean Britting | - | * | - | 19,841 | (4) | - | ||||||||||||||
| Pinnacle Family Office Investment L.P. | 48,413 | * | 48,413 | 100,000 | (4)(5) | - | ||||||||||||||
| Porter Partners, L.P. | - | * | - | 59,524 | (4) | - | ||||||||||||||
| Total | 2,309,557 | 2,309,557 | 282,671 | |||||||||||||||||
(1) Assumes that the Selling Stockholders sells all of the common stock underlying the January 2020 Investor Warrants.
(2) Mike Baron has voting and investment power over the shares held by Trending Equities.
(3) Roger Agudelo has voting and investment power over the shares held by RW Cabo LLC.
(4) Consists of the Common Stock underlying the January 2020 Investor Warrants.
(5) Barry M. Kitt is the manager of Pinnacle Family Office L.L.C., the general partner of Pinnacle Family Office Investments, L.P., and has voting and investment power over the shares held by Pinnacle Family Office Investments, L.P.
* Less than 1%
| 12 |
The Selling Stockholders may, from time to time, sell, transfer, or otherwise dispose of any or all of their shares of common stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. The Seller Stockholders may use any one or more of the following methods when disposing of shares:
| ● | on any national securities exchange or quotation service on which the shares may be listed or quoted at the time of sale; | |
| ● | in the over-the-counter market; | |
| ● | in transactions otherwise than on these exchanges or systems or in the over-the-counter market; | |
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | short sales; | |
| ● | through the listing or settlement of options or other hedging transactions, whether such options are listed on an options exchange or otherwise; | |
| ● | broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; | |
| ● | a combination of any such methods of sale; and | |
| ● | any other method permitted pursuant to applicable law. |
The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
| 13 |
If the Selling Stockholders effect such transactions by selling shares of Common Stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions, or commissions from the Seller Stockholders or commissions from purchasers of the shares of Common Stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions, or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of Common Stock or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of Common Stock in the course of hedging in positions they assume. The Selling Stockholders may also sell shares of Common Stock short and deliver shares of Common Stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders may also loan or pledge shares of Common Stock to broker-dealers that in turn may sell such shares.
The Selling Stockholders may from time to time pledge or grant a security interest in some or all of the shares of Common Stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of Common Stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of Selling Stockholders to include the pledgee, transferee or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer or donate the shares of Common Stock in other circumstances, in which case the transferees, donees, pledgees, or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
Under the securities laws of some states, the shares of Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any Selling Stockholder will sell any or all of the shares of Common Stock registered pursuant to the registration statement of which this prospectus forms a part.
The Selling Stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, the anti-manipulation rules of Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the Common Stock by the Selling Stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of Common Stock to engage in market-making activities with respect to the shares of common stock.
In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Seller Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
We are required to pay all expenses of the registration of the shares of Common Stock, including SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that the Selling Stockholders will pay all underwriting discounts and selling commissions, if any, and all fees and expenses of their respective legal counsel. We have agreed to indemnify the Selling Stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus. We may be indemnified by the Selling Stockholders against liabilities, including liabilities under the Securities Act, and state security laws, that may arise from any written information furnished to us by the Selling Stockholders specifically for use in this prospectus.
Lucosky Brookman LLP will pass upon certain legal matters relating to the issuance and sale of the securities offered hereby.
| 14 |
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 report of Marcum LLP, independent registered public accounting firm, included herein (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), given on the authority of said firm as experts in accounting and auditing.
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
Available Information
We file reports, proxy statements and other information with the SEC. The SEC maintains a web site that contains reports, proxy and information statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov.
Our website address is https://ammoinc.com. The information on our website, however, is not, and should not be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are part of a registration statement that we filed with the SEC and do not contain all of the information in the registration statement. The full registration statement may be obtained from the SEC or us, as provided below. Forms of the documents establishing the terms of the offered securities are or may be filed as exhibits to the registration statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You should refer to the actual documents for a more complete description of the relevant matters. You may inspect a copy of the registration statement through the SEC’s website, as provided above.
The SEC’s rules allow us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, and subsequent information that we file with the SEC will automatically update and supersede that information. Any statement contained in a previously filed document incorporated by reference will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus modifies or replaces that statement.
We incorporate by reference our documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act” in this prospectus, between the date of this prospectus and the termination of the offering of the securities described in this prospectus. We are not, however, incorporating by reference any documents or portions thereof, whether specifically listed below or filed in the future, that are not deemed “filed” with the SEC, including any information furnished pursuant to Items 2.02 or 7.01 of Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K.
| 15 |
This prospectus and any accompanying prospectus supplement incorporate by reference the documents set forth below that have previously been filed with the SEC:
| ● | Our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the SEC on August 19, 2020. | |
| ● | Our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2020 and September 30, 2020, filed with the SEC on August 19, 2020 and November 13, 2020, respectively. | |
| ● | Our Current Reports on Form 8-K filed with the SEC on September 2, 2020, September 29, 2020, October 28, 2020, November 6, 2020, November 24, 2020, December 4, 2020, December 17, 2020, and January 25, 2021. | |
| ● | The description of our common stock contained in our Registration Statement on Form 8-A, filed with the SEC on November 24, 2020, and any amendment or report filed with the SEC for the purpose of updating such description. |
All reports and other documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this Offering, including all such documents we may file with the SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement, but excluding any information furnished to, rather than filed with, the SEC, will also be incorporated by reference into this prospectus and deemed to be part of this prospectus from the date of the filing of such reports and documents.
You may request a free copy of any of the documents incorporated by reference in this prospectus (other than exhibits, unless they are specifically incorporated by reference in the documents) by writing or telephoning us at the following address:
Ammo, Inc.
7681 East Gray Road
Scottsdale, Arizona 85260
(480) 947-0001
Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus and any accompanying prospectus supplement.
| 16 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an estimate of the expenses (all of which are to be paid by the registrant) that we may incur in connection with the securities being registered hereby.
| SEC registration fee | $ | 1,504.56 | ||
| Legal fees and expenses | 10,000.00 | * | ||
| Accounting fees and expenses | 10,000.00 | * | ||
| Total | $ | 21,504.56 | * |
| * | Estimated |
Item 15. Indemnification of Directors and Officers
Our certificate of incorporation and bylaws provide that we will indemnify and advance expenses, to the fullest extent permitted by the Delaware General Corporation Law, to each person who is or was a director or officer of our company, or who serves or served any other enterprise or organization at the request of our company (an “indemnitee”).
Under Delaware law, to the extent that an indemnitee is successful on the merits in defense of a suit or proceeding brought against him or her by reason of the fact that he or she is or was a director, officer, or agent of our company, or serves or served any other enterprise or organization at the request of our company, we shall indemnify him or her against expenses (including attorneys’ fees) actually and reasonably incurred in connection with such action.
If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, an indemnitee may be indemnified under Delaware law against both (1) expenses, including attorney’s fees, and (2) judgments, fines, and amounts paid in settlement if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of our company, and, with respect to any criminal action, had no reasonable cause to believe his or her conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of our company, where the suit is settled, an indemnitee may be indemnified under Delaware law only against expenses (including attorneys’ fees) actually and reasonably incurred in the defense or settlement of the suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of our company except that if the indemnitee is adjudged to be liable for negligence or misconduct in the performance of his or her duty to our company, he or she cannot be made whole even for expenses unless a court determines that he or she is fully and reasonably entitled to indemnification for such expenses.
Also under Delaware law, expenses incurred by an officer or director in defending a civil or criminal action, suit, or proceeding may be paid by the registrant in advance of the final disposition of the suit, action, or proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified by our company. We may also advance expenses incurred by other employees and agents of our company upon such terms and conditions, if any, that the Board of Directors of the registrant deems appropriate.
Our articles of incorporation and bylaws provide that we may indemnify to the full extent of our power to do so, all directors, officers, employees, and/or agents.
Item 16. Exhibits
(a) Exhibits
A list of exhibits filed with this registration statement on Form S-3 is set forth on the Exhibit Index and is incorporated herein by reference.
| II-1 |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That for the purpose of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| II-2 |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (6) | The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. |
| (7) | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| (8) | The undersigned Registrant hereby undertakes: |
| (1) | That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| II-3 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, State of Arizona, on February 5, 2021.
| Ammo, Inc. | ||
| By: | /s/ Fred W. Wagenhals | |
| Name: | Fred W. Wagenhals | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
POWER OF ATTORNEY: KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert D. Wiley, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ Fred Wagenhals | Chairman of the Board, Chief Executive Officer and President | February 5, 2021 | ||
| Fred Wagenhals | (Principal Executive Officer), Director | |||
| /s/ Robert D. Wiley | Chief Financial Officer | February 5, 2021 | ||
| Robert D. Wiley | (Principal Financial and Principal Accounting Officer) | |||
| /s/ Robert J. Goodmanson | Director |
February 5, 2021 | ||
| Robert J. Goodmanson | ||||
| /s/ Richard Childress | Director | February 5, 2021 | ||
| Richard Childress | ||||
| /s/ Harry S. Markley | Director | February 5, 2021 | ||
| Harry S. Markley | ||||
| /s/ Russell W. Wallace, Jr. | Director | February 5, 2021 | ||
| Russell W. Wallace, Jr. | ||||
| /s/ Jessica M. Lockett | Director | February 5, 2021 | ||
| Jessica M. Lockett |
| II-4 |
EXHIBIT INDEX
| Incorporated by | ||||||||||
| Reference | Filed or Furnished | |||||||||
| Exhibit Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | |||||
| 4.1 | Form of January 2020 Investor Warrant, issued January 2020 | 10-Q | 10.3 | 02/13/2020 | ||||||
| 5.1 | Opinion of Lucosky Brookman LLP | X | ||||||||
| 10.1 | Form of Subscription Agreement for January 2020 Offering | 10-Q | 10.1 | 02/13/2020 | ||||||
| 10.2# | Form of Summer 2020 Subscription Agreement | X | ||||||||
| 10.3 | Compilation of TE Agreements | X | ||||||||
| 23.1 | Consent of Lucosky Brookman LLP (reference is made to Exhibit 5.1) | X | ||||||||
| 23.2 | Consent of Marcum LLP, independent registered public accounting firm | X | ||||||||
| 23.3 | Consent of KWCO, PC, independent registered public accounting firm | X | ||||||||
| 24.1 | Power of Attorney (incorporated by reference to the signature page hereto). |
X | ||||||||
# Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request.
| II-5 |
EXHIBIT 5.1
|
LUCOSKY BROOKMAN LLP 101 Wood Avenue South 5th Floor Woodbridge, NJ 08830
T - (732) 395-4400 F- (732) 395-4401 |
| February 5, 2021 | |
111 Broadway Suite 807 New York, NY 10006
T - (212) 332-8160 F - (212) 332-8161 | |
AMMO, Inc. 7681 East Gray Road Scottsdale, Arizona 85260
|
www. lucbro.com |
| RE: Registration Statement on Form S-3; 2,592,228 Shares of Common Stock of AMMO, Inc., par value $0.001 per share |
Ladies and Gentlemen:
We are acting as counsel for AMMO, Inc., a Delaware corporation (the “Company”), in connection with the registration for resale from time to time by certain selling stockholders (the “Selling Stockholders”) named in the Prospectus (as defined below) of 2,592,228 shares (the “Shares”) of the Company’s common stock, $0.001 par value per share (the “Common Stock”). The Shares include (i) 2,309,557 shares of Common Stock issued by the Company to the Selling Stockholders (the “Common Shares”) and (ii) 282,671 shares of Common Stock issuable upon the exercise of warrants issued to the Selling Stockholders (the “Warrant Holders”) by the Company (the “Warrants,” and the Shares of Common Stock issuable upon exercise of the Warrants, the “Warrant Shares”). The Shares are included in a registration statement on Form S-3 (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Act”), and the related prospectus included in the Registration Statement (the “Prospectus”), filed with the Securities and Exchange Commission (the “Commission”) on February 5, 2021.
This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related Prospectus, other than as expressly stated herein with respect to the issue of the Shares. It is understood that the opinions set forth below are to be used only in connection with the offer while the Registration Statement is in effect.
In rendering these opinions, we have examined the Company’s Certificate of Incorporation and Bylaws, both as amended and currently in effect, the Registration Statement, and the exhibits thereto, and such other records, instruments and documents as we have deemed advisable in order to render these opinions. In such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photo static copies and the authenticity of the originals of such latter documents. In providing these opinions, we have further relied as to certain matters on information obtained from officers of the Company. We are opining herein as to the General Corporation Law of the State of Delaware, and we express no opinion with respect to any other laws.
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof:
1. The issue and sale of the Common Shares have been duly authorized by all necessary corporate action of the Company and the Common Shares are validly issued, fully paid and nonassessable.
2. The issue of the Warrant Shares has been duly authorized by all necessary corporate action of the Company, and when the Warrant Shares have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the Warrant Holders, and have been issued by the Company upon exercise of the Warrants, the Warrant Shares will be validly issued, fully paid and non-assessable.
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading “Legal Matters.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
| Very Truly Yours, | |
| /s/ Lucosky Brookman LLP | |
| Lucosky Brookman LLP |
Exhibit 10.2
THIS OFFERING IS RESTRICTED TO ACCREDITED INVESTORS WITHIN THE MEANING OF RULE 501(a) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).
THIS OFFERING IS BEING MADE PURSUANT TO §4(a)(2) OF THE SECURITIES ACT AND REGULATION D PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR UNDER ANY STATE ACTS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED.
AMMO, INC.
SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE
In order to subscribe for units (“Units”) of AMMO, Inc., a Delaware corporation (the “Company”), a prospective Investor must complete and execute these subscription documents in accordance with the instructions set forth herein. These subscription documents should then be returned as follows:
Fred
Wagenhals
7681 East Gray Road
Scottsdale, AZ 85260
Payments relating to these subscription documents will be made only upon acceptance of this subscription by the Company and pursuant to the closing procedures set forth herein. In respect thereof:
WIRE FUNDS AS FOLLOWS:
Wells Fargo
420
Montgomery Street, San Francisco, CA 94104
ABA/Routing #: 121000248
Account #:
Account Name: Ammo, Inc.
OR
MAKE CHECKS PAYABLE TO AMMO, INC.
If your subscription is not accepted, your original documents and any payments thereon (without interest thereon) will be returned to you. Please be sure that your name appears in exactly the same way in each signature and in each place where it is marked in the documents.
ALL INVESTORS MUST COMPLETE PAGES 2-6 AND SCHEDULE A OF THIS DOCUMENT.
Subscriptions from suitable prospective Investors will be accepted at the sole discretion of the Company after receipt of all subscription documents, properly completed and executed, with the appropriate payment. The Company will notify all subscribers of the closing date for subscriptions that are accepted.
If you have any questions concerning the completion of these subscription documents, please contact Dom Daddio at (480) 947-0001 or @ammo-inc.com.
AMMO, INC.
SUBSCRIPTION AGREEMENT AND QUESTIONNAIRE
1. Subscription. The undersigned, desiring to purchase ________________units (“Units”) of AMMO, Inc., a Delaware corporation (the “Company”), with each Unit comprised of one share of the Company’s restricted common stock, par value $0.001 per share (“Share”), hereby subscribes for and agrees to purchase Units upon acceptance of this Subscription Agreement and Questionnaire (“Subscription Agreement”) on behalf of the Company. The per-Unit purchase price is $1.75. This Subscription Agreement for the offer and sale of ________________ Units is the only offer and sale of Units comprising the “Offering.”
The undersigned is subscribing for Units and has either enclosed a check or sent a wire pursuant to the instructions on the cover page hereto in the amount of $______________________ (the “Purchase Price”). If paying by check, the check must be made payable to Ammo, Inc.
2. Closing. The closing of the purchase and sale of the Units (the “Closing”) will occur on a date and at a time reasonably agreed to by the parties but in no event later than three days after the acceptance of this subscription by the Company. At the Closing, the Company will release a share certificate representing the Units from the possession of a mutually agreed upon third party (which may be a licensed attorney in good standing representing the Company, the undersigned, or otherwise) and to the undersigned; and the undersigned will release payment of funds by wire to the Company.
3. Representations and Warranties of the Undersigned. By executing this Subscription Agreement, the undersigned represents and warrants:
(a) The Units being acquired will be acquired for the undersigned’s own account without a view to public distribution or resale and that the undersigned has no contract, undertaking, agreement, or arrangement to sell or otherwise transfer or dispose of the Units or any portion thereof to any other person.
(b) The undersigned (i) can bear the economic risk of the purchase of the Units, including the total loss of the undersigned’s investment and (ii) has such knowledge and experience in business and financial matters as to be capable of evaluating the merits and risks of an investment in the Units.
(c) The undersigned is an “accredited investor” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the “Securities Act”).
(d) He (she or it) understands the Units will be subject to substantial restrictions on transfer, and must be held without any transfer, sale, or other disposition for the greater of (i) one-hundred eighty (180) days and (ii) upon the Units being subsequently registered under the Securities Act and the securities laws of any applicable jurisdictions or, in the opinion of counsel that is satisfactory to the Company, that registration is not required under such Act or laws as the result of an available exemption. And, that all shares issued under this Agreement, will have a Restrictive Legend imprinted at the time of issuance.
(e) He (she or it) understands the Units are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments, and understandings set forth herein in order to determine the suitability of the undersigned to acquire Units.
(f) He (she or it) understands that no federal or state agency, including the Securities and Exchange Commission or the securities commission or authorities of any state, has approved or disapproved the Units, passed upon or endorsed the merits of the Offering, or made any finding or determination as to the fairness of the Units for public investment.
(g) That (i) if an individual, the undersigned is at least 21 years of age; (ii) if an individual, the undersigned is a United States citizen; (iii) the undersigned has adequate means of providing for the undersigned’s current needs and contingencies; (iv) the undersigned has no need for liquidity in the undersigned’s investments; (v) the undersigned maintains the undersigned’s business residence at the address shown below; (vi) all investments in and commitments to non-liquid investments are, and after the purchase of Units will be, reasonable in relation to the undersigned’s net worth and current needs; and (vii) any financial information provided herewith by the undersigned, or is subsequently submitted by the undersigned at the request of the Company, does or will accurately reflect the undersigned’s financial condition with respect to which the undersigned does not anticipate any material adverse change.
(h) If the undersigned is acquiring Units in a fiduciary capacity (i) the above representations, warranties, agreements, acknowledgments, and understandings shall be deemed to have been made on behalf of the person or persons for whose benefit such Units are being acquired, (ii) the name of such person or persons is indicated below under the subscriber’s name, and (iii) such further information as the Company deems appropriate shall be furnished regarding such person or persons.
(i) The undersigned has full power to execute, deliver, and perform this Subscription Agreement and this Subscription Agreement is a legal and binding obligation and is enforceable against the undersigned in accordance with their respective terms.
(j) The Company has the unconditional right to accept or reject this Subscription Agreement.
(k) The undersigned understands that if the Company rejects this Subscription Agreement or if the Offering is terminated or withdrawn prior to acceptance of this Subscription Agreement, the funds deposited by the undersigned will be refunded promptly and without interest thereon.
(l) He (she or it) understands the undersigned will be required to provide current financial and other information to the Company to enable it to determine whether the undersigned is qualified to purchase Units.
(m) The information provided herein by the undersigned is true and complete and agrees that the Company may rely on the truth and accuracy of the information for purposes of assuring that the Company may rely on the exemptions from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act and Regulation D promulgated under the Securities Act, and of any applicable state statutes or regulations; and, further agrees that the Company may present such information to such persons as it deems appropriate if called upon to verify the information provided or to establish the availability of an exemption from registration under Section 4(a)(2) of the Securities Act, Regulation D, or any state securities statutes or regulations or if the contents are relevant to any issue in any action, suit, or proceeding to which the Company or any agent of the Company is a party or by which it is or may be bound.
(n) He (she or it) understands and acknowledges the future operating results of the Company are impossible to predict and no representations or warranties of any kind are made by the Company.
(o) Neither the Company nor anyone purportedly acting on behalf of the Company has made any representations or warranties respecting the business, affairs, financial condition, plans, or prospects of the Company nor has the undersigned relied on any representations or warranties in the belief that they were made on behalf of any of the foregoing, nor has the undersigned relied on the absence of any such representations or warranties in reaching the decision to purchase Units.
(p) That he (she or it) acknowledges certain information about the Company contained in this Subscription Agreement or provided pursuant hereto is confidential and proprietary to the Company, and is being submitted to the undersigned solely for the undersigned’s confidential use with the express understanding that, without the prior express permission of the Company, the undersigned will not release or reproduce this document or any other document provided herewith or discuss the information contained herein for any purpose other than evaluating a potential investment in the Company.
(q) The undersigned acknowledges he (she or it) is fully familiar with the Company and its business, operations, and condition (financial and other), assets, liabilities, and prospects.
(r) In determining to purchase Units, he (she or it) has relied solely upon the advice of the undersigned’s legal counsel and accountants or other financial advisers with respect to the tax and other considerations relating to the purchase of Units.
(s) The undersigned has had the opportunity to ask questions and receive answers concerning the terms and conditions of the Offering; the business, affairs, operating policies, and prospects of the Company; and any other information, including all documents, records, and books pertaining to the Company the undersigned deems necessary or appropriate to enable the undersigned to make an investment decision in connection with the purchase of Units.
(t) Without limiting the foregoing, the undersigned (i) has had access to and has been offered during the course of discussions concerning the purchase of Units any and all material information (including all books, records, and other documents pertaining to the Company) that the undersigned deems necessary or appropriate to enable the undersigned to make an investment decision in connection with the purchase of Units and (ii) has had the opportunity to ask such questions and inspect such information concerning the Offering and the business, affairs, operations, condition, and assets of the Company as the undersigned deems necessary or appropriate to make an investment decision in connection with the purchase of Units and to enable the undersigned to understand more fully the nature of the undersigned’s investment and to verify the accuracy of the information provided to the undersigned.
(u) The undersigned has received or otherwise had access to the Company’s filings with the United States Securities and Exchange Commission (“SEC”), all of which can be found in the Edgar System on the SEC website, by clicking on the following link: AMMO SEC Filings.
(v) The undersigned understands and acknowledges the Company is subject to a number of important risks and uncertainties that include those set forth on Schedule B hereto.
(w) The undersigned has reviewed the Risk Factors set forth in Schedule B as well as those set forth on the Company’s last Annual Report filed on Form 10-K.
(x) The undersigned understands that even though the Company has agreed to file a registration statement covering the Shares, there can be no guarantee this will be done in a timely manner, and even if it is, there is no guarantee the SEC will allow all of the Shares to be registered, as further discussed in Schedule B.
(y) The Company may be deemed to be a former shell company, as that term is defined and used in the Securities Act, and in particular, Rule 144 promulgated thereunder, and as a result, the availability of Rule 144 for resales of the Shares and the common stock issuable upon exercise of the Warrants may be limited.
4. Representations and Warranties of the Company; Anti-Dilution Covenant. By executing this Subscription Agreement, the Company represents and warrants to, and covenants with, the undersigned as follows:
(a) The Company is a Delaware corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with power and authority to own, lease, use, and operate its properties and to carry on its business as and where now owned, leased, used, operated, and conducted.
(b) All corporate action on the part of the Company, its officers, and directors necessary for the authorization, execution, and delivery of this Subscription Agreement and the authorization, sale, issuance, and delivery of the Units, and the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to the closing of the transactions contemplated hereby. This Subscription Agreement, when executed and delivered by the Company, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(c) In the event the Company issues or sells Additional Shares, as defined below, for consideration per share less than the consideration per share paid by the undersigned ($1.75 per share) (as adjusted for stock splits, stock dividends, reclassifications, reorganizations or other similar capital transactions), then the Company shall issue to the undersigned, simultaneously with such issuance of Additional Shares, that number of shares of Company common stock, and/or such other securities which may be convertible into common stock (in the event that the Additional Shares sold by the Company are securities convertible into, or exercisable for, shares of common stock), necessary to ensure that the undersigned shall have received from the Company the total number of shares of Company common stock that it would have received if it had purchased, pursuant to this Subscription Agreement, Company common stock, or such other securities, at the lower purchase price or conversion price at which Additional Shares are issued. For purposes hereof, “Additional Shares” means any of the following, except Exempt Issuances, as defined below, issued by the Company in the one-year period following the Closing or six (6) months after the Units have been registered, whichever comes sooner (the “Anti-dilution Period”): (i) any shares of Company capital stock; (ii) securities convertible into or exercisable or exchangeable for capital stock of the Company; or (iii) options, warrants or rights carrying any rights to purchase capital stock of the Company. “Exempt Issuance” means the issuance of: (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Company pursuant to any stock or option plan duly or as compensation for services rendered to the Company, and (b) securities issued upon the exercise or exchange of or conversion of any securities and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Subscription Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities.
By way of example, in the event the Company pursues an offering of common stock with a warrant attached in exchange for a purchase price of $1.50 during the Anti-dilution Period, the Company shall issue to the undersigned the difference in common stock the undersigned would have received had he/she/it purchased the Units at $1.50 plus a warrant equivalent to that in which the subscribers in the subsequent offering received.
5. Covenants of the Company. By executing this Subscription Agreement, the Company covenants to the undersigned as follows:
(a) Demand Registration:
i The Company shall file a registration statement covering the resale of the Units (i.e., the shares of Company common stock comprising the Units) with the Securities and Exchange Commission (the “Commission”) within 75 days of the Closing, and thereafter use its best efforts to cause the Commission to declare such registration statement effective under the Securities Act as promptly as practicable but not later than 220 days after the Closing Date. The Company shall notify the undersigned in writing within 24 hours of any declaration of effectiveness of the registration statement by the Commission. All expenses associated with the registration required hereunder shall be borne by the Company.
ii If the Registration Statement covering the Units required to be filed by the Company under Section 5(a)(i) is not (A) filed with the Commission within 75 days after the Closing or (B) declared effective by the Commission within 220 days after the Closing Date (either of which, without duplication, an “Initial Date”), then the Company shall make cash payments to the undersigned as provided in the next sentence as liquidated damages and not as a penalty. In such an event, the amount to be paid by the Company to the undersigned shall be determined as of each Computation Date (as defined below), and such amount shall be equal to 2% (the “Liquidated Damage Rate”) of the Purchase Price (as defined above) paid by the undersigned from the Initial Date to the first Computation Date, and 3% of the Purchase Price for each Computation Date thereafter, calculated on a prorated basis to the date on which the Registration Statement is filed with or declared effective by the Commission, as applicable (the “Periodic Amount”). The Company shall pay the full Periodic Amount to the undersigned by wire transfer of immediately available funds within three business days after each Computation Date. As used in this paragraph, “Computation Date” means the date which is 30 days after the Initial Date and, if the registration statement required to be filed by the Company under this Section 5(a) has not theretofore been declared effective by the Commission, each date which is 30 days after the previous Computation Date until such registration statement is so declared effective. Notwithstanding the above, if the registration statement covering the resale of the Units required to be filed by the Company pursuant to this Section 5(a) shall not have been filed with the Commission within 75 days after the Closing, then the Company shall be in default of this Subscription Agreement.
(b) General Registration Covenants: In connection with any registration required under this Section 5, the Company shall, at its sole expense:
i Promptly prepare and file with the Commission such amendments (including post-effective amendments) to the registration statement and supplements thereto as may be necessary to keep the registration statement continuously effective and in compliance with the provisions of the Securities Act so as to permit the prospectus forming part thereof to be current and useable by the undersigned for resales of Registrable Securities for a period of two years from the date on which the registration statement is first declared effective by the Commission or such shorter period as of which all Registrable Securities covered by the registration statement shall have been properly sold (the “Registration Period”);
ii (A) Register or qualify the Registrable Securities covered by the applicable registration statement under such securities or “blue sky” laws of such jurisdictions as the undersigned may reasonably request, (B) prepare and file in such jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (C) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (D) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions;
iii Cause all the Registrable Securities covered by the registration statement to be maintain its listing on its current principal exchange (OTCQB) or any other national securities exchange, and included in an inter-dealer quotation system of a registered national securities association, on or in which securities of the same class or series issued by the Company are then listed or included;
iv Cooperate with the undersigned to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the registration statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the undersigned may reasonably request and registered in such names as the undersigned may request; and, within three business days after a registration statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities an appropriate instruction and, to the extent necessary, an opinion of such counsel; and
v Take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Investors of their Registrable Securities in accordance with the intended methods therefor provided in the registration statement which are customary under the circumstances.
vi For purposes of Section 5, “Registrable Securities” means: (A) means the Company common stock comprising the Units offered and sold pursuant to this Subscription Agreement; and (B) all shares of Company common stock, if any, issued pursuant to Section 4(c) of this Subscription Agreement.
(c) Rule 144: With a view to making available to the undersigned the benefits of Rule 144 under the Securities Act, the Company agrees to use its best efforts to: (i) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act.
(d) Assignment: The undersigned may assign its rights under this Section 5 upon seven (7) days prior written notice to the Company. Any proposed assignee must certify they are not an affiliate of the Company and may be required to make certain representations at the time of assignment that are reasonable and customary. Further, Company reserves the right to require an opinion of counsel with respect to the sale, assignment or transfer of the Units, in its sole discretion.
6. Miscellaneous.
(a) Choice of Law. This Subscription Agreement and all questions relating to its validity, interpretation, performance, and enforcement, will be governed by and construed in accordance with the laws of the State of Delaware, notwithstanding any Delaware or other conflict-of-law provision to the contrary.
(b) Indemnification. The undersigned hereby agrees to indemnify and hold harmless the Company, and each of their officers, directors, employees, affiliated entities, agents, and counsel against any and all losses, claims, demands, liabilities, and expenses (including reasonable legal or other expenses, including reasonable attorneys’ fees) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person, to which any such indemnified party may become subject under the Securities Act, under any other statue, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by the undersigned and contained in this Subscription Agreement, or (b) arise out of or are based upon any breach by the undersigned of any representation, warranty, or agreement made by the undersigned contained herein or therein.
(c) Binding Agreement. This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and the respective heirs, personal representatives, successors, and assigns of the parties hereto, except that the undersigned may not assign or transfer any rights or obligations under this Subscription Agreement without the prior written consent of the Company.
(d) Entire Agreement. This Subscription Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements, or conditions, express or implied, oral or written, except as herein contained.
(Signature Page Follows)
IN WITNESS WHEREOF, intending to irrevocably bind the undersigned and the heirs, personal representatives, successors, and assigns of the undersigned and to be bound by this Subscription Agreement, the undersigned is executing this Subscription Agreement on the date indicated.
| Dated: | , 2020 | |||
| Name in which Individual Investment Is to Be Registered: | ||||
| (Print Name of Individual Investor) | ||||
| Signature of Individual Investor: | ||||
| (Print Name of Individual Co-Investor) | ||||
| Signature of Individual Co-Investor: | ||||
| Name of corporate, partnership, limited liability company, trust, qualified pension, profit sharing, stock/Keogh, or 401k Plan Investor: | ||||
| By: | ||||
| (Name of first executing party) | ||||
| By: | ||||
| (Signature of first executing party) | ||||
| Its: | ||||
| By: | ||||
| (Name of second executing party, if any) | ||||
| By: | ||||
| (Signature of second executing party, if any) | ||||
| Its: | ||||
| (Social Security or Tax ID Number) | ||||
| ACCEPTED: | ||
| AMMO, INC. | ||
| By: | ||
| Name: | ||
| Its: | ||
| Dated: | , 2020 |
SCHEDULE A
AMMO,
INC.
CONFIDENTIAL SUBSCRIBER QUESTIONNAIRE
(NATURAL PERSONS)
Name(s) of Subscriber(s):*
| (1) | ___________________________________________________________________ | |
| (2) | ___________________________________________________________________ |
1. Background Information. a.
| a. | Home Address ___________________________________________________________ |
| ___________________________________________________________ |
| b. | Primary Telephone: _______________________________________________________ |
| c. | Social Security #(s): _______________________________________________________ |
| d. | U.S. Citizen: _____Yes ______No |
| e. | Occupation: _____________________________________________________________ |
| f. | Employer: ______________________________________________________________ |
| g. | Bus. Address: __________________________________________________________ |
| h. | Bus. Telephone: __________________________________________________________ |
| i. | Date of Birth: ____________________ |
| j. | Send Mail to: _____Home _____ Office |
| Other: ___________________________________________________________ |
| ___________________________________________________________ |
| k. | E-Mail: ___________________________________________________________ |
* If there is more than one Subscriber (other than husband and wife), a separate Confidential Subscriber Questionnaire must be completed for each such Subscriber and attached to this Confidential Subscriber Questionnaire.
2. Type of Ownership.
Please indicate type of ownership subscribed for:
| ________ | Individual | |
| ________ | Joint Tenants | |
| ________ | Joint Tenants with Rights of Survivorship |
| ________ | Tenants in Common | |
| ________ | Tenants by the Entirety |
3. Subscriber Suitability - Accredited Investor.
Please indicate all of the following (if any) certifications applicable to you:
(i) I certify that I am an “accredited investor” because I have an individual net worth (or joint net worth with my spouse) in excess of $1,000,000**.
Yes No
(ii) I certify that I am an “accredited investor” because I had an individual income*** (not including any amounts attributable to my spouse or to property owned by my spouse) of more than $200,000 in each of the previous two calendar years and I reasonably expect to reach the same income level in the current year.
Yes No
(iii) I certify that I am an “accredited investor” because I had a joint income*** with my spouse in excess of $300,000 in each of the previous two calendar years and I reasonably expect to reach the same income level in the current year.
Yes No
(iv) I certify that I have substantial experience in investing in private placements, including private placements of securities of companies in the development stage, and acknowledge that (i) I am able to provide for my current financial needs and foreseeable contingencies and have such knowledge and experience in financial or business matters that I am capable of evaluating the merits and risks of the investment in the Units, (ii) I am able to bear the economic risk of an investment in the Units and I am able to afford a complete loss of such investment.
Yes No
**For purposes of this question, a Subscriber’s “net worth” is equal to the excess of total assets at fair market value over total liabilities excluding, for the purposes of this net worth calculation, the value of such Subscriber’s primary resident, after deducting any mortgage securing such primary residence.
***For purposes of this Questionnaire, “income” means adjusted gross income, as reported for Federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any tax-exempt interest income under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”) received, (ii) the amount of losses claimed as a limited partner in a limited partnership as reported on Schedule E of Form 1040 and (iii) any deduction claimed for depletion under Section 611 et. seq. of the Code.
IF YOU ARE UNABLE TO CERTIFY TO STATEMENT 3(i), (ii) OR (iii) AND (IV) ABOVE, YOU ARE NOT QUALIFIED TO MAKE AN INVESTMENT IN THE UNITS AND MAY NOT PURCHASE ANY UNITS.
4. Disqualification.
Please indicate all of the following (if any) certifications applicable to the Subscriber or any of its executive officers and directors, managing members or executive officers and directors of its managing members (each, for purposes of this Section 5, “you”). If additional space is required to answer any question, please explain your answer in the “Remarks” section below. Please identify all questions answered in this fashion by their respective question numbers:
(i) Have you been convicted, within the past ten years of any felony or misdemeanor (a) in connection with the purchase or sale of any security; (b) involving the making of any false filing with the SEC; or (c) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment advisor or paid solicitor of purchasers of securities?
Yes No
(ii) Are you subject to any order, judgment or decree of any court of competent jurisdiction, entered within the past five years, that currently restrains or enjoins you from engaging or continuing to engage in any conduct or practice: (a) in connection with the purchase or sale of any security; (b) involving the making of any false filing with the SEC; or (c) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities?
Yes No
(iii) Are you subject to a final order of a state securities commission (or an agency of officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the Commodity Futures Trading Commission; or the National Credit Union Administration that: (a) currently bars you from: (1) association with an entity regulated by such commission, authority, agency or officer; (2) engaging in the business of securities, insurance or banking; or (3) engaging in savings association or credit union activities; or (b) constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within the past ten years?
Yes No
(iv) Are you subject to an order of the SEC entered pursuant to section 15(b) or 15B(c) of the Securities Exchange Act of 1934 (the “Exchange Act”) or section 203(e) or 203(f) of the Investment Advisers Act of 1940 (the “Advisers Act”) that currently: (a) suspends or revokes your registration as a broker, dealer, municipal securities dealer or investment adviser; (b) places limitations on the activities, functions or operations of, or imposes civil money penalties on, such person; or (c) bars you from being associated with any entity or from participating in the offering of any penny stock?
Yes No
(v) Are you subject to any order of the SEC, entered within the past five years, that currently orders you to cease and desist from committing or causing a future violation of: (a) any scienter-based anti-fraud provision of the federal securities laws, including, but not limited to, Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(1) of the Advisers Act or any other rule or regulation thereunder; or (b) Section 5 of the Securities Act.
Yes No
(vi) Have you been suspended or expelled from membership in, or suspended or barred from association with a member of, a securities self-regulatory organization (e.g., a registered national securities exchange or a registered national or affiliated securities association) for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade?
Yes No
(vii) Have you filed (as a registrant or issuer), or were you named as an underwriter in any registration statement or Regulation A offering statement filed with the SEC that, within the past five years, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption, or is, at the time of the sale of the securities, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued?
Yes No
(viii) Are you subject to a United States Postal Service false representation order entered within the past five years, or are you currently subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations?
Yes No
If you answered yes to any of the foregoing questions, please explain your answer in the following “Remarks” section. Please identify all questions answered in this fashion by their respective question numbers.
REMARKS:
Question Number: Answer:
5. Reliance by the Company.
I understand that the Company will be relying on the accuracy and completeness of my responses to the foregoing questions and I represent, warrant and covenant to the Company as follows:
(i) The answers to the above questions are complete and correct and may be relied upon by the Company in determining whether the offering in connection with which I have executed this Questionnaire is exempt from registration under the Securities Act and complies with other applicable regulatory requirements; and
(ii) I will notify the Company immediately of any material change in any statement made herein or any event resulting in the omission of any statement required to be made herein that occurs prior to the acceptance of my subscription.
| (Signature of Subscriber) | |
| Dated: __________________, 2020 | |
| (Name Typed or Printed) | |
| (Signature of Co-Subscriber, if any) | |
| (Name Typed or Printed) |
AMMO, INC.
CONFIDENTIAL
SUBSCRIBER QUESTIONNAIRE
(ENTITIES)
Please attach or describe the contents of your (a) Partnership Agreement, (b) Declaration of Trust, (c) Articles of Incorporation or (d) Operating Agreement with this subscription.
1. Background Information.
a. Name of Investing Entity: __________________________________________________
b. Address: ________________________________________________________________
_________________________________________________________________
Address for correspondence (if different):
_________________________________________________________________
_________________________________________________________________
c. Telephone Number: _______________________________________
d. Description of Business: __________________________________________________
_________________________________________________________________
_________________________________________________________________
e. Federal Tax ID Number:
f. Individual(s) authorized to execute documents on behalf of the entity in connection with this investment:
Name: _________________________________________________________________
Position or title: _________________________________________________________________
Note: A power of attorney is required if the Partnership Agreement, Operating Agreement or Trust Agreement does not specifically authorize the above-named individual(s) to make this investment for the Partnership, Trust or Company. In the case of a corporate investor, corporate resolutions authorizing this investment and specifying the individuals authorized to execute investment documents on behalf of the corporation are required to be delivered herewith.
| g. Type of Entity: | ______ Corporation | ||
| ______ Limited Partnership | |||
| ______ General Partnership | |||
| ______ Limited Liability Company | |||
| ______ Limited Liability Partnership | |||
| ______ Revocable Trust* | |||
| ______ Irrevocable Trust | |||
| ______ Estate | |||
| ______ Other __________________________________ | |||
*UNLESS (i) the Trust has total assets in excess of $5,000,000; (ii) the Trust was not formed for the specific purpose of acquiring the Units; and (iii) the purchase by the Trust is directed by a person who has such knowledge and experience in financial and business matters that he/she is capable of evaluating the merits and risks of an investment in the Units, the grantor(s) of the Trust also must provide a completed individual investor questionnaire (Page B-1 to B-5) for each grantor
h. Place of Organization:
i. Date of Organization:
j. Was the entity organized for the specific purpose of investing in AMMO, Inc.?
Yes No
k. Number of equity owners (Note: an “equity owner” for the purposes of this Questionnaire means (1) stockholders in the case of a corporation, (2) limited partners only in the case of a limited partnership, (3) general partners in the case of a general partnership, (4) members in the case of a limited liability company, (5) partners in the case of a limited liability partnership, (6) grantor(s) in the case of a trust revocable at the sole option of grantor(s) or (7) beneficiaries in the case of other trusts or of estates): _________
2. Background Information of Entity’s Signatory.
a. Name: ________________________________________________________________
b. Home Address __________________________________________________________
c. Primary Telephone: ______________________________________________________
d. Social Security #(s): _____________________________________________________
e. U.S. Citizen: _____Yes _____No
f. Occupation: ___________________________________________________
g. Date of Birth: ____________________________________________
h. E-Mail: __________________________________________________
3. Suitable Subscribers - Accredited Investor.
All Subscribers will be required to represent that they qualify under either (i) or (ii) below. Please indicate which of the following you meet:
(i) All of the equity owners of the entity meet one of (1), (2) or (3) and (4) below:
(1) have an individual net worth** (or joint net worth with spouse) in excess of $1,000,000;
(2) had an individual income*** (not including any amounts attributable to spouse or to property owned by spouse) of more than $200,000 in each of the previous two calendar years and a reasonable expectation to reach the same income level in the current year; or
(3) had a joint income with spouse in excess of $300,000 in each of the previous two calendar years and a reasonable expectation to reach the same income level in the current year.
Yes No
And
(4) have experience in investing in private placements, including private placements of securities of companies in the development stage, and acknowledges that (i) am able to provide for their current financial needs and foreseeable contingencies and have such knowledge and experience in financial or business matters that they are capable of evaluating the merits and risks of the investment in the Units, (ii) are able to bear the economic risk of an investment in the Units and, at the present time, are able to afford a complete loss of such investment.
Yes No
**For purposes of this question, a Subscriber’s “net worth” is equal to the excess of total assets at fair market value over total liabilities excluding, for the purposes of this net worth calculation, the value of such Subscriber’s primary resident, after deducting any mortgage securing such primary residence.
***For purposes of this Questionnaire, “income” means adjusted gross income, as reported for Federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any tax-exempt interest income under Section 103 of the Code received, (ii) the amount of losses claimed as a limited partner in a limited partnership as reported on Schedule E of Form 1040 and (iii) any deduction claimed for depletion under Section 611 et. seq. of the Code.
(ii) The Subscriber is any of the following entities (please indicate which by initialing the appropriate line(s)):
(1) _______ A bank or savings and loan association, whether acting in its individual or fiduciary capacity.
(2) _______ A broker-dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934.
(3) _______ An insurance company.
(4) _______ An investment company registered under the Investment Company Act of 1940, or a business development company as defined in said Act.
(5) _______ A Small Business Investment Company licensed by the U.S. Small Business Administration.
(6) _______ A private business development company as defined in the Investment Advisers Act of 1940.
(7) _______ A corporation, Massachusetts or similar business trust or partnership, or any tax exempt organization as defined in Section 501(c)(3) of the Code, not formed for the specific purpose of acquiring Units, with total assets in excess of $5,000,000.
(8) _______ A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring Units, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he/she is capable of evaluating the merits and risks of an investment in the Units.
IF YOU ARE UNABLE TO CERTIFY TO STATEMENT 3(i) OR (ii) ABOVE, YOU ARE NOT QUALIFIED TO MAKE AN INVESTMENT IN THE UNITS AND MAY NOT PURCHASE ANY UNITS.
4. Disqualification.
Please indicate all of the following (if any) certifications applicable to the Subscriber or any of its executive officers and directors, managing members or executive officers and directors of its managing members (each, for purposes of this Section 4, “you”). If additional space is required to answer any question, please explain your answer in the “Remarks” section below. Please identify all questions answered in this fashion by their respective question numbers:
(i) Have you been convicted, within the past ten years of any felony or misdemeanor (a) in connection with the purchase or sale of any security; (b) involving the making of any false filing with the SEC; or (c) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment advisor or paid solicitor of purchasers of securities?
Yes No
(ii) Are you subject to any order, judgment or decree of any court of competent jurisdiction, entered within the past five years, that currently restrains or enjoins you from engaging or continuing to engage in any conduct or practice: (a) in connection with the purchase or sale of any security; (b) involving the making of any false filing with the SEC; or (c) arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities?
Yes No
(iii) Are you subject to a final order of a state securities commission (or an agency of officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the Commodity Futures Trading Commission; or the National Credit Union Administration that: (a) currently bars you from: (1) association with an entity regulated by such commission, authority, agency or officer; (2) engaging in the business of securities, insurance or banking; or (3) engaging in savings association or credit union activities; or (b) constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within the past ten years?
Yes No
(iv) Are you subject to an order of the SEC entered pursuant to section 15(b) or 15B(c) of the Securities Exchange Act of 1934 (the “Exchange Act”) or section 203(e) or 203(f) of the Investment Advisers Act of 1940 (the “Advisers Act”) that currently: (a) suspends or revokes your registration as a broker, dealer, municipal securities dealer or investment adviser; (b) places limitations on the activities, functions or operations of, or imposes civil money penalties on, such person; or (c) bars you from being associated with any entity or from participating in the offering of any penny stock?
Yes No
(v) Are you subject to any order of the SEC, entered within the past five years, that currently orders you to cease and desist from committing or causing a future violation of: (a) any scienter-based anti-fraud provision of the federal securities laws, including, but not limited to, Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(1) of the Advisers Act or any other rule or regulation thereunder; or (b) Section 5 of the Securities Act.
Yes No
(vi) Have you been suspended or expelled from membership in, or suspended or barred from association with a member of, a securities self-regulatory organization (e.g., a registered national securities exchange or a registered national or affiliated securities association) for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade?
Yes No
(vii) Have you filed (as a registrant or issuer), or were you named as an underwriter in any registration statement or Regulation A offering statement filed with the SEC that, within the past five years, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption, or is, at the time of the sale of the securities, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued?
Yes No
(viii) Are you subject to a United States Postal Service false representation order entered within the past five years, or are you currently subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations?
Yes No
If you answered yes to any of the foregoing questions, please explain your answer in the following “Remarks” section. Please identify all questions answered in this fashion by their respective question numbers.
REMARKS:
Question Number: Answer:
5. Additional Information.
| a. | If for a Trust: | |
| A Trust must attach a copy of its Declaration of Trust or other governing instrument, as amended, as well as all other documents that authorize the Trust to invest in the Units. All documentation must be complete and correct. | ||
| b. | If for a Corporation: | |
| A Trust must attach a copy of its Articles of Incorporation or other governing instrument, as amended, as well as all other documents that authorize the Corporation to invest in the Units. All documentation must be complete and correct. | ||
| c. | If for a Partnership (including a limited liability partnership) or Limited Liability Company: | |
| A Subscribing entity must attach a copy of its Partnership Agreement, Operating Agreement or other governing instrument, as amended, as well as all other documents that authorize the Subscribing entity to invest in the Units. All documentation must be complete and correct. |
7. Other Certifications.
| a. | If by a Corporation: | |
| By signing the Signature Page, the undersigned certifies on behalf of the Subscribing Corporation the following: |
| (A) that the Corporation’s purchase of the Units will be solely for the Corporation’s own account and not for the account of any other person or entity; and |
| (B) that the Corporation’s name, address of principal office, place of incorporation and taxpayer identification number as set forth in this Questionnaire are true, correct and complete. | ||
| b. | If by a Partnership (including a limited liability partnership): | |
| By signing the Signature Page, the undersigned certifies on behalf of the Subscribing Partnership the following: | ||
| (A) that the Subscribing Partnership’s purchase of the Units will be solely for the Subscribing Partnership’s own account and not for the account of any other person or entity; and | ||
| (B) that the Subscribing Partnership’s name, address of principal office, place of formation and taxpayer identification number as set forth in this Questionnaire are true, correct and complete. | ||
| c. | If by a Limited Liability Company: | |
| By signing the Signature Page, the undersigned certifies on behalf of the Subscribing Limited Liability Company the following: | ||
| (A) that the Subscribing Limited Liability Company’s purchase of the Units will be solely for the Subscribing Limited Liability Company’s own account and not for the account of any other person or entity; and | ||
| (B) that the Subscribing Limited Liability Company’s name, address of principal office, place of formation and taxpayer identification number as set forth in this Questionnaire are true, correct and complete. | ||
| d. | If by a Trust (other than a retirement related trust) or Estate: | |
| By signing the Signature Page, the undersigned certifies the following: | ||
| (A) that the Trust’s or Estate’s purchase of the Units will be solely for the Trusts or Estate’s own account and not for the account of any other person or entity; | ||
| (B) that the Trust’s or Estate’s purchase of the Units is within the investment powers and authority of the Trust or Estate (as set forth in the declaration of trust or other governing instrument) and that all necessary consents, approvals and authorizations for such purchase have been obtained and that each person who signs the Signature Page has all requisite power and authority as trustee or executor or administrator to execute this Questionnaire and the Subscription Agreement on behalf of the Trust or Estate; | ||
| (C) that the Trust has not been established in connection with either (i) an employee benefit plan (as defined in Section 3(3) of ERISA), whether or not subject to the provisions of Title I of ERISA, or (ii) a plan described in Section 4975(e)(i) of the Code; and | ||
| (D) that the Trust’s or Estate’s name, address of principal office, place of formation and taxpayer identification number as set forth in this Questionnaire are true, correct and complete. |
8. Reliance by the Company.
The undersigned understands that the Company will be relying on the accuracy and completeness of the responses to the questions contained in this Subscription Agreement and hereby represents and warrants to the Company as follows:
(i) The answers to the above questions are complete and correct and may be relied upon by the Company in determining whether the offering in connection with which the undersigned has executed this Questionnaire is exempt from registration under the Securities Act and complies with other applicable regulatory requirements;
(ii) The undersigned will notify the Company immediately of any material change in any statement made herein or any event resulting in the omission of any statement required to be made herein that occurs prior to the acceptance of this subscription;
(iii) The person signing this Subscription Agreement on behalf of the Entity has been duly authorized to acquire the Units and sign the Subscription Agreement on behalf of the Entity and, further, that the undersigned Entity has all requisite authority to purchase the Units and enter into this Subscription Agreement; and
(iv) The undersigned hereby certifies that they have read the entire Subscription Agreement and understand the contents thereof.
| Dated: __________________, 2020 | ||
| Name of Purchasing Entity | ||
| By: | ||
| Signature of Authorized Agent | ||
| Name and Title of Signatory | ||
SCHEDULE B
RISK FACTORS
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.
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.
If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights.
Our future success depends upon our proprietary technology. Our protective measures, including patent and trade secret protection, may prove inadequate to protect our proprietary rights. The right to stop others from misusing our trademarks, service marks, and patents in commerce depends to some extent on our ability to show evidence of enforcement of our rights against such misuse in commerce. Our efforts to stop improper use, if insufficient, may lead to loss of trademark and service mark rights, brand loyalty, and notoriety among our customers and prospective customers. The scope of any patent that we have or may obtain may not prevent others from developing and selling competing products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution of such claims may be highly uncertain, and expensive. In addition, our patents may be held invalid upon challenge, or others may claim rights in or ownership of our patents.
We may be subject to intellectual property infringement claims, which could cause us to incur litigation costs and divert management attention from our business.
Any intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend and divert our management’s attention from our business. If our products were found to infringe a third party’s proprietary rights, we could be required to enter into costly royalty or licensing agreements to be able to sell our products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all.
Our efforts to avoid the patent, trademark, and copyright rights of others may not provide notice to us of potential infringements in time to avoid investing in product development and promotion that must later be abandoned if suitable license terms cannot be reached.
There is no guarantee that our use of conventional technology searching and brand clearance searching will identify all potential rights holders. Rights holders may demand payment for past infringements and/or force us to accept costly license terms or discontinue use of protected technology and/or works of authorship that may include for example photos, videos, and software.
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 year ended March 31, 2019, the three months ended March 31, 2018 and the year ended December 31, 2017.
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 operations 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.
To the extent demand for our products increase, our future success will depend upon our ability to enhance manufacturing production capacity.
We intend to continue marketing our ammunition products. To the extent demand for our products increase significantly in future periods, one of our key challenges will be to enhance production capacity to meet sales demand, while maintaining product quality. Our inability to meet any future increase in sales demand or access capital for inventory may hinder growth, or increase dilution in connection with financing activities conducted to meet any such increase in sales demand.
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.
We do not have long-term purchase commitments from our customers, and their ability to cancel, reduce, or delay orders could reduce our revenue and increase our costs.
Our customers do not provide us with firm, long-term volume purchase commitments, but instead issue purchase orders for our products as needed. As a result, customers can cancel purchase orders or reduce or delay orders at any time. The cancellation, delay, or reduction of customer purchase orders could result in reduced sales, excess inventory, unabsorbed overhead, and reduced income from operations.
We often schedule internal production levels and place orders for raw materials and components with third party suppliers before receiving firm orders from our customers. Therefore, if we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products to deliver to our customers. Factors that could affect our ability to accurately forecast demand for our products include the following:
| ● | an increase or decrease in consumer demand for our products or for the products of our competitors; | |
| ● | our failure to accurately forecast consumer acceptance of new products; | |
| ● | new product introductions by us or our competitors; | |
| ● | changes in our relationships within our distribution channels; | |
| ● | changes in general market conditions or other factors, which may result in cancellations of orders or a reduction or increase in the rate of reorders placed by retailers; |
| ● | changes in laws and regulations governing the activities for which we sell products, such as hunting and shooting sports; | |
| ● | weak economic conditions or consumer confidence, which could reduce demand for discretionary items, such as our products; and | |
| ● | the domestic political environment, including debate over the regulation of firearms, ammunition, and related products. |
Inventory levels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have an adverse effect on our business, operating results, and financial condition. If we underestimate demand for our products, our manufacturing facilities or third-party suppliers may not be able to react quickly enough to meet consumer demand, resulting in delays in the shipment of products and lost revenue, and damage to our reputation and customer and consumer relationships. We may not be able to manage inventory levels successfully to meet future order and reorder requirements.
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; and | |
| ● | our retailers and distributors market and distribute competing products. |
We have three customers that accounted for approximately 54% of our net sales for the year ended March 31, 2019 and three customers that accounted for 68% of our net sales for the three month period ended March 31, 2018. At December 31, 2017, 58% of our net sales resulted from one customer. 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.
An inability to expand our E-commerce business could reduce our future growth.
Consumers are increasingly purchasing products online. We operate direct-to-consumer e-commerce stores to maintain an online presence with our end users. The future success of our online operations depends on our ability to use our marketing resources to communicate with existing and potential customers. We face competitive pressure to offer promotional discounts, which could impact our gross margin and increase our marketing expenses. We are limited, however, in our ability to fully respond to competitor price discounting because we cannot market our products at prices that may produce adverse relationships with our customers that operate brick and mortar locations as they may perceive themselves to be at a disadvantage based on lower e-commerce pricing to end consumers. There is no assurance that we will be able to successfully expand our e-commerce business to respond to shifting consumer traffic patterns and direct-to-consumer buying trends.
In addition, e-commerce and direct-to-consumer operations are subject to numerous risks, including implementing and maintaining appropriate technology to support business strategies; reliance on third-party computer hardware/software and service providers; data breaches; violations of state, federal or international laws, including those relating to online privacy; credit card fraud; telecommunication failures; electronic break-ins and similar disruptions; and disruption of Internet service. Our inability to adequately respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business may have an adverse impact on our business and operating results.
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 may have difficulty collecting amounts owed to us.
Certain of our customers may experience business challenges and credit-related issues. We perform ongoing credit evaluations of customers, but these evaluations may not be completely effective. We grant payment terms to most customers ranging from 30 to 90 days and do not generally require collateral. Should more customers than we anticipate experience liquidity issues, or if payments are not received on a timely basis, we may have difficulty collecting amounts owed to us by such customers and our business, operating results, and financial condition could be adversely impacted. Retail consolidation could result in more concentrated credit-related risks.
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. 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.
The failure to manage our growth could adversely affect our operations.
The failure to manage our growth could adversely affect our operations. To continue to expand our business and enhance our competitive position, we must make significant investments in equipment, facilities, systems, and personnel. In addition, we must commit significant funds to enhance our sales, marketing, information technology, and research and development efforts. As a result of the increase in fixed costs and operating expenses, our failure to increase our sales sufficiently to offset these increased costs could adversely affect our business, operating results, and financial condition.
Managing our planned growth effectively will require us to take a number of steps, including the following:
| ● | enhance our operational, financial, and management systems; | |
| ● | enhance our facilities and purchase additional equipment; and | |
| ● | successfully hire, train, and retain additional employees, including additional personnel for our technological, sales, and marketing efforts. |
The expansion of our products and customer base may result in increases in our overhead and selling expenses. We may be required to increase staffing and other expenses and our expenditures on capital equipment and leasehold improvements to meet the demand for our products. Any increase in expenditures in anticipation of future sales that do not materialize would adversely affect our profitability.
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:
| ● | determine the appropriate creative message and media mix for advertising, marketing, and promotional expenditures; | |
| ● | select the right markets, media, and specific media vehicles in which to advertise; | |
| ● | identify the most effective and efficient level of spending in each market, media, and specific media vehicle; and |
| ● | effectively manage marketing costs, including creative and media expenses, to maintain acceptable customer acquisition costs. |
In 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.
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; | |
| ● | the timing and size of new orders; | |
| ● | the cancellation of existing orders; | |
| ● | the volume of orders relative to our capacity; | |
| ● | product introductions and market acceptance of new products or new generations of products; | |
| ● | timing of expenses in anticipation of future orders; | |
| ● | changes in product mix; | |
| ● | availability of production capacity; | |
| ● | changes in cost and availability of labor and raw materials; | |
| ● | timely delivery of products to customers; | |
| ● | pricing and availability of competitive products; | |
| ● | new product introduction costs; | |
| ● | changes in the amount or timing of operating expenses; |
| ● | introduction of new technologies into the markets we serve; | |
| ● | pressures on reducing selling prices; | |
| ● | our success in serving new markets; | |
| ● | adverse publicity regarding the safety, performance, and use of our products; | |
| ● | the institution and outcome of any litigation; | |
| ● | political, economic, or regulatory developments; and | |
| ● | changes in economic conditions. |
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.
The failure to attract and retain key personnel could have an adverse effect on our operating results.
Our success depends substantially on the efforts and abilities of our senior management and key personnel. The competition for qualified management and key personnel is intense. Although we maintain noncompetition and nondisclosure covenants with many of our key personnel, we do not have employment agreements with most of them. The loss of services of one or more of our key employees or the inability to hire, train, and retain additional key personnel could delay the development and sale of our products, disrupt our business, and interfere with our ability to execute our business plan.
In addition, our ability to maintain our competitive position is dependent to a large degree on the efforts and skills of our senior management team, including Fred Wagenhals, our President and Chief Executive Officer. The loss of the services of one or more of our key personnel could materially and adversely affect our operations.
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.
Potential strategic alliances may not achieve their objectives, which could impede our growth.
We anticipate that we will enter into strategic alliances in the future. We continue to explore strategic alliances designed to expand our product offerings, enter new markets, and improve our distribution channels. Strategic alliances may not achieve their intended objectives, and parties to our strategic alliances may not perform as contemplated. The failure of these alliances may impede our ability to introduce new products and enter new markets.
Any acquisitions that we undertake will involve significant risks, and any acquisitions that we undertake in the future could disrupt our business, dilute stockholder value, and harm our operating results.
We have a strategy to expand our operations through strategic acquisitions to enhance existing products and offer new products, enter new markets and businesses, strengthen and avoid interruption from our supply chain, and enhance our position in current markets and businesses. Acquisitions involve significant risks and uncertainties. We cannot accurately predict the timing, size, and success of any future acquisitions. We may be unable to identify suitable acquisition candidates or to complete the acquisitions of candidates that we identify. Increased competition for acquisition candidates or increased asking prices by acquisition candidates may increase purchase prices for acquisitions to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria. Unforeseen expenses, difficulties, and delays frequently encountered in connection with expansion through acquisitions could inhibit our growth and negatively impact our operating results.
Our ability to complete acquisitions that we desire to make will depend upon various factors, including the following:
| ● | the availability of suitable acquisition candidates at attractive purchase prices; | |
| ● | the ability to compete effectively for available acquisition opportunities; | |
| ● | the availability of cash resources, borrowing capacity, or stock at favorable price levels to provide required purchase prices in acquisitions; | |
| ● | the ability of management to devote sufficient attention to acquisition efforts; and | |
| ● | the ability to obtain any requisite governmental or other approvals. |
We may have little or no experience with certain acquired businesses, which could involve significantly different supply chains, production techniques, customers, and competitive factors than our current business. This lack of experience would require us to rely to a great extent on the management teams of these acquired businesses. These acquisitions also could require us to make significant investments in systems, equipment, facilities, and personnel in anticipation of growth. These costs could be essential to implement our growth strategy in supporting our expanded activities and resulting corporate structure changes. We may be unable to achieve some or all of the benefits that we expect to achieve as we expand into these new markets within the time frames we expect, if at all. If we fail to achieve some or all of the benefits that we expect to achieve as we expand into these new markets, or do not achieve them within the time frames we expect, our business, financial condition, and results of operations could be adversely affected.
As a part of any potential acquisition, we may engage in discussions with various acquisition candidates. In connection with these discussions, we and each potential acquisition candidate may exchange confidential operational and financial information, conduct due diligence inquiries, and consider the structure, terms, and conditions of the potential acquisition. In certain cases, the prospective acquisition candidate agrees not to discuss a potential acquisition with any other party for a specific period of time and agrees to take other actions designed to enhance the possibility of the acquisition, such as preparing audited financial information. Potential acquisition discussions frequently take place over a long period of time and involve difficult business integration and other issues. As a result of these and other factors, a number of potential acquisitions that from time-to-time appear likely to occur do not result in binding legal agreements and are not consummated, but may result in increased legal, consulting, and other costs.
Unforeseen expenses, difficulties, and delays frequently encountered in connection with future acquisitions could inhibit our growth and negatively impact our profitability. Any future acquisitions may not meet our strategic objectives or perform as anticipated. In addition, the size, timing, and success of any future acquisitions may cause substantial fluctuations in our operating results from quarter to quarter. These interim fluctuations could adversely affect the market price of our Common Stock.
If we finance any future acquisitions in whole or in part through the issuance of Common Stock or securities convertible into or exercisable for Common Stock, existing stockholders will experience dilution in the voting power of their Common Stock and earnings per share could be negatively impacted. The extent to which we will be able or willing to use our Common Stock for acquisitions will depend on the market price of our Common Stock from time-to-time and the willingness of potential acquisition candidates to accept our Common Stock as full or partial consideration for the sale of their businesses. Our inability to use our Common Stock as consideration, to generate cash from operations, or to obtain additional funding through debt or equity financings to pursue an acquisition could limit our growth.
Any acquisitions that we undertake could be difficult to integrate, disrupt our business, and harm our operations.
We may be unable to effectively complete an integration of the management, operations, facilities, and accounting and information systems of acquired businesses with our own; to implement effective controls to mitigate legal and business risks with which we have no prior experience; to manage efficiently the combined operations of the acquired businesses with our operations; to achieve our operating, growth, and performance goals for acquired businesses; to achieve additional sales as a result of our expanded operations; or to achieve operating efficiencies or otherwise realize cost savings as a result of anticipated acquisition synergies. The integration of acquired businesses involves numerous risks and uncertainties, including the following:
| ● | the potential disruption of our core businesses; | |
| ● | risks associated with entering markets and businesses in which we have little or no prior experience; | |
| ● | diversion of management’s attention from our core businesses; | |
| ● | adverse effects on existing business relationships with suppliers and customers; | |
| ● | risks associated with increased regulatory or compliance matters; | |
| ● | failure to retain key customers, suppliers, or personnel of acquired businesses; | |
| ● | the potential strain on our financial and managerial controls and reporting systems and procedures; | |
| ● | greater than anticipated costs and expenses related to the integration of the acquired business with our business; | |
| ● | potential unknown liabilities associated with the acquired company; | |
| ● | risks associated with weak internal controls over information technology systems and associated cyber security risks; | |
| ● | meeting the challenges inherent in effectively managing an increased number of employees in diverse locations; | |
| ● | failure of acquired businesses to achieve expected results; | |
| ● | the risk of impairment charges related to potential write-downs of acquired assets in future acquisitions; and |
| ● | the challenge of creating uniform standards, controls, procedures, policies, and information systems. |
Breaches of our information systems could adversely affect our reputation, disrupt our operations, and result in increased costs and loss sales.
There have been an increasing number of cyber security incidents affecting companies around the world, which have caused operational failures or compromised sensitive corporate data. Although we do not believe our systems are at a greater risk of cyber security incidents than other similar organizations, such cyber security incidents may result in the loss or compromise of customer, financial, or operational data; disruption of billing, collections, or normal operating activities; disruption of electronic monitoring and control of operational systems; and delays in financial reporting and other management functions. Possible impacts associated with a cyber security incident may include among others, remediation costs related to lost, stolen, or compromised data; repairs to data processing systems; increased cyber security protection costs; reputational damage; and adverse effects on our compliance with applicable privacy and other laws and regulations.
A failure of our information technology systems, or an interruption in their operation due to internal or external factors including cyber-attacks, could have a material adverse effect on our business, financial condition or results of operations.
Our operations depend on our ability to protect our information systems, computer equipment, and information databases from systems failures. We rely on our information technology systems generally to manage the day-to-day operations of our business, operate elements of our manufacturing facility, manage relationships with our customers, fulfill customer orders, and maintain our financial and accounting records. Failure of our information technology systems could be caused by internal or external events, such as incursions by intruders or hackers, computer viruses, cyber-attacks, failures in hardware or software, or power or telecommunication fluctuations or failures. The failure of our information technology systems to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, increased costs, or loss of important information, any of which could have a material adverse effect on our business, operating results, and financial condition. Any technology and information security processes and disaster recovery plans we use to mitigate our risk to these vulnerabilities may not be adequate to ensure that our operations will not be disrupted should such an event occur.
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:
| ● | require the licensing of all persons manufacturing, exporting, importing, or selling firearms and ammunition as a business; | |
| ● | require background checks for purchasers of firearms; | |
| ● | impose waiting periods between the purchase of a firearm and the delivery of a firearm; | |
| ● | prohibit the sale of firearms to certain persons, such as those below a certain age and persons with criminal records; | |
| ● | regulate the use and storage of gun powder or other energetic materials; | |
| ● | regulate our employment of personnel with criminal convictions; and | |
| ● | restrict access to firearm manufacturing facilities for individuals from other countries or with criminal convictions. |
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 change to the interpretation of the Second Amendment would dramatically impact our ability to conduct business.
Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation, and export controls and trade sanctions, could result in fines or criminal penalties if we expand our business abroad.
The expansion of our business internationally would expose us to trade sanctions and other restrictions imposed by the United States and other governments. The U.S. Departments of Justice, Commerce, Treasury and other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the Foreign Corrupt Practices Act, anti-boycott provisions and other federal statutes, sanctions and regulations and, increasingly, similar or more restrictive foreign laws, rules and regulations, which may also apply to us. By virtue of these laws and regulations, and under laws and regulations in other jurisdictions, we may be obliged to limit our business activities, we may incur costs for compliance programs and we may be subject to enforcement actions or penalties for noncompliance. In recent years, U.S. and foreign governments have increased their oversight and enforcement activities with respect to these laws and we expect the relevant agencies to continue to increase these activities. A violation of these laws, sanctions or regulations could result in restrictions on our exports, civil and criminal fines or penalties and could adversely impact our business, operating results, and financial condition.
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 cold 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 results of operations could be impacted by unanticipated changes in tax provisions or exposure to additional income tax liabilities.
Our business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, and higher excise taxes thereby affecting our income tax expense and profitability. In addition, audits by income tax authorities could result in unanticipated increases in our income tax expense.
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 Market. 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 market might become. The lack of an active 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 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.
We may be unable to list our stock on a national exchange, such as NASDAQ.
There has been a limited public market for our Common Stock. Although it is our intention to qualify for the trading of our Common Stock on a national exchange, we may not meet or maintain certain qualifying requirements. If we are unable to meet these requirements, we may be limited to trading conducted on the OTCQB Market.
The market price of our Common Stock may be volatile and could decline.
The market price of our Common Stock has fluctuated substantially in the past and is likely to continue to be highly volatile and subject to wide fluctuations in the future. A number of factors could cause the market price of our Common Stock to decline, many of which we cannot control, including the following:
| ● | our ability to execute our business plan; | |
| ● | actual or anticipated changed in our operating results; | |
| ● | variations in our quarterly results; | |
| ● | changes in expectations relating to our products, plans, and strategic position or those of our competitors or customers; | |
| ● | announcements or introduction of technological innovations or new products by us or our competitors; | |
| ● | market conditions within our market; | |
| ● | the sale of even small blocks of Common Stock by stockholders; | |
| ● | price and volume fluctuations in the overall stock market from time to time; | |
| ● | significant volatility in the market price and trading volume of public companies in general and small emerging companies in particular; | |
| ● | changes in investor perceptions; | |
| ● | the level and quality of any research analyst coverage of our Common Stock, changes in earnings estimates or investment recommendations by securities analysis, or our failure to meet such estimates; |
| ● | any financial guidance we may provide to the public, any changes in such guidance, or our failure to meet such guidance; | |
| ● | various market factors or perceived market factors, including rumors, whether or not correct, involving us, our customers, or our competitors; | |
| ● | future sales of our Common Stock; | |
| ● | Introductions of new products or new pricing policies by us or by our competitors; |
| ● | regulatory or environmental laws that restrict the sale of ammunition containing lead; | |
| ● | acquisitions or strategic alliances by us or by our competitors; | |
| ● | litigation involving us, our competitors, or our industry; | |
| ● | regulatory, legislative, political, and other developments that may affect us, our customers, and the purchasers of our products; | |
| ● | the gain or loss of significant customers; | |
| ● | the volume and timing of customers’ orders; | |
| ● | recruitment or departure of key personnel; | |
| ● | developments with respect to intellectual property rights; | |
| ● | our international acceptance; | |
| ● | market conditions in our industry, the business success of our customers, and economy as a whole; and | |
| ● | general global economic and political instability. |
In addition, the market prices of small emerging companies have experienced significant price and volume fluctuations that often have been unrelated or disproportionate to their operating performance. In the past, companies that have experienced volatility in the market price of their securities have been the subject of securities class action litigation. If we were the object of a securities class action litigation, it could result in substantial losses and divert management’s attention and resources form other matters.
Sales of large numbers of shares could adversely affect the price of our Common Stock.
Most of our Common Stock shares 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 person (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 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.
In accordance with our recent offering of Units, consisting of Common Stock and warrants to purchase Common Stock, we are required to file a registration statement with the SEC registering 13,242,186 shares of Common Stock, including the shares that may be issued upon the exercise of the warrants contained in Units. We agreed to file an additional registration statements for approximately 11,783,853 shares of Common Stock, including the shares that may be issued upon the exercise of the warrants contained in Units. Once the registrations are effective, the holders of such Common Stock, including the Common Stock issuable upon the exercise of the warrants will be able to freely sell their shares, which could have a negative effect on the prevailing market prices.
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 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.
Conversion 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 December 31, 2019, we had 8,629,432 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 an aggregate of 125,060 shares of Common Stock at an average price of $2.50 per share until March 2020; (2) warrants to purchase 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (3) warrants to purchase 4,641,745 shares of our Common Stock at an exercise price of $2.00 per share over the next three to five years; and (4) warrants to purchase 2,896,133 shares of Common Stock at an exercise price of $2.40 over the next five years.
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. 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.
Effect of Issuance of Preferred Stock.
Our Certificate of Incorporation allows us to issue Preferred Stock with voting, liquidation, and dividend rights senior to those of the Common Stock without the approval of our stockholders. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding stock of our company and result in the dilution of the value of the then current stockholders’ Common Stock. We have no current plans to issue shares of Preferred Stock.
Resale of Common Stock.
All of our outstanding shares of Common Stock and shares of our Common Stock that may be issued upon the exercise of our outstanding options and warrants may only be resold if they are registered pursuant to an effective registration statement under the Securities Act or are resold pursuant to an applicable exemption and are qualified or exempt under the securities laws of the applicable states. We filed a registration statement under the Securities Act covering the resale of shares of Common Stock issued or underlying warrants sold by a private placement that closed in April 2018. This registration statement was declared effective by the Securities and Exchange Commission in September 2019. We agreed to file registration statements for our Convertible Promissory Note offering ending January 2019 and our current placement agent agreement. In the absence of this registration statement, such sale of such shares of our Common Stock could only be made under Rule 144.
We do not expect to pay any dividends for the foreseeable future.
We do not anticipate paying any dividends to our stockholders for the foreseeable future. Accordingly, stockholders may have to sell some or all of their Common Stock to generate cash flow from their investment. Stockholders may not receive a gain on their investment when they sell our Common Stock and may lose some or all of the amount of their investment. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors our board of directors deems relevant.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.
Under SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting with our Form 10-K. The internal control report must contain (1) a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting, (2) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, and (3) management’s assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective.
To achieve compliance with the applicable SEC regulations within the prescribed future period, we would be required to engage in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. Despite our efforts, we can provide no assurance as to our conclusions with respect to the effectiveness of our internal control over financial reporting. There is a risk that we will be able to conclude that our internal controls over financial reporting are effective, as has been the case with a significant number of companies attempting to comply with these regulations for the first time. This could result in an adverse reaction in the financial markets resulting from a loss of confidence in the reliability of our financial statements.
If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information, limit our ability to raise needed capital, and have a negative effect on the trading price of our Common Stock.
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. 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 ever be listed on The Nasdaq Stock Market or any other exchange, or that 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.
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 shareholders’ 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 shareholders’ 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.
Exhibit 10.3
SERVICES AGREEMENT
This Agreement (this “Agreement”) is made and entered into by and between Trending Equities Corp. (the “Consultant”), and Ammo, Inc., located at 7681 East Gray Road Scottsdale, AZ 85260 (the “Company”; collectively the “Parties”) on October 16th, 2020.
W I T N E S S E T H:
WHEREAS, the Consultant, a Canadian corporation, located at 1932 Merlot Blvd, Abbotsford BC V4X 0A6, operates a strategic advisory, investor relations & public relations firm; and
WHEREAS, the Client is a publicly-held company trading under the stock ticker POWW; and
WHEREAS, the Client desires to utilize the services of the Consultant in connection with its business operations;
NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth the parties hereto agree as follows:
| 1. | CONSULTANT DUTIES. The Consultant shall provide certain consulting services as outlined in a non-exclusive manner in Appendix A (the “Services”) in regard to assisting the Company in consummating its securities offering which is fully underwritten by Alexander Capital LP. In performance of these duties, the Consultant shall provide the Company with the benefits of its best judgment and efforts. It is understood and acknowledged by the Parties that the value of the Consultant’s Services is not measurable in any quantitative manner. |
| 2. | TERM. Effective as of the date hereof (the “Effective Date”) the Company hereby engages the Consultant to provide to it the Services for three (3) months, commencing on October 14th, 2020 and terminating at the close of business on January 16th, 2020 (the “Term”). The Term shall automatically renew for successive ninety (90) day Term(s), subject to cancellation by either Party upon the provision of ninety (90) days advance written notice. |
| 3. | FEES. As consideration for the Consulting Services to be rendered by the Consultant to the Client during the Term, the Client shall pay the following Fees (the “Fees”): |
| a. | Client shall pay to the Consultant cash compensation (the “Cash Fee”) of five thousand dollars ($5,000.00 USD) per month. The first payment is due upon signing of this Agreement and the other 2 payments are due on the 15th day of November and December 2020. |
| b. | An ancillary budget in the amount of two hundred seventy-five thousand dollars ($275,000 USD) due on signing to conduct the research and provides the services in Appendix. |
| c. | Client shall also pay to the Consultant stock compensation (the “Stock Fee”) of 75,000 shares of common stock, restricted under Rule 144. By way of example, the Stock Fee shall be deemed earned in full upon the completion of each month’s service and shall be issuable for as follows during the first Term: 25,000 shares of common stock issued on each of November 15th, December 15th, 2020 and January 15th 2021, and each successive renewed 90 day Term 75,000 shares of common stock shall be issued on the first day of the renewed term. |
| 1 |
| d. | Wiring Instructions for Cash Fee are as follows: |
Trending Equities Corp.
1932 Merlot Blvd, Abbotsford BC V4X 0A6
TD Canada Trust
For transfer in U.S. Dollars
Bank of America, New York
| e. | The Shares are irrevocably earned as of the monthly delivery dates set forth above and any calculation of the statutory holding period for removal of restrictive legend under Rule 144 promulgated under the Securities Act of 1933, shall be measured from the date earned in full. |
| f. | Company agrees that it shall take no action to cause the Shares to become canceled, voided or revoked, or the issuance thereof to be voided or terminated. |
| g. | Company agrees to timely take all action(s) necessary to clear the Shares of restriction upon presentation of any Rule 144 application by Consultant or its broker, including, without limitation, authorizing the Company’s transfer agent to remove the restrictive legend, (ii) expediting the acquisition of a legal opinion from Company’s authorized counsel at Company’s expense, (iii) delivering any additional documentation that may be required by Consultant, its broker or the transfer agent in connection with the legend removal request, including Rule 144 company representation letters, resolutions of the Board of Directors evidencing proper issuance of the Shares, etc., and (iv) cooperating and communicating with Consultant, its broker and the transfer agent in order to clear the Shares of restriction as soon as possible. |
| 4. | CLIENT DUTIES. The Client agrees to the following: |
The Client will disclose to the Consultant any and all information the Client deems pertinent and necessary to the Consulting Services to be performed hereunder; and the information supplied by the Client to the Consultant will be from dependable and reliable sources and will be true and accurate in all material respects. Consultant agrees to retain all non-public information in a confidential and proprietary manner and protect said information in the same best efforts manner as it would protect its own confidential, proprietary and non-public information as set forth in more detail below in Section 6.
| 5. | INDEPENDENT CONTRACTOR. Consultant shall be an independent contractor in the performance of the Services. This Agreement shall not be interpreted as creating an association, joint venture or partnership relationship between the Parties or as imposing any employment or partnership obligation or liability upon any Party. The Company shall not, and shall not have any obligation to withhold or pay income tax, workers’ compensation, pension, deferred compensation, welfare, insurance and other employee benefits or taxes on behalf of the Consultant. Any and all sums subject to deductions, if any, required to be withheld and/or paid under any applicable state, federal or municipal laws or union or professional guild regulations shall be Consultant’s sole responsibility and Consultant shall defend, indemnify and hold Client harmless from any and all damages, claims and expenses arising out of or resulting from any claims asserted by any taxing authority as a result of or in connection with said payments. |
| 2 |
| 6. | CONFIDENTIALITY. |
| a. | Confidential Information. Each Party agrees to hold private and confidential all confidential information of the other Party and neither Party, without the prior written consent of the other, shall divulge, disseminate, communicate or otherwise disclose any confidential or proprietary information of the other Party except to the extent required by law, regulation or any judicial or regulatory authority. Confidential information includes, but is not limited to, any information not obtainable by the general public and which contains information which would be considered owned by the owner and proprietary in nature and which would be considered as a trade secret except so far as it already exists in the public domain. For the avoidance of doubt, the Parties hereto acknowledge and agree that only publicly available information shall be distributed or disseminated in connection with the provision of the Consulting Services hereunder and under no circumstance will any confidential information be distributed or disseminated in connection therewith. |
| i. | Consultant will not purchase or sell stock in the Company based on any Confidential Information learned about the Company during the Term of this Agreement and will not be acting in concert with any other person for the purpose of selling securities of the Company. |
| b. | Return of Confidential Information. Upon Client’s request, and in any event upon cancellation of this Agreement, Consultant shall return the original and any copies of the Confidential Information which it, or any of its employees or agents, is holding under its possession or control in tangible form, written or otherwise, to Client or shall certify in writing to Client that such Confidential Information has been destroyed and/or purged from its own system and files. |
| c. | Non-Disclosure. Except as may be required by law, the Client shall not disclose any Confidential Information to persons not involved in the operation of the Client without the express written consent of the Client. |
| d. | Proprietary Rights. The Parties stipulate that any information or work product provided by Consultant to Client, whether on paper, communicated electronically, orally, or in any other form, is “Confidential” and/or “Proprietary”, and have independent economic value, and, as such, shall constitute the “Confidential Property” of Client subject to the terms and limitations set forth in this Agreement. |
| e. | Non-Circumvention. Consultant shall not: (i) utilize any Confidential Information to circumvent or compete with the Client or to cause any detriment, harm or injury to the Client or the business of the Client; or (ii) utilize any and all information lawfully furnished or disclosed to Consultant by any party to circumvent or compete with the Client or to cause any detriment, harm or injury to the Client, to the business of the Client, or any affiliates of the Client. Further, Consultant shall not engage in any activity which shall cause any detriment, harm or injury to the Client, to the business of the Client, or to the reputation of the Client or to permit any circumvention of or competition with the Client or the business of the Client. |
| f. | Non-Disparagement. Consultant shall not, in any written or oral communications with any party or through any medium, whether tangible, electronic, or otherwise, criticize, ridicule or make any statement which, directly or indirectly, disparages, causes harm to, or is derogatory of the Client or its affiliates or any of their respective directors or senior officers. Consultant shall not express any negative opinions of the Client, the Client’s business or products, or any affiliates of the Client or their businesses or products. The provision shall be construed broadly and shall govern any statement, express or implied, made concerning the Client, the Client’s business and products, or affiliates of the Client. |
| g. | Non-Solicitation. During the Term of this Agreement and for twenty-four (24) months after any termination of this Agreement, the Parties will not, without prior written consent of the other Party, either directly or indirectly, on that Party’s behalf or in the service or on behalf of others, solicit or attempt to solicit, divert or hire away any person employed by the other Party currently or during the previous twelve (12) months, any third party or consultant engaged by the other Party, or any customer, supplier or channel partner of the other Party. |
| 3 |
| 7. | JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to conflict of laws principles. The Parties agree that any dispute arising out of or in relation to this contract shall be resolved by arbitration and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. The arbitration shall be conducted in the English language in the city of Wilmington, DE. The arbitration shall be carried out using one of the following arbitration services: “JAMS, AAA, or NAM”, using one arbitrator. The party demanding arbitration shall have the choice of one the three arbitration services named herein. |
| 8. | SEVERABILITY. If any paragraph, term or provision of this Agreement shall be held or determined to be unenforceable, the balance of this Agreement shall nevertheless continue in full force and effect unaffected by such holding or determination. |
| 9. | HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. |
| 10. | NOTICES, PAYMENTS. Any payment, notice or other communication required by this Agreement (a) shall be in writing, (b) may be delivered personally, sent via electronic mail, or sent by reputable overnight courier with written verification of receipt or by registered or certified first class United States Mail, postage prepaid, return receipt requested, (c) shall be sent to the addresses listed above or to such other address as such party shall designate by written notice to the other party, and (d) shall be effective upon receipt. |
| 11. | FURTHER ACTION. The Parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of this Agreement. |
| 12. | ASSIGNMENT. This Agreement may not be assigned by either party hereto without the written consent of the other but shall be binding upon the successors of the Parties. |
| 13. | COUNTERPARTS. This Agreement may be executed in duplicate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. In the event that the document is signed by one party and faxed (or e- mailed) to another the Parties agree that a faxed (or e-mailed) signature shall be binding upon the Parties to this Agreement as though the signature was an original. |
| 4 |
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year first above written.
| Trending Equities Corp. | ||
| By: | /s/ Mike Baron | |
| Name: | Mike Baron | |
| Title: | CEO | |
| Ammo, Inc. | ||
| By: | /s/ Fred Wagenhals | |
| Name: | Fred Wagenhals | |
| Title: | CEO | |
| 5 |
Appendix A
Description of Services
| 6 |
SERVICES AGREEMENT
This Agreement (this “Agreement”) is made and entered into by and between Trending Equities Corp. (the “Consultant”), and Ammo, Inc., located at 7681 East Gray Road Scottsdale, AZ 85260 (the “Company”; collectively the “Parties”) on January 6th, 2021.
W I T N E S S E T H:
WHEREAS, the Consultant, a Canadian corporation, located at 1932 Merlot Blvd, Abbotsford BC V4X 0A6, operates a strategic advisory, investor relations & public relations firm; and
WHEREAS, the Client is a publicly-held company trading under the stock ticker POWW; and
WHEREAS, the Client desires to utilize the services of the Consultant in connection with its business operations;
NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth the parties hereto agree as follows:
| 1. | CONSULTANT DUTIES. The Consultant shall provide to the Company certain consulting services (the “Services”) in the areas of marketing and advertising. In performance of these duties, the Consultant shall provide the Company with benefits of its best judgement and efforts. It is understood and acknowledged by the Parties that the value of the Consultant’s Services is not measurable in any quantitative manner. |
| 2. | TERM. Effective as of the date hereof (the “Effective Date”) the Company hereby engages the Consultant to provide to it the Services for (1) month, commencing on January 6th, 2021 and terminating at the close of business on February 6th, 2021 (the “Term”). |
| 3. | FEES. As consideration for the Consulting Services to be rendered by the Consultant to the Client during the Term, the Client shall pay the following Fees (the “Fees”): |
| a. | Client shall also pay to the Consultant stock compensation (the “Stock Fee”) of 250,000 shares of registered common stock. Upon signing the contract two hundred and fifty thousand (250,000) shares of common stock are due and earned. |
| 7 |
| b. | Wiring Instructions for Cash Fee are as follows: |
Trending Equities Corp.
1932 Merlot Blvd, Abbotsford BC V4X 0A6
TD Canada Trust
For transfer in U.S. Dollars
Bank of America, New York
| c. | The 250,000 Shares constitute a commencement inventive and consideration now earned, due and owing to the Consultant for entering into this Agreement and allocating its resources to Company’s account for the Initial Term. Company acknowledges that Consultant must forego other opportunities to enter into this Agreement |
| d. | Company agrees that it shall take no action to cause the Shares to become canceled, voided or revoked, or the issuance thereof to be voided or terminated. |
| e. | Company agrees to timely take all action(s) necessary to clear the Shares of restriction upon presentation of any Rule 144 application by Consultant or its broker, including, without limitation, authorizing the Company’s transfer agent to remove the restrictive legend, (ii) expediting the acquisition of a legal opinion from Company’s authorized counsel at Company’s expense, (iii) delivering any additional documentation that may be required by Consultant, its broker or the transfer agent in connection with the legend removal request, including Rule 144 company representation letters, resolutions of the Board of Directors evidencing proper issuance of the Shares, etc., and (iv) cooperating and communicating with Consultant, its broker and the transfer agent in order to clear the Shares of restriction as soon as possible. |
| 4. | CLIENT DUTIES. The Client agrees to the following: |
The Client will disclose to the Consultant any and all information the Client deems pertinent and necessary to the Consulting Services to be performed hereunder; and the information supplied by the Client to the Consultant will be from dependable and reliable sources and will be true and accurate in all material respects.
| 5. | CONFIDENTIALITY. |
| a. | Confidential Information. Each Party agrees to hold private and confidential all confidential information of the other Party and neither Party, without the prior written consent of the other, shall divulge, disseminate, communicate or otherwise disclose any confidential or proprietary information of the other Party except to the extent required by law, regulation or any judicial or regulatory authority. Confidential information includes, but is not limited to, any information not obtainable by the general public and which contains information which would be considered owned by the owner and proprietary in nature and which would be considered as a trade secret except so far as it already exists in the public domain. For the avoidance of doubt, the Parties hereto acknowledge and agree that only publicly available information shall be distributed or disseminated in connection with the provision of the Consulting Services hereunder and under no circumstance will any confidential information be distributed or disseminated in connection therewith. |
| 6. | NON-SOLICITATION. During the Term of this Agreement and for twenty-four (24) months after any termination of this Agreement, Client will not, without prior written consent of Consultant, either directly or indirectly, on Client’s behalf or in the service or on behalf of others, solicit or attempt to solicit, divert, or hire away any person employed by Consultant currently or during the previous twelve (12) months, any third party or Consultant, or any customer of Consultant. |
| 8 |
| 7. | JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to conflict of laws principles. The Parties agree that any dispute arising out of or in relation to this contract shall be resolved by arbitration and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. The arbitration shall be conducted in the English language in the city of New York, New York. The arbitration shall be carried out using one of the following arbitration services: “JAMS, AAA, or NAM”, using one arbitrator. The party demanding arbitration shall have the choice of one the three arbitration services named herein. |
| 8. | SEVERABILITY. If any paragraph, term or provision of this Agreement shall be held or determined to be unenforceable, the balance of this Agreement shall nevertheless continue in full force and effect unaffected by such holding or determination. |
| 9. | HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. |
| 10. | NOTICES, PAYMENTS. Any payment, notice or other communication required by this Agreement (a) shall be in writing, (b) may be delivered personally, sent via electronic mail, or sent by reputable overnight courier with written verification of receipt or by registered or certified first class United States Mail, postage prepaid, return receipt requested, (c) shall be sent to the addresses listed above or to such other address as such party shall designate by written notice to the other party, and (d) shall be effective upon receipt. |
| 11. | FURTHER ACTION. The Parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of this Agreement. |
| 12. | ASSIGNMENT. This Agreement may not be assigned by either party hereto without the written consent of the other but shall be binding upon the successors of the Parties. |
| 13. | COUNTERPARTS. This Agreement may be executed in duplicate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. In the event that the document is signed by one party and faxed (or e- mailed) to another the Parties agree that a faxed (or e-mailed) signature shall be binding upon the Parties to this Agreement as though the signature was an original. |
| 9 |
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year first above written.
| Trending Equities Corp. | ||
| By: | /s/ Mike Baron | |
| Name: | Mike Baron | |
| Title: | CEO | |
| Ammo, Inc. | ||
| By: | /s/ Fred Wagenhals | |
| Name: | Fred Wagenhals | |
| Title: | CEO | |
| 10 |
SERVICES AGREEMENT
This Agreement (this “Agreement”) is made and entered into by and between Trending Equities Corp. (the “Consultant”), and Ammo, Inc., located at 7681 East Gray Road Scottsdale, AZ 85260 (the “Company”; collectively the “Parties”) on January 18th, 2021.
W I T N E S S E T H:
WHEREAS, the Consultant, a Canadian corporation, located at 1932 Merlot Blvd, Abbotsford BC V4X 0A6, operates a strategic advisory, investor relations & public relations firm; and
WHEREAS, the Client is a publicly-held company trading under the stock ticker POWW; and
WHEREAS, the Client desires to utilize the services of the Consultant in connection with its business operations;
NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth the parties hereto agree as follows:
| 1. | CONSULTANT DUTIES. The Consultant shall provide to the Company certain consulting services (the “Services”) in the areas of marketing and advertising. In performance of these duties, the Consultant shall provide the Company with benefits of its best judgement and efforts. It is understood and acknowledged by the Parties that the value of the Consultant’s Services is not measurable in any quantitative manner. |
| 2. | TERM. Effective as of the date hereof (the “Effective Date”) the Company hereby engages the Consultant to provide to it the Services for (1) month, commencing on February 6th, 2021 and terminating at the close of business on March 6th, 2021 (the “Term”). |
| 3. | FEES. As consideration for the Consulting Services to be rendered by the Consultant to the Client during the Term, the Client shall pay the following Fees (the “Fees”): |
| a. | Client shall also pay to the Consultant stock compensation (the “Stock Fee”) of 250,000 shares of registered common stock. Upon signing the contract two hundred and fifty thousand (250,000) shares of common stock are due and earned. |
| 11 |
| b. | Wiring Instructions for Cash Fee are as follows: |
Trending Equities Corp.
1932 Merlot Blvd, Abbotsford BC V4X 0A6
TD Canada Trust
For transfer in U.S. Dollars
| c. | The 250,000 Shares constitute a commencement inventive and consideration now earned, due and owing to the Consultant for entering into this Agreement and allocating its resources to Company’s account for the Initial Term. Company acknowledges that Consultant must forego other opportunities to enter into this Agreement |
| d. | Company agrees that it shall take no action to cause the Shares to become canceled, voided or revoked, or the issuance thereof to be voided or terminated. |
| e. | Company agrees to timely take all action(s) necessary to clear the Shares of restriction upon presentation of any Rule 144 application by Consultant or its broker, including, without limitation, authorizing the Company’s transfer agent to remove the restrictive legend, (ii) expediting the acquisition of a legal opinion from Company’s authorized counsel at Company’s expense, (iii) delivering any additional documentation that may be required by Consultant, its broker or the transfer agent in connection with the legend removal request, including Rule 144 company representation letters, resolutions of the Board of Directors evidencing proper issuance of the Shares, etc., and (iv) cooperating and communicating with Consultant, its broker and the transfer agent in order to clear the Shares of restriction as soon as possible. |
| 4. | CLIENT DUTIES. The Client agrees to the following: |
The Client will disclose to the Consultant any and all information the Client deems pertinent and necessary to the Consulting Services to be performed hereunder; and the information supplied by the Client to the Consultant will be from dependable and reliable sources and will be true and accurate in all material respects.
| 5. | CONFIDENTIALITY. |
| a. | Confidential Information. Each Party agrees to hold private and confidential all confidential information of the other Party and neither Party, without the prior written consent of the other, shall divulge, disseminate, communicate or otherwise disclose any confidential or proprietary information of the other Party except to the extent required by law, regulation or any judicial or regulatory authority. Confidential information includes, but is not limited to, any information not obtainable by the general public and which contains information which would be considered owned by the owner and proprietary in nature and which would be considered as a trade secret except so far as it already exists in the public domain. For the avoidance of doubt, the Parties hereto acknowledge and agree that only publicly available information shall be distributed or disseminated in connection with the provision of the Consulting Services hereunder and under no circumstance will any confidential information be distributed or disseminated in connection therewith. |
| 6. | NON-SOLICITATION. During the Term of this Agreement and for twenty-four (24) months after any termination of this Agreement, Client will not, without prior written consent of Consultant, either directly or indirectly, on Client’s behalf or in the service or on behalf of others, solicit or attempt to solicit, divert, or hire away any person employed by Consultant currently or during the previous twelve (12) months, any third party or Consultant, or any customer of Consultant. |
| 12 |
| 7. | JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to conflict of laws principles. The Parties agree that any dispute arising out of or in relation to this contract shall be resolved by arbitration and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. The arbitration shall be conducted in the English language in the city of New York, New York. The arbitration shall be carried out using one of the following arbitration services: “JAMS, AAA, or NAM”, using one arbitrator. The party demanding arbitration shall have the choice of one the three arbitration services named herein. |
| 8. | SEVERABILITY. If any paragraph, term or provision of this Agreement shall be held or determined to be unenforceable, the balance of this Agreement shall nevertheless continue in full force and effect unaffected by such holding or determination. |
| 9. | HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. |
| 10. | NOTICES, PAYMENTS. Any payment, notice or other communication required by this Agreement (a) shall be in writing, (b) may be delivered personally, sent via electronic mail, or sent by reputable overnight courier with written verification of receipt or by registered or certified first class United States Mail, postage prepaid, return receipt requested, (c) shall be sent to the addresses listed above or to such other address as such party shall designate by written notice to the other party, and (d) shall be effective upon receipt. |
| 11. | FURTHER ACTION. The Parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of this Agreement. |
| 12. | ASSIGNMENT. This Agreement may not be assigned by either party hereto without the written consent of the other but shall be binding upon the successors of the Parties. |
| 13. | COUNTERPARTS. This Agreement may be executed in duplicate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. In the event that the document is signed by one party and faxed (or e- mailed) to another the Parties agree that a faxed (or e-mailed) signature shall be binding upon the Parties to this Agreement as though the signature was an original. |
| 13 |
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year first above written.
| Trending Equities Corp. | ||
| By: | /s/ Mike Baron | |
| Name: | Mike Baron | |
| Title: | CEO | |
| Ammo, Inc. | ||
| By: | /s/ Fred Wagenhals | |
| Name: | Fred Wagenhals | |
| Title: | CEO | |
| 14 |
Exhibit 23.2
Independent Registered Public Accounting Firm’s Consent
We consent to the incorporation by reference in this Registration Statement of AMMO Inc. on Form S-3, of our report dated August 19, 2020, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audit of the consolidated financial statements of AMMO Inc., and Subsidiaries, as of March 31, 2020 and for the year ended March 31, 2020 appearing in the Annual Report on Form 10-K of AMMO Inc. for the year ended March 31, 2021. We also consent to the reference to our firm under the heading “Experts” in the Prospectus, which is part of this Registration Statement.
Our report on the consolidated financial statements refers to a change in the method of accounting for leases effective April 1, 2019 due to the adoption of the guidance in ASC Topic 842, Leases.
| /s/ Marcum LLP |
Marcum llp
New York NY
February 5, 2021
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated June 28, 2019, relating to the consolidated financial statements of Ammo, Inc. We also consent to the reference to us under the heading “Experts” in the prospectus.
| /s/ KWCO, PC | |
| KWCO, PC | |
| Odessa, Texas 79762 | |
| February 5, 2021 |