2020 State of the Company
From the Owner.
This is the companies annual report on the state of Freedom Forge Armory LLC to investors, employees, and customers.
Welcome to the end of 2020 or as I like to call it. “We survived whatever that was.”
What happened this year.
2020 was great year for Freedom Forge Armory. The company made it through a lot of uncertainty in the industry and came out better than 2019 in spite of the odds stacked against it. A shifting political climate after the 2019 November elections saw a Democratic majority in the Virginia house and senate, along with a Democratic Governor. As expected a slew of anti-gun bills were introduced the worst of which that would have negatively effected operations were defeated. COVID-19 hit and saw an economic downturn in April but the firearms industry remained strong. I had to adjust business practices to comply with mandated restrictions, when a lot of our competitors had to close I made the decision to stay open, and it paid off. Civil unrest hit the local area in June and continued throughout the summer and into the fall. It could have been our worst year, but it turned into our best.
The first quarter in 2020 remained on track with the first quarter of 2019 with only a slight increase in revenues. The second quarter was much of the same. The third quarter revenues increased substantially due to panic buying of small arms and ammunition, this trend continued into the fourth quarter. As other manufactures struggled to meet demand, our quickly scale-able manufacturing model gave the company a lot of flexibility, and that flexibility paid dividends. We were able to meet the surge in demand with out exceeding our production output ability. This last year also saw the closure of two of our competitors, leaving Freedom Forge Armory the only FFL of any type in the Mechanicsville area, and the only 07 FFL firearms manufacturer and gunsmith in the metro Richmond area. The 2020 presidential election was full of uncertainty, and what followed the election can only be described as the highest form of political theater and national turmoil. Given that the outcome was not what we had hoped for we will continue to adapt in this shifting political climate and overcome. In adversity we find opportunity and make it work for us.
A look at the company right now.
Company sales volume increased and we were able surge to meet the demand. The addition of a new website was a smart investment that exposed the Freedom Forge Armory brand to more of the market. A page on the website “The Gunsmiths Bench” showcasing the work of our master gunsmith brought in a lot of customers that wouldn't have found us, for high end, complex custom work. We were able to add two part time employees, an engraver and long range specialist, and new equipment to the shop. We were able to go into full production of our silencer line and they have become one of our top sellers. Joint Rifle production and sales increased by 75% over 2019. The Mark 5 Mod 4 Joint Rifle quietly replaced the Mark 4 Mod 4 in the first quarter and we introduced three new rifles and two new pistols based on the Mark 5 Mod 4 design. The experimental XSASS when into full production as the 300SASS sniper rifle along with the APC-9, 9mm AR pistol.
A new line of light duty budget minded silencers made with aluminum and the all new M-6 rifles are in the final phase of development. Thanks to the larger volume in sales, I was able to increase the budget for development of the “A” line getting it ready for market a full year ahead of schedule, and speed up development of the Joint Rifle replacement. The volume of FFL transfers went up by 200% over 2019. The amount of gunsmith work we received, 150% over 2019 has kept Freedom Forge Armory backed up on average three to four months with no end in sight.
Our record sales volume allowed us to pay off the current shop building early and pay for the CNC machine in full this year.
The company did suffer some set backs this year. The CNC machine was supposed to be delivered and installed in July, delivery of the machine has been pushed back until the first quarter of 2021 due to issues with the vendor not being able to meet their timeline, citing local COVID related restrictions on their staff, we overcame this by partnering with a local machinist to finish out some of our needed parts, and putting in more time on our own Bridgeport milling machine. This solution while effective as a temporary stop gap, has caused some significant production delays, and caused our cost for tooling to increase in the third and fourth quarter. Currently it takes two hours to make one receiver on the Bridgeport with a loss rate of ten percent due to tool crashes and machining errors, more time is lost with having to do a lot of hand fitting. The CNC machine, once it arrives, will cut the production time down to fifteen minutes per receiver with an loss rate of almost zero, and the accuracy is repeatable to +/- 0.001” requiring no hand fitting, only minor deburring, marking, and final finishing. As of today I have received a tracking number for the machine and it will be installed in late January 2021.
The prices of raw materials (aluminum and steel) increased in the fourth quarter, by tightening the operating budget where I could, and partnering with redundant vendors outside of our normal supply chains to minimize supply interruptions I was able to avoid passing on a significant portion of those costs to our customers. I did have to slightly increase the prices of our rifles in the last quarter of the year but it was a small increase that allowed the company to maintain it's profit margin on manufactured products, while maintaining the high standards of quality. I hope to see to see stabilization of prices on raw materials in the late first or early second quarter of 2021.
Freedom Forge Armory rifles and silencers are getting us a lot of attention outside of the metro Richmond area. Several gun shops across the nation have contacted us with interest in carrying our products as a manufacture direct dealers. I had plans to go to SHOT show and SAR East this year as a vendor but those events were canceled due to COVID-19.
The company has run out of room in the current building, it can't support any more machines or equipment after the installation of the CNC machine. This problem has been temporarily remedied by reconfiguration of the shop floor to better utilize the limited space.
Fiscally, the company is very healthy. Freedom Forge Armory is debt free with 80% of the profits from sales and services being returned back to the company, the other 20% is covering company operating costs and miscellaneous expenses.
What we're looking to in the future.
Next year, I'm looking forward to another crazy but good year in 2021. Only five years after the move to the current location we've run out of room which limits the ability to have raw parts in stock to make our products, we are still having to rely on drop shipping of parts which adds time to production. The goal for 2021 is to get away from this model of making products when ordered, to having ready to ship stock, with a ready reserve of materials to make products. We will accomplish this by using numerous redundant vendors and purchasing in bulk at the lowest price directly from the manufacturer for the lowest production cost possible while maintaining quality, this practice is standard in the rest of the industry and we should have adopted it sooner. With the help of the two part time employees the shop floor has been reconfigured to make better use of the limited space. The company will be pushing the new “A” line of recreational duty aluminum suppressors into full production and sales as research and development comes to a close, with the Silver-A .22LR silencer offered for sale in the first quarter of 2021, and 30 caliber, 9mm, and .223 calibers available by the third quarter of 2021. I expect them to become one of our top selling products for recreational shooters, they can be produced and sold for less than the cost of a new handgun. The titanium suppressors have been a big hit sense they went into full production, a new magnum rated titanium silencer will be going into production in the second quarter of 2021. I will be offering lower receivers as a stand alone product once the CNC machine is installed and running.
2021 will see the end of the Joint Rifle Program, it's become to cumbersome to manufacture quickly with all of the available options and ten different models. The technology that made it cutting edge at the time it went into production has been surpassed. The all new M-6 Rifle will be wrapping up testing in late February, the goal is to have it in production by the second quarter of 2021. The M-6 will be a true production rifle that will take hours, not days to manufacture. The M-6 is a true departure from the Joint rifle family. The M-6 takes the best features from the top Mark 5 series sellers and rolls them into six simplified firearms with a lot of new leading edge features and the proven technology that was used in the Joint Rifle. The M-6 streamlines production by eliminating four models of the Mark 5 that were poor sellers, using 90% common parts between M-6 rifles. Production of the Mark 5 Mod 4 Joint Rifle will be halted as production of the M-6 begins late in the first quarter of 2021.
In 2021 we are anticipating another fight in the Virginia General Assembly and at the national level regarding firearm ownership, the governor has once again stated that he wants some form of “Weapons Ban” and magazine capacity limit. The company will continue to support the Virginia Citizens Defense League and National Shooting Sports Foundation to oppose any firearms legislation that could negatively impact our operations and our customers in the coming year.
Next two to three years.
Plans are being drawn up for a larger production facility, this facility will cost approximately $20K to $30K, which is a big investment. The biggest in company history. To offset this investment we're exploring a stronger partnership with LaserUS LLC to share the cost and space. We have been using LaserUS for a few years as a subcontractor, they do outstanding work, share our passion for quality, and the owner has some great ideas that involve custom engraved of limited production run pistols, rifles, and silencers. We are also discussing moving the location of the shop. This new location would allow for a larger production and gunsmith facility, a true retail area for customers, in house custom engraving, and the possibility of a range and classroom for offering instruction and training.
When the new building is built and ready, the plan is to transition operations into the new facility and keep the current building for use as a research, development, and testing facility. We are going to add a lathe and a larger vertical milling machine to the new shop for more precision and custom work services. If I can bring this new facility into reality it will have more than enough room for the larger machines, inventory and services we need to add for the next five to ten years.
Next three to five years. I want to push our products to a larger market. During the last part of 2020 I started negotiations with one of the largest local firearms retailers in the metro Richmond area and several smaller retail stores to stock Freedom Forge Armory products on their shelves, and finding a nation wide distributor to offer our products all throughout the US. I want to go to SHOT show and SAR East not as an observer as I have in years past but as a vendor to get Freedom Forge Armory products in front of a larger audience.
Next five to ten years.
I want to open a stand alone retail store with gunsmithing on site and manufacturing done at a separate facility. This stand alone store would carry Freedom Forge Armory products as well as other manufacturers products for retail sales to the general public. I want to concentrate more efforts on law enforcement and government contract sales. I want Freedom Forge Armory to become a recognized name in the firearms industry.
Freedom Forge Armory has an exciting future ahead. The days of struggling and wondering how to keep the lights on appear to be over. Freedom Forge Armory is becoming a force to be reckoned with and not just at the local level.
This concludes my report on the state of the company. A financial and production report has been provided to investors and company board members.