UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the quarterly period ended June 30, | |||
OR | |||
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the transition period from ________ to ________ |
AMMO, Inc.
(Exact Name of Registrant as Specified in its Charter)
001-13101 | 83-1950534 | |||
(State of incorporation) | (Commission File No.) | (I.R.S. Identification Number) |
7681 E Gray Road, Scottsdale, AZ85260
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number including area code: (480)947-0001
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The Nasdaq Stock Market LLC (Nasdaq Capital Market) | ||||
8.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value | POWWP | The Nasdaq Stock Market LLC (Nasdaq Capital Market) |
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ]☐ Yes [X] ☒ No
As of August 14, 2020,13, 2021, there were 47,622,920 shares of $0.001 par value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
TABLE OF CONTENTS
2 |
AMMO,, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2020 | March 31, 2020 | |||||||||||||||
(Unaudited) | June 30, 2021 | March 31, 2021 | ||||||||||||||
(Unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 1,017,513 | $ | 884,274 | ||||||||||||
Accounts receivable, net of allowance for doubtful account of $78,154 at June 30, 2020 and $62,248 at March 31, 2020 | 4,134,517 | 3,004,839 | ||||||||||||||
Stock subscription receivable | 1,840,910 | - | ||||||||||||||
Cash and cash equivalents | $ | 50,972,447 | $ | 118,341,471 | ||||||||||||
Accounts receivable, net | 23,800,569 | 8,993,920 | ||||||||||||||
Due from related parties | 15,657 | 15,807 | 18,657 | 15,657 | ||||||||||||
Inventories, at lower cost or net realizable value, principally average cost method | 6,518,757 | 4,408,073 | ||||||||||||||
Inventories, at lower of cost or net realizable value, principally average cost method | 27,939,525 | 15,866,918 | ||||||||||||||
Prepaid expenses | 630,103 | 844,117 | 3,460,619 | 2,402,366 | ||||||||||||
Total Current Assets | 14,157,457 | 9,157,110 | 106,191,817 | 145,620,332 | ||||||||||||
Equipment, net of accumulated depreciation of $3,736,734 at June 30, 2020 and $3,060,681 at March 31, 2020 | 16,842,158 | 18,046,329 | ||||||||||||||
Equipment, net | 23,173,432 | 21,553,226 | ||||||||||||||
Other Assets: | ||||||||||||||||
Deposits | 372,755 | 216,571 | 5,653,310 | 1,833,429 | ||||||||||||
Licensing agreements, net of accumulated amortization of $170,833 at June 30, 2020 and $158,833 at March 31, 2020 | 79,167 | 91,667 | ||||||||||||||
Patents, net of accumulated amortization of $684,431 at June 30, 2020 and $561,096 at March 31, 2020 | 6,389,574 | 6,512,909 | ||||||||||||||
Other Intangible Assets, net of accumulated amortization of $1,853,946 at June 30, 2020 and $1,496,833 at March 31, 2020 | 3,292,291 | 3,649,404 | ||||||||||||||
Right of Use Assets - Operating Leases | 2,603,745 | 3,431,746 | ||||||||||||||
Licensing agreements, net | 29,167 | 41,667 | ||||||||||||||
Patents, net | 5,896,233 | 6,019,567 | ||||||||||||||
Other intangible assets, net | 146,452,655 | 2,220,958 | ||||||||||||||
Goodwill | 90,999,208 | - | ||||||||||||||
Right of use assets - operating leases | 2,675,803 | 2,090,162 | ||||||||||||||
TOTAL ASSETS | $ | 43,737,147 | $ | 41,105,736 | $ | 381,071,625 | $ | 179,379,341 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 3,656,650 | $ | 5,197,354 | $ | 23,906,989 | $ | 4,371,974 | ||||||||
Factoring liability | 1,907,788 | 2,005,979 | 1,095,989 | 1,842,188 | ||||||||||||
Accrued liabilities | 2,467,085 | 1,619,619 | 3,789,179 | 3,462,785 | ||||||||||||
Inventory credit facility | 1,758,003 | - | 258,955 | 1,091,098 | ||||||||||||
Note payable related party | 391,536 | 434,731 | ||||||||||||||
Current portion of contingent consideration payable | 10,755,000 | - | ||||||||||||||
Current portion of operating lease liability | 480,470 | - | 948,894 | 663,784 | ||||||||||||
Current portion of note payable related party | 639,636 | 625,147 | ||||||||||||||
Insurance premium note payable | 200,214 | 329,724 | 1,320,278 | 41,517 | ||||||||||||
Convertible promissory notes, net of note issuance cost of $127,944 at June 30, 2020 and $237,611 at March 31, 2020 | 2,372,056 | 2,262,389 | ||||||||||||||
Total Current Liabilities | 13,233,802 | 11,849,796 | 42,714,920 | 12,098,493 | ||||||||||||
Long-term Liabilities: | ||||||||||||||||
Contingent consideration payable | 681,655 | 709,623 | ||||||||||||||
Notes payable related party | 8,235,302 | 5,803,800 | ||||||||||||||
Paycheck protection program notes | 1,051,985 | - | ||||||||||||||
Operating Lease Liability, net of current portion | 2,176,119 | 3,483,724 | ||||||||||||||
Contingent consideration payable, net of current portion | 533,254 | 589,892 | ||||||||||||||
Notes payable related part, net of current portion | 700,507 | 865,771 | ||||||||||||||
Note payable | - | 4,000,000 | ||||||||||||||
Operating lease liability, net of current portion | 1,857,697 | 1,477,656 | ||||||||||||||
Total Liabilities | 25,378,863 | 21,846,943 | 45,806,378 | 19,031,812 | ||||||||||||
Shareholders’ Equity: | ||||||||||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized 47,454,277 at June 30, 2020 and 46,204,139 shares issued and outstanding at March 31, 2020, respectively | 47,453 | 46,204 | ||||||||||||||
Series A Cumulative Perpetual Preferred Stock 7.25%, ($ per share, $ par value) shares issued and outstanding as of June 30, 2021 | 1,400 | - | ||||||||||||||
Common stock, $ | par value, shares authorized and shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively113,047 | 93,100 | ||||||||||||||
Additional paid-in capital | 55,421,865 | 53,219,834 | 367,771,424 | 202,073,968 | ||||||||||||
Accumulated Deficit | (37,111,034 | ) | (34,007,245 | ) | ||||||||||||
Accumulated deficit | (32,620,624 | ) | (41,819,539 | ) | ||||||||||||
Total Shareholders’ Equity | 18,358,284 | 19,258,793 | 335,265,247 | 160,347,529 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 43,737,147 | $ | 41,105,736 | $ | 381,071,625 | $ | 179,379,341 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
AMMO,, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Net Sales | ||||||||
Ammunition Sales | $ | 6,411,668 | $ | 1,141,499 | ||||
Casing Sales | 3,248,302 | 3,157,081 | ||||||
9,659,970 | 4,298,580 | |||||||
Cost of Goods Sold, for the three months ended June 30, 2020 and 2019 includes depreciation and amortization of $758,502, and $613,569, respectively, and federal excise taxes of $641,123, and $114,285, respectively | 8,588,565 | 4,951,796 | ||||||
Gross Margin | 1,071,405 | (653,216 | ) | |||||
Operating Expenses | ||||||||
Selling and marketing | 369,622 | 221,928 | ||||||
Corporate general and administrative | 1,088,984 | 1,099,643 | ||||||
Employee salaries and related expenses | 982,489 | 1,217,692 | ||||||
Depreciation and amortization expense | 410,499 | 454,862 | ||||||
Loss on Jagemann Munition Components | 1,000,000 | - | ||||||
Total operating expenses | 3,851,594 | 2,994,125 | ||||||
Loss from Operations | (2,780,189 | ) | (3,647,341 | ) | ||||
Other Expenses | ||||||||
Interest income/(expense) | (323,600 | ) | (194,061 | ) | ||||
Total other expenses | (323,600 | ) | (194,061 | ) | ||||
Loss before Income Taxes | (3,103,789 | ) | (3,841,402 | ) | ||||
Provision for Income Taxes | - | - | ||||||
Net (Loss) | $ | (3,103,789 | ) | $ | (3,841,402 | ) | ||
(Loss) per share | ||||||||
Basic and fully diluted: | ||||||||
Weighted average number of shares outstanding | 46,247,654 | 44,577,950 | ||||||
(Loss) per share | $ | (0.07 | ) | $ | (0.09 | ) |
2021 | 2020 | |||||||
For the Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Net Revenues | ||||||||
Ammunition sales | $ | 28,351,780 | $ | 6,411,668 | ||||
Marketplace revenue | 12,272,066 | - | ||||||
Casing sales | 3,852,486 | 3,248,302 | ||||||
Total Net Revenues | 44,476,332 | 9,659,970 | ||||||
Cost of Revenues, for the three months ended June 30, 2021 and 2020 includes depreciation and amortization of $905,790 and $758,502, respectively, and federal excise taxes of $2,397,771 and $641,123, respectively | 25,505,438 | 8,588,565 | ||||||
Gross Profit | 18,970,894 | 1,071,405 | ||||||
Operating Expenses | ||||||||
Selling and marketing | 1,165,849 | 369,622 | ||||||
Corporate general and administrative | 3,156,597 | 1,088,984 | ||||||
Employee salaries and related expenses | 2,356,873 | 982,489 | ||||||
Depreciation and amortization expense | 2,611,061 | 410,499 | ||||||
Loss on purchase | - | 1,000,000 | ||||||
Total operating expenses | 9,290,380 | 3,851,594 | ||||||
Income/(Loss) from Operations | 9,680,514 | (2,780,189 | ) | |||||
Other Expenses | ||||||||
Other income | 21,425 | - | ||||||
Interest expense | (165,279 | ) | (323,600 | ) | ||||
Total other expenses | (143,854 | ) | (323,600 | ) | ||||
Income (Loss) before Income Taxes | 9,536,660 | (3,103,789 | ) | |||||
Provision for Income Taxes | - | - | ||||||
Net Income/(Loss) | 9,536,660 | (3,103,789 | ) | |||||
Preferred Stock Dividend | (337,745 | ) | - | |||||
Net Income/(Loss) Attributable to Common Stock Shareholders | $ | 9,198,915 | $ | (3,103,789 | ) | |||
Net Income/(Loss) per share | ||||||||
Basic | $ | 0.09 | $ | (0.07 | ) | |||
Diluted | $ | 0.08 | $ | (0.07 | ) | |||
Weighted average number of shares outstanding | ||||||||
Basic | 105,876,867 | 46,247,654 | ||||||
Diluted | 109,051,682 | 46,247,654 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
AMMO,, Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the three monthsThree Months Ended June 30, 2021 and 2020
(Unaudited)
Common Shares | Additional | Accumulated | Number | Par Value | Number | Par Value | Capital | (Deficit) | Total | |||||||||||||||||||||||||||||||||||||||
Number | Par Value | Paid-In Capital | Deficit | Total | Preferred Stock | Common Shares | Additional Paid-In | Accumulated | ||||||||||||||||||||||||||||||||||||||||
Number | Par Value | Number | Par Value | Capital | (Deficit) | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2021 | - | $ | - | 93,099,967 | $ | 93,100 | $ | 202,073,968 | $ | (41,819,539 | ) | $ | 160,347,529 | |||||||||||||||||||||||||||||||||||
Acquisition stock issuances, net of issuance costs | - | - | 18,500,000 | 18,500 | 131,947,282 | - | 131,965,782 | |||||||||||||||||||||||||||||||||||||||||
Common stock issued for exercised warrants | - | - | 219,144 | 219 | 477,592 | - | 477,811 | |||||||||||||||||||||||||||||||||||||||||
Common stock issued for cashless warrant exercise | - | - | 275,155 | 275 | (275 | ) | - | - | ||||||||||||||||||||||||||||||||||||||||
Common stock issued for services | - | - | 750,000 | 750 | 1,499,250 | - | 1,500,000 | |||||||||||||||||||||||||||||||||||||||||
Employee stock awards | - | - | 202,500 | 203 | 699,297 | - | 699,500 | |||||||||||||||||||||||||||||||||||||||||
Stock grants | - | - | - | - | 66,914 | - | 66,914 | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock, net of issuance costs | 1,400,000 | 1,400 | - | - | 31,007,396 | - | 31,008,796 | |||||||||||||||||||||||||||||||||||||||||
Dividends accumulated on preferred stock | - | - | - | - | - | (337,745 | ) | (337,745 | ) | |||||||||||||||||||||||||||||||||||||||
Net income/(loss) | - | - | - | - | - | 9,536,660 | 9,536,660 | |||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2021 | 1,400,000 | $ | 1,400 | 113,046,766 | $ | 113,047 | $ | 367,771,424 | $ | (32,620,624 | ) | $ | 335,265,247 | |||||||||||||||||||||||||||||||||||
Balance as of March 31, 2020 | 46,204,139 | $ | 46,204 | $ | 53,219,834 | $ | (34,007,245 | ) | $ | 19,258,793 | - | $ | - | 46,204,139 | $ | 46,204 | $ | 53,219,834 | $ | (34,007,245 | ) | $ | 19,258,793 | |||||||||||||||||||||||||
Common stock issued for cash | 1,000,000 | 1,000 | 1,749,000 | - | 1,750,000 | - | - | 1,000,000 | 1,000 | 1,749,000 | - | 1,750,000 | ||||||||||||||||||||||||||||||||||||
Common stock issued for exercised warrants | 60,607 | 60 | 121,154 | - | 121,214 | - | - | 60,607 | 60 | 121,154 | 121,214 | |||||||||||||||||||||||||||||||||||||
Common stock issued for cashless warrant exercise | 279 | - | - | - | - | - | - | 279 | - | - | - | |||||||||||||||||||||||||||||||||||||
Common stock issued for services | 8,336 | 8 | (8 | ) | - | - | - | - | 8,336 | 8 | (8 | ) | - | - | ||||||||||||||||||||||||||||||||||
Employee stock awards | 180,916 | 181 | 255,119 | - | 255,300 | - | - | 180,916 | 181 | 255,119 | - | 255,300 | ||||||||||||||||||||||||||||||||||||
Stock grants | - | - | 76,766 | - | 76,766 | - | - | - | - | 76,766 | - | 76,766 | ||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | (3,103,789 | ) | (3,103,789 | ) | |||||||||||||||||||||||||||||||||||||||||
Net income/(loss) | - | - | - | - | - | (3,103,789 | ) | (3,103,789 | ) | |||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 | 47,454,277 | $ | 47,453 | $ | 55,421,865 | $ | (37,111,034 | ) | $ | 18,358,284 | - | $ | - | 47,454,277 | $ | 47,453 | $ | 55,421,865 | $ | (37,111,034 | ) | $ | 18,358,284 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
AMMO,, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
2021 | 2020 | |||||||||||||||
For the Three Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net Loss | $ | (3,103,789 | ) | $ | (3,841,402 | ) | ||||||||||
Adjustments to reconcile Net Loss to Net Cash used in operations: | ||||||||||||||||
Net Income/(Loss) | $ | 9,536,660 | $ | (3,103,789 | ) | |||||||||||
Adjustments to reconcile Net Loss to Net Cash provided by/(used in) operations: | ||||||||||||||||
Depreciation and amortization | 1,169,001 | 1,068,431 | 3,516,851 | 1,169,001 | ||||||||||||
Debt discount amortization | 109,667 | 24,144 | - | 109,667 | ||||||||||||
Employee stock awards | 255,300 | 333,250 | 699,500 | 255,300 | ||||||||||||
Stock grants | 76,766 | 201,512 | 66,914 | 76,766 | ||||||||||||
Stock for services | - | 200,000 | ||||||||||||||
Contingent consideration payable fair value | (27,968 | ) | - | (56,638 | ) | (27,968 | ) | |||||||||
Interest on convertible promissory notes | - | 18,226 | ||||||||||||||
Allowance for doubtful accounts | 15,906 | (103,644 | ) | 71,157 | 15,906 | |||||||||||
Gain on disposal of assets | (12,044 | ) | - | |||||||||||||
Reduction in right of use asset | 90,321 | 117,243 | 27,087 | 90,321 | ||||||||||||
Loss on Jagemann Munition Components | 1,000,000 | - | - | 1,000,000 | ||||||||||||
Changes in Current Assets and Liabilities | ||||||||||||||||
Accounts receivable | (1,145,584 | ) | (1,628,595 | ) | 2,124,556 | (1,145,584 | ) | |||||||||
Due to (from) related parties | 150 | (14,993 | ) | - | 150 | |||||||||||
Inventories | (2,110,684 | ) | (780,524 | ) | (12,072,607 | ) | (2,110,684 | ) | ||||||||
Prepaid expenses | 214,014 | 149,521 | 1,114,473 | 214,014 | ||||||||||||
Deposits | (156,184 | ) | (25,099 | ) | (3,119,492 | ) | (156,184 | ) | ||||||||
Accounts payable | 1,095,093 | 2,515,743 | 7,021,584 | 1,095,093 | ||||||||||||
Accrued liabilities | 847,466 | 135,949 | (208,131 | ) | 847,466 | |||||||||||
Operating lease liability | (89,455 | ) | (117,243 | ) | (39,203 | ) | (89,455 | ) | ||||||||
Net cash used in operating activities | (1,759,980 | ) | (1,747,481 | ) | ||||||||||||
Net cash provided by/(used in) operating activities | 8,670,667 | (1,759,980 | ) | |||||||||||||
Cash flows from investing activities | ||||||||||||||||
GDI acquisition | (50,651,444 | ) | - | |||||||||||||
Purchase of equipment | (471,882 | ) | (250,449 | ) | (1,611,316 | ) | (471,882 | ) | ||||||||
Proceeds from disposal of assets | 59,800 | - | ||||||||||||||
Net cash used in investing activities | (471,882 | ) | (250,449 | ) | (52,202,960 | ) | (471,882 | ) | ||||||||
Cash flow from financing activities | ||||||||||||||||
Proceeds from inventory facility | 1,758,003 | - | ||||||||||||||
Payments on inventor facility | (832,143 | ) | - | |||||||||||||
Proceeds from factoring liability | 6,952,000 | - | 23,651,000 | 6,952,000 | ||||||||||||
Payments on factoring liability | (7,050,191 | ) | - | (24,397,199 | ) | (7,050,191 | ) | |||||||||
Payments on assumed debt from GDI | (50,000,000 | ) | - | |||||||||||||
Proceeds from inventory facility | - | 1,758,003 | ||||||||||||||
Proceeds from paycheck protection program notes | 1,051,985 | - | - | 1,051,985 | ||||||||||||
Payments on note payable - related party | (247,490 | ) | (1,500,000 | ) | (150,775 | ) | (247,490 | ) | ||||||||
Payments on insurance premium note payment | (129,510 | ) | (76,866 | ) | (415,003 | ) | (129,510 | ) | ||||||||
Proceeds from note payable related party issued | - | 375,000 | ||||||||||||||
Contingent consideration payment | - | (50,000 | ) | |||||||||||||
Payments on note payable | (4,000,000 | ) | - |
(Continued)
6 |
AMMO,, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the Three Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Common stock issued for exercised warrants | 30,304 | - | 477,811 | 30,304 | ||||||||||||
Sale of common stock | - | 1,797,100 | ||||||||||||||
Common stock issuance costs | - | (189,567 | ) | (3,170,422 | ) | - | ||||||||||
Net cash provided by financing activities | 2,365,101 | 355,667 | ||||||||||||||
Sale of preferred stock | 35,000,000 | - | ||||||||||||||
Net cash provided by/(used in) financing activities | (23,836,731 | ) | 2,365,101 | |||||||||||||
Net increase/(decrease) in cash | 133,239 | (1,642,263 | ) | (67,369,024 | ) | 133,239 | ||||||||||
Cash, beginning of period | 884,274 | 2,181,246 | 118,341,471 | 884,274 | ||||||||||||
Cash, end of period | $ | 1,017,513 | $ | 538,983 | $ | 50,972,447 | $ | 1,017,513 | ||||||||
Supplemental cash flow disclosures | ||||||||||||||||
Cash paid during the period for - | ||||||||||||||||
Interest | $ | 160,195 | $ | 2,038 | $ | 189,116 | $ | 160,195 | ||||||||
Income taxes | $ | - | $ | - | $ | - | $ | - | ||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Acquisition stock issuances | $ | 132,645,000 | $ | - | ||||||||||||
Insurance premium note payment | $ | 1,693,764 | $ | - | ||||||||||||
Dividends accumulated on preferred stock | $ | 337,745 | $ | - | ||||||||||||
Operating lease liability | $ | - | $ | 737,680 | ||||||||||||
Note payable related party | $ | - | $ | 2,635,797 | ||||||||||||
Stock subscription receivable | 1,840,910 | - | $ | - | $ | 1,840,910 | ||||||||||
Additional paid-in capital | (1,839,865 | ) | - | |||||||||||||
Common stock | (1,045 | ) | - | |||||||||||||
Accounts payable | (2,635,797 | ) | - | |||||||||||||
Note payable related party | 2,635,797 | - | ||||||||||||||
Right of use assets - operating leases | (737,680 | ) | (4,406,922 | ) | ||||||||||||
Operating lease liability | 737,680 | 4,406,922 | ||||||||||||||
Convertible promissory note | - | (300,000 | ) | |||||||||||||
Convertible promissory note conversion | - | 300,000 | ||||||||||||||
$ | - | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20202021 and March 31, 20202021
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY
We were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On December 15, 2016, the Company’s majority shareholders sold ( pre-split) of their outstanding shares to Mr. Fred W. Wagenhals (“Mr. Wagenhals”) resulting in a change in control of the Company. Mr. Wagenhals was appointed as sole officer and the sole member of the Company’s Board of Directors.
The Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW, (iii) an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to Delaware, and (iv) a 1-for-25 reverse stock split (“Reverse Split”) of the issued and outstanding shares of the common stock of the Company. As a result of the reverse split, the previous issued and outstanding shares of common stock became All references to the outstanding stock have been retrospectively adjusted to reflect this split. These transactions were effective as of December 30, 2016. shares; no shareholder was reversed below 100 shares, and all fractional shares resulting from the reverse split were rounded up to the next whole share.
On March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (PRIVCO) under which the Company acquired all of the outstanding shares of common stock of (PRIVCO). Under the terms of the Agreement, the Company issued newly issued shares of common stock of the Company. In connection with this transaction the Company retired shares of common stock and issued shares of common stock to satisfy an issuance commitment. The acquisition was considered to be a capital transaction. The transaction was the equivalent to the issuance by PRIVCO of shares to the Company’s shareholders accompanied by a recapitalization. The weighted average number of outstanding shares has been adjusted for this transaction. (PRIVCO) subsequently changes its name to AMMO Munitions, Inc.
NOTE 2 – GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $3,103,789 and $3,841,402 for the three months ended June 30, 2020 and 2019, respectively. Net cash used in operating activities was $1,759,980 and $1,747,841 for the three months ended June 30, 2020 and 2019, respectively.
The Company anticipates that it will record losses from operations for the foreseeable future. As of June 30, 2020, the Company’s accumulated deficit was $37,111,034. The Company has limited capital resources, and operations to date have been funded with the proceeds from equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern for the period ended a year from the date the financial statements are issued.
The Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of equity offerings, and debt financings. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities or file for bankruptcy and our operations and financial condition may be materially adversely affected. See Note 14 for additional equity and debt proceeds received subsequent to June 30, 2020
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 32 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Basis
The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2020.2021. The results for the three month period ended June 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended June 30, 20202021 and 2019,2020, (b) the financial position at June 30, 2020,2021, and (c) cash flows for the three month periodsperiod ended June 30, 20202021 and 2019.2020.
We use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”)U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.
Unless the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company” are to AMMO, Inc., a Delaware corporation.corporation, and its consolidated subsidiaries.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, Enlight Group II, LLC (d/b/a Jagemann Munition Components), SNI, LLC, AMMO Munitions, Inc. and AMMO Technologies, Inc. (inactive).subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidationconsolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesU.S. GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable and Allowance for Doubtful Accounts
Our accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At June 30, 20202021 and March 31, 2020,2021, we reserved $78,154$1,514,872 and $62,248,$148,540, respectively, of allowance for doubtful accounts.
License Agreements
We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
We are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded Products. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Amortization expense for the license agreements for the three months ended June 30, 2020 and 2019 was $12,500.
Patents
Patents
On September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028. Patent amortization expense for the three months ended June 30, 2020 and 2019 was $21,269.
Under the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01$ per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the three months ended June 30, 20202021 and 2019,2020, the Company accrued $24,759recognized royalty expenses of $3,404 and $2,558$24,759, respectively under this agreement.
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.
The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018. Patent amortization expense for the three months ended June 30, 2020 and 2019 was $102,066 and $35,119, respectively
We intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other Intangible Assets
On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property. For
On April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the three months ended June 30, 2020Company, SpeedLight Group I, LLC, a Delaware limited liability company and 2019, amortizationa wholly owned subsidiary of the other intangiblesCompany and Gemini Direct Investments, LLC, a Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments, LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of Gunbroker.com, an online auction marketplace dedicated to firearms, hunting, shooting, and related products. The intangible assets was $357,113acquired include a tradename, customer relationships, intellectual property, software and $416,869, respectively recognized in depreciation and amortization expense.domain names.
Impairment of Long-Lived Assets
We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. NoNaN impairment expense was recognized for the three months ended June 30, 20202021 and 2019.2020.
Revenue Recognition
We generate revenue from the production and sale of ammunition.ammunition, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. The Company appliesWe apply the following five-step model to determine revenue recognition:
● | Identification of a contract with a customer | |
● | Identification of the performance obligations in the contact | |
● | determination of the transaction price | |
● | allocation of the transaction price to the separate performance allocation | |
● | recognition of revenue when performance obligations are satisfied |
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The CompanyWe only appliesapply the five-step model when it is probable that the Companywe will collect the consideration it iswe are entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’sour product, which typically occurs upon shipment of the product.product or the performance of the service. In the current period, the Companyyear ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The CompanyWe will recognize revenue when the performance obligation is met.
For the three months ended June 30, 2020 and 2019,2021 the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:
SCHEDULE OF CONCENTRATION OF RISKS
For the Three Months Ended June 30, 2020 | For the Three Months Ended June 30, 2019 | Revenues at June 30, 2021 | Accounts Receivable | |||||||||||||||||||||||||
PERCENTAGES | Revenues | Accounts Receivable | Revenues | Accounts Receivable | Three Months Ended | June 30, 2021 | March 31, 2021 | |||||||||||||||||||||
Customers: | ||||||||||||||||||||||||||||
A | 14.9 | % | 11.9 | % | 10.5 | % | - | 19.8 | % | - | - | |||||||||||||||||
B | 10.6 | % | 16.6 | % | - | - | 11.3 | % | - | 11.9 | % | |||||||||||||||||
C | - | - | 25.9 | % | 34.6 | % | - | - | 23.3 | % | ||||||||||||||||||
D | - | - | 10.6 | % | ||||||||||||||||||||||||
25.5 | % | 28.5 | % | 36.4 | % | 34.6 | % | 31.1 | % | - | 45.8 | % |
Disaggregated Revenue Information
The following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product or services types; ammunition, ammunition casings, and ammunition casings.marketplace fees. The Company notes that revenue recognition processes are consistent between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product and service type.
SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
For the Three Months Ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
Ammunition Sales | $ | 6,411,668 | $ | 1,141,499 | ||||
Ammunition Casings Sales | 3,248,302 | 3,157,081 | ||||||
Total Sales | $ | 9,659,970 | $ | 4,298,580 |
For the Three Months Ended | ||||||||
June 30, 2021 | June 30, 2020 | |||||||
Ammunition sales | $ | 28,351,780 | $ | 6,411,668 | ||||
Marketplace fee revenue | 12,272,066 | - | ||||||
Ammunition casings sales | 3,852,486 | 3,248,302 | ||||||
Total Revenues | $ | 44,476,332 | $ | 9,659,970 |
Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated through our Gunbroker.com online auction marketplace.
Advertising Costs
We expense advertising costs as they are incurred.incurred in selling and marketing expenses of operating expenses. Marketplace advertising costs are expenses as they are incurred in cost of revenues. We incurred advertising of $87,167 $116,433 and $94,213 $87,167 for the three months ended June 30, 2021 and 2020, respectively, recognized in selling expenses and 2019, respectively.$19,000 of advertising expenses recognized in cost of revenues for the three months ended June 30, 2021.
Inventories
We state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
We state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated useful lives, which are generally five to ten years.years.
Compensated Absences
We accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General (“ASC 710”)..
We account for stock-based compensation at fair value in accordance with SFAS No. 123Accounting Standards Codification 718 – Compensation – Stock Compensation (“ASC 718”). which requires the measurement and 123 (R) (ASC 718).recognition of compensation expense for all share-based payment awards to employees and directors. Stock-based compensation is recognized on a straight line basis over the vesting periods and forfeitures are recognized in the periods they occur. There were 180,916 shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committeeour advisory committee for services during the quarterthree months ended June 30, 2020.2021.
Effective April 1, 2020, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.
From September 2018 through March 2020, we entered into six separate employment agreements that included in total, among other provisions, equity grants of 473,332 shares of restricted common stock that vests annually over the next three years. The total compensation value is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.
Concentrations of Credit Risk
Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.$250,000. As of June 30, 2020,2021, our bank account balances exceeded federally insured limits.
Income Taxes
We file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.
Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer payroll taxes and evaluating potential employee retention credits.
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Contingencies
Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a result of such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient controls internal controls, and that the individual was the victim of retaliation and constructive discharge after being removed as a director by majority vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made of up independent directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found the material claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain corporate governance charter documents and processes which the Company promptly implemented. The matter is currently the subject of administrative investigation by the DOL via the Occupational Safety and Health Administration. The Company filed a timely Position Statement with the DOL in October of 2019 in response to the Complaint. The Company disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans to aggressively pursue its offensive claims in order to recover economic damages as a result of its claims while seeking dismissal of the counterclaim. There were no0 other known contingencies at June 30, 2020.2021.
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We calculate basic lossincome/(loss) per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants, using various methods, such aswarrants. We use the treasury stock or modified treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase 8,441,798 shares of common 0stock.stock and contingently issuable shares of common stock of 1,500,000. All weighted average numbers were adjusted for the reverse stock split and merger transaction. Due to the loss from operations in the three months ended June 30, 2020, and 2019, there are no common shares added to calculate the dilutive EPSloss per share for those periodsthat period as the effect would be antidilutive. The Company excluded warrants of for the three months ended June 30, 2020, and 2019, respectively, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.
Net income/(loss) attributable to common stock holders | Weighted average shares | Net income/(loss) attributable to common stock holders per share | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Basic income/(loss) per share | $ | 9,198,915 | $ | (3,103,789 | ) | 105,876,867 | 46,247,654 | $ | 0.09 | $ | (0.07 | ) | ||||||||||||
Effect of dilutive common stock purchase warrants | - | - | 2,024,037 | - | (0.01 | ) | - | |||||||||||||||||
Effect of dilutive contingently issuable common stock (1) | - | - | 1,010,869 | - | - | - | ||||||||||||||||||
Effect of dilutive equity incentive awards | - | - | 139,909 | - | - | - | ||||||||||||||||||
Diluted income/(loss) per share | $ | 9,198,915 | $ | (3,103,789 | ) | 109,051,682 | 46,247,654 | $ | 0.08 | $ | (0.07 | ) |
(1) | Weighted average of contingently issuable shares measured from the effective date of merger, April 30, 2021 |
NOTE 4 – INVENTORIES
At June 30, 20202021 and March 31, 2020,2021, the inventory balances are composed of:
SCHEDULE OF INVENTORY
June 30, 2021 | March 31, 2021 | |||||||
Finished product | $ | 3,207,574 | $ | 899,266 | ||||
Raw materials | 18,109,674 | 12,440,548 | ||||||
Work in process | 6,622,277 | 2,527,104 | ||||||
Inventory, net | $ | 27,939,525 | $ | 15,866,918 |
June 30, 2020 | March 31, 2020 | |||||||
Finished product | $ | 781,319 | $ | 1,916,418 | ||||
Raw materials | 3,916,412 | 1,771,006 | ||||||
Work in process | 1,821,026 | 720,650 | ||||||
$ | 6,518,757 | $ | 4,408,073 |
NOTE 5 – PROPERTY AND EQUIPMENT
We state property and equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years. Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation from the accounts and any resulting gain or loss is credited or charged to selling, general, and administrative expenses.other income. We charge expenditures for normal repairs and maintenance to expense as incurred.
We capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.
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AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and equipmentEquipment consisted of the following at June 30, 20202021 and March 31, 2020:2021:
SCHEDULE OF EQUIPMENT
June 30, 2020 | March 31, 2020 | June 30, 2021 | March 31, 2021 | |||||||||||||
Building | $ | 955,810 | $ | - | ||||||||||||
Leasehold Improvements | $ | 118,222 | $ | 118,222 | 250,887 | 126,558 | ||||||||||
Furniture and Fixtures | 87,790 | 87,790 | 331,490 | 87,790 | ||||||||||||
Vehicles | 103,511 | 103,511 | 152,101 | 142,691 | ||||||||||||
Equipment | 20,049,917 | 19,578,035 | 27,305,838 | 26,425,221 | ||||||||||||
Tooling | 126,190 | 126,190 | 143,710 | 121,790 | ||||||||||||
Construction in Progress | 93,262 | 1,093,262 | 882,310 | 544,939 | ||||||||||||
Total property and equipment | $ | 20,578,892 | $ | 21,107,010 | $ | 30,022,146 | $ | 27,448,989 | ||||||||
Less accumulated depreciation | (3,736,734 | ) | (3,060,681 | ) | (6,848,714 | ) | (5,895,763 | ) | ||||||||
Net property and equipment | 16,842,158 | 18,046,329 | ||||||||||||||
Net equipment | $ | 23,173,432 | $ | 21,553,226 |
Depreciation Expense for the three months ended June 30, 2021 and 2020 totaled $995,334, and 2019 totaled $676,053 and $582,674,$676,053, respectively.
NOTE 6 – FACTORING LIABILITY
On July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains a maximum advance amount of $5,000,000 $5,000,000 on 85%85% of eligible accounts and has an annualized interest rate of the Prime Rate published from time to time by the Wall Street Journal plus 4.5%. The agreement contains fee of 3%3% ($150,000)150,000) of the Maximum Facility assessed to the Company. Our obligations under this agreement are secured by present and future accounts receivables and related assets, inventory, and equipment. The Company has the right to terminate the agreement, with 30 days written notice, upon obtaining a non-factoring credit facility. This agreement provides the Company with the ability to convert our account receivables into cash. As of June 30, 2020,2021, the outstanding balance of the Factoring Liability was $1,907,788. Interest$1,095,989. For the three months ending June 30, 2021, interest expense recognized on the Factoring Liability was $114,060,$41,579 and for the three months ending June 30, 2020 was $114,060, including $37,500 $37,500of amortization of the commitment fee. There was no interest expense for the three month period ending June 30, 2019 as this transaction was not yet consummated.
On June 17, 2020, this agreement was amended which extended the maturity date to June 17, 2022.
NOTE 7 – INVENTORY CREDIT FACILITY
On June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line, and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our inventory, among other assets, contains a maximum loan amount of $1,750,000 $1,750,000 on eligible inventory and has an annualized interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%.The agreement contains a fee of 2%2% of the maximum loan amount ($35,000)35,000) assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory loan amount to $2,250,000. As of June 30, 2020,2021, the outstanding balance of the Inventory Credit Facility was $1,758,003.$258,955. Interest expense recognized on the Inventory Credit Facility was $7,490,$17,659, including $2,917 $8,561of amortization of the annual fee. There was no interest expensefee for the three month period endingmonths ended June 30, 2019 as this transaction was not yet consummated.2021 and $7,490, including $2,917of amortization of the annual fee for the three months ended June 30, 2020.
NOTE 8 – LEASES
We lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ, Atlanta and Marietta, GA, and Manitowoc and Two Rivers, WI under contracts we classify as operating leases. None of our leases are financing leases. The Payson lease has an option to renew for five years.years. As of June 30, 2020,2021, we are fairly certain that we will not exercise the renewal option, and we have included such renewal option in the lease liabilities and the disclosures herein.option. The Scottsdale lease does not include a renewal option. As of June 26, 2020, the Company entered into an amended agreement that modified the Manitowoc lease to monthly payments of $34,071$34,071 and decrease the term to March 2025.2025. The agreement does not contain a renewal option. Accordingly, we modified our Right of Use Assets and Operating Lease Liabilities by $737,680.
As of June 30, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $2,603,745 and $2,656,589, respectively. The Operating Lease Liabilities were net of current portions of $480,470$737,680 at June 30, 2020.
Consolidated lease expense for the three months ended June 30, 2021 and 2020 was $184,769$273,296 and $184,769, respectively, including $176,673 $263,197and $176,673 of respective operating lease expense and $8,095 $10,099 and $8,096 of respective other lease associated expenses such as association dues, taxes, utilities, and other month to month rentals.
16 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The weighted average remaining lease term and weighted average discount rate for operating leases were 4.73.0 years and 10.0%10.0%, respectively.
Futures minimum lease payments under non-cancellable leases as of June 30, 20202021 are as follows:
Years Ended March 31, | ||||
2021 (1) | 542,627 | |||
2022 | 732,111 | |||
2023 | 742,108 | |||
2024 | 684,836 | |||
Thereafter | 639,988 | |||
3,341,670 | ||||
Less: Amount Representing Interest | (685,081 | ) | ||
$ | 2,656,589 |
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES
Years Ended March 31, | ||||
2022 (1) | $ | 905,641 | ||
2023 | 1,018,689 | |||
2024 | 873,420 | |||
2025 | 472,306 | |||
2026 | - | |||
Thereafter | - | |||
Total lease payments | 3,270,056 | |||
Less: Amount Representing Interest | (463,465 | ) | ||
Present value of lease liabilities | $ | 2,806,591 |
(1) | This amount represents future lease payments for the remaining nine months of fiscal year |
NOTE 9 – CONVERTIBLE PROMISSORY NOTES
On January 15, 2020, the company consummated the initial closing of a private placement offering whereby pursuant to the Subscription Agreements entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes for an aggregate purchase price of $1,650,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value $0.001 per share (“Common Stock”).
On January 30, 2020, the Company consummated the final closing of a private placement whereby pursuant to the Subscription Agreements entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes for an aggregate purchase price of $850,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value $0.001 per share.
The Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 and October 30, 2020. Additionally, the Notes contain a mandatory conversion mechanism whereby any principal and accrued interest on the Notes, upon the closing of a Qualified Financing (as defined in the Notes), converts into shares of the Company’s Common Stock at a conversion price of 66.7% of the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Company’s Common Stock at a conversion price that is equal to 50.0% of the arithmetic mean of the VWAP in the ten consecutive Trading Days immediately preceding the Maturity Date. The Notes contain customary events of default. If an Event of Default occurs, interest under the Notes will accrue at a rate of fifteen percent (15%) per annum and the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Notes will become, at the Note holder’s election, immediately due and payable in cash.
The Company analyzed embedded conversion options of the convertible notes at issuance to determine whether the embedded conversion options should be bifurcated and accounted for as derivative liabilities or if the embedded conversion options contain a beneficial conversion feature. The Company notes that this determination must be performed at each balance sheet date and makes it possible for certain instruments to be reclassified between debt and equity at different points in their life. The Company determined that it will defer recognition of its accounting until such notes become convertible. Additionally, the Company determined that the embedded conversion options do not require bifurcation and treatment as derivative liabilities, but they included contingent beneficial conversion features that are indeterminable on the commitment date. The Company notes the embedded conversion options will be accounted for and recognized, if necessary, when the contingencies are resolved (the date of a Qualified Financing or during the 10 days prior to the Maturity Date). Through June 30, 2020, a Qualified Financing had not occurred and the Note is not yet convertible under the Voluntary Conversion Option and, as a result, the contingencies have not been resolved, such that the Company concluded that no measurement or recognition of the beneficial conversion feature was required as of June 30, 2020.
Pursuant to the Subscription Agreements, each Investor will receive the number of Warrants to purchase shares of Common Stock equal to the quotient obtained by dividing 50% of the principal amount of the Note by the Conversion Price of the Note. The Warrants are exercisable at the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before the Maturity Date, the warrants shall become exercisable at a price per share that is equal to the closing ten-day VWAP in the ten trading days immediately preceding the Maturity Date (the “Exercise Price”). The 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.
Joseph Gunnar & Co., LLC acted as placement agent for the Offering. The Placement Agent received cash compensation of $200,000 and is scheduled to be issued five (5) year warrants to purchase such number of shares of Common Stock equal to five percent (5%) of the shares underlying the Notes and the Warrants, at an exercise price equal to 125% of the Conversion Price of the Notes, which price shall not be known until the earlier of the Maturity Date or the closing of the Qualified Financing.
As of June 30, 2020, the key terms of the investor and placement agent warrants are still unknown such that there is still no grant of the warrants for accounting purposes. The Company will determine the fair value of the warrants at the time the key terms of the Warrants become known and the Warrants are issued.
17 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 109 – NOTES PAYABLE – RELATED PARTY
In
For the three months ended June 30, 2021, the Company made $150,755 in principal payments in connection with the acquisition of the casing division ofAmended Note B, an amended related party note payable with Jagemann Stamping Company a $10,400,000 promissory note was executed. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly. In May of 2019, the Company paid $1,500,000 on the balance of the note. As of June 30, 2020, we recognized interest of $25,949 related to the note. The note is secured by all the equipment purchased from Jagemann Stamping Company.
Post-closing of the transaction, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Equipment for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were originally to be transferred.
On June 26, 2020, the Company, Enlight Group II, LLC (“Enlight”), the Company’s wholly owned subsidiary and Jagemann Stamping Company’s (“JSC”). We 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 Note B with JSC on November 4, 2020 and the note matures on June 26, 2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide 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 reclassed from accounts payable, both with a maturity date of August 15, 2021, (ii) general business security agreements granting JSC a security2023. We recognized $33,141 in interest in all personal property of the Company. Pursuant to the Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the Notes have a mandatory prepayment provision that comes into effect if the Company conducts a publicly registered offering. Pursuant to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and (b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as there are no defaults under the Settlement Agreement. The total balance of the two Notes due to JSC as of June 30, 2020 is $8,235,302.
As a result of the Settlement Agreement, the Company agreed to not receive $1,000,000 in Construction in Progress that the parties had previously agreed to exchange. As a result, the Company recognized a loss in operating expenses for the three months ended June 30, 2020.2021.
On May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate was the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $260,000. The note’s original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at 1.25% per month. The Company made $18,195 in principal payments in the three months ended June 30, 2020. We recognized $10,002 of interest expenses related to the note during the three months ended June 30, 2020. Subsequent to June 30, 2020, the related party note and accrued interest was paid in full.
In December of 2019, the Company entered into a Promissory Note of $90,000 with Fred Wagenhals, the Company’s Chief Executive Officer and Chairman of the Board of Directors. The Note originally matured on June 12, 2020 and had an interest rate at the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $131,536 and the amended maturity date is September 18, 2020. The Company made $25,000 in principal payments in the three months ended June 30, 2020. The amended note bears interest at 1.25% per month. We recognized $5,185 of interest expense on the note for the three months ended June 30, 2020. Subsequent to June 30, 2020, the related party note and accrued interest was paid in full.
18 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1110 – PAYCHECK PROTECTION NOTES PAYABLE
In April of 2020, the Company determined it was necessary to obtain additional funds as a result of the foregoing uncertainty cause by COVID-19. The Company received approximately $1.0 million in funds through itself and its wholly owned subsidiary Jagemann Munition Components, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered by the U.S. Small Business Administration. The Company received approximately $600,000 from Western State Bank and its wholly owned subsidiary, Jagemann Munition Components, received approximately $400,000 from BMO Harris. The Paycheck Protection Notes provide for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the Paycheck Protection Notes are forgiven. To be available for loan forgiveness, the Paycheck Protection Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020.
NOTE 12 – CAPITAL STOCK
During the three month period ended June 30, 2020,2021, we issued 1,204,683 shares of common stock as follows:
● | ||
● | ||
● | ||
● | ||
● |
19 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2020, we recorded a stock subscription receivable of $1,840,910 for 1,000,000 shares of Common Stock sold to an Investor for $1,750,000 or $1.75 per share and 45,455 shares issued to investors for exercised warrants at $2.00 per share for $90,910.
At June 30, 2020,2021, outstanding and exercisable stock purchase warrants consisted of the following:
Number of Shares | Weighted Averaged Exercise Price | Weighted Average Life Remaining | ||||||||||
Outstanding at March 31, 2020 | 8,504,372 | $ | 2.10 | 3.60 | ||||||||
Granted | - | - | - | |||||||||
Exercised | (62,574 | ) | 2.00 | - | ||||||||
Forfeited or cancelled | - | - | - | |||||||||
Outstanding at June 30, 2020 | 8,441,798 | $ | 2.10 | 3.32 | ||||||||
Exercisable at June 30, 2020 | 8,441,798 | $ | 2.10 | 3.32 |
SCHEDULE OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
Number of Shares | Weighted Averaged Exercise Price | Weighted Average Life Remaining | ||||||||||
Outstanding at March 31, 2021 | 3,607,945 | $ | 2.31 | |||||||||
Granted | - | - | - | |||||||||
Exercised | (559,985 | ) | 1.91 | - | ||||||||
Forfeited or cancelled | - | - | - | |||||||||
Outstanding at June 30, 2021 | 3,047,960 | $ | 2.39 | |||||||||
Exercisable at June 30, 2021 | 3,047,960 | $ | 2.39 |
As of June 30, 2020,2021, we had 8,441,7983,047,960 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 966,4942,730 shares of Common Stock at an exercise price of $1.65$1.65 per share until April 2025; (2) warrants to purchase 4,579,1711,934,414 shares of our Common Stock at an exercise price of $2.00$2.00 per share overconsisting of 71% of the next three to five years;warrants until April 2023, 31% until August 2024, and 69% until February 2026; (3) warrants to purchase 2,896,133564,029 shares of Common Stock at an exercise price of $2.40 over$2.40 until September 2024; (4) warrants to purchase 396,787 shares of Common Stock at an exercise price of $2.63 until November 2025, and (5) warrants to purchase 150,000 shares of Common Stock at an exercise price of $6.72 until February 2024.
20 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – PREFERRED STOCK
On May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”), as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, ranks: (1) senior to all classes or series of Common Stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Series A Preferred Stock; (2) on parity with any future class or series of the Company’s capital stock expressly designated as ranking on parity with the Series A Preferred Stock; (3) junior to any future class or series of the Company’s capital stock expressly designated as ranking senior to the Series A Preferred Stock; and (4) junior to all the Company’s existing and future indebtedness.
The Series A Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares the Series A Preferred Stock are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders (i.e., after satisfaction of all the Company’s liabilities to creditors, if any) an amount equal to $ per share of the Series A Preferred Stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment before any distribution or payment may be made to holders of shares of Common Stock or any other class of or series of the Corporation’s capital stock ranking, as to rights to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up, junior to the Series A Preferred Stock.
The Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series A Preferred Stock will accrue on the stated amount of $8.75% (equivalent to $ per year), payable quarterly in arrears. Dividends on the Series A Preferred Stock declared by our board of directors (or a duly authorized committee of our board of directors) will be payable quarterly in arrears on March 15, June 15, September 15 and December 15. per share of the Series A Preferred Stock at a rate per annum equal to
Generally, the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event (each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for a limited period of time.
On May 19, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative of several underwriters (collectively, the “Underwriters”), relating to a firm commitment public offering of 27,430,000. The closing of the offering took place on May 21, 2021. newly issued shares of our 8.75% Series A Preferred Stock at a public offering price of $ per share. Under the terms of the Underwriting Agreement, we granted the Underwriters a 45-day option to purchase up to an additional shares of Series A Preferred Stock from us. The gross proceeds to us from the sale of shares of Series A Preferred Stock, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, was $
On May 25, 2021, we entered into an additional underwriting agreement with Alexander Capital, L.P. relating to a firm commitment public offering of 3,455,500. Additionally, the Underwriters exercised its previously announced over-allotment option to purchase shares of Series A Preferred Stock pursuant to that certain Underwriting Agreement dated May 19, 2021, by and between us and Alexander Capital, L.P., as representative of the several underwriters identified therein. We closed the exercise of the over-allotment option on May 27, 2021. The gross proceeds from the exercise of the over-allotment option were $4,114,500, before deducting underwriting discounts and commissions. newly issued shares of our Series A Preferred Stock at a public offering price of $ per share. The closing of the offering took place on May 27, 2021. The gross proceeds to us from the sale of shares of Series A Preferred Stock, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, were $
Preferred dividends accumulated as of June 30, 2021 were $337,745.
21 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ACQUISITION
Gemini Direct Investments, LLC
On April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s ownership of the Gunbroker.com business. Gunbroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and related products. The Merger was completed on the Effective Date.
In consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i) the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $50,000,000 (the “Assumed Indebtedness”); and, (ii) the issued and outstanding membership interests in Gemini (the “Membership Interests”), held by the Seller, automatically converted into the right to receive (A) $50,000,000 (the “Cash Consideration”), and (B) shares of common stock of the Company, $ par value per share (the “Stock Consideration”).
In connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) shares issued without being held in escrow or requiring prior stockholder approval; (b) shares issued subject to the Pledge and Escrow Agreement; and (c) shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the “Additional Securities”).
The total estimated consideration consisted of cash payment of $50,000,000 less $1,350,046 of acquired cash, a working capital adjustment of $2,000,000, debt assumption and repayment upon closing of $50,000,000, contingent consideration of $10,755,000 for Additional Securities, and 18,500,000 shares of AMMO Inc. Common Stock. The shares were valued at $per share, the five-day average closing price of the Company’s Common Stock immediately preceding the signing of the binding agreement.
In accordance with the acquisition method of accounting for business combinations, the assets acquired, and the liabilities assumed have been recorded at their respective fair values. The consideration in excess of the fair values of assets acquired, and liabilities assumed are recorded as goodwill.
The preliminary fair value of the consideration transferred was valued as of the date of the acquisition as follows:
SCHEDULE OF FAIR VALUE OF CONSIDERATION TRANSFERRED
Cash | $ | 48,649,954 | ||
Estimated working capital adjustment | 2,000,000 | |||
Contingent consideration | 10,755,000 | |||
Common stock | 132,645,000 | |||
Assumed debt | 50,000,000 | |||
Fair Value of Patent | $ | 244,049,954 |
The preliminary allocation for the consideration recorded for the acquisition is as follows:
SCHEDULE OF ALLOCATION FOR CONSIDERATION
Accounts receivable, net | $ | 17,002,362 | ||
Prepaid expenses | 478,963 | |||
Equipment | 1,051,980 | |||
Deposits | 703,389 | |||
Intangible assets | 146,617,380 | |||
Goodwill | 90,999,208 | |||
Right of use assets - operating leases | 612,727 | |||
Accounts payable | (12,514,919 | ) | ||
Accrued expenses | (196,780 | ) | ||
Operating lease liability | (704,356 | ) | ||
Total Consideration | $ | 244,049,954 |
(1) | Preliminary estimate of Other Intangible Assets and Goodwill. Other intangible assets to consist of Tradenames, Customer Relationships, Intellectual Property, and other tangible assets related to the acquired business. |
22 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We recorded approximately $1.3 million in transaction costs in the three months ended June 30, 2021.
The purchase price allocation is preliminary. The preliminary estimated fair value recorded for the acquired assets and liabilities assumed with excess consideration recorded as goodwill represent management’s estimate of fair value and are subject to change when additional information, such as post-close working capital adjustments and valuations become available. The purchase price allocation will continue to be preliminary until the Company is able to finalize the allocation. The Company expects to finalize the purchase price allocation within the measurement period, but not more than one year following the closing date of the Merger. The final amounts from the valuation may significantly and materially differ from the preliminary allocation herein.
Unaudited Pro Forma Results of Operations
This pro forma results of operations gives effect to the acquisition as if it had occurred April 1, 2021. Material pro forma adjustments include the removal of approximately $1.8 million of interest expenses and debt discount amortization and the addition of approximately $0.9 million depreciation and amortization expenses.
SCHEDULE OF UNAUDITED PRO FORMA RESULTS OF OPERATIONS
2021 | ||||
INCOME STATEMENT DATA | For the Three Months Ended June 30, 2021 | |||
Net revenues | $ | 52,521,753 | ||
Net income | $ | 14,083,148 |
NOTE 13 – GOODWILL AND INTANGIBLE ASSETS
In the current period, we recorded $90,999,208 of Goodwill generated from our Merger with Gemini.
Amortization expenses related to our intangible assets for the three months ended June 30, 2021 and 2020 were $2,521,517 and $492,948, respectively.
SCHEDULE OF INTANGIBLE ASSETS
June 30, 2021 | ||||||||||||||||
Life | Licenses | Patent | Other Intangible Assets | |||||||||||||
Licensing Agreement – Jesse James | 5 | $ | 125,000 | $ | - | $ | - | |||||||||
Licensing Agreement – Jeff Rann | 5 | 125,000 | - | - | ||||||||||||
Streak Visual Ammunition patent | 11.2 | - | 950,000 | - | ||||||||||||
SWK patent acquisition | 15 | - | 6,124,005 | - | ||||||||||||
Jagemann Munition Components: | ||||||||||||||||
Customer Relationships | 3 | - | - | 1,450,613 | ||||||||||||
Intellectual Property | 3 | - | - | 1,543,548 | ||||||||||||
Tradename | 5 | - | - | 2,152,076 | ||||||||||||
GDI Acquisition: | ||||||||||||||||
Tradename | 15 | - | - | 76,532,389 | ||||||||||||
Customer List | 10 | - | - | 65,252,802 | ||||||||||||
Intellectual Property | 10 | - | - | 4,224,442 | ||||||||||||
Other Intangible Assets | 5 | - | - | 607,747 | ||||||||||||
250,000 | 7,074,005 | 151,763,617 | ||||||||||||||
Accumulated amortization – Licensing Agreements | (220,833 | ) | - | - | ||||||||||||
Accumulated amortization – Patents | - | (1,177,772 | ) | - | ||||||||||||
Accumulated amortization – Intangible Assets | - | - | (5,310,962 | ) | ||||||||||||
$ | 29,167 | $ | 5,896,233 | $ | 146,452,655 |
Annual amortization of intangible assets for the next five years.fiscal years are as follows:
SCHEDULE OF ANNUAL AMORTIZATION OF INTANGIBLE ASSETS
Years Ended March 31, | Estimates for Fiscal Year | |||
2022 (1) | $ | 10,659,051 | ||
2023 | 13,095,215 | |||
2024 | 12,966,879 | |||
2025 | 12,664,775 | |||
2026 | 12,674,904 | |||
Thereafter | 90,317,231 | |||
Annual amortization of intangible assets | $ | 157,378,055 |
(1) | This amount represents future amortization for the remaining nine months of fiscal year 2022. It does not include any amortization for the three months ended June 30, 2021. |
NOTE 1314 – SEGMENTS
On April 30, 2021, the Company entered into an agreement and plan of merger with SpeedLight Group I, LLC, which, along with its subsidiaries, engages primarily in the operation of an online marketplace dedicated to firearms, hunting, shooting and related products. As a result, at June 30, 2021, our chief operating decision maker, our Chief Executive Officer, reviews financial performance based on two operating segments as follows:
● | Ammunition– which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition and ammunition component products. | |
● | Marketplace – which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of firearms, ammunition and hunting/shooting accessories. |
Ammunition generated approximately 72% of our revenue in the three months ended June 30, 2021, while Marketplace generated approximately 77% of our operating income in the three months ended June 30, 2021.The following tables set forth certain financial information utilized by management to evaluate our operating segments for the interim period presented:
SCHEDULE OF OPERATING SEGMENTS
Ammunition | Marketplace | Total | ||||||||||
For the Three Months Ended June 30, 2021 | ||||||||||||
Ammunition | Marketplace | Total | ||||||||||
Net Revenues | $ | 32,204,266 | $ | 12,272,066 | $ | 44,476,332 | ||||||
Cost of Revenues | 23,848,248 | 1,657,190 | 25,505,438 | |||||||||
General and administrative expense | 5,676,755 | 1,002,564 | 6,679,319 | |||||||||
Depreciation and amortization | 420,242 | 2,190,819 | 2,611,061 | |||||||||
Operating Income | $ | 2,259,021 | $ | 7,421,493 | $ | 9,680,514 |
NOTE 15 – INCOME TAXES
As of June 30, 2020,2021, we had net operating loss carryforwards of approximately $31,116,173,$22 million which will expire beginning at the end of 2036. A valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have future taxable income.
The Company’s effective tax rates were 0%0% and 0%0% for the three months ended June 30, 20202021 and 2019,2020, respectively. During the three months ended June 30, 20202021 and 2019,2020, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance.
The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March 31, 2018, 2019, 2020, and 20202021 are subject to audit.
Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods.
NOTE 16 – SUBSEQUENT EVENTS
From July 1, 2021 to August 13, 2021, we issued 57,692 shares of Common Stock pursuant to warrant exercises at per share prices ranging from $2.40 to $2.63 for an aggregate value of $137,234. Additionally, shares of Common Stock were issued pursuant to the cashless exercise of 2,269 warrants.
NOTE 14 – SUBSEQUENT EVENTS
Subsequent to June 30, 2020,2021, the Company issued 11,500 shares of Common Stock to employees for $14,375 or $1.25 per share. Additionally, the Company issued 157,143 sharesa total value of Common Stock to an investor for $275,000 or $1.75 per share.$165,375.
On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory loan amount to $2,250,000.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, Selectedour Consolidated Financial Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.
In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc., a Delaware corporate, and its wholly owned operating subsidiaries AMMO Munitions, Inc., Enlight Group II, LLC d/b/a Jagemann Munition Components (“Jagemann Munition Components”), SNI, LLC and AMMO Technologies, Inc. (inactive).consolidated subsidiaries.
Overview
Our vision is to modernize the ammunition industry by bringing new technologies to market. We intend to do that through acquisition and application of intellectual property that is unique to the industry and through investing in manufacturing equipment and processes that enable us to compete globally.
When we began our operations in early 2017, our focus was to sell the inventory of ammunition we acquired through an asset purchase of a private company located in northern Arizona. The inventory consisted primarily of standard pistol and rifle rounds and two proprietary lines that had not received much traction in the market. We sold the remaining inventory at a discount during 2017 to help fund the development of our manufacturing operations. This accounted for the majority of our sales through the end of the third quarter of the calendar year of 2017.
With the prior inventory successfully sold and new products being produced, our next objective for the calendar year ending December 31, 2017 was to identify ammunition technologies unique to the industry that could be quickly implemented by our manufacturing team. We met with several organizations and projectile manufacturers looking for innovative products that could be used to establish us as a niche or high-end manufacturer for the recreational shooter, the American hunter, law enforcement, and military forces. Among the first of these technologies to meet our requirements was STREAK VISUAL AMMUNITION™, a one-way luminescent or OWL Technology application. We believe our STREAK VISUAL AMMUNITION™ line is the only non-incendiary tracer round in the ammunition market today. We secured the exclusive license to manufacture and sell the STREAK VISUAL AMMUNITION™ line of ammunition in 2017. We have filed for and received Trademark Protection for the STREAK VISUAL AMMUNITION™ product name from the United States Patent and Trademark Office (USPTO) on July 17, 2018 Additionally, we filed for Trademark Protection for the O.W.L. TechnologyTM product name on June 6, 2018.
We formally introduced the STREAK VISUAL AMMUNITION™ portfolio of calibers, along with our rebranded One Precise Shot (OPS) and Stelth subsonic line of suppression ammunition, to the general public at the SHOT Show in Las Vegas held in January 2018. This product introduction resulted in the opening of major retail outlets across the United States and attracted the attention of distributors in the international community. We believe this was a critical milestone in establishing us as a significant player in technology-based ammunition.
To help promote our new products, we hired new sales and marketing personnel in late 2017, and early 2018. We also augmented our Board of Directors to include professionals who could provide guidance for our teams through their prior experience in the industries we have targeted: commercial retail – focused on the gun or hunting enthusiast; US Law Enforcement; the US Military; and international markets for both military and law enforcement. Together this team has worked to open sales channels and distribution networks and capitalize on industry relationships to introduce our products to the influencers required to grow our sales.
During the summer of 2018, we also began conversations to acquire a small technology company named SW Kenetics Inc. SW Kenetics Inc. developed an innovative line of modular projectiles primarily geared toward tactical military operations. On July 6, 2018 we signed a letter of intent to purchase their company, as we believe their designs, coupled with our STREAK or O.W.L. Technology will position us to more aptly complete for military contracts. On September 27, 2018, we entered into a definitive agreement and plan of merger to acquire SW Kenetics Inc. for a total of up to $1,500,000 in cash and issue 1,700,002 restricted shares of the Company’s common stock. The agreement specifies that $1,250,000 of the cash is deferred pending completion of specific milestones and the 1,700,002 shares of common stock are subject to claw back provisions to ensure agreed upon objective are met. The acquisition was completed on October 5, 2018.
On March 15, 2019, Enlight Group II, LLC, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of 100% of the assets of Jagemann Stamping Company’s ammunition casing, projectile manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement dated March 14, 2019. In accordance with the terms of the Amended APA, Enlight Group II, LLC paid Jagemann Stamping Company a combination of $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc. common stock.
This acquisition was a critical element in the Company’s long-term strategy as it secures its supply chain for these important components and creates a more competitive pricing structure that it can leverage across all its targeted markets. This also greatly enhances the Company’s plant capacity and technical expertise required for the further development of military grade projectiles.
The Company’sOur innovative line of match grade armor piercing (AP) and hard armor piercing incendiary (HAPI) tactical rounds are the centerpiece of the Company’s strategy to address the unique needs of the armed forces community demandscommunity. This ammunition was designed around a match grade portfolio of projectiles, that include a solid copper boat tail and armor piercing configuration. The distinction between these rounds and other sold, is that the manufacturing process was engineered to ensure extremely tight tolerances between each projectile manufactured, ensuring for the end user that the ballistic trajectory remains consistent between rounds without regard to the actual configuration or round fired. Our AP and HAPI line are met by their equipment. Following AMMO’s acquisition of Jagemann Casings in March, thealso available with our O.W.L. Technology™. The Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 12.7mm12.7 mm and .50 caliber BMG configurations. On February 2, 2021, we announced that we restarted our improved .50 caliber manufacturing line to address increased market demand and fulfill current orders.
We offer ammunition casings for pistol ammunition through large rifle ammunition. Our casing operations is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann™ Casings, has become one of the largest brass manufacturers in the country, with the capacity to produce more than 750 million pieces of brass each year with the ability to scale to 1 billion rounds on an annual basis. Proud of its American-made components and capabilities, the Company now has complete control over the manufacturing process. This results in a number of advantages when it comes to the brass that leaves our state-of-the-art facility.
25 |
On April 30, 2021, we acquired Gemini Direct Investments, LLC (“Gemini”) and nine of its subsidiaries, all of which are related to Gemini’s ownership of the Gunbroker.com marketplace.
GunBroker.com is a large online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo, GunBroker.com currently sells none of the items listed on its website. Third-party sellers list items on the site and federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations are followed using licensed firearms dealers as transfer agents.
With our recent addition of the Gunbroker.com marketplace, we aim to further enhance our vision of bringing technologies to the industry. Gunbroker.com is a marketplace that connects millions of buyers and sellers allowing our users to access a daily average of over one million unique items.
The focus for our 20202022 fiscal year is to continue to expand our brand presence into the markets identified above and to continue to grow our sales within our targeted markets. We intend to do this through establishing key strategic relationships, enrolling in government procurement programs, establishing relationships with leading law enforcement associations and programs, expanding distributor channels, and revitalized marketing campaigns.
We also intend to increase our product offerings through potential acquisitions that bring new technologies that provide solutions for United States Military requirements. Our first step in this process is the addition of equipment to support the manufacture of 50 caliber ammunition. Not only is there an increasing demand for quality ammunition in this category for military applications, it also has a growing demand from commercial markets, and gun enthusiasts.
Our addressable market includes the 2.6 million law enforcement officers around the world (800,000 domestically and 1.8 million internationally) who annually recertify with their firearms; 1.3 million enlisted personnel in the U.S. Armed Forces, and more than 30 million handgun owning households in the United States with later expansion to international markets for civilian purchasers which, based on industry statistics, represents addressable revenue of billions of dollars annually. Each of these markets has unique challenges or barriers to entry. We believe with the strategies we are developing; we will be well positioned to grow our future market share based on our commitment to innovation and meeting the changing needs and demographics of ammunition buyers.
Our History
Our ammunition manufacturing business has been fully operational for just over two years. Although our corporate entity commenced in 1990 as a textile manufacturer and importer, then called Retrospettiva, our manufacturing operations formally began in March of 2017 when we acquired our ammunition business.
Results of Operations
Our financial results Forfor the three months ended June 30, 20202021 reflect our newly positioned organization. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider. Although weprovider and marketplace. We continue to focus on growing our top line revenue, and streamlining our operations, and as a result, we did experience a declineexperienced an increase in our gross profit margin Forfor the three months ended June 30, 2020.2021. This was the result of a significant increase in sales allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation and amortization expenses related toexpense as well as the addition of assets from the acquisition of Jagemann Stamping Company’s ammunition casing, projectile manufacturing, and sales operations (“Jagemann Casings”), sales of products that carry lower margins, as well as increases to costs of raw materials and overhead.our new marketplace, Gunbroker.com
The following table presents summarized financial information taken from our condensed consolidated statements of operations for the three months ended June 30, 20202021 compared with the three months ended June 30, 2019:2020:
For the Three Months Ended | For the Three Months Ending | |||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2021 | June 30, 2020 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Net Sales | $ | 9,659,970 | $ | 4,298,580 | $ | 44,476,332 | $ | 9,659,970 | ||||||||
Cost of Products Sold | 8,588,565 | 4,951,796 | ||||||||||||||
Gross Margin | 1,071,405 | (653,216 | ) | |||||||||||||
Cost of Revenues | 25,505,438 | 8,588,565 | ||||||||||||||
Gross Profit | 18,970,894 | 1,071,405 | ||||||||||||||
Sales, General & Administrative Expenses | 3,851,594 | 2,994,125 | 9,290,380 | 3,851,594 | ||||||||||||
Loss from Operations | (2,780,189 | ) | (3,647,341 | ) | ||||||||||||
Income (loss) from Operations | 9,680,514 | (2,780,189 | ) | |||||||||||||
Other income (expense) | ||||||||||||||||
Other income (expense) | (323,600 | ) | (194,061 | ) | (143,854 | ) | (323,600 | ) | ||||||||
Loss before provision for income taxes | $ | (3,103,789 | ) | $ | (3,841,402 | ) | ||||||||||
Income (loss) before provision for income taxes | $ | 9,536,660 | $ | (3,103,789 | ) | |||||||||||
Provision for income taxes | - | - | - | |||||||||||||
Net Loss | $ | (3,103,789 | ) | $ | (3,841,402 | ) | ||||||||||
Net Income (Loss) | $ | 9,536,660 | $ | (3,103,789 | ) |
Non-GAAP Financial Measures
We analyze operational and financial data to evaluate our business, allocate our resources, and assess our performance. In addition to total net sales, net income (loss),loss, and other results under accounting principles generally accepted accounting principles (GAAP)in the United States (“GAAP”), the following information includes key operating metrics and non-GAAP financial measures we use to evaluate our business. We believe these measures are useful for period-to-period comparisons of the Company. We have included these non-GAAP financial measures in this Quarterly Report on Form 10-Q because they are key measures we use to evaluate our operational performance, produce future strategies for our operations, and make strategic decisions, including those relating to operating expenses and the allocation of our resources. Accordingly, we believe these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Adjusted EBITDA
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2021 | June 30, 2020 | |||||||||||||
Reconciliation of GAAP net income to Adjusted EBITDA | ||||||||||||||||
Net (Loss) | $ | (3,103,789 | ) | $ | (3,841,402 | ) | ||||||||||
Net Income (Loss) | $ | 9,536,660 | $ | (3,103,789 | ) | |||||||||||
Depreciation and amortization | 1,169,001 | 1,068,431 | 3,516,851 | 1,169,001 | ||||||||||||
Loss on Jagemann Munition Components | 1,000,000 | - | ||||||||||||||
Loss on purchase | - | 1,000,000 | ||||||||||||||
Excise taxes | 2,397,771 | - | ||||||||||||||
Interest expense, net | 323,600 | 194,061 | 165,279 | 323,600 | ||||||||||||
Employee stock awards | 255,300 | 333,250 | 699,500 | 255,300 | ||||||||||||
Stock grants | 76,766 | 201,512 | 66,914 | 76,766 | ||||||||||||
Stock for services | - | 200,000 | ||||||||||||||
Other income, net | (21,425 | ) | - | |||||||||||||
Contingent consideration fair value | (27,968 | ) | - | (56,638 | ) | (27,968 | ) | |||||||||
Adjusted EBITDA | $ | (307,090 | ) | $ | (1,844,148 | ) | $ | 16,304,912 | $ | (307,090 | ) |
Adjusted EBITDA is a non-GAAP financial measuresmeasure that displays our net loss,income (loss), adjusted to eliminate the effect of certain items as described below.
We have excluded the following non-cash expenses from our non-GAAP financial measures: depreciation and amortization, loss on purchase, share-based compensation expenses, and changes to the contingent consideration fair value. We believe it is useful to exclude these non-cash expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, as these items are not components of our core operations. We have not included adjustment for any provision or benefit for income taxes as we currently record a valuation allowance.allowance and we have included adjustment for excise taxes.
Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
● | Employee stock awards and stock grants expense has been, and will continue to be for the foreseeable future, a significant recurring expense in the Company and an important part of our compensation strategy; | |
● | the assets being depreciated or amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and | |
● | non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs | |
● | other companies, including companies in our industry, may calculate the non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures |
Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net loss and our other financial results presented in accordance with GAAP.
Net Sales
The following table shows our net sales by proprietary ammunition versus standard ammunition for the three months ended June 30, 20202021 and June 30, 2019.2020. “Proprietary Ammunition” include those lines of ammunition manufactured by our facilities that are sold under the brand names: STREAK VISUAL AMMUNITION™, One Precise Shot (OPS), Night Ops, Jeff Rann, and Stelth. We define “Standard Ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. Our “Standard Ammunition” is manufactured within our facility and may also include completed ammunition that has been acquired in the open market for sale to others. Also included in this category is low cost target pistol and rifle ammunition, as well as bulk packaged ammunition manufactured by us using reprocessed brass casings. Ammunition within this product line typically carries much lower gross margins.
For the Three Months Ended | For the Three Months Ending | |||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2021 | June 30, 2020 | |||||||||||||
Proprietary Ammunition | $ | 1,895,141 | $ | 198,296 | $ | 1,110,621 | $ | 1,895,141 | ||||||||
Standard Ammunition | 4,516,527 | 943,203 | 27,241,159 | 4,516,527 | ||||||||||||
Ammunition Casings | 3,248,302 | 3,157,081 | 3,852,486 | 3,248,302 | ||||||||||||
Marketplace Revenue | 12,272,066 | - | ||||||||||||||
Total Sales | $ | 9,659,970 | $ | 4,298,580 | $ | 44,476,332 | $ | 9,659,970 |
Sales for the three months ended June 30, 20202021 increased 125%360% or $5,361,390,approximately $34.8 million, over the three months ended June 2019.30, 2020. This increase was the result of $3,573,324approximately $22.7 million of respective increased sales in bulk pistol and rifle ammunition, an increasea decrease of $1,696,845approximately $0.7 million of respective sales of Proprietary Ammunition, and an increase of $91,221approximately $0.6 million of sales from our casing operations, and $12.2 million in revenue generated from our recently acquired casing operations.marketplace, Gunbroker.com, which includes auction revenue, payment processing revenue, and shipping income. Management expects the sales of Proprietary Ammunition to outpace the sales of our Standard Ammunition.
We are focused on continuing to grow top line revenue quarter-over-quarter as we continue to further expand distribution into commercial markets, introduce new product lines, and initiate sales to U.S. law enforcement, military, and international markets.
We added ammunition casings to our product offerings at March 15, 2019 and expect the ammunition casing sales to continue to be a significant part of our sales moving forward.
Through our acquisition of SWK, the Company has developed and deployed a new line of tactical armor piercing (AP) and hard armor piercing incendiary (HAPI) precision ammunition to meet the lethality requirements of both the US and foreign military customers. This line was formally launched at SHOT Show in Las Vegas, where our team demonstrated or presented the capability to more than 15 countries around the world. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions.
It is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for our company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution channels, both in the United States and abroad, which are reasonably anticipated to drive sustained sales opportunity in the military, law enforcement, and commercial markets.
Sales outside of the United States require licenses and approval from either the U.S. Department of Commerce or the U.S. State Department, which typically takes approximately 30 days to receive. On July 21, 2020, we renewed our annual registration with the International Traffic in Arms Regulations (ITAR), which remains valid through the report date. This permits the Company to export and broker ammunition and other controlled items covered under ITAR.
On June 23, 2021, we announced that we were awarded a U.S. Department of Defense contract for the development and manufacture of ballistically matched multi-purpose rounds to design and manufacture multiple Ballistically Matched Multi-Purpose Rounds (BM-MPR) in support of U.S. military operations.
Cost of Goods SoldRevenues
Cost of goods soldRevenues increased by approximately $3.6$16.9 million from $5.0$8.6 million to $8.6$25.5 million respectively for the three months ended June 30, 20202021 compared withto the three monthscomparable period ended June 30, 2019.in 2020. This was the result of a significant increase in net sales as well increases to non-cash depreciation related to our newly acquired casing operations,increases in production equipment, expensing of increased labor, overhead, and raw materials used to produce finished product during 20202021 as compared to 2019.2020, and additional cost of revenues from our recent acquisition of our marketplace, Gunbroker.com. As a percentage of sales, cost of goods sold decreased by 22.8%35.5% when comparing the three months ended June 30, 2020 to the three months ended June 30, 2019.2021 and 2020.
Gross Margin
Our gross margin percentage increased to 11.1%42.7% from -15.2%11.1% during the three months ended June 30, 20202021 as compared to the same period in 2019.2020. This was a result of increased sales covering our covering allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense.expense, and the inclusion of our newly acquired marketplace, Gunbroker.com which, by nature has significantly higher margins than our manufactured products.
Our production facility was designed to manufacture approximately 200 million rounds of ammunition a year, when fully staffed. To date, we are operating at a fraction of that volume, while maintaining equivalent quality systems, regulatory compliance, equipment and facility costs, as well as plant management.
We believe as we continue to grow sales through new markets and expanded distribution that our gross margins will also increase, as evidenced by the improvement over this time last year. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:
● | Increased product sales, specifically of proprietary lines of ammunition, like the STREAK VISUAL AMMUNITION™, | |
● | Introduction of new lines of ammunition that historically carry higher margins in the consumer and government sectors; | |
● | ||
● | Expanded use of automation equipment that reduces the total labor required to assemble finished | |
● | And, better leverage of our fixed costs through expanded production to support the sales objectives. |
Operating Expenses
Overall, for the three months ended June 30, 2020,2021, our operating expenses increased by approximately $857,000$5.4 million over the three months ended June 30, 2019,2020, and decreased as a percentage of sales from 69.7% for the three months ended June 30, 2019 to 39.9% for the three months ended June 30, 2020. The increase was mainly related2020 to a non-cash adjustment to recognize a loss on $1,000,000 of Construction in Progress that the Company had previously agreed to exchange with Jagemann Stamping Company. Our operating expenses included of non-cash amortization expense of approximately $410,00020.1% for the three months ended June 30, 2020.2021. The increase was primarily related to approximately $3.2 million of additional operating expenses following our merger with Gemini, including $2.2 million of depreciation and amortization expenses. Our operating expenses include non-cash depreciation and amortization expense of approximately $2.6 million for the three months ended June 30, 2021. Our operating expenses consisted of cost for the expansioncommissions related to our sales and support team,increases, stock compensation expense associated with issuance of our Common Stock in lieu of cash compensation for employees, and board members, and key consultants for the organization during the period, and trade show and marketing costs associated with introducing our lines of ammunition.period. Operating expenses for the three months ended June 30, 20202021 and 20192020 periods included noncash expenses of approximately $3.3 million and $1.7 million, and $1.1 million, respectively. We also experienced increases as a result of new investor and public relations programs, and professional fees associated with our acquisition activity, our public filings, and our efforts to uplist the Company from the OTC to a national exchange. We expect to see administrative expenditures to continue to decrease as a percentage of sales in the 20212022 fiscal year, as we leverage our work force and expand our sales opportunities.
During the three months ended June 30, 2020,2021, our selling and marketing expenses increased by approximately $148,000.$0.8 million in comparison to the three months ended June 30, 2020. The increase was primarily related to commission from on the increases in the sale of our products.products resulting of approximately $0.7 million for the three months ended June 30, 2021 in comparison to the comparable prior period.
Our corporate general & administrative expenses decreasedincreased approximately $10,000$2.2 million in the three months ended June 30, 20202021 from the comparable prior period mainly due to decreasedincreased general corporate expenses related to the addition of Gemini of approximately $0.5 million and increased professional and legal fees in comparisonof $0.5 million due to the prior period and increased general corporate expenses.our acquisition of Gemini.
Employee salaries and related expenses decreasedincreased approximately $235,000$1.4 million for the three months ended June 30, 20202021 compared to the comparable period ended in 2019. This2020. The increase for the three months ended June 30, 2021 when compared to the prior period, was a result of decreased expensesprimary related to employeean increase in salaries and wages of approximately $0.9 million including employees added from the Gemini merger and an increase of stock compensation of approximately $200,000.$0.4 million.
Depreciation and amortization expenses for the three months ended June 30, 2020 decreased2021 increased by $44,363approximately $2.2 million from the comparable prior period periods due to reduceddepreciation and amortization expenses in connection with the adjusted purchase priceacquisition of our newly acquired subsidiary, Jagemann Munition Components.Gemini.
Interest and Other Expenses
For the three months ended June 30, 2020,2021, interest expense increaseddecreased by approximately $130,000$0.2 million compared with the comparable three months ended June 30, 2019.2020. The change from the prior periodperiods was mainly due to approximately $160,000the repayment of interest expensenotes and debt discount amortization related to Convertible Promissory Notes. Additionally, for the three months ended June 30, 2020, we recognize a loss on the purchaseconversion of Jagemann Munition Components for constructionconvertible promissory notes in progress that will no longer be transferred to the Company.current and prior periods.
Net LossIncome
As a result of higherincreases in revenues from increased production selling, and payroll expenses, and the loss on Jagemann Munition Components,as well as our acquisition of Gemini, we ended the three months ended June 30, 20202021 with a net income of approximately $9.5 million compared with a net loss of approximately $3.1 million compared with a net loss of approximately $3.8 million for the three months ended June 30, 2019.2020.
Our goal is to continue to improve our operating results as we focus on increasing sales and controlling our operating expenses.
Liquidity and Capital Resources
As of June 30, 2020,2021, we had $1,017,513$50,972,447 of cash and cash equivalents, an increasea decrease of $133,239$67,369,024 from March 31, 2020.2021.
Working Capital is summarized and compared as follows:
June 30, 2020 | March 31, 2020 | June 30, 2021 | March 31, 2021 | |||||||||||||
Current assets | $ | 14,157,457 | $ | 9,157,110 | $ | 106,191,817 | $ | 145,620,332 | ||||||||
Current liabilities | 13,233,802 | 11,849,796 | 42,714,920 | 12,098,493 | ||||||||||||
$ | 923,655 | $ | (2,692,686 | ) | $ | 63,476,897 | $ | 133,521,839 |
Changes in cash flows are summarized as follows:
Operating Activities
For the three months ended June 30, 2021, net cash provided by operations totaled approximately $8.7 million. This was primarily the result of net income of approximately $9.5 million, increases in our accounts payable of approximately $7.0 million, decreases in prepaid expenses of approximately $1.1 million, non-cash expenses for depreciation and amortization of approximately $3.5 million, employee stock compensation of approximately $0.7 million, and stock grants totaling approximately $0.1 million. The cash provided by operations were partially offset increases in inventories of approximately $12.1 million.
For the three months ended June 30, 2020, net cash used in operations totaled $1,759,980.approximately $1.8 million. This was primarily the result of a net loss of $3,103,789,approximately $3.1 million, increases in our period end inventories and accounts receivable of $2,110,684approximately $2.1 million and $1,145,584,$1.1 million, respectively, increases in accounts payable and accrued liabilities of $1,095,093approximately $1.1 million and $847,466,$0.8 million, respectively, and a loss on Jagemann Munition Components of $1,000,000.$1.0 million. The cash used in operations were partially offset by the benefit of non-cash expenses for depreciation and amortization of $1,169,001,approximately $1.2 million, employee stock compensation of $255,300,approximately $0.3 million, and stock grants totaling $76,766.of approximately $0.1 million.
ForInvesting Activities
During the three months ended June 30, 2019,2021, we used approximately $52.2 million in net cash for investing activities. Net cash used in operations totaled $1,747,481. This was primarilyinvesting activities consisted of approximately $50.7 million uses in connection with the resultmerger of a net lossGemini, and approximately $1.6 million related to purchases of $3,841,402, increasesproduction equipment and the construction of our new manufacturing facility in our period end accounts receivable and inventories of $1,628,595 and $780,524, respectively, and increases to our accounts payable and accrued liabilities of $2,651,692. The cash used in operations were partially offset byManitowoc, WI.
During the benefit of non-cash expenses for depreciation and amortization of $1,068,431, employee stock compensation of $333,250, stock issued for services of $200,000, and stock grants totaling $201,512.
Investing Activities
During three months ended June 30, 2020, we used $471,882approximately $0.5 million in net cash for investing activities to purchase fixed assets such as new production equipment.
Financing Activities
During the three months ended June 30, 2019, we used $250,449 in2021, net cash for investingused in financing activities to purchase fixed assets such as new production equipment and leasehold improvements to expand production at our Payson, Arizona manufacturing facility, to acquire end cap displays forwas approximately $23.8 million. This was the net effect of a $50.0 million payment on debt assumed from Gemini, $35.0 million of proceeds from the sale of our product at retailers.preferred stock net of approximately $3.2 million of issuance costs, approximately $0.5 million was generated from common stock issued for exercised warrants, the $4.0 million repayment of a note payable, and an approximate $0.8 million reduction in our Inventory Credit Facility. Additionally, approximately $23.6 million was generated from accounts receivable factoring, which was offset by payments of approximately $24.4 million.
31 |
Financing Activities
During the three months ended June 30, 2020, net cash provided by financing activities was $2,365,101.approximately $2.4 million. This was the net effect of $1,758,003approximately $1.8 million generated from our Inventory Credit Facility, and proceeds from our note payable. Additionally, $6,952,000$7.0 approximately was generated from accounts receivable factoring, which was offset by payments of $7,050,191.approximately $7.1 million. Approximately $247,490$0.2 million of cash was use for payments on related party notes payable, $129,510and approximately $0.1 million toward our insurance premium note payable.
We financed our operations primarily from the issuance of equity instruments. During the three months ended June 30, 2019, net cash provided by financing activities was $355,667. This was the net effect of $1,797,100 generated from the sale of Common Stock, net of cash payments of $189,567 in conjunction with the Unit offerings. Additionally, $375,000 of cash was generated from the issuance of a related party note payable, These increases to our financing activities were offset by payment of $1,500,000 on the related party note to Jagemann Stamping Company, $76,866 toward our insurance premium note payable and a $50,000 payment of our Contingent Consideration Payable.
Liquidity and Capital Resources
Existing working capital, cash flow fromused in operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes.
We adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Accordingly, management has concluded that we do not have sufficient funds to support operations within one year after the date the financial statements are issued and, therefore, we concluded there was substantial doubt about the Company’s ability to continue as a going concern.
To fund further operations, webelieve financing will need to raise additional capital. We may obtain additional financing in the futurebe available, both through conventional financing relationships and through the continued sales of our Common Stock. Our ability to continue as a going concern or meet the minimum liquidity requirements in the futureHowever, there is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, we will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and our ability to achieve its strategic objective. There can be no assurance that financingsuch funding will be available on terms acceptable terms,to us or at all. We believe that our current cash on hand, coupled with alternative sources of funding, will be sufficient to satisfy intended capital expenditures, potential acquisitions and general liquidity requirements through at least the next twelve months.
Contractual Obligations
The Company’s contractual obligations by maturity as of June 30, 2020 are as follows:
Total | Less than 1 Year | 2-3 Years | 4-5 Years | More than 5 years | ||||||||||||||||
Operating Leases | $ | 2,908,290 | $ | 542,627 | $ | 1,358,651 | $ | 1,007,012 | - | |||||||||||
Related Party Note Payable (1) | 8,999,752 | 2,451,540 | 6,548,212 | - | - | |||||||||||||||
Contingent Consideration Payable (2) | 900,000 | - | 900,000 | - | - | |||||||||||||||
$ | 12,808,042 | $ | 2,994,167 | $ | 8,808,863 | $ | 1,007,012 | - |
(1) Related Party Note Payable includes interest expenses of approximately $764,450.
(2) Contingent consideration is to be paid upon achievement of specific milestones. The date of payment included herein is based upon management estimates.
Off-Balance Sheet Arrangements
As of June 30, 2020,2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operation are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounted of assets, liabilities, revenues, and expenses. We have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies require our most difficult subjective judgements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.
Inventory
We state inventories at the lower of cost and net realizable value. We determine cost by using the weighted-average cost of raw materials method, which approximates the first-in, first-out method and includes allocations of manufacturing labor and overhead. We make provisions when necessary, to reduce excess, potential damaged or obsolete inventories. These provisions are based on our best estimates. At June 30, 2020,2021, and June 30, 2019,March 31, 2021, we conducted a full analysis of inventory on hand and expensed all inventory not currently in use, or for which there was no future demand.
Research and Development
To date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop new technologies and lines of ammunition.
Revenue Recognition
We generate revenue from the production and sale of ammunition.ammunition, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. The Company appliesWe apply the following five-step model to determine revenue recognition:
● | Identification of a contract with a customer | |
● | Identification of the performance obligations in the contact | |
● | determination of the transaction price | |
● | allocation of the transaction price to the separate performance allocation | |
● | recognition of revenue when performance obligations are satisfied |
The CompanyWe only appliesapply the five-step model when it is probable that the Companywe will collect the consideration it iswe are entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’sour product, which typically occurs upon shipment of the product. In the current period, the Companyyear ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Unearned Revenue in our accrued liabilities. The CompanyWe will recognize revenue when the performance obligation is met.
Excise Tax
As a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect an 11% excise tax for all products sold into these channels. During the three months ended June 30, 20202021 and 2019,2020, we recognized $641,123approximately $2.4 million and $114,285,$0.6 million respectively, in excise taxes. For ease in selling to commercial markets, excise tax is included in our unit price for the products sold. We record this through net sales and expense the offsetting tax expense to cost of goods sold.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of June 30, 2020.2021. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts payable, and amounts due to related parties. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Income Taxes
We follow ASC subtopic 740-10, “Accounting for Income Taxes”) for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggest that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Stock-Based Compensation
We grant stock-based compensation to key employees and directors as a means of attracting and retaining highly qualified personnel. We also grant stock in lieu of cash compensation for key consultants and service providers. We recognize expense related to stock-based payment transactions in which we receive employee or non-employee services in exchange for equity. We measure stock compensation based on the closing fair market value of our Common Stock on the date of grant.
In addition to our base of employees, we also use the services of several contract personnel and other professionals on an “as needed basis”. We plan to continue to use consultants, legal and patent attorneys, engineers, and accountants, as necessary. We may also expand our staff to support the market roll-out of our products to both the commercial and government related organizations. A portion of any key employee compensation likely would include direct stock grants, which would dilute the ownership interest of holders of existing shares of our Common Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2020.2021. Based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures not effective. Our controls were ineffective due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in: (i) a lack of segregation of duties and (ii) ineffective corporative governance controls (iii) controls that may not be adequately designed or operating effectively and (iv) ineffective or delayed communication of certain contracts entered into in the ordinary course of business, whether written or oral.effectively. Despite the existence of material weaknesses, The Company believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the three months ended June 30, 2020,2021, in accordance with U.S. GAAP.
Changes in internal controls
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the Quarterly period from April 1, 20202021 to June 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings, and investigations in the ordinary course of business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations or cash flows. We record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.
Please reference the Contingencies section of Note 32 of our Financial Statements for additional disclosure.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
1. Quarterly Issuances:
The authorized capital of the Company is 200,000,000 shares of Common Stock with a par value of $0.001 per share and 10,000,000 shares of Preferred Stock with a $0.001 par value per share.
There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2021 that were not previously reported in a Current Report on Form 8-K except as follows:
During the Quarterly period from April 1, 2020 to June 30, 2020, 1,000,000 shares of common stock valued at a total of $1,750,000 or approximately $1.75 per share were sold to an investor. The2021, the Company issued 180,916750,000 shares of Common Stock to employees for compensation for a total value of $255,300. Additionally, 8,336 shares of our common stock for services produce to the Company for a total value of $13,188$1,500,000 or $1.58$2.00 per share.
The previously mentioned securities were issued in reliance on the exemptions from registration under the Securities Act in Section 4(a)(2) of the Securities Act andand/or Regulation D thereunder.
2. Subsequent Issuances:
Subsequent to June 30, 2020, the Company issued 11,500 shares of Common Stock to employees for $14,375 or $1.25 per share. Additionally, the Company issued 157,143 shares of Common Stock to an investor for $275,000 or $1.75 per share.
The previously mentioned securities were issued in reliance on the exemptions from registration under the Securities Act in Section 4(a)(2) of the Securities Act and Regulation D thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
None
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
*Filed Herewith. Pursuant
# Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-T, this interactive data file is deemed not filed or partS-K. The Company will furnish supplementally copies of a registration statement or prospectus for purposes of Sections 11 or 12 ofomitted schedules and exhibits to the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securitiesand Exchange Act of 1934, and otherwise is not subject to liability under these sections.Commission or its staff upon its request.
(1) | Incorporated by reference to Form |
(2) | Filed as an exhibit to Form |
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMMO, INC. | ||
/s/ Fred W. Wagenhals | ||
Dated: August | By: | Fred W. Wagenhals, Chief Executive Officer |
/s/ | ||
Dated: August | By: |