NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
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 475,681 (11,891,976 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
580,052 shares; no shareholder was reversed below 100 shares and any and all fractional shares resulting from the reverse split
were rounded up to the next whole share. All references to the outstanding stock have been retrospectively adjusted to reflect
this split. These transactions were effective as of December 30, 2016.
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
17,285,800 newly issued shares of common stock of the Company. In connection with this transaction the Company retired 475,681
shares of common stock and issued 500,000 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 604,371 shares
to the Company’s shareholders accompanied by a recapitalization. The weighted average number of outstanding shares has been
adjusted for this transaction.
AIP
entered into a licensing and endorsement agreement with Jesse James, a well-known motorcycle and gun designer in October 2016,
and a license and endorsement agreement with Jeff Rann, a well-known wild game hunter, guide, and spokesman for the firearm and
ammunition industry, in February 2017; received a Federal Firearms License from the Bureau of Alcohol, Tobacco, and Explosives
in February 2017; purchased an ammunition manufacturing facility in Payson, Arizona in March 2017; built a management team; and
otherwise prepared itself to participate in the ammunition industry.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting
Basis
We
use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”)
and all amounts are expressed in U.S. dollars. We have adopted a March 31 year end.
The
financial statements and related disclosures as of March 31, 2018, December 31, 2017, and December 31, 2016 are presented pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”). Unless the context otherwise requires,
all references to “Ammo”, “we”, “us”, “our,” or the “Company” are
to AMMO, Inc., a Delaware corporation.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Ammo, Inc. and its wholly owned subsidiaries, SNI, LLC, and Ammo Technologies,
Inc (inactive). All significant intercompany accounts and transactions are eliminated in consolidation
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months
or less to be cash equivalents.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and for December 31, 2017 and 2016
Accounts
Receivable and Allowance for Doubtful Accounts
Our
accounts receivable represent 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 March
31, 2018 and December 31, 2017, we reserved $23,046 and $26,046, 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. In addition, Mr. James agreed to make himself available for certain
promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr.
James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses
and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement
with the potential issuance of up to 75,000 additional shares of common stock upon achieving certain gross sales with $15 million
in gross sales required to earn the entire 75,000 shares.
We
are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition
industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of all Jeff Rann Branded Products. Mr. Rann agreed to make himself available for certain promotional activities and to promote
the Branded Products through his own social media outlets. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and
non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued
100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of 75,000 additional
shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.
Patent
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. Under the terms of the Merger, we, the sole shareholder of Ammo
Technologies Inc., issued to Hallam, Inc.’s two shareholders, 600,000 shares of our common stock, subject to restrictions,
and payment of $200,000. The first payment of $100,000 to the Hallam, Inc. shareholders was paid on September 13, 2017, and the
second payment of $100,000 was paid on February 6, 2018.
The
shares were valued at $1.25 and the aggregate value of $950,000 was recorded as a patent asset. This asset will be amortized from
September 2017, the first full month of the acquired rights, through October 29, 2028. Amortization of the patent for the three
months ended March 31, 2018 and year ended December 31, 2017 were $24,461 and $25,166, respectively.
Under
the terms of the Merger, ATI succeeded to all of the assets of Hallam, Inc. and assumed the liabilities of Hallam, Inc., which
were none. 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. Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a royalty to the patent holder of $0.01 for each
round of ammunition sold that incorporates this patented technology through October 29, 2028. Royalty expense for the periods
ended March 31, 2018 and December 31, 2017 was $10,783 and $6,000, respectively.
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. No impairment expense was recognized for the three-months ended March 31, 2018 or the year ended December
31, 2017 or for the period from October 13, 2016 (inception) to December 31, 2016.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
Revenue
Recognition
We
generate revenue from the production and sale of ammunition. We recognize revenue when it is realized or realizable and earned.
We
consider revenue realized or realizable and earned when all of the following criteria are met:
|
●
|
persuasive
evidence of an arrangement exists
|
|
|
|
|
●
|
the
product has been shipped to the customer
|
|
|
|
|
●
|
the
sales price is fixed or determinable
|
|
|
|
|
●
|
collectability
is reasonably assured
|
|
|
|
|
●
|
recognition
of any returns, refunds or product warranties
|
At
March 31, 2018 and December 31, 2017 the Company’s customers that comprised more than ten percent (10%) of total revenues
and accounts receivable were as follows:
PERCENTAGES
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Accounts
Receivable
|
|
For
the Three-Months ended March 31, 2018
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
A
|
|
|
35.49
|
%
|
|
|
54.55
|
%
|
B
|
|
|
17.07
|
%
|
|
|
12.57
|
%
|
C
|
|
|
15.55
|
%
|
|
|
0.00
|
%
|
D
|
|
|
-
|
|
|
|
-
|
|
|
|
|
68.11
|
%
|
|
|
67.12
|
%
|
For
the Twelve-Months ended December 31, 2017
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
A
|
|
|
57.60
|
%
|
|
|
27.40
|
%
|
B
|
|
|
-
|
|
|
|
-
|
|
C
|
|
|
-
|
|
|
|
-
|
|
D
|
|
|
-
|
|
|
|
19.76
|
%
|
|
|
|
57.60
|
%
|
|
|
47.16
|
%
|
Advertising
Costs
We
expense advertising costs as they are incurred. We incurred advertising and marketing costs of $245,472 and $220,154 for the three
months ended March 31, 2018 and for the year ended December 31, 2017, respectively.
Fair
Value of Financial Instruments
We
measure options and warrants at fair value in accordance with Accounting Standards Codification 820 – Fair Value Measurement
(“ASC 820”). The objective of ASC 820 is to increase consistency and comparability in fair value measurements and
to expand disclosures about fair value measurements. ASC 820 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 specifies a valuation
hierarchy based on whether the inputs to those valuation techniques are observable or unobservable.
Observable
inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions.
These two types of inputs have created the following fair value hierarchy:
|
Level
1 – Quoted prices for identical instruments in active markets;
|
|
Level
2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable
in active markets; and
|
|
Level
3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers
are unobservable.
|
This
hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when estimating
fair value.
We
value all common stock issued for services on the date of the agreements, using the price at which shares were being sold to private
investors or at the value of the services performed.
We
valued warrants issued for services at the grant date of March 12, 2018 using valuation methods and assumptions that consider,
among other factors, the fair value of the underlying stock, risk free interest rate, volatility, and expected life.
Assumptions
included:
|
|
March
31,
2018
|
|
|
December
31, 2017
|
|
Risk
free interest rate
|
|
|
2.05
|
%
|
|
|
1.31
- 1.5
|
%
|
Expected
volatility
|
|
|
195
|
%
|
|
|
250
|
%
|
Expected
term
|
|
|
1
year
|
|
|
|
1
- 1.5 years
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
In
the year ended December 31, 2017, Equipment acquired in the foreclosure transaction and the patent were valued on their respective
acquisition dates using fair values.
|
|
Quoted
Active Markets for Identified Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock awards
|
|
|
-
|
|
|
$
|
482,432
|
|
|
$
|
-
|
|
|
$
|
482,432
|
|
Executive
Stock Grant Expense
|
|
|
-
|
|
|
|
106,563
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for legal, advisory and consulting fees
|
|
|
-
|
|
|
$
|
454,625
|
|
|
$
|
-
|
|
|
$
|
454,625
|
|
Employee
stock awards
|
|
|
-
|
|
|
|
160,000
|
|
|
|
-
|
|
|
|
160,000
|
|
Common
stock for licensing agreement
|
|
|
-
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
125,000
|
|
Patent
acquisition, noncash element
|
|
|
-
|
|
|
|
-
|
|
|
|
750,000
|
|
|
|
750,000
|
|
Warrants
issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
46,188
|
|
|
|
46,188
|
|
Warrants
issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
67,000
|
|
|
|
67,000
|
|
Assets
acquired in foreclosure
|
|
|
-
|
|
|
|
-
|
|
|
|
543,115
|
|
|
|
543,115
|
|
Common
Stock issued for prepaid legal fees
|
|
|
-
|
|
|
|
224,000
|
|
|
|
-
|
|
|
|
224,000
|
|
Inventories
We
state inventories at the lower of cost or market. 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 inventories for obsolescence.
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 seven years.
Compensated
Absences
We
have not accrued a liability for compensated absences in accordance with
Accounting Standards Codifications 710 – Compensation
– General,
as the Company had no employees in 2016 and the first two months of 2017 and has hired a limited number of
employees in 2017 and the three-month period of 2018. The estimated accrual compensated absences expense was not considered material.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). 125,000 warrants were
issued to Ron Shostack, Chief Financial Officer. Additionally, 292,500 shares of common stock were issued to employees for services.
On
March 12, 2018, we entered into an employment agreement with Kathy Hanrahan, President of our Global Tactical Defense Division
and a director, that included, among other provisions, an equity grant of 400,000 shares of common stock that vests at the rate
of 100,000 shares annually for four years. The $660,000 compensation value is being recognized on a straight-line basis over the
four-year period for each separately vesting portion of the award as if the award was, in substance, multiple awards.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at various times. As of
March 31, 2018, 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.
Contingencies
Certain
conditions may exist as of the date the 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 estima ted , the estimated liability would be accrued in our 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. There were no known contingencies at December 31, 2017 or March 31, 2018.
Recent
Accounting Pronouncements
In
May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. The revised effective date
for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted,
but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public
entities. We have adopted ASU 2014-09 as of January 1, 2018, and it did not have a material impact on the Company’s consolidated
results of operations, financial position or cash flows for the period ended March 31, 2018.
Sales
are initiated in three ways –
|
●
|
third
party sales representative obtains signed sales order from a customer
|
|
|
|
|
●
|
direct
contact by in-house sales representatives who obtains signed sales order
|
|
|
|
|
●
|
electronic
purchase order from a customer (usually the very large customers)
|
Once
the sales order has been received the inventory control department will pull the purchased items from the inventory or if needed
will request the manufacture of a specific product. When the items that were ordered are available for shipment, the merchandise
is prepared for shipping and shipped by FedEx or common carrier.
All
sales are recorded upon shipment and, depending on credit worthiness of customer, the payment terms will vary from thirty (30)
to sixty (60) days. No refunds are allowed on any product shipped.
Each
product manufactured by the Company has standard specifications and performance objectives. The Company has an extensive product
testing program and, if the Company were given notice of a product defect by a customer, the Company would request the return
of the product so that the manufacturing defect could be identified. From inception to March 31, 2018 the Company has had no returned
products related to product warranty.
The
revenue recognition procedures set forth above have been used by the Company since its inception and are consistent with requirements
of ASC 606 “Revenue from Contracts with Customers”.
In
February 2016, the FASB issued ASU 2016-02 – “Leases (Topic 842)” Under ASU 2016-02, entities will be required
to recognize lease asset and lease liabilities by lessees for those leases classified as operating leases. Among other changes
in accounting for leases, a lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to (and a lessor) should include payments to be made in
optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option
to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of
lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. The amendments in
ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018, including interim periods with those fiscal
years for public business entities. We are currently evaluating the effect of the adoption of ASU 2016-02 will have on our consolidated
results of operations, financial position or cash flows.
On
June 20, 2018, the FASB expanded the scope of Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation,
to include share-based payments to nonemployees for goods and services. The accounting board said the amendments in Accounting
Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, align the guidance for stock compensation to employees and nonemployees. The amended guidance replaces ASC
505-50, Equity – Equity-Based Payments to Non-Employees. We anticipate that this ASC will not have a material effect on
the Company’s financial statements.
The
amendments in ASU No. 2018-07 apply “to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards,” the FASB said. But the
amended guidance does not cover stock compensation that is used to provide financing to the company that issued the shares or
stock awards tied to a sale of goods or services as part of a contract accounted for according to ASC 606, Revenue From Contracts
With Customers.
The
amendments are effective for public companies for fiscal years that begin after December 15, 2018, and the quarterly and other
interim periods in those years, the FASB said. Private companies have until their fiscal years that start after Dec. 15, 2019,
before applying the changes to annual reports. Private companies can wait until their fiscal years that start after Dec. 15, 2020,
before they apply the changes to their reporting periods of less than a year. The accounting board also said the amended guidance
can be applied before it becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before it
becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before they have implemented ASC 606.
We have evaluated the effect of the adoption of ASU 2018-07 will have on our consolidated results of operations, financial position
or cash flows and determine the effects will not be material to the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the
accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under
the circumstances.
Loss
Per Common Share
We
calculate basic 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 as 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 8,872,160 shares of common stock and stock options to purchase 400,000 shares
of common stock that are potentially dilutive. All weighted average numbers were adjusted for the reverse stock split and merger
transaction. Diluted earnings per share exclude all potentially dilutive shares because their effect is anti-dilutive.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
NOTE
3 – VENDOR NOTES RECEIVABLE
While
living in Payson, AZ, a small city 90 minutes north of Phoenix, Ammo’s CEO, Fred Wagenhals, was approached by Payson’s
mayor to discuss Advanced Tactical Armament Concepts, LLC (ATAC), an ammunition manufacturing company located in Payson. ATAC
was experiencing financial difficulties and the mayor was concerned about the economic effect it would have on his city if ATAC’s
manufacturing plant closed down. The mayor asked Mr. Wagenhals if he could develop a plan to salvage the ATAC plant and restore
operations.
Before
Mr. Wagenhals could assist, ATAC’s financial situation worsened and the business ceased operations. ATAC’s bank, WESTERN
ALLIANCE BANK, petitioned the bankruptcy court to appoint a receiver to protect the bank’s collateral. Wagenhals approached
the bank about resolving the receivership issue and re-opening the business. The bank agreed to delay its action in exchange for
an immediate payment of $235,000 by ATAC and an increase of $665,000 in ATAC’s working capital. ATAC borrowed $900,000 plus
$135,000 in stipulated interest from a related party of Wagenhals (Mansfield L.L.C.). On October 24, 2016, Ammo, Inc. completed
negotiations with Western Alliance Bank to purchase the bank’s position ($1,910,993) as the note holder for $1,550,000.
Vendor
note receivable consisted of the following at December 31, 2016:
Advanced Tactical
Armament Concepts, L.L.C. Notes Payable Purchased by Ammo
|
|
Amount
|
|
|
|
|
|
Western
Alliance Bank – Balance outstanding as of October 24, 2016
|
|
$
|
1,910,993
|
|
Negotiated
Discount with Western Alliance Bank to assume the Note Receivable
|
|
|
(360,993
|
)
|
AMMO,
Inc. Net Purchase Price for Western Alliance Note Payable
|
|
|
1,550,000
|
|
Mansfield,
LLC Note Outstanding, inclusive of $135,000 fee outstanding
|
|
|
1,035,000
|
|
AMMO,
Inc. Net Purchase Price to Acquire Notes Receivable of Western Alliance Bank & Mansfield LLC
|
|
$
|
2,585,000
|
|
On
November 21, 2016 Ammo applied for its’ Federal Firearms License which it received on February 1, 2017. Between November
21, 2016 and February 1, 2017, Wagenhals made an agreement with the owners of ATAC to start production of AMMO, Inc. branded ammunitions.
This was accomplished by providing ATAC $219,000 in raw materials and ATAC was advanced $89,000 to pay selected ATAC vendors whose
materials were required in the manufacturing process and to re-hire production employees. Ammo negotiated an agreement with the
management of ATAC to liquidate the vendor notes advances balance by manufacturing Ammo branded products in the future.
ATAC’s
operations continued to worsen and on February 20, 2017, a sale was held for the disposition of collateral for Advanced Tactical
Armament Concepts, LLC, a Nevada Limited Liability Company. As a secured party, we submitted a creditor bid. Our bid for the sale
for the disposition of collateral was the highest and was accepted and we assumed operation of the manufacturing facility. We
reflected this transaction in the following manner:
Notes
Receivable
|
|
$
|
(2,585,000
|
)
|
Vendor
advances receivable
|
|
|
96,552
|
|
Accounts
receivable
|
|
|
20,965
|
|
Inventories
|
|
|
644,447
|
|
Equipment
|
|
|
543,115
|
|
Loss
on notes receivable
|
|
|
1,279,921
|
|
|
|
$
|
-
|
|
The
management of Ammo reviewed their options for accounting for the foreclosure on ATAC’s collateral and determined that they
had not purchased a business, therefore the assets acquired in foreclosure would have to be assessed for their fair values. The
receivables and inventories were valued at their collectible amounts or replacement costs. Ammo had the equipment appraised by
a professional appraisal firm.
NOTE
4 – INVENTORIES
At
March 31, 2018, December 31, 2017 and 2016, the inventory balances consisted of the following:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Finished
product
|
|
$
|
809,680
|
|
|
$
|
1,007,291
|
|
|
$
|
-
|
|
Raw
materials
|
|
|
1,471,666
|
|
|
|
764,810
|
|
|
|
219,105
|
|
Work
in process
|
|
|
123,661
|
|
|
|
20,213
|
|
|
|
-
|
|
|
|
$
|
2,405,007
|
|
|
$
|
1,792,314
|
|
|
$
|
219,105
|
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
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 seven
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. 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.
Property
and equipment consisted of the following at March 31, 2018 and December 31, 2017:
|
|
2018
|
|
|
2017
|
|
Leasehold
Improvements
|
|
$
|
17,772
|
|
|
$
|
15,475
|
|
Furniture
and Fixtures
|
|
|
8,102
|
|
|
|
33,751
|
|
Vehicles
|
|
|
89,388
|
|
|
|
36,500
|
|
Tooling
|
|
|
359,351
|
|
|
|
184,626
|
|
Equipment
|
|
|
879,871
|
|
|
|
576,951
|
|
Total
property and equipment
|
|
$
|
1,354,484
|
|
|
$
|
847,303
|
|
Less
accumulated depreciation
|
|
|
(113,158
|
)
|
|
|
(77,861
|
)
|
Net
property and equipment
|
|
$
|
1,241,326
|
|
|
$
|
769,442
|
|
Depreciation
expense for the three months ended March 31, 2018 and for the year ended December 31, 2017 totaled $35,297 and $77,861, respectively.
NOTE
6 – CONVERTIBLE NOTE PAYABLE
We
entered into an agreement for a short-term convertible note payable to an unrelated party on December 22, 2016 with a 60-day maturity
and a $1,875,000 principal balance. The note had a one-time fee of $375,000, which was amortized as interest ratably over the
60-day period. The note is convertible into shares of our common stock and one stock purchase warrant at a conversion price of
$1.25 per unit and an exercise price of $2.50.
During
the year ended December 31, 2016, we recognized $18,750 of interest as amortization of a portion of the one-time interest fee.
As of December 31, 2016, the balance of the note payable was $1,518,750, net of $356,250 of debt discount.
During
the year ended December 31, 2017, we recognized $356,250 of interest as amortization of a portion of the one-time interest fee
and accrued an additional $74,896 in interest expense. As of December 31, 2017, the balance of the note payable was $1,575,000.
During
the three months ended March 31, 2018, we recorded no additional interest expense and the note was paid in full.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
NOTE
7 – NOTES PAYABLE – RELATED PARTY
On
December 16, 2016, we and Mansfield, an entity controlled by our Chief Executive Officer, entered into a note purchase and sale
agreement to purchase a promissory note held by Mansfield and payable by ATAC. We purchased the promissory note for $1,035,000.
The note was repaid on December 31, 2017. Interest on the note was imputed in the amount of $46,340, as there was no stated interest
rate in the note document.
In
connection with the acquisition of the patent on August 22, 2017, we were obligated to pay $200,000 to Hallam, Inc.’s shareholders.
The first $100,000 was paid on August 22, 2017, and a note was executed in the amount of $100,000 which was paid in full on February
2, 2018.
On
August 29, 2017, we borrowed $100,000 from a paid legal consultant to whom we issued warrants to purchase 40,000 shares of common
stock with an exercise price of $0.50 per share, expiring two years from date of issuance. The warrants were valued at $46,188
and recognized as interest expense in 2017. The note was paid in full on October 31, 2017.
NOTE
8 – CAPITAL STOCK
Our
authorized capital consists of 100,000,000 shares of common stock with a par value of $0.001 per share.
During
the period from October 13, 2016 (Inception) to December 31, 2016, we sold 720,000 shares of our common stock for $1.25 per share,
issued 14,934,000 shares of common stock to our company’s founders for $14,934, and issued 100,000 shares of common stock
valued at $125,000 for a license agreement
During
the 12-month period ended December 31, 2017, we issued 6,733,793 shares of common stock as follows:
|
●
|
604,371
were issued in connection with the acquisition of our business assets
|
|
●
|
100,000
net shares were issued to founding shareholders
|
|
●
|
4,640,822
shares were sold to investors for $6,038,900
|
|
●
|
544,600
shares valued at $678,625 were issued for legal, advisory, and consulting fees
|
|
●
|
600,000
shares valued at $750,000 were issued to acquire the use of a patent
|
|
●
|
120,000
shares valued at $160,000 were issued to employees as compensation
|
|
●
|
100,000
shares were issued to Jeff Rann for a licensing agreement
|
|
●
|
24,000
shares were issued for other purposes
|
During
the three-month period ended March 31, 2018, we issued 5,906,710 shares of common stock as follows:
|
●
|
5,614,210
shares were sold to investors for $9,263,424
|
|
|
|
|
●
|
292,500
shares valued at $482,624 were issued to employees and directors as compensation
|
|
|
|
|
●
|
400,000
shares were granted to an executive that have not yet vested
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
At
March 31, 2018, December 31, 2017 and 2016, outstanding and exercisable stock purchase warrants consisted of the following:
|
|
December
31, 2016
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Life
Remaining (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at October 13, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
720,000
|
|
|
$
|
2.50
|
|
|
|
1.95
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2016
|
|
|
720,000
|
|
|
$
|
2.50
|
|
|
|
1.95
|
|
Exercisable
at December 31, 2016
|
|
|
720,000
|
|
|
$
|
2.50
|
|
|
|
1.95
|
|
|
|
December
31, 2017
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Life Remaining (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2016
|
|
|
720,000
|
|
|
$
|
2.50
|
|
|
|
1.95
|
|
Granted
|
|
|
4,542,338
|
|
|
|
2.42
|
|
|
|
1.90
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2017
|
|
|
5,262,338
|
|
|
$
|
2.43
|
|
|
|
1.77
|
|
Exercisable
at December 31, 2017
|
|
|
5,262,338
|
|
|
$
|
2.43
|
|
|
|
1.77
|
|
|
|
March
31, 2018
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Life Remaining (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
|
|
5,262,338
|
|
|
$
|
2.43
|
|
|
|
1.77
|
|
Granted
|
|
|
3,609,822
|
|
|
|
1.95
|
|
|
|
5.13
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at March 31, 2018
|
|
|
8,872,160
|
|
|
$
|
2.23
|
|
|
|
2.97
|
|
Exercisable
at March 31, 2018
|
|
|
8,872,160
|
|
|
$
|
2.23
|
|
|
|
2.97
|
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
In
November of 2017, the Board of Directors approved the 2017 Equity Incentive Plan (“the Plan”). Under the Plan, 485,000
shares of the common stock were reserved and authorized to be issued. As of December 31, 2017, 200,000 shares of common stock
were approved and issued under the Plan, and we recognized approximately $250,000 of related consulting expense. On January 10,
2018, 200,000 shares were awarded, and we recognized $330,000 of compensation expense. There are 85,000 shares remaining to be
issued under the Plan.
In
October of 2017. we entered into a placement agent agreement to secure equity capital from qualified investors to provide funds
to expand our operations. The offering consisted of Units priced at $1.65, which included one share of common stock and one five-year
warrant to purchase an additional half-share of common stock for an exercise price of $2.00 per share. Effectively, every two
units purchased provided the investor with a five-year warrant at an exercise price of $2.00 per share. Units sold under this
arrangement totaled 594,702 shares of common stock and 297,351 warrants for $981,250 during the year ended December 31, 2017,
and 5,614,210 shares of common stock and 2,807,105 warrants for a total of $9,263,424 for the period ended March 31, 2018. The
total number of Units covered by this offering was 6,060,060, and the amount was $10,000,000. In March 2018, we entered into a
second placement agent agreement with the same terms for up to an additional $3,500,000.
For
services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a
fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of seven years and an exercise price
of $1.65 per share. The cash fee totaled $117,750 for the year ended December 31, 2017 and $1,137,211 for the period ended March
31, 2018, including reimbursed expenses. Under this agreement, we recognized 71,364 and 673,605 warrants as authorized, but unissued
as of December 31, 2017 and March 31, 2018, respectively.
NOTE
9 – ACCRUED LIABILITIES
At
March 31, 2018, December 31, 2017 and December 31, 2016, accrued liabilities were as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Accrued
payroll
|
|
$
|
172,419
|
|
|
$
|
145,779
|
|
|
$
|
-
|
|
Accrued
interest
|
|
|
-
|
|
|
|
74,896
|
|
|
|
-
|
|
Accrued
FAET
|
|
|
133,104
|
|
|
|
26,075
|
|
|
|
-
|
|
Accrued
professional fees
|
|
|
99,255
|
|
|
|
|
|
|
|
|
|
Other
accruals
|
|
|
136,432
|
|
|
|
8,024
|
|
|
|
-
|
|
|
|
$
|
541,210
|
|
|
$
|
254,774
|
|
|
$
|
-
|
|
NOTE
10 – RELATED PARTY TRANSACTIONS
On
December 16, 2016, we purchased a promissory note in the amount of $1,035,000 from Mansfield L.L.C. (“Mansfield”),
a company owned by our CEO, Fred Wagenhals. We paid $75,000 on the note in the year ended December 31, 2016 and $960,000 in the
year ended December 31, 2017 and recorded imputed interest of $46,340
Our
executive offices are located in Scottsdale, Arizona where we lease approximately 5,000 square feet under a month-to-month triple
net lease for $3,800 per month. This space houses our principal executive, administration, and marketing functions. Our Chairman,
President, and Chief Executive Officer owns the building in which our executive offices are leased.
During
the period ended March 31, 2018, we paid approximately $69,800 in consulting fees, and $12,434 of rent to related parties. During
the year ended December 31, 2017, we paid approximately $212,700 in consulting fees, $143,000 in rents and corporate overhead
and reimbursed general corporate expenses of $121,500 to related parties.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
NOTE
11 – OPERATING LEASES
We
are obligated under a triple-net operating lease for our 20,000 square foot manufacturing facility located in Payson, Arizona.
The terms of the lease require a payment of approximately $10,000 per month, which includes an estimate for utilities, taxes,
and repairs. This lease expires in November of 2021.
We
believe this facility will be adequate to meet our needs in the near future. However, we are making plans to expand our building
footprint in 2018 to accommodate additional automation equipment. We intend to pay for these improvements using working capital
and will amortize the costs over the remaining lease period.
The
following table outlines our future contractual financial obligations associated with this lease by fiscal year in which payment
is expected, as of March 31, 2018:
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Total
|
|
Payson
Lease
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
|
$
|
80,000
|
|
|
$
|
440,000
|
|
Our
executive offices are located in Scottsdale, Arizona where we lease approximately 5,000 square feet under a month-to-month triple
net lease for $3,800 per month. This space houses our principal executive, administration, and marketing functions. We may require
additional space in the near future but believe that suitable additional or alternative space will be available on commercially
reasonable terms to accommodate our needs. This office building is owned by a related party. See Note 10.
Total
lease and rent expense for the three months ended March 31, 2018 and the year ended December 31, 2017 were $47,400 and $199,950,
respectively. There were no lease obligations for the period October 13, 2016 (Inception) to December 31, 2016.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
NOTE
12 – INCOME TAXES
As
of March 31, 2018, we had net operating loss carryforwards of approximately $5,893,235, 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.
On
December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act
(the “Tax Act”). The Tax Act reduces the corporate tax rate to 21% effective January 1, 2018. Consequently, we have
recorded an adjustment to the deferred tax provision for the year ended December 31, 2017.
Reconciliation
of the benefit (expense) for income taxes with amounts determined by applying the statutory federal income rate of 21% in 2018
and 34% in 2017 and 2016 to the respective losses before income taxes as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net
(Loss)
|
|
$
|
(1,797,228
|
)
|
|
$
|
(5,788,901
|
)
|
|
$
|
(155,024
|
)
|
Benefit
(expense) for income taxes computed using the statutory rate of 21% and 34%
|
|
|
377,418
|
|
|
|
1,968,226
|
|
|
|
52,708
|
|
Non-deductible
expense
|
|
|
(161,864
|
)
|
|
|
(360,952
|
)
|
|
|
(5,274
|
)
|
Re-measurement
of deferred income taxes due to tax reform
|
|
|
-
|
|
|
|
(632,683
|
)
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
(215,554
|
)
|
|
|
(974,591
|
)
|
|
|
(47,434
|
)
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant
components of the Company’s deferred tax liabilities and assets at March 31, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Total
deferred tax assets – net operating losses
|
|
$
|
1,237,579
|
|
|
$
|
1,022,025
|
|
|
$
|
47,434
|
|
Deferred
tax liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
deferred tax assets
|
|
|
1,237,579
|
|
|
$
|
1,022,025
|
|
|
|
47,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$
|
(1,237,579
|
)
|
|
$
|
(1,022,025
|
)
|
|
$
|
(47,434
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
March 31, 2018, net operating loss (“NOL”) carry forwards summary follows:
Expiring
December 31,
|
|
|
|
2036
|
|
$
|
139,512
|
|
2037
|
|
|
4,727,276
|
|
|
|
|
4,866,788
|
|
2018
Non-Expiring NOL
|
|
|
1,026,447
|
|
Total
NOL Carryforward
|
|
$
|
5,893,235
|
|
Tax
period of 2018, 2017, and 2016 remain subject to Internal Revenue Service audit.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
NOTE
13 – INTANGIBLE ASSETS
Intangible
assets consist of the following:
|
|
|
|
March
31, 2018
|
|
|
|
Life
|
|
Licenses
|
|
|
Patent
|
|
|
|
|
|
|
|
|
|
|
Licensing
Agreement – Jesse James
|
|
5
|
|
$
|
125,000
|
|
|
$
|
-
|
|
Licensing
Agreement – Jeff Rann
|
|
5
|
|
|
125,000
|
|
|
|
-
|
|
Patent
|
|
11.2
|
|
|
-
|
|
|
|
950,000
|
|
|
|
|
|
|
250,000
|
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization – Licensing Agreements
|
|
|
|
|
(58,333
|
)
|
|
|
-
|
|
Accumulated
amortization – Patents
|
|
|
|
|
-
|
|
|
|
(49,627
|
)
|
|
|
|
|
$
|
191,667
|
|
|
$
|
900,373
|
|
|
|
|
|
December
31, 2017
|
|
|
|
Life
|
|
Licenses
|
|
|
Patent
|
|
|
|
|
|
|
|
|
|
|
Licensing
Agreement – Jesse James
|
|
5
|
|
$
|
125,000
|
|
|
$
|
-
|
|
Licensing
Agreement – Jeff Rann
|
|
5
|
|
|
125,000
|
|
|
|
-
|
|
Patent
|
|
11.2
|
|
|
-
|
|
|
|
950,000
|
|
|
|
|
|
|
250,000
|
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization – Licensing Agreements
|
|
|
|
|
(45,833
|
)
|
|
|
|
|
Accumulated
amortization – Patents
|
|
|
|
|
-
|
|
|
|
(25,166
|
)
|
|
|
|
|
$
|
204,167
|
|
|
$
|
924,834
|
|
Amortization
expense for the three-month period ended March 31, 2018 is $36,961 and $70,999 for the year ended December 31, 2017.
NOTE
14 - SUBSEQUENT EVENTS
Subsequent
to March 31, 2018, we sold an additional 1,967,886 shares of common stock for $3,247,030 and issued 236,141 common stock purchase
warrants exercisable at $1.65, 983,957 common stock purchase warrants exercisable at $2.00.
We
evaluated subsequent events through May 24, 2018, the date the financial statements were issued, and determined that there are
not any other items to disclose.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
NOTE
15 – Comparative Consolidated Financials (Unaudited)
The
consolidated statement of operations and cash flows for the three-months ended March 31, 2017 follows:
Statement
of Operations
|
|
March
31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Gross
Sales
|
|
$
|
653,784
|
|
Customer
incentives, discounts, returns, and allowances
|
|
|
-
|
|
Net
sales
|
|
|
653,784
|
|
|
|
|
|
|
Cost
of Goods Sold, includes depreciation and amortization of $19,421 and federal excise taxes of $64,055 for the three months
ended March 31, 2017
|
|
|
474,890
|
|
|
|
|
|
|
Gross
Margin
|
|
|
178,894
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
Selling
and marketing
|
|
|
116,833
|
|
Corporate
general and administrative
|
|
|
578,402
|
|
Employee
salaries and related expenses
|
|
|
167,987
|
|
Depreciation
expense
|
|
|
379
|
|
Total
operating expenses
|
|
|
863,601
|
|
Loss
from Operations
|
|
|
(684,707
|
)
|
|
|
|
|
|
Other
Income (Expenses)
|
|
|
|
|
Loss
on vendor notes receivable collectability
|
|
|
(1,414,921
|
)
|
Interest
expense
|
|
|
(421,180
|
)
|
|
|
|
|
|
Profit
(Loss) before Income Taxes
|
|
|
(2,520,808
|
)
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
|
|
|
Net
Profit (Loss)
|
|
$
|
(2,520,808
|
)
|
|
|
|
|
|
Loss per share
|
|
|
|
|
Basic
and fully diluted:
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
17,118,431
|
|
Loss
per share
|
|
$
|
(0.15
|
)
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
Statement
of Cash Flows
|
|
March
31, 2017
|
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
(Loss)
|
|
$
|
(2,520,808
|
)
|
Adjustments
to reconcile Net (Loss) to Net Cash provided by operations:
|
|
|
|
|
Debt
discount amortization
|
|
|
356,250
|
|
Depreciation
and amortization
|
|
|
11,343
|
|
Common
stock issued for legal fees
|
|
|
124,000
|
|
Uncollectible
vendor notes receivable
|
|
|
1,414,921
|
|
Changes
in Current Assets and Liabilities
|
|
|
|
|
Vendor
advances receivable
|
|
|
186,486
|
|
Accounts
receivable
|
|
|
4,546
|
|
Other
receivables
|
|
|
(2,465
|
)
|
Inventories
|
|
|
(765,320
|
)
|
Prepaid
expenses
|
|
|
9,927
|
|
Accounts
payable
|
|
|
252,984
|
|
Accounts
payable
|
|
|
66,383
|
|
Accrued
liabilities
|
|
|
86,785
|
|
Net
cash used in operating activities
|
|
|
(766,511
|
)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Purchase
of equipment
|
|
|
(36,017
|
)
|
Net
cash used in investing activities
|
|
|
(36,017
|
)
|
|
|
|
|
|
Cash
flow from financing activities
|
|
|
|
|
Note
payment - related party
|
|
|
(362,000
|
)
|
Insurance
premium note payments
|
|
|
(79,328
|
)
|
Sale
of common stock
|
|
|
1,350,875
|
|
Organization
and fundraising costs
|
|
|
(17,000
|
)
|
Net
cash provided by financing activities
|
|
|
892,547
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
90,019
|
|
Cash,
beginning of period
|
|
|
10,116
|
|
Cash,
end of period
|
|
$
|
100,135
|
|
|
|
|
|
|
Supplemental
cash flow disclosures
|
|
|
|
|
Cash
paid during the period for -
|
|
|
|
|
Interest
|
|
$
|
1,297
|
|
Income
taxes
|
|
$
|
-
|
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018 and December 31, 2017 and 2016
(Continued)
|
|
March
31, 2017
|
|
|
|
(Unaudited)
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
Vendor
note receivable foreclosure -
|
|
|
|
|
Vendor
notes receivable
|
|
$
|
1,170,079
|
|
Vendor
advances receivable
|
|
|
(96,552
|
)
|
Accounts
receivable
|
|
|
(20,965
|
)
|
Inventories
|
|
|
(509,447
|
)
|
Equipment
|
|
|
(543,115
|
)
|
Other
receivables
|
|
|
(20,811
|
)
|
Accounts
payable
|
|
|
20,811
|
|
Insurance
premium note payable
|
|
|
180,761
|
|
Prepaid
expenses
|
|
|
(180,761
|
)
|
Common
stock
|
|
|
601
|
|
Additional
paid-in-capital
|
|
|
(601
|
)
|
|
|
$
|
-
|
|
AMMO,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
September
30, 2018
|
|
|
March
31, 2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,697,838
|
|
|
$
|
4,381,643
|
|
Accounts
receivable, net of allowance for doubtful accounts of $17,046 at September 30, 2018 and $23,046 at March 31, 2018
|
|
|
1,066,411
|
|
|
|
1,201,117
|
|
Due
from related parties
|
|
|
18,308
|
|
|
|
14,204
|
|
Inventories,
at lower cost or market, principally average cost method
|
|
|
3,378,406
|
|
|
|
2,405,007
|
|
Prepaid
expenses
|
|
|
401,753
|
|
|
|
321,074
|
|
Total
Current Assets
|
|
|
11,562,716
|
|
|
|
8,323,045
|
|
Equipment,
net of accumulated depreciation of $249,493 at September
30, 2018 and $113,158 at March 31, 2018
|
|
|
2,262,906
|
|
|
|
1,241,326
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
148,463
|
|
|
|
16,300
|
|
Licensing
agreements, net of accumulated amortization of $83,333 at September 30, 2018 and $58,333 at March 31, 2018
|
|
|
166,667
|
|
|
|
191,667
|
|
Patents,
net of accumulated amortization of $92,164 at September 30, 2018 and $49,627 at March 31, 2018
|
|
|
857,836
|
|
|
|
900,373
|
|
Acquisition
Deposit
|
|
|
250,000
|
|
|
|
-
|
|
TOTAL
ASSETS
|
|
$
|
15,248,588
|
|
|
$
|
10,672,711
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
557,844
|
|
|
$
|
479,465
|
|
Accrued
liabilities
|
|
|
402,653
|
|
|
|
541,210
|
|
Insurance
premium note payable
|
|
|
27,909
|
|
|
|
99,907
|
|
Total
Current Liabilities
|
|
|
988,406
|
|
|
|
1,120,582
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Common
Stock, $0.001 par value, 200,000,000 shares authorized 32,600,684 and 28,394,503 shares issued and outstanding at September
30, 2018 and March 31, 2018, respectively
|
|
|
32,601
|
|
|
|
28,394
|
|
Additional
paid-in capital
|
|
|
25,329,998
|
|
|
|
17,264,888
|
|
Accumulated
(Deficit)
|
|
|
(11,102,417
|
)
|
|
|
(7,741,153
|
)
|
Total
Shareholders’ Equity
|
|
|
14,260,182
|
|
|
|
9,552,129
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
15,248,588
|
|
|
$
|
10,672,711
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMMO,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
1,462,859
|
|
|
$
|
152,612
|
|
|
$
|
2,712,887
|
|
|
$
|
468,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold, includes depreciation and amortization of $95,807, $36,606, $169,102, and $69,593, respectively, and federal
excise taxes of $151,491, $13,761, $282,830, and $42,072, respectively
|
|
|
1,274,640
|
|
|
|
99,119
|
|
|
|
2,380,096
|
|
|
|
393,883
|
|
Gross
Margin
|
|
|
188,219
|
|
|
|
53,493
|
|
|
|
332,791
|
|
|
|
74,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
228,390
|
|
|
|
120,404
|
|
|
|
579,806
|
|
|
|
391,305
|
|
Corporate
general and administrative
|
|
|
722,737
|
|
|
|
282,185
|
|
|
|
1,400,837
|
|
|
|
659,832
|
|
Employee
salaries and related expenses
|
|
|
796,751
|
|
|
|
193,519
|
|
|
|
1,675,739
|
|
|
|
343,607
|
|
Depreciation
expense
|
|
|
19,373
|
|
|
|
1,909
|
|
|
|
34,770
|
|
|
|
4,199
|
|
Total
operating expenses
|
|
|
1,767,251
|
|
|
|
598,017
|
|
|
|
3,691,152
|
|
|
|
1,398,943
|
|
Loss
from Operations
|
|
|
(1,579,032
|
)
|
|
|
(544,524
|
)
|
|
|
(3,358,361
|
)
|
|
|
(1,324,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1,406
|
)
|
|
|
(24,261
|
)
|
|
|
(2,903
|
)
|
|
|
(47,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
before Income Taxes
|
|
|
(1,580,438
|
)
|
|
|
(568,785
|
)
|
|
|
(3,361,264
|
)
|
|
|
(1,371,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
$
|
(1,580,438
|
)
|
|
$
|
(568,785
|
)
|
|
$
|
(3,361,264
|
)
|
|
$
|
(1,371,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and fully diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
32,454,308
|
|
|
|
19,484,094
|
|
|
|
31,429,324
|
|
|
|
19,203,042
|
|
(Loss)
per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMMO,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the Six Months Ended September 30, 2018
(Unaudited)
|
|
Common
Shares
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2018
|
|
|
28,394,503
|
|
|
$
|
28,394
|
|
|
$
|
17,264,888
|
|
|
$
|
(7,741,153
|
)
|
|
$
|
9,552,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
1,967,886
|
|
|
|
1,968
|
|
|
|
3,245,062
|
|
|
|
-
|
|
|
|
3,247,030
|
|
Common
stock issued for exercised warrants
|
|
|
1,972,800
|
|
|
|
1,973
|
|
|
|
4,765,652
|
|
|
|
-
|
|
|
|
4,767,625
|
|
Common
stock issued for cashless warrant exercise
|
|
|
10,495
|
|
|
|
11
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
-
|
|
Fundraising
cost
|
|
|
-
|
|
|
|
-
|
|
|
|
(719,974
|
)
|
|
|
-
|
|
|
|
(719,974
|
)
|
Common
stock issued for services
|
|
|
5,000
|
|
|
|
5
|
|
|
|
22,345
|
|
|
|
-
|
|
|
|
22,350
|
|
Employee
stock awards
|
|
|
250,000
|
|
|
|
250
|
|
|
|
482,375
|
|
|
|
-
|
|
|
|
482,625
|
|
Stock
Grants
|
|
|
-
|
|
|
|
-
|
|
|
|
269,661
|
|
|
|
-
|
|
|
|
269,661
|
|
Net
loss for period ended September 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,361,264
|
)
|
|
|
(3,361,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2018
|
|
|
32,600,684
|
|
|
|
32,601
|
|
|
|
25,329,998
|
|
|
|
(11,102,417
|
)
|
|
|
14,260,182
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Ammo,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOW
(Unaudited)
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
$
|
(3,361,264
|
)
|
|
$
|
(1,371,636
|
)
|
Adjustments
to reconcile Net (Loss) to Net Cash provided by operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
203,872
|
|
|
|
73,792
|
|
Stock
Grants
|
|
|
269,661
|
|
|
|
-
|
|
Stock
for Services
|
|
|
22,350
|
|
|
|
62,500
|
|
Employee
stock awards
|
|
|
482,625
|
|
|
|
-
|
|
Changes
in Current Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
140,706
|
|
|
|
(252,158
|
)
|
Allowance
for doubtful accounts
|
|
|
(6,000
|
)
|
|
|
-
|
|
Due
to (from) related parties
|
|
|
(4,104
|
)
|
|
|
29,253
|
|
Inventories
|
|
|
(973,399
|
)
|
|
|
(114,521
|
)
|
Prepaid
expenses
|
|
|
(80,679
|
)
|
|
|
182,217
|
|
Deposits
|
|
|
(132,163
|
)
|
|
|
-
|
|
Accounts
payable
|
|
|
78,379
|
|
|
|
83,713
|
|
Accrued
liabilities
|
|
|
(138,557
|
)
|
|
|
39,896
|
|
Net
cash used in operating activities
|
|
|
(3,498,573
|
)
|
|
|
(1,266,944
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(1,157,915
|
)
|
|
|
(4,170
|
)
|
Acquisition
Deposit
|
|
|
(250,000
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(1,407,915
|
)
|
|
|
(4,170
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities
|
|
|
|
|
|
|
|
|
Convertible
note payment
|
|
|
-
|
|
|
|
(100,000
|
)
|
Note
payment - related party
|
|
|
-
|
|
|
|
(373,000
|
)
|
Insurance
premium note payment
|
|
|
(71,998
|
)
|
|
|
(60,967
|
)
|
Sale
of common stock
|
|
|
3,247,030
|
|
|
|
1,746,875
|
|
(Continued)
Ammo,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOW
(Unaudited)
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Common
stock issued for exercised warrants
|
|
|
4,767,625
|
|
|
|
-
|
|
Organizational
and fundraising costs
|
|
|
(719,974
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
7,222,683
|
|
|
|
1,212,908
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
2,316,195
|
|
|
|
(58,206
|
)
|
Cash, beginning
of period
|
|
|
4,381,643
|
|
|
|
100,135
|
|
Cash, end
of period
|
|
$
|
6,697,838
|
|
|
$
|
41,929
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures
|
|
|
|
|
|
|
|
|
Cash
paid during the period for -
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,903
|
|
|
$
|
6,545
|
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
(11
|
)
|
|
|
-
|
|
Common
Stock
|
|
|
11
|
|
|
|
-
|
|
Prepaid
interest
|
|
|
|
|
|
|
(46,188
|
)
|
Additional
paid-in-capital
|
|
|
|
|
|
|
46,188
|
|
Prepaid
legal services
|
|
|
|
|
|
|
(224,000
|
)
|
Issuance
of common stock
|
|
|
|
|
|
|
224,000
|
|
Notes
payable - related parties
|
|
|
|
|
|
|
200,000
|
|
Issuance
of common stock
|
|
|
|
|
|
|
750,000
|
|
Patent
acquisitions
|
|
|
|
|
|
|
(950,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(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 475,681 (11,891,976 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 580,052
shares; no shareholder was reversed below 100 shares and any and all fractional shares resulting from the reverse split were rounded
up to the next whole share. All references to the outstanding stock have been retrospectively adjusted to reflect this split.
These transactions were effective as of December 30, 2016.
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
17,285,800 newly issued shares of common stock of the Company. In connection with this transaction the Company retired 475,681
shares of common stock and issued 500,000 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 604,371 shares to the Company’s
shareholders accompanied by a recapitalization. The weighted average number of outstanding shares has been adjusted for this transaction.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting
Basis
The
accompanying unaudited 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 consolidated financial statements and related disclosures are presented pursuant to the
rules and regulations of the Securities Exchange Commission (“SEC”).
The
accompanying financial statements should be read in conjunction with the audited financial statements and related disclosures
contained in the Company’s Annual Transition Report filed with the SEC on Form 10-KT for three-month transition period ended
March 31, 2018. The results for the three and six month periods ended September 30, 2018 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 and six month periods ended September 30, 2018 and 2017, (b) the
financial position at September 30, 2018 and (c) cash flows for the six month periods ended September 30, 2018 and 2017.
We
use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”)
and all amounts are expressed in U.S. dollars. We have adopted a March 31 year end.
Unless
the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or
the “Company” are to AMMO, Inc., a Delaware corporation.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
Principles
of Consolidation
The
consolidated financial statements include the accounts of Ammo, Inc. and its wholly owned subsidiaries, SNI, LLC, Ammo Munitions,
Inc. and Ammo Technologies, Inc. All significant intercompany accounts and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months
or less to be cash equivalents.
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 September
30, 2018 and March 31, 2018, we reserved $17,046 and $23,046, 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. In addition, Mr. James agreed to make himself available for certain
promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr.
James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses
and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement
with the potential issuance of up to 75,000 additional shares of common stock upon achieving certain gross sales with $15 million
in gross sales required to earn the entire 75,000 shares.
We
are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition
industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of all Jeff Rann Branded Products. Mr. Rann agreed to make himself available for certain promotional activities and to promote
the Branded Products through his own social media outlets. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and
non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued
100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of 75,000 additional
shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.
Amortization
expense for the license agreements for the three and six months ended September 30, 2018 and 2017 were $12,500, $17,778, $25,000
and $32,361, respectively.
Patent
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. Under the terms of the Merger, we, the sole shareholder of Ammo
Technologies Inc., issued to Hallam, Inc.’s two shareholders, 600,000 shares of our common stock, subject to restrictions,
and payment of $200,000. The first payment of $100,000 to the Hallam, Inc. shareholders was paid on September 13, 2017, and the
second payment of $100,000 was paid on February 6, 2018.
The
shares were valued at $1.25 and the aggregate value of $950,000 was recorded as a patent asset. This asset will be amortized from
September 2017, the first full month of the acquired rights, through October 29, 2028. Patent amortization expense the three months
and six months ended September 30, 2018 were $21,269 and $42,537, respectively. There was no amortization in the comparable 2017
periods.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
Under
the terms of the Merger, ATI succeeded to all of the assets of Hallam, Inc. and assumed the liabilities of Hallam, Inc., which
were none. 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. Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a 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
six months ended September 30, 2018, the Company accrued $18,480 under this agreement. For the comparable period in 2017, no amounts
were accrued and paid to the patent holder as this agreement was not executed.
Subsequent
to September 30, 2018, we completed the acquisition of SW Kenetics Inc. on October 5, 2018 (See Note 6). Included in the acquisition
was a pending patent for modular projectiles that will be assigned to the Company.
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. No impairment expense was recognized for the three months ended September 30, 2018 and the three months
ended September 30, 2017.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition. We recognize revenue when it is realized or realizable and earned.
We consider revenue realized or realizable and earned when all of the following criteria are met:
|
●
|
persuasive
evidence of an arrangement exists
|
|
●
|
the
product has been shipped to the customer
|
|
●
|
the
sales price is fixed or determinable
|
|
●
|
collectability
is reasonably assured
|
|
●
|
recognition
of any returns, refunds or product warranties
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
For
the six and three months ended September 30, 2018, the Company’s customers that comprised more than ten percent (10%) of
total revenues and accounts receivable were as follows:
PERCENTAGES
|
|
Revenues
|
|
|
Accounts
Receivable
|
|
For the Six-Months
ended September 30, 2018
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
A
|
|
|
29.98
|
%
|
|
|
-
|
|
B
|
|
|
23.82
|
%
|
|
|
57.74
|
%
|
C
|
|
|
12.95
|
%
|
|
|
-
|
|
D
|
|
|
-
|
|
|
|
23.02
|
%
|
|
|
|
66.75
|
%
|
|
|
80.76
|
%
|
For the Three-Months
ended September 30, 2018
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
A
|
|
|
-
|
|
|
|
-
|
|
B
|
|
|
44.17
|
%
|
|
|
57.74
|
%
|
C
|
|
|
16.29
|
%
|
|
|
-
|
|
D
|
|
|
16.78
|
%
|
|
|
23.02
|
%
|
|
|
|
77.24
|
%
|
|
|
80.76
|
%
|
Advertising
Costs
We
expense advertising costs as they are incurred. We incurred advertising of $109,747 and $256,362 for the three and six months
ended September 30, 2018, respectively.
Inventories
We
state inventories at the lower of cost or market. 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.
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 seven years.
Compensated
Absences
We
accrue a liability for compensated absences in accordance with
Accounting Standards Codifications 710 – Compensation
– General
.
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). There were 250,000 shares
of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during
the six months ended September 30, 2018.
On
March 12, 2018, we entered into an employment agreement with an executive, that included, among other provisions, an equity grant
of 400,000 shares of restricted common stock that vests at the rate of 100,000 shares annually for four years. The $660,000 compensation
value is being recognized ratably on a straight-line basis over the four-year period covered by the agreement.
On
May 1, 2018, we entered into an employment agreement that included, among other provisions, an equity grant of 100,000 shares
of restricted common stock that vests at the rate of 33,333 shares annually for three years. The $250,000 compensation value is
being recognized on a straight-line basis over the three-year period covered by the agreement.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
On
September 27, 2018, we entered into three separate employment agreements, that each included, among other provisions, an equity
grant of 80,000 shares of restricted common stock that vests at the rate of 20,000 shares annually for four years. Each compensation
value of $261,000 ($783,000 total) is being recognized on a straight-line basis over the four-year period covered by the agreement.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at various times. As of
September 30, 2018, 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.
Contingencies
Certain
conditions may exist as of the date the 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 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. There were no known contingencies at September 30, 2018 or March 31, 2018.
Recent
Accounting Pronouncements
In
May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. The revised effective date
for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted,
but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public
entities. We have adopted ASU 2014-09 as of January 1, 2018, and it did not have a material impact on the Company’s consolidated
results of operations, financial position or cash flows for the period ended September 30, 2018.
Sales
are initiated in three ways –
|
●
|
third
party sales representative obtains signed sales order from a customer
|
|
●
|
direct
contact by in-house sales representatives who obtains signed sales order
|
|
●
|
electronic
purchase order from a customer (usually the very large customers)
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
Once
the sales order has been received the inventory control department will pull the purchased items from the inventory or if needed
will request the manufacture of a specific product. When the items that were ordered are available for shipment, the merchandise
is prepared for shipping and shipped by FedEx or common carrier.
All
sales are recorded upon shipment and, depending on credit worthiness of customer, the payment terms will vary from thirty (30)
to sixty (60) days. No refunds are allowed on any product shipped.
Each
product manufactured by the Company has standard specifications and performance objectives. The Company has an extensive product
testing program and, if the Company were given notice of a product defect by a customer, the Company would request the return
of the product so that the manufacturing defect could be identified. From inception to June 30, 2018 the Company has had no returned
products related to product warranty.
The
revenue recognition procedures set forth above have been used by the Company since its inception and are consistent with requirements
of ASC 606 “Revenue from Contracts with Customers”.
In
February 2016, the FASB issued ASU 2016-02 – “Leases (Topic 842)” Under ASU 2016-02, entities will be required
to recognize lease asset and lease liabilities by lessees for those leases classified as operating leases. Among other changes
in accounting for leases, a lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to (and a lessor) should include payments to be made in
optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option
to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of
lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. The amendments in
ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018, including interim periods with those fiscal
years for public business entities. We are currently evaluating the effect of the adoption of ASU 2016-02 will have on our consolidated
results of operations, financial position or cash flows.
On
June 20, 2018, the FASB expanded the scope of Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation,
to include share-based payments to nonemployees for goods and services. The accounting board said the amendments in Accounting
Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share- Based
Payment Accounting, align the guidance for stock compensation to employees and nonemployees. The amended guidance replaces ASC
505-50, Equity – Equity-Based Payments to Non-Employees. We anticipate that this ASC will not have a material effect on
the Company’s financial statements.
The
amendments in ASU No. 2018-07 apply “to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards,” the FASB said. But the
amended guidance does not cover stock compensation that is used to provide financing to the company that issued the shares or
stock awards tied to a sale of goods or services as part of a contract accounted for according to ASC 606, Revenue From Contracts
With Customers.
The
amendments are effective for public companies for fiscal years that begin after December 15, 2018, and the quarterly and other
interim periods in those years, the FASB said. Private companies have until their fiscal years that start after Dec. 15, 2019,
before applying the changes to annual reports. Private companies can wait until their fiscal years that start after Dec. 15, 2020,
before they apply the changes to their reporting periods of less than a year. The accounting board also said the amended guidance
can be applied before it becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before it
becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before they have implemented ASC 606.
We have evaluated the effect of the adoption of ASU 2018-07 will have on our consolidated results of operations, financial position
or cash flows and determine the effects will not be material to the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the
accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under
the circumstances.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
Loss
Per Common Share
We
calculate basic 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 as 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 5,403,953 shares of common stock and equity grants of 740,000 shares of
common stock that are potentially dilutive. All weighted average numbers were adjusted for the reverse stock split and merger
transaction. Due to the loss from operations in the three and six months ended September 30, 2017 and 2018, there are no common
shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive.
NOTE
3 – INVENTORIES
At
September 30, 2018 and March 31, 2018, the inventory balances are composed of:
|
|
September
30, 2018
|
|
|
March
31, 2018
|
|
Finished
product
|
|
$
|
1,550,590
|
|
|
$
|
809,680
|
|
Raw
materials
|
|
|
1,559,864
|
|
|
|
1,471,666
|
|
Work
in process
|
|
|
267,952
|
|
|
|
123,661
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,378,406
|
|
|
$
|
2,405,007
|
|
NOTE
4 – 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 seven
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. 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.
Property
and equipment consisted of the following at September 30, 2018 and March 31, 2018:
|
|
September
30, 2018
|
|
|
March
31, 2018
|
|
Leasehold
Improvements
|
|
$
|
34,170
|
|
|
$
|
17,772
|
|
Furniture
and Fixtures
|
|
|
11,604
|
|
|
|
8,102
|
|
Vehicles
|
|
|
103,511
|
|
|
|
89,388
|
|
Equipment
|
|
|
2,257,822
|
|
|
|
879,871
|
|
Tooling
|
|
|
105,292
|
|
|
|
359,351
|
|
Total
property and equipment
|
|
$
|
2,512,399
|
|
|
$
|
1,354,484
|
|
Less
accumulated depreciation
|
|
|
(249,493
|
)
|
|
|
(113,158
|
)
|
Net
property and equipment
|
|
|
2,262,906
|
|
|
|
1,241,326
|
|
Depreciation Expense for the six months and three months ended September 30, 2018 and 2017 totaled $136,335,
$81,412, $41,431, and $20,737, respectively. Depreciation for the three months ended March 31, 2018 was $35,297.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
NOTE
5 – CAPITAL STOCK
During
the six month period ended September 30, 2018, we issued 5,906,183 shares of common stock as follows:
|
●
|
1,967,886
shares were sold to investors for $3,247,030
|
|
●
|
1,972,800
shares were issued through exercised warrants of $4,767,625
|
|
●
|
10,495
shares were issued through a cashless warrant exercise of 14,719 warrants
|
|
●
|
5,000
shares were issued for services valued at $22,350
|
|
●
|
250,000
shares valued at $482,625 were issued to employees, members of the Board of Directors,
and members of the Advisory Committee as compensation
|
In
April of 2018, our second placement agreement to secure equity capital from qualified investors to provide funds to our operations
ended. The offering consisted of Units priced at $1.65, which included one share of common stock and one five-year warrant to
purchase an additional half-share of common stock for an exercise price of $2.00 per share. Effectively, every two units purchased
provided the investor with a five-year warrant at an exercise price of $2.00 per share. Units sold under this agreement totaled
1,967,886 shares of common stock and 983,943 warrants for $3,247,030 for the six month period ended September 30, 2018.
For
services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a
fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of seven years and an exercise price
of $1.65 per share. The cash fee totaled $389,644 for the six month period ended September 30, 2018, including reimbursed expenses.
At
September 30, 2018, outstanding and exercisable stock purchase warrants consisted of the following:
|
|
Number
of Shares
|
|
|
Weighted
Averaged Exercise Price
|
|
|
Weighted
Average Life Remaining (Years)
|
|
Outstanding
at March 31, 2018
|
|
$
|
8,872,160
|
|
|
$
|
2.22
|
|
|
|
1.82
|
|
Granted
|
|
|
1,494,112
|
|
|
|
2.04
|
|
|
|
4.22
|
|
Exercised
|
|
|
(1,987,519
|
)
|
|
|
2.41
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
(2,958,800
|
)
|
|
|
2.47
|
|
|
|
-
|
|
Expired
|
|
|
(16,000
|
)
|
|
|
2.50
|
|
|
|
-
|
|
Outstanding
at September 30, 2018
|
|
|
5,403,953
|
|
|
$
|
1.97
|
|
|
|
4.57
|
|
Exercisable
at September 30, 2018
|
|
|
5,403,953
|
|
|
$
|
1.97
|
|
|
|
4.57
|
|
As
of September 30, 2018, we had 5,403,953 warrants outstanding. Each warrant provides the holder the right to purchase up to one
share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase an aggregate
of 349,060 shares of Common Stock at an average price of $2.50 per share over the next three years; (2) warrants to purchase 966,494
shares of Common Stock at an exercise price of $1.65 per share until March 2025; and (3) warrants to purchase 4,088,399 shares
of our Common Stock at an exercise price of $2.00 per share until April 2023.
On
May 24, 2018, per the terms of the private offering, dated January 25, 2017, we called for the exercise of warrants to purchase
a total of 4,947,600 shares of our Common Stock. According to the terms of the Warrant Purchase Agreement, the warrants could
be called when the average price of our common stock traded at $5.00 per share or higher, for a consecutive 30 day period. This
call provision was met on May 21, 2018. As a result, we issued formal notice to all warrant holders on May 24, 2018, advising
them that they had until July 6, 2018, to exercise their warrants, or they would become null and void. The total number of warrants
included in the January 25, 2017 offering were 4,947,600 and were priced as follows: 4,790,100 warrants at an exercise price of
$2.50, 67,500 warrants at an exercise price of $1.25 and 90,000 warrants at an exercise price of $0.50.
As
of July 6, 2018, a total of 1,972,800 warrants were exercised to purchase an equivalent 1,972,800 shares of common stock at an
average price of $2.42 and 2,974,800 warrants to purchase shares of Common Stock were cancelled. On July 12, 2018, the company
filed a Form 8-K to report the activity of this event.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018 and March 31, 2018
(Unaudited)
Additionally,
there was a cashless exercise of 14,719 warrants resulting in the issuance of 10,495 shares of Common Stock unrelated to the call
for the exercise of warrants.
On
October 24, 2018, we filed Amended and Restated Articles of Incorporation with the state of Delaware. The Amended Articles increased
our authorized Common Stock to a total of 200,000,000 shares, $0.001 par value, and created 10,000,000 shares of Preferred Stock,
$0.001 par value.
NOTE
6 - ACQUISITIONS
On
September 27, 2018, ATI entered into a definitive Agreement and Plan of Merger with SW Kenetics Inc. (“SWK”), an Arizona
corporation and completed the merger on October 5, 2018. Pursuant to the agreement SWK merged with and into Ammo Technologies
Inc, with ATI being the survivor. Under the terms of the agreement, we the sole shareholder of Ammo Technologies Inc, issued to
SW Kenetics Inc.’s three shareholders, 1,700,002 restricted shares of our common stock, payment of $250,000 and a payment
obligation of $1,250,000 subject to completion of specific milestones that we have recorded as Contingent Consideration Payable.
Additionally, the 1,700,002 shares of common stock were issued with claw back provisions to ensure agreed upon objectives are
met. Included among the list of milestones or events that must be completed are significant revenue goals incorporating the product
technology of SWK. The initial payment of $250,000 was made as a deposit on August 20, 2018. The shares were valued at approximately
$3.28, the weighted average price of our stock from September 20, 2018 to October 4, 2018 and we will record the total purchase
consideration on the intangible asset as follows:
Cash
|
|
$
|
250,000
|
|
Contingent
Consideration Payable
|
|
|
1,250,000
|
|
Common
Stock
|
|
|
5,569,207
|
|
|
|
|
|
|
Total
Purchase Consideration
|
|
$
|
7,069,207
|
|
The
purchase price allocation to intangible assets is preliminary. The preliminary estimated fair value recorded for the intangible
asset was determined by management based on the Agreement and Plan of Merger. SWK’s significant assets only include intangible
assets and we have allocated the preliminary purchase price allocation accordingly. The purchase price allocation will continue
to be preliminary until a third-party valuation is completed and the fair value and useful life of the assets acquired is determined.
The amounts from the valuation may significantly differ from the preliminary allocation.
SWK
is a research and development firm located in Arizona that has designed a new portfolio of modular projectiles that the Company
believes will advance the force capability of the United States military, as well as NATO member countries. SWK filed a patent
for their technology, which is now pending with the United States Patent and Trademark Office.
NOTE
7 - SUBSEQUENT EVENTS
As
detailed above, on October 5, 2018, we completed the merger with Southwest Kenetics, Inc.
On
October 16, 2018, we entered into a lease agreement with Guenther Properties, LLC to lease approximately 20,826 square feet of
office and warehousing space to be located at 7681 East Gray Road, Scottsdale, Arizona. Guenther Properties, LLC is required to
deliver the Premises at the earlier of November 1, 2018 or upon execution of the Lease and receipt of the move-in funds. The initial
term of the of the Lease expires on December 31, 2023. The first two months of the first year are free and the monthly base rent
is approximately $17,702, which will increase by approximately 4.4% each year.
13,242,186
Shares
AMMO,
INC.
Common
Stock
PROSPECTUS
__________,
2018