NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021 and March 31, 2021
(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 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. (PRIVCO) subsequently changes its name to AMMO
Munitions, Inc.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting
Basis
The
accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form
10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for
these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the
rules and regulations of the Securities Exchange Commission (“SEC”).
The
accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2021.
The results for the three month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the
entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have
been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the
three month periods ended June 30, 2021 and 2020, (b) the financial position at June 30, 2021, and (c) cash flows for the three month
period ended June 30, 2021 and 2020.
We
use the accrual basis of accounting and U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end
of March 31st.
Unless
the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company”
are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in
preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred
tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts
Receivable and Allowance for Doubtful Accounts
Our
accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which
is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At June 30, 2021 and
March 31, 2021, we reserved $1,514,872 and $148,540, respectively, of allowance for doubtful accounts.
License
Agreements
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited
liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’
image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products
and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
We
are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries.
The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks
associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded
Products. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for
any out-of-pocket expenses and reasonable travel expenses.
Patents
On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam,
Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles
and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26,
2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant
to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017,
the Merger closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October
29, 2028.
Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01
per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the three months
ended June 30, 2021 and 2020, the Company recognized royalty expenses of $3,404 and $24,759, respectively under this agreement.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On
October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all
of the liabilities.
The
primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned
and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
We
intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications
where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other
Intangible Assets
On
March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition
of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended
and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property.
On
April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company,
SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments,
LLC, a Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight
Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments,
LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of Gunbroker.com, an online auction marketplace
dedicated to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships,
intellectual property, software and domain names.
Impairment
of Long-Lived Assets
We
continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable.
When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows
is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
No impairment expense was recognized for the three ended June 30, 2021 and 2020.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition, and marketplace fee revenue, which includes auction revenue, payment
processing revenue, and shipping income. We recognize revenue according to ASC 606. When the customer obtains control over the
promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods
and services. We apply the following five-step model to determine revenue recognition:
|
●
|
Identification
of a contract with a customer
|
|
●
|
Identification
of the performance obligations in the contact
|
|
●
|
determination
of the transaction price
|
|
●
|
allocation
of the transaction price to the separate performance allocation
|
|
●
|
recognition
of revenue when performance obligations are satisfied
|
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We only apply the
five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods
or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606,
we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether
each promised good or service is distinct. Our contracts contain a single performance obligation and the entire transaction price is
allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the
respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues
(net) when the customer obtains control of our product, which typically occurs upon shipment of the product or the performance
of the service. In the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred
Revenue in our Accrued Liabilities. We will recognize revenue when the performance obligation is met.
For
the three months ended June 30, 2021 the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts
receivable were as follows:
SCHEDULE OF CONCENTRATION OF RISKS
|
|
Revenues at
June 30, 2021
|
|
|
Accounts Receivable
|
|
PERCENTAGES
|
|
Three Months Ended
|
|
|
June 30,
2021
|
|
|
March 31,
2021
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
19.8
|
%
|
|
|
-
|
|
|
|
-
|
|
B
|
|
|
11.3
|
%
|
|
|
-
|
|
|
|
11.9
|
%
|
C
|
|
|
-
|
|
|
|
-
|
|
|
|
23.3
|
%
|
D
|
|
|
-
|
|
|
|
-
|
|
|
|
10.6
|
%
|
|
|
|
31.1
|
%
|
|
|
-
|
|
|
|
45.8
|
%
|
Disaggregated
Revenue Information
The
following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product or services
types; ammunition, ammunition casings, and marketplace fees. The Company notes that revenue recognition processes are consistent between
product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to
the customers of each product and service type.
SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
|
|
For the Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Ammunition sales
|
|
$
|
28,351,780
|
|
|
$
|
6,411,668
|
|
Marketplace fee revenue
|
|
|
12,272,066
|
|
|
|
-
|
|
Ammunition casings sales
|
|
|
3,852,486
|
|
|
|
3,248,302
|
|
Total Revenues
|
|
$
|
44,476,332
|
|
|
$
|
9,659,970
|
|
Ammunition
products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also
sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated
through our Gunbroker.com online auction marketplace.
Advertising
Costs
We
expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. Marketplace advertising costs
are expenses as they are incurred in cost of revenues. We incurred advertising of $116,433
and $87,167
for the three months ended June 30, 2021
and 2020, respectively, recognized in selling expenses and $19,000
of advertising expenses recognized in cost of
revenues for the three months ended June 30, 2021.
Inventories
We
state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists
of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other
costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property
and Equipment
We
state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor
replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated
useful lives, which are generally five to ten years.
Compensated
Absences
We
accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General
(“ASC 710”).
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation –
Stock Compensation (“ASC 718”). which requires the measurement and recognition of compensation expense for all share-based
payment awards to employees and directors. Stock-based compensation is recognized on a straight line basis over the vesting periods and
forfeitures are recognized in the periods they occur. There were 202,500
shares of common stock issued to employees,
members of the Board of Directors, and members of our advisory committee for services during the three months ended June 30, 2021.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2021, our bank
account balances exceeded federally insured limits.
Income
Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under
the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision
for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred tax assets
and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected
to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely
than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with
ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We measure
recognized income tax positions at the largest amount that is greater than 50% likely of being realized. We reflect changes in recognition
or measurement in the period in which the change in judgment occurs. We currently have substantial net operating loss carryforwards.
We have recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the
deferred tax assets.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Certain
conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will
only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted
claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived
merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would
be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint
against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint in alleges that the
individual reported potential violations of SEC rules and regulations by management and that as a result of such disclosures, the individual
experienced a hostile work environment; that the Company lacks sufficient controls internal controls, and that the individual was the
victim of retaliation and constructive discharge after being removed as a director by majority vote of the shareholders. The claims were
investigated by a newly appointed Special Investigative Committee made of up independent directors represented by special independent
legal counsel. The Special Investigative Committee and legal counsel found the material claims were unsubstantiated, including those
concerning alleged SEC violations, and recommended enhancements to certain corporate governance charter documents and processes which
the Company promptly implemented. The matter is currently the subject of administrative investigation by the DOL via the Occupational
Safety and Health Administration. The Company filed a timely Position Statement with the DOL in October of 2019 in response to the Complaint.
The Company disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has
and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee
for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the
Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of
contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans
to aggressively pursue its offensive claims in order to recover economic damages as a result of its claims while seeking dismissal of
the counterclaim. There were no other known contingencies at June 30, 2021.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – INCOME/(LOSS) PER COMMON SHARE
We
calculate basic income/(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. We use the treasury
stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase 3,047,960
shares of common stock and contingently issuable shares of common stock of 1,500,000. All weighted average numbers were adjusted for
the reverse stock split and merger transaction. Due to the loss from operations in the three months ended June 30, 2020, there are no
common shares added to calculate the dilutive loss per share for that period as the effect would be antidilutive. The Company excluded
warrants of 8,441,798 for the three months ended June 30, 2020, from the weighted average diluted common shares outstanding because their
inclusion would have been antidilutive.
SCHEDULE OF INCOME/(LOSS) PER COMMON SHARE
|
|
Net income/(loss) attributable to common stock holders
|
|
|
Weighted average shares
|
|
|
Net income/(loss) attributable to common stock holders per share
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) per share
|
|
$
|
9,198,915
|
|
|
$
|
(3,103,789
|
)
|
|
|
105,876,867
|
|
|
|
46,247,654
|
|
|
$
|
0.09
|
|
|
$
|
(0.07
|
)
|
Effect of dilutive common stock purchase warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
2,024,037
|
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
-
|
|
Effect of dilutive contingently issuable common stock (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,010,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Effect of dilutive equity incentive awards
|
|
|
-
|
|
|
|
-
|
|
|
|
139,909
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted income/(loss) per share
|
|
$
|
9,198,915
|
|
|
$
|
(3,103,789
|
)
|
|
|
109,051,682
|
|
|
|
46,247,654
|
|
|
$
|
0.08
|
|
|
$
|
(0.07
|
)
|
|
(1)
|
Weighted
average of contingently issuable shares measured from the effective date of merger, April 30, 2021
|
NOTE
4 – INVENTORIES
At
June 30, 2021 and March 31, 2021, the inventory balances are composed of:
SCHEDULE OF INVENTORY
|
|
June 30, 2021
|
|
|
March 31, 2021
|
|
Finished product
|
|
$
|
3,207,574
|
|
|
$
|
899,266
|
|
Raw materials
|
|
|
18,109,674
|
|
|
|
12,440,548
|
|
Work in process
|
|
|
6,622,277
|
|
|
|
2,527,104
|
|
Inventory, net
|
|
$
|
27,939,525
|
|
|
$
|
15,866,918
|
|
NOTE
5 – EQUIPMENT
We
state equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line method at rates
intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years. Upon retirement or
sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation from the accounts and
any resulting gain or loss is credited or charged to other income. We charge expenditures for normal repairs and maintenance to expense
as incurred.
We
capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements
made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease
term including any renewals that are reasonably assured.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Equipment
consisted of the following at June 30, 2021 and March 31, 2021:
SCHEDULE OF EQUIPMENT
|
|
June 30, 2021
|
|
|
March 31, 2021
|
|
Building
|
|
$
|
955,810
|
|
|
$
|
-
|
|
Leasehold Improvements
|
|
|
250,887
|
|
|
|
126,558
|
|
Furniture and Fixtures
|
|
|
331,490
|
|
|
|
87,790
|
|
Vehicles
|
|
|
152,101
|
|
|
|
142,691
|
|
Equipment
|
|
|
27,305,838
|
|
|
|
26,425,221
|
|
Tooling
|
|
|
143,710
|
|
|
|
121,790
|
|
Construction in Progress
|
|
|
882,310
|
|
|
|
544,939
|
|
Total property and equipment
|
|
$
|
30,022,146
|
|
|
$
|
27,448,989
|
|
Less accumulated depreciation
|
|
|
(6,848,714
|
)
|
|
|
(5,895,763
|
)
|
Net equipment
|
|
$
|
23,173,432
|
|
|
$
|
21,553,226
|
|
Depreciation
Expense for the three months ended June 30, 2021 and 2020 totaled $995,334,
and $676,053,
respectively.
NOTE
6 – FACTORING LIABILITY
On
July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from
time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains
a maximum advance amount of $5,000,000
on 85%
of eligible accounts and has an annualized interest rate of the Prime Rate published from time to time by the Wall Street Journal plus
4.5%. The agreement contains fee of 3%
($150,000)
of the Maximum Facility assessed to the Company. Our obligations under this agreement are secured by present and future accounts receivables
and related assets, inventory, and equipment. The Company has the right to terminate the agreement, with 30 days written notice, upon
obtaining a non-factoring credit facility. This agreement provides the Company with the ability to convert our account receivables into
cash. As of June 30, 2021, the outstanding balance of the Factoring Liability was $1,095,989.
For the three months ending June 30, 2021, interest expense recognized on the Factoring Liability was $41,579
and
for the three months ending June 30, 2020 was $114,060,
including $37,500 of
amortization of the commitment fee.
On
June 17, 2020, this agreement was amended which extended the maturity date to June 17, 2022.
NOTE
7 – INVENTORY CREDIT FACILITY
On
June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line,
and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our
inventory, among other assets, contains a maximum loan amount of $1,750,000
on eligible inventory and has an annualized
interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%. The
agreement contains a fee of 2%
of the maximum loan amount ($35,000)
assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory
loan amount to $2,250,000.
As of June 30, 2021, the outstanding balance of the Inventory Credit Facility was $258,955.
Interest expense recognized on the Inventory Credit Facility was $17,659,
including $8,561 of
amortization of the annual fee for the three months ended June 30, 2021 and $7,490,
including $2,917 of
amortization of the annual fee for the three months ended June 30, 2020.
NOTE
8 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ, Atlanta and Marietta, GA, and Manitowoc and Two Rivers,
WI under contracts we classify as operating leases. None of our leases are financing leases. The Payson lease has an option to renew
for five years. As of June 30, 2021, we are fairly certain we will not exercise the renewal option. The Scottsdale lease does not include
a renewal option. As of June 26, 2020, the Company entered into an amended agreement that modified the Manitowoc lease to monthly payments
of $34,071 and decrease the term to March 2025. The agreement does not contain a renewal option. Accordingly, we modified our Right of
Use Assets and Operating Lease Liabilities by $737,680 at June 30, 2020.
Consolidated
lease expense for the three months ended June 30, 2021 and 2020 was $273,296
and $184,769,
respectively, including $263,197
and $176,673
of respective operating lease expense and $10,099
and $8,096
of respective other lease associated expenses
such as association dues, taxes, utilities, and other month to month rentals.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
weighted average remaining lease term and weighted average discount rate for operating leases were 3.0 years and 10.0%, respectively.
Futures
minimum lease payments under non-cancellable leases as of June 30, 2021 are as follows:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES
Years Ended March 31,
|
|
|
|
2022 (1)
|
|
$
|
905,641
|
|
2023
|
|
|
1,018,689
|
|
2024
|
|
|
873,420
|
|
2025
|
|
|
472,306
|
|
2026
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total lease payments
|
|
|
3,270,056
|
|
Less: Amount Representing Interest
|
|
|
(463,465
|
)
|
Present value of lease
liabilities
|
|
$
|
2,806,591
|
|
|
(1)
|
This
amount represents future lease payments for the remaining nine months of fiscal year 2022. It does not include any lease payments
for the three months ended June 30, 2021.
|
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – NOTES PAYABLE –
RELATED PARTY
For
the three months ended June 30, 2021, the Company made $150,755 in principal payments in connection with the Amended Note B, an
amended related party note payable with Jagemann Stamping Company (“JSC”). We entered to the Amended Note B with JSC on November
4, 2020 and the note matures on June 26, 2023. We recognized $33,141 in interest expenses for the three months ended June 30, 2021.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CAPITAL STOCK
During
the three month period ended June 30, 2021, we issued 19,946,799
shares of common stock as follows:
|
●
|
18,500,000
shares were issued in connection with our merger of Gemini Direct Investments, LLC valued at $132,645,000
|
|
●
|
219,144
shares were issued to investors for exercised warrants valued for $477,811
|
|
●
|
275,155
shares were issued for cashless exercise of 340,841 warrants
|
|
●
|
750,000
shares valued at $1,500,000 were issued for
services provided to the Company
|
|
●
|
202,500
shares valued at $699,500 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation
|
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At
June 30, 2021, outstanding and exercisable stock purchase warrants consisted of the following:
SCHEDULE
OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
|
|
Number of
Shares
|
|
|
Weighted Averaged
Exercise Price
|
|
|
Weighted
Average Life
Remaining
(Years)
|
|
Outstanding at March 31, 2021
|
|
|
3,607,945
|
|
|
$
|
2.31
|
|
|
|
3.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(559,985
|
)
|
|
|
1.91
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2021
|
|
|
3,047,960
|
|
|
$
|
2.39
|
|
|
|
2.92
|
|
Exercisable at June 30, 2021
|
|
|
3,047,960
|
|
|
$
|
2.39
|
|
|
|
2.92
|
|
As
of June 30, 2021, we had 3,047,960 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our
Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 2,730 shares of Common Stock
at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 1,934,414 shares of our Common Stock at an exercise
price of $2.00 per share consisting of 71% of the warrants until April 2023, 31% until August 2024, and 69% until February 2026; (3)
warrants to purchase 564,029 shares of Common Stock at an exercise price of $2.40 until September 2024; (4) warrants to purchase 396,787
shares of Common Stock at an exercise price of $2.63 until November 2025, and (5) warrants to purchase 150,000 shares of Common Stock
at an exercise price of $6.72 until February 2024.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – PREFERRED STOCK
On
May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary
of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications,
terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The
Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”),
as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, ranks:
(1) senior to all classes or series of Common Stock and to all other capital stock issued by the Company expressly designated as ranking
junior to the Series A Preferred Stock; (2) on parity with any future class or series of the Company’s capital stock expressly
designated as ranking on parity with the Series A Preferred Stock; (3) junior to any future class or series of the Company’s capital
stock expressly designated as ranking senior to the Series A Preferred Stock; and (4) junior to all the Company’s existing and
future indebtedness.
The
Series A Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. In the event of the voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares the Series A Preferred Stock
are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders (i.e., after
satisfaction of all the Company’s liabilities to creditors, if any) an amount equal to $25.00 per share of the Series A Preferred
Stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment before any distribution or payment may be
made to holders of shares of Common Stock or any other class of or series of the Corporation’s capital stock ranking, as to rights
to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up, junior to the Series A Preferred
Stock.
The
Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly
authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series
A Preferred Stock will accrue on the stated amount of $25.00 per share of the Series A Preferred Stock at a rate per annum equal to 8.75%
(equivalent to $2.1875 per year), payable quarterly in arrears. Dividends on the Series A Preferred Stock declared by our board of directors
(or a duly authorized committee of our board of directors) will be payable quarterly in arrears on March 15, June 15, September 15 and
December 15.
Generally,
the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event
(each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for
a limited period of time.
On
May 19, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative
of several underwriters (collectively, the “Underwriters”), relating to a firm commitment public offering of 1,097,200 newly
issued shares of our 8.75% Series A Preferred Stock at a
public offering price of $25.00 per share. Under the terms of the Underwriting Agreement, we granted the Underwriters a 45-day option
to purchase up to an additional 164,580 shares of Series A Preferred Stock from us. The gross proceeds to us from the sale of 1,097,200
shares of Series A Preferred Stock, before deducting underwriting discounts and commissions and estimated offering expenses payable by
us, was $27,430,000. The closing of the offering took place on May 21, 2021.
On
May 25, 2021, we entered into an additional underwriting agreement with Alexander Capital, L.P. relating to a firm commitment public
offering of 138,220 newly issued shares of our Series A Preferred Stock at a public offering price of $25.00 per share. The closing of
the offering took place on May 27, 2021. The gross proceeds to us from the sale of 138,220 shares of Series A Preferred Stock, before
deducting underwriting discounts and commissions and estimated offering expenses payable by us, were $3,455,500. Additionally, the Underwriters
exercised its previously announced over-allotment option to purchase 164,580 shares of Series A Preferred Stock pursuant to that certain
Underwriting Agreement dated May 19, 2021, by and between us and Alexander Capital, L.P., as representative of the several underwriters
identified therein. We closed the exercise of the over-allotment option on May 27, 2021. The gross proceeds from the exercise of the
over-allotment option were $4,114,500, before deducting underwriting discounts and commissions.
Preferred
dividends accumulated as of June 30, 2021 were $337,745.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 - ACQUISITION
Gemini
Direct Investments, LLC
On
April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”),
by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company
(“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan,
an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary
of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s
ownership of the Gunbroker.com business. Gunbroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and
related products. The Merger was completed on the Effective Date.
In
consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i)
the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $50,000,000 (the “Assumed
Indebtedness”); and, (ii) the issued and outstanding membership interests in Gemini (the “Membership Interests”), held
by the Seller, automatically converted into the right to receive (A) $50,000,000 (the “Cash Consideration”), and (B) 20,000,000
shares of common stock of the Company, $0.001 par value per share (the “Stock Consideration”).
In
connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) 14,500,000 shares
issued without being held in escrow or requiring prior stockholder approval; (b) 4,000,000 shares issued subject to the Pledge and Escrow
Agreement; and (c) 1,500,000 shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the
“Additional Securities”).
The
total estimated consideration consisted of cash payment of $50,000,000
less $1,350,046
of acquired cash, a working capital adjustment
of $2,000,000,
debt assumption and repayment upon closing of $50,000,000,
contingent consideration of $10,755,000
for 1,500,000
Additional Securities,
and 18,500,000
shares of AMMO Inc. Common Stock. The shares
were valued at $7.17
per share, the five-day average closing price
of the Company’s Common Stock immediately preceding the signing of the binding agreement.
In
accordance with the acquisition method of accounting for business combinations, the assets acquired, and the liabilities assumed have
been recorded at their respective fair values. The consideration in excess of the fair values of assets acquired, and liabilities assumed
are recorded as goodwill.
The
preliminary fair value of the consideration transferred was valued as of the date of the acquisition as follows:
SCHEDULE
OF FAIR VALUE OF CONSIDERATION TRANSFERRED
|
|
|
|
|
Cash
|
|
$
|
48,649,954
|
|
Estimated working capital adjustment
|
|
|
2,000,000
|
|
Contingent consideration
|
|
|
10,755,000
|
|
Common stock
|
|
|
132,645,000
|
|
Assumed debt
|
|
|
50,000,000
|
|
|
|
|
|
|
Fair Value of Patent
|
|
$
|
244,049,954
|
|
The
preliminary allocation for the consideration recorded for the acquisition is as follows:
SCHEDULE
OF ALLOCATION FOR CONSIDERATION
|
|
|
|
|
Accounts receivable, net
|
|
$
|
17,002,362
|
|
Prepaid expenses
|
|
|
478,963
|
|
Equipment
|
|
|
1,051,980
|
|
Deposits
|
|
|
703,389
|
|
Intangible assets
|
|
|
146,617,380
|
|
Goodwill
|
|
|
90,999,208
|
|
Right of use assets - operating leases
|
|
|
612,727
|
|
Accounts payable
|
|
|
(12,514,919
|
)
|
Accrued expenses
|
|
|
(196,780
|
)
|
Operating lease liability
|
|
|
(704,356
|
)
|
|
|
|
|
|
Total Consideration
|
|
$
|
244,049,954
|
|
|
(1)
|
Preliminary
estimate of Other Intangible Assets and Goodwill. Other intangible assets to consist of Tradenames, Customer Relationships, Intellectual
Property, and other tangible assets related to the acquired business.
|
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We recorded approximately
$1.3 million in transaction costs in the three months ended June 30, 2021.
The
purchase price allocation is preliminary. The preliminary estimated fair value recorded for the acquired assets and liabilities assumed
with excess consideration recorded as goodwill represent management’s estimate of fair value and are subject to change when additional
information, such as post-close working capital adjustments and valuations become available. The purchase price allocation will continue
to be preliminary until the Company is able to finalize the allocation. The Company expects to finalize the purchase price allocation
within the measurement period, but not more than one year following the closing date of the Merger. The final amounts from the
valuation may significantly and materially differ from the preliminary allocation herein.
Unaudited Pro Forma Results of Operations
This
pro forma results of operations gives effect to the acquisition as if it had occurred April 1, 2021. Material pro forma adjustments include
the removal of approximately $1.8 million of interest expenses and debt discount amortization and the addition of approximately $0.9
million depreciation and amortization expenses.
SCHEDULE
OF UNAUDITED PRO FORMA RESULTS OF OPERATIONS
|
|
2021
|
|
INCOME STATEMENT DATA
|
|
For the Three Months Ended
June 30, 2021
|
|
|
|
|
|
Net revenues
|
|
$
|
52,521,753
|
|
Net income
|
|
$
|
14,083,148
|
|
NOTE 13 – GOODWILL AND INTANGIBLE ASSETS
In the current period, we
recorded $90,999,208 of Goodwill generated from our Merger with Gemini.
Amortization
expenses related to our intangible assets for the three months ended June 30, 2021 and 2020 were $2,521,517 and $492,948, respectively.
SCHEDULE OF INTANGIBLE ASSETS
|
|
|
|
|
June 30,
2021
|
|
|
|
Life
|
|
|
Licenses
|
|
|
Patent
|
|
|
Other Intangible Assets
|
|
Licensing Agreement – Jesse James
|
|
|
5
|
|
|
$
|
125,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Licensing Agreement – Jeff Rann
|
|
|
5
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
-
|
|
Streak Visual Ammunition patent
|
|
|
11.2
|
|
|
|
-
|
|
|
|
950,000
|
|
|
|
-
|
|
SWK patent acquisition
|
|
|
15
|
|
|
|
-
|
|
|
|
6,124,005
|
|
|
|
-
|
|
Jagemann Munition Components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,450,613
|
|
Intellectual Property
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,543,548
|
|
Tradename
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,152,076
|
|
GDI Acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,532,389
|
|
Customer List
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,252,802
|
|
Intellectual Property
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,224,442
|
|
Other Intangible Assets
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
607,747
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
7,074,005
|
|
|
|
151,763,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization – Licensing Agreements
|
|
|
|
|
|
|
(220,833
|
)
|
|
|
-
|
|
|
|
-
|
|
Accumulated amortization – Patents
|
|
|
|
|
|
|
-
|
|
|
|
(1,177,772
|
)
|
|
|
-
|
|
Accumulated amortization – Intangible Assets
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,310,962
|
)
|
|
|
|
|
|
|
$
|
29,167
|
|
|
$
|
5,896,233
|
|
|
$
|
146,452,655
|
|
Annual amortization of intangible assets for the next
five fiscal years are as follows:
SCHEDULE OF ANNUAL AMORTIZATION OF INTANGIBLE ASSETS
Years Ended March 31,
|
|
Estimates for
Fiscal Year
|
|
2022 (1)
|
|
$
|
10,659,051
|
|
2023
|
|
|
13,095,215
|
|
2024
|
|
|
12,966,879
|
|
2025
|
|
|
12,664,775
|
|
2026
|
|
|
12,674,904
|
|
Thereafter
|
|
|
90,317,231
|
|
Annual amortization of
intangible assets
|
|
$
|
157,378,055
|
|
(1)
|
This amount represents
future amortization for the remaining nine months of fiscal year 2022. It does not include any amortization for the three months
ended June 30, 2021.
|
NOTE
14 – SEGMENTS
On
April 30, 2021, the Company entered into an agreement and plan of merger with SpeedLight Group I, LLC, which, along with its subsidiaries,
engages primarily in the operation of an online marketplace dedicated to firearms, hunting, shooting and related products. As a result,
at June 30, 2021, our chief operating decision maker, our Chief Executive Officer, reviews financial performance based on two operating
segments as follows:
|
●
|
Ammunition–
which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition
and ammunition component products.
|
|
●
|
Marketplace
– which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of
firearms, ammunition and hunting/shooting accessories.
|
Ammunition
generated approximately 72% of our revenue in the three months ended June 30, 2021, while Marketplace generated approximately 77% of
our operating income in the three months ended June 30, 2021.The following tables set forth certain financial information utilized by
management to evaluate our operating segments for the interim period presented:
SCHEDULE OF OPERATING SEGMENTS
|
|
Ammunition
|
|
|
Marketplace
|
|
|
Total
|
|
|
|
For the Three Months Ended June 30, 2021
|
|
|
|
Ammunition
|
|
|
Marketplace
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
32,204,266
|
|
|
$
|
12,272,066
|
|
|
$
|
44,476,332
|
|
Cost of Revenues
|
|
|
23,848,248
|
|
|
|
1,657,190
|
|
|
|
25,505,438
|
|
General and administrative expense
|
|
|
5,676,755
|
|
|
|
1,002,564
|
|
|
|
6,679,319
|
|
Depreciation and amortization
|
|
|
420,242
|
|
|
|
2,190,819
|
|
|
|
2,611,061
|
|
Operating Income
|
|
$
|
2,259,021
|
|
|
$
|
7,421,493
|
|
|
$
|
9,680,514
|
|
NOTE
15 – INCOME TAXES
As
of June 30, 2021, we had net operating loss carryforwards of approximately $22
million which will expire beginning at the end
of 2036. A valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have future taxable
income.
The
Company’s effective tax rates were 0% and 0% for the three months ended June 30, 2021 and 2020, respectively. During the three
months ended June 30, 2021 and 2020, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change
in the valuation allowance.
The
Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March
31, 2018, 2019, 2020, and 2021 are subject to audit.
Furthermore,
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act
was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility
of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods.
NOTE
16 – SUBSEQUENT EVENTS
From July 1, 2021 to
August 13, 2021, we issued 57,692 shares of Common Stock pursuant to warrant exercises at per share prices ranging from $2.40 to
$2.63 for an aggregate value of $137,234. Additionally, 1,752 shares of Common Stock were issued pursuant to the cashless exercise
of 2,269 warrants.
Subsequent to June 30, 2021,
the Company issued 47,250 shares of Common Stock to employees for a total value of $165,375.