NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
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.
NOTE
2 – GOING CONCERN
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $14,556,680 and $11,709,412
for the years ended March 31, 2020 and 2019, respectively. Net cash used in operating activities was $5,359,435 and $7,295,007
for the years ended March 31, 2020 and 2019, respectively.
The
Company anticipates that it will record losses from operations for the foreseeable future. As of March 31, 2020, the Company’s
accumulated deficit was $34,007,245. The Company has limited capital resources, and operations to date have been funded with
the proceeds from equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going
concern for the period ended a year from the date the financial statements are issued.
The
Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts.
There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or
conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure
our operations, and divest all or a portion of our business. We may seek additional capital through a combination of equity
offerings, and debt financings. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our
assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders
and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms,
or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities
or file for bankruptcy and our operations and financial condition may be materially adversely affected. See Note 16 for additional
equity and debt proceeds received subsequent to March 31, 2020.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, Enlight Group II, LLC
(d/b/a Jagemann Munition Components), SNI, LLC, AMMO Munitions, Inc. and AMMO Technologies, Inc. (inactive). 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. Significant estimates made in preparing the 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.
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, 2020 and March 31, 2019
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 March
31, 2020 and March 31, 2019, we reserved $62,248 and $129,365, 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 years ended March 31, 2020 and 2019 was $50,000.
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. Under the terms of the Merger, we 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 for the years
ended March 31, 2020 and 2019 were $85,075 and $85,074, 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, 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
years ended March 31, 2020 and 2019, the Company accrued $43,222 and $33,920 respectively under this agreement.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
In
August 2018, we applied for additional patent coverage for the manufacturing methods or application of the Hybrid Luminescence
Ammunition Technology on a variety of projectile and ammunition types. The costs of filing this patent were expensed.
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. Under the terms of the agreement, we 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. The Company has made four payments totaling $350,000
for the completion of specific milestones to the shareholders of SW Kenetics, Inc.
The
primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were
assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
Patent amortization expense for the years ended March 31, 2020 was $341,320. There was no amortization expense for the patent
in the year ended March 31, 2019 as the patent had not been placed in service.
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 (See Note 11). The intangible assets acquired include a tradename,
customer relationships, and intellectual property. For the years ended March 31, 2020 and 2019, amortization of the other intangibles
assets was $1,435,030 and $61,803, respectively recognized in depreciation and amortization expense.
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 years ended March 31, 2020 and March 31, 2019.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains
control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in
exchange for those goods and services. The Company applies 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 CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
The
Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to
in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined
to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are
performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance
obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount
of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied
or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’s product,
which typically occurs upon shipment of the product. In the current period, the Company began accepting contract liabilities or
deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The Company will recognize revenue when the performance
obligation is met.
For
the years ended March 31, 2020 and 2019, the Company’s customers that comprised more than ten percent (10%) of total revenues
and accounts receivable were as follows :
|
|
|
For
the Year Ended
March 31, 2020
|
|
|
For
the Year Ended
March 31, 2019
|
|
PERCENTAGES
|
|
|
|
Revenues
|
|
|
|
Accounts
Receivable
|
|
|
|
Revenues
|
|
|
|
Accounts
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
|
19.1
|
%
|
|
|
26.5
|
%
|
|
|
10.0
|
%
|
|
|
-
|
|
B
|
|
|
|
13.3
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
19.0
|
%
|
C
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24.6
|
%
|
|
|
29.4
|
%
|
D
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19.1
|
%
|
|
|
-
|
|
|
|
|
|
32.4
|
%
|
|
|
26.5
|
%
|
|
|
53.7
|
%
|
|
|
48.4
|
%
|
Disaggregated
Revenue Information
The
following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product
types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product
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 type.
|
|
For
the Year Ended
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Ammunition Sales
|
|
$
|
6,591,196
|
|
|
$
|
3,985,574
|
|
Ammunition
Casings Sales
|
|
|
8,189,169
|
|
|
|
580,078
|
|
Total Sales
|
|
$
|
14,780,365
|
|
|
$
|
4,565,652
|
|
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.
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 adopted ASU 2014-09 as of April 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, 2020.
Sales
are initiated in three ways –
|
●
|
third party sales
representative obtains signed purchase order from a customer
|
|
●
|
direct contact by
in-house sales representatives who obtains signed purchase order
|
|
●
|
electronic purchase
order from a customer (usually the very large customers)
|
Once
a customer’s order is received a sales order is generated by authorized sales or management personnel. Once approved for
shipping, the sales order is entered, 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, 2020, 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”.
Advertising
Costs
We
expense advertising costs as they are incurred. We incurred advertising of $563,968 and $554,266 for the years ended March 31,
2020 and 2019, 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;
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
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 the reduction in conversion price for the conversion of Convertible Promissory Notes at the grant date
of March 31, 2019 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.
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
-
|
|
|
|
2.39
|
%
|
Expected volatility
|
|
|
-
|
|
|
|
45
|
%
|
Expected term
|
|
|
-
|
|
|
|
2.5
years
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Equipment
acquired in the March 15, 2019 acquisition of the Jagemann Casings was valued at fair value on the acquisition date by using the
cost and market valuation approaches.
|
|
Quoted
Active
Markets
for
Identified
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Total
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued for convertible promissory notes
|
|
$
|
-
|
|
|
$
|
358,800
|
|
|
$
|
-
|
|
|
$
|
358,800
|
|
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 CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
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.
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with ASC 718. There were 660,499 shares of common stock issued
to employees, members of the Board of Directors, and members of the Advisory Committee for services during the year ended March
31, 2020.
On
May 1, 2018, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, 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.
From
September 2018 through March 2019, we entered into four separate employment agreements that included in total, among other provisions,
equity grants of 325,000 shares of restricted common stock that vests annually over the next four years. The total compensation
value of $752,000 is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of March 31, 2020, our
bank account balances exceeded federally insured limits.
Income
Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income
taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC
740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected
to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized,
a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those
positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is
greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change
in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal
to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.
Furthermore,
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES
Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations
on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net
operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer
payroll taxes and evaluating potential employee retention credits.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
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. 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 March 31, 2020. There were no known contingencies at March 31, 2019.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
Recent
Accounting Pronouncements
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 adopted Topic 842 as of April 1, 2019 and this resulted in an increase in assets and liabilities
on our consolidated balance sheets related to recording a Right of Use Asset of $3,771,873 and corresponding Operating Lease Liability
of $3,812,886. As a result of the adoption there was no material impact to our Consolidated Statement of Operations. See Note
7 for more information.
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 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 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.
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which replaces the
current incurred loss impairment methodology for most financial assets with the current expected credit loss (“CECL”)
methodology. The series of new guidance amends the impairment model by requiring entities to use a forward-looking
approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments,
including trade receivables. he guidance should be applied on either a prospective transition or modified-retrospective approach
depending on the subtopic. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods
within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that the new guidance
will have on its consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new
guidance is intended to enhance and simplify various aspects of the accounting for income taxes. The new guidance eliminates certain
exceptions to the general approach to the income tax accounting model, and adds new guidance to reduce the complexity in accounting
for income taxes. The guidance will be effective for fiscal years beginning after December 15, 2020 and interim periods within
those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period for public business
entities for periods for which financial statements have not yet been issued. The Company is currently evaluating the impact that
the new guidance will have on the consolidated 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 8,504,372 shares of common stock. All weighted average numbers were adjusted
for the reverse stock split and merger transaction. Due to the loss from operations in the years ended March 31, 2020 and 2019,
there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive. The Company
excluded warrants of 8,504,372 and 8,143,115 for the years ended March 31, 2020 and 2019, respectively, from the weighted average
diluted common shares outstanding because their inclusion would have been antidilutive.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
NOTE
4 – INVENTORIES
At
March 31, 2020 and March 31, 2019, the inventory balances are composed of:
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Finished product
|
|
$
|
1,916,417
|
|
|
$
|
2,628,241
|
|
Raw materials
|
|
|
1,771,006
|
|
|
|
1,635,130
|
|
Work in process
|
|
|
720,650
|
|
|
|
509,226
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,408,073
|
|
|
$
|
4,772,597
|
|
NOTE
5 – PROPERTY AND EQUIPMENT
We
state property and equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line
method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years.
Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation
from the accounts and any resulting gain or loss is credited or charged to selling, general, and administrative expenses. 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, 2020 and March 31, 2019:
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Leasehold
Improvements
|
|
$
|
118,222
|
|
|
$
|
98,444
|
|
Furniture and
Fixtures
|
|
|
87,790
|
|
|
|
154,777
|
|
Vehicles
|
|
|
103,511
|
|
|
|
103,511
|
|
Equipment
|
|
|
19,578,035
|
|
|
|
18,689,140
|
|
Tooling
|
|
|
126,190
|
|
|
|
117,390
|
|
Construction
in Progress
|
|
|
1,903,262
|
|
|
|
3,352,669
|
|
Total property and equipment
|
|
$
|
21,107,010
|
|
|
$
|
22,515,931
|
|
Less accumulated depreciation
|
|
|
(3,060,681
|
)
|
|
|
(516,144
|
)
|
Net property and equipment
|
|
|
18,046,329
|
|
|
|
21,999,787
|
|
Depreciation
Expense for the years ended March 31, 2020 and 2019 totaled $2,544,537 and $402,986, respectively. Of these totals $2,380,076
and $386,589 were included in cost of goods sold for the years ending March 31, 2020 and 2019. Additionally, $164,461 and $96,302
were included in depreciation and amortization expenses in operating expenses.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
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 March 31, 2020, the outstanding balance of the Factoring Liability was $2,005,979. Interest expense recognized
on the Factoring Liability was $153,663, including $75,000 of amortization of the commitment fee. Subsequent to March 31, 2020,
this agreement was amended and restated extending the term of this facility to June 17, 2022.
NOTE
7 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ and Manitowoc, 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, and the Manitowoc
lease has an option to renew for the three years. As of March 31, 2020, we are fairly certain that we will exercise the renewal
options on both leases, and we have included such renewal options in the lease liabilities and the disclosures herein. The Scottsdale
lease does not include a renewal option.
As
of March 31, 2020, total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $3,431,746 and $3,483,724,
respectively. The current portion of our Operating Lease Liability is $375,813 and is reported as a current liability. The remaining
$3,107,911 of the total $3,483,724 Operating Lease Liability is presented as a long-term liability net of the current portion.
Consolidated
lease expense for the year ended March 31, 2020 was $836,665 including $706,692 of operating lease expense and $129,973 of other
lease associated expenses such as association dues, taxes, utilities, and other month to month rentals. Total lease and rent expense
for the year ended March 31, 2019 was $272,700.
The
weighted average remaining lease term and weighted average discount rate for operating leases were 7.8 years and 10.0%, respectively.
Future
minimum lease payments under non-cancellable leases as of March 31, 2020 are as follows:
Years
Ended March 31,
|
|
|
|
2021
|
|
|
707,391
|
|
2022
|
|
|
717,387
|
|
2023
|
|
|
727,384
|
|
2024
|
|
|
670,112
|
|
Thereafter
|
|
|
2,168,932
|
|
|
|
|
4,991,206
|
|
Less:
Amount Representing Interest
|
|
|
(1,507,482
|
)
|
|
|
$
|
3,483,724
|
|
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 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, 2020:
|
|
2021
|
|
|
2022
|
|
|
Total
|
|
Payson
Lease
|
|
$
|
120,000
|
|
|
$
|
80,000
|
|
|
$
|
200,000
|
|
Our
executive offices are located in Scottsdale, Arizona where we lease 21,000 square feet of office and warehouse space for $17,702,
which will increase by approximately 4.4% each year. This space houses our principal executive, administration, marketing, and
research and development functions. The lease expires in December of 2023.
The
following table outlines our future contractual financial obligations associated with this lease by fiscal period in which payment
is expected, as of March 31, 2020:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Total
|
|
Scottsdale
Lease
|
|
$
|
226,587
|
|
|
$
|
236,583
|
|
|
$
|
246,580
|
|
|
$
|
147,240
|
|
|
$
|
856,990
|
|
Our
ammunition casing operations are located in Manitowoc, Wisconsin where we lease approximately 50,000 square feet. The terms of
the lease provide for a monthly payment of approximately $32,844. The lease expires in March of 2026 and can be renewed every
three years thereafter.
The
following table outlines our future contractual financial obligations associated with this lease by fiscal period in which payment
is expected, as of March 31, 2020:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
Total
|
|
Manitowoc Lease
|
|
$
|
394,128
|
|
|
$
|
394,128
|
|
|
$
|
394,128
|
|
|
$
|
394,128
|
|
|
$
|
394,128
|
|
|
$
|
394,128
|
|
|
$
|
2,364,768
|
|
Additional
offices were located in Scottsdale, Arizona where we leased approximately 5,000 square feet under a month-to-month triple net
lease for $3,800 per month. This office building was owned by a related party.
NOTE
8 – CONVERTIBLE PROMISSORY NOTES
On
January 9, 2019, we completed the issuance of 10% Convertible Promissory Notes in the principal amount of $1,710,000 to accredited
investors through a private placement in exchange for cash in an equal amount. The principal amounts were raised from the period
of October 23, 2018 to December 28, 2018. As a result of the issuance of the Convertible Promissory Notes, the placement agent
received an aggregate commission of $171,000, and $5,000 in escrow fees were paid, totaling $176,000 of Note Issuance Costs.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
The
Maturity Date of the notes is the two year anniversary from the date of issuance. The holders have the option to convert the entire
principal of the Convertible Promissory Note into Common Stock at a conversion price equal to $2.50 per share at any time until
the Maturity Date, subject to “Qualified Financing.” Qualified Financing means the next equity round of financing
of the Company that raises not less than $10,000,000 gross proceeds from institutional(s) or commercial lender(s) in the aggregate
with any combination of Common Stock (valued at the close of the Trading Day on the date of the closing for the financing) or
debt. In the event of Qualified Financing, the Convertible Promissory Notes will automatically convert 100% of the principal amount
into Common Stock at a conversion price equal to $2.50 per share. As of March 31, 2019, we accrued $65,291 of interest expense
related to the Convertible Promissory Notes.
On
February 28, 2019, the company notified the holders of an offer to convert Convertible Promissory Notes and Accrued Interest into
Common Stock at a conversion price of $2.00 per share and receive one-half warrant exercisable at $2.40 per share for five years
in conjunction with each converted share On March 29, 2019, the Company converted $1,410,000 of Convertible Promissory Notes and
$52,065 of Accrued Interest into 731,039 shares of Common Stock and issued Warrants to purchase 365,523 shares of Common Stock.
The offer ended on March 29, 2019 at 11:59 PM. As a result of the conversion of the Convertible Promissory Notes, the Company
accrued $42,300 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company.
Additionally, $118,351 of Unamortized Note Issuance Costs were amortized and $358,800 of Interest Expenses related to the reduction
in conversion price were recognized as result of the conversions.
The
holders that did not elect to convert their notes during this period have the option to convert their entire principal of the
Convertible Promissory Note into Common Stock per the terms of the original agreement.
As
of March 31, 2019, there was $300,000 in principal remaining and $24,144 of Unamortized Note Issuance Costs.
On
June 5, 2019, the remaining $300,000 of Convertible Promissory Notes were mandatorily converted into shares of our common stock
pursuant to the terms of the Note. The Company converted $300,000 of Convertible Promissory Notes and $18,226 of Accrued Interest
were converted into 127,291 shares of Common Stock at a conversion price of $2.50. The Company accrued $9,000 for a 3% cash conversion
fee on the principal converted payable to the placement agent, Paulson Investment Company.
On
January 15, 2020, the Company consummated the initial closing of a private placement offering whereby pursuant to the Subscription
Agreements entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes
for an aggregate purchase price of $1,650,000 and five (5) year warrants to purchase shares of the Company’s common stock,
par value $0.001 per share (“Common Stock”).
On
January 30, 2020, the Company consummated the final closing of a private placement whereby pursuant to the Subscription Agreements
entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes for an
aggregate purchase price of $850,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value
$0.001 per share.
The
Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 and October 30, 2020. Additionally, the Notes contain
a mandatory conversion mechanism whereby any principal and accrued interest on the Notes, upon the closing of a Qualified Financing
(as defined in the Notes), converts into shares of the Company’s Common Stock at a conversion price of 66.7% of the per
share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before
the Maturity Date, the Notes shall become convertible into shares of the Company’s Common Stock at a conversion price that
is equal to 50.0% of the arithmetic mean of the VWAP in the ten consecutive Trading Days immediately preceding the Maturity Date.
The Notes contain customary events of default. If an Event of Default occurs, interest under the Notes will accrue at a rate of
fifteen percent (15%) per annum and the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated
damages and other amounts owing with respect to the Notes will become, at the Note holder’s election, immediately due and
payable in cash.
The
Company analyzed embedded conversion options of the convertible notes at issuance to determine whether the embedded conversion
options should be bifurcated and accounted for as derivative liabilities or if the embedded conversion options contain a beneficial
conversion feature. The Company notes that this determination must be performed at each balance sheet date and makes it possible
for certain instruments to be reclassified between debt and equity at different points in their life. The Company determined that
it will defer recognition of its accounting until such notes become convertible. Additionally, the Company determined that the
embedded conversion options do not require bifurcation and treatment as derivative liabilities, but they included contingent beneficial
conversion features that are indeterminable on the commitment date. The Company notes the embedded conversion options will be
accounted for and recognized, if necessary, when the contingencies are resolved (the date of a Qualified Financing or during the
10 days prior to the Maturity Date). Through March 31, 2020, a Qualified Financing had not occurred and the Note is not yet convertible
under the Voluntary Conversion Option and, as a result, the contingencies have not been resolved, such that the Company concluded
that no measurement or recognition of the beneficial conversion feature was required as of March 31, 2020.
Pursuant
to the Subscription Agreements, each Investor will receive the number of Warrants to purchase shares of Common Stock equal to
the quotient obtained by dividing 50% of the principal amount of the Note by the Conversion Price of the Note. The Warrants are
exercisable at the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has
not occurred on or before the Maturity Date, the warrants shall become exercisable at a price per share that is equal to the closing
ten-day VWAP in the ten trading days immediately preceding the Maturity Date (the “Exercise Price”). The Warrants
contain an anti-dilution protection feature, to adjust the Exercise Price if shares are sold or issued for a consideration per
share less than the exercise price then in effect.
Joseph
Gunnar & Co., LLC acted as placement agent for the Offering. The Placement Agent received cash compensation of $200,000 and
is scheduled to be issued five (5) year warrants to purchase such number of shares of Common Stock equal to five percent (5%)
of the shares underlying the Notes and the Warrants, at an exercise price equal to 125% of the Conversion Price of the Notes,
which price shall not be known until the earlier of the Maturity Date or the closing of the Qualified Financing.
As
of March 31, 2020, the key terms of the investor and placement agent warrants are still unknown such that there is still no grant
of the warrants for accounting purposes. The Company will determine the fair value of the warrants at the time the key terms of
the Warrants become known and the Warrants are issued.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
NOTE
9 – NOTES PAYABLE – RELATED PARTY
In
connection with the acquisition of the casing division of Jagemann Stamping Company, a $10,400,000 promissory note was executed
on March 14, 2020. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition,
had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently
extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly. In May of 2019,
the Company paid $1,500,000 on the balance of the note. As of March 31, 2020, we recognized interest of $352,157 related to the
note. The note is secured by all the equipment purchased from Jagemann Stamping Company.
Post-closing
of the transaction, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was
not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory
note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Equipment
for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded
an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated
amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were
originally to be transferred.
Subsequent
to March 31, 2020, the Company, Enlight and JSC entered into a Settlement Agreement pursuant to which the parties mutually agreed
to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26,
2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory
notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, both with a maturity
date of August 15, 2021, (ii) general business security agreements granting JSC a security interest in all personal property of
the Company. Pursuant to the Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the
Notes have a mandatory prepayment provision that comes into effect if the Company conducts a publicly registered offering. Pursuant
to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser
of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and
(b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then
aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the
Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as
there are no defaults under the Settlement Agreement.
On
May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate
was the applicable LIBOR Rate. The promissory note has since been amended and the balance at March 31, 2020 was $278,195. The
note’s original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at
1.25% per month. The Company made $315,000 in principal payments in the year ended March 31, 2020. We have accrued interest on
the note of $9,080. Subsequent to March 31, 2020, the related party note and accrued interest was paid in full.
In
December of 2019, the Company entered into a Promissory Note of $90,000 with Fred Wagenhals, the Company’s Chief Executive
Officer and Chairman of the Board of Directors. The Note originally matured on June 12, 2020 and had an interest rate at the applicable
LIBOR Rate. The promissory note has since been amended and the balance at March 31, 2020 was $156,536 and the amended maturity
date is September 18, 2020. The Company made $70,000 in principal payments in the year ended March 31, 2020. The amended note
bears interest at 1.25% per month. We have accrued interest on the note of $1,287. Subsequent to March 31, 2020, the related party
note and accrued interest was paid in full.
NOTE
10 – CAPITAL STOCK
Our
authorized capital consists of 200,000,000 shares of common stock with a par value of $0.001 per share.
During
the year ended March 31, 2019, we issued 15,618,572 shares of common stock as follows:
|
●
|
5,796,336
shares were sold to investors for $10,903,930
|
|
|
|
|
●
|
1,972,800
shares were issued through exercised warrants of $4,767,625
|
|
|
|
|
●
|
10,495
shares were issued through a cashless exercise of 14,719 warrants
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
|
●
|
702,500
shares valued at $1,172,974 were issued to employees, members of the Board of Directors, and members of the Advisory Committee
as compensation
|
|
|
|
|
●
|
5,000
shares were issued for services valued at $22,350
|
|
|
|
|
●
|
1,700,002
shares were issued to the shareholders of SW Kenetics, Inc. (subject to claw back provisions) valued $4,624,005 in connection
with the acquisition
|
|
|
|
|
●
|
4,750,000
shares were issued to Jagemann Stamping Company valued at $9,500,000 in connection with the acquisition of Jagemann Casings
|
|
|
|
|
●
|
731,039
shares were issued for the conversion of Convertible Promissory Notes valued at $1,820,865
|
|
|
|
|
●
|
49,600
shares were purchased by the Company for a price of $124,000
|
During
the year ended March 31, 2020, we issued 1,893,502 shares of common stock as follows:
|
●
|
1,232,770
shares were sold to investors for $2,465,540
|
|
|
|
|
●
|
127,291
shares were issued for the conversion of Convertible Promissory Notes valued at $318,226
|
|
|
|
|
●
|
170,504
shares were issued for services valued at $352,300
|
|
|
|
|
●
|
660,499
shares valued at $901,526 were issued to employees, members of the Board of Directors, and members of the Advisory Committee
as compensation
|
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 for the transition period ended March 31,
2018. There are 85,000 shares remaining to be issued under the Plan.
In
March 2018, we entered into a second placement agent agreement for up to an additional $3,500,000. 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. 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.
In
April of 2018, our second placement agreement to secure equity capital from qualified investors to provide funds to our operations
ended. Units sold under this agreement during the year ended March 31, 2019 totaled 1,967,886 shares of common stock and 983,943
warrants for $3,247,030. The cash fee totaled $389,644 for the year ended March 31, 2019, including reimbursed expenses. We authorized
an additional 236,145 warrants to the placement agent under the terms of the agreement and issued a total of 981,213 warrants
to the placement agent for the two placement agent agreements.
In
December of 2019, we entered into a placement agreement to secure equity capital from qualified investors to provide funds to
our operations. The offering consisted of Units priced at $2.00, 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 $2.40 per share. Effectively, every two units purchased
provided the investor with a five-year warrant at an exercise price of $2.40 per share. Units sold under this agreement totaled
1,232,770 shares of common stock and 616,385 warrants for $2,465,540 for the year ended March 31, 2020.
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. The warrants totaling 553,346 have a term of five years and an exercise
price of $2.00 per share. The cash fee totaled $285,981 for the year ended March 31, 2020, including reimbursed expenses.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
At
March 31, 2020 and March 31, 2019, 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
|
|
|
$
|
2.23
|
|
|
|
2.97
|
|
Granted
|
|
|
4,233,274
|
|
|
|
2.23
|
|
|
|
4.62
|
|
Exercised
|
|
|
(1,987,519
|
)
|
|
|
2.41
|
|
|
|
-
|
|
Forfeited or
cancelled
|
|
|
(2,974,800
|
)
|
|
|
2.47
|
|
|
|
-
|
|
Outstanding at March 31, 2019
|
|
|
8,143,115
|
|
|
$
|
2.09
|
|
|
|
4.35
|
|
Exercisable at March 31, 2019
|
|
|
8,143,115
|
|
|
$
|
2.09
|
|
|
|
4.35
|
|
|
|
Number
of
Shares
|
|
|
Weighted
Averaged
Exercise
Price
|
|
|
Weighted
Average
Life
Remaining
(Years)
|
|
Outstanding
at March 31, 2019
|
|
|
8,143,115
|
|
|
$
|
2.09
|
|
|
|
4.35
|
|
Granted
|
|
|
710,317
|
|
|
|
2.35
|
|
|
|
4.18
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
(349,060
|
)
|
|
|
2.50
|
|
|
|
-
|
|
Outstanding
at March 31, 2020
|
|
|
8,504,372
|
|
|
$
|
2.10
|
|
|
|
3.60
|
|
Exercisable
at March 31, 2020
|
|
|
8,504,372
|
|
|
$
|
2.10
|
|
|
|
3.60
|
|
As
of March 31, 2020, we had 8,504,372 warrants outstanding. Each warrant provides the holder the right to purchase up to one share
of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 966,494 shares
of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 4,641,745 shares of our Common
Stock at an exercise price of $2.00 per share over the next three to five years; and (3) warrants to purchase 2,896,133 shares
of Common Stock at an exercise price of $2.40 over the next five years.
As
documented in Note 8, the Company is to issue warrants to the holders of the convertible notes and placement agent. As of March
31, 2020, the key terms of the investor and placement agent warrants are still unknown such that there is still no grant of the
warrants for accounting purposes. The Company will determine the fair value of the warrants at the time the key terms of the Warrants
become known and the Warrants are issued.
On
May 31, 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 31, 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.
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.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
NOTE
11 – ACQUISITIONS
SW
Kenetics, Inc.
On
September 27, 2018, AMMO Technologies, Inc. (“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 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 on August 20, 2018. The shares were each valued at $2.72, the weighted
average share price of our Common Stock that was publicly traded and sold through private placement. We recorded the total purchase
consideration to patents as follows:
Cash
|
|
$
|
250,000
|
|
Contingent Consideration Payable
|
|
|
1,250,000
|
|
Common Stock
|
|
|
1,700
|
|
Additional Paid-in
Capital
|
|
|
4,622,305
|
|
Fair Value of Patent
|
|
$
|
6,124,005
|
|
The
preliminary fair value of the patent at the date of acquisition was $7,723,166 and resulted in the recognition of gain on bargain
purchase of $1,599,161. The estimated fair value was determined using the relief from royalty approach. The valuation firm
relied on estimates of future sales and profitability provided by the Company. Subsequently, the Company determined the existing
facts and circumstances did not support the original fair value due to delays in obtaining tooling and manufacturing equipment.
As a result, at March 31, 2019, the Company adjusted the fair value of the patents from $7,723,166 to $6,124,005, with the difference
reducing the previously recognized gain on bargain purchase of $1,599,161.
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.
As
of March 31, 2020, the Company has made $350,000 in payments to SW Kenetics, Inc. in connection with the completion of a milestone.
The $350,000 payment reduced the Contingent Consideration Payable.
At
March 31, 2020, The Company reviewed the fair value of contingent consideration using a scenario based method with probability
included and determined the fair value was $709,623. An adjustment of $190,377 was recognized in corporate general and administrative
expenses.
Jagemann
Stamping Company’s Ammunition Casing Division
On
March 15, 2019, Enlight Group II, LLC (hereinafter referred to as the “Buyer”), a wholly owned subsidiary of AMMO,
Inc., completed its acquisition of selected assets of Jagemann Stamping Company’s (“Seller”) ammunition casing,
projectile manufacturing, and sales operations (“Jagemann Casings”) pursuant to the terms of the Amended and Restated
Asset Purchase Agreement (“Amended APA”) dated March 14, 2019.
In
accordance with the terms of the Amended APA, Buyer paid Seller a combination of $7,000,000 in cash, $10,400,000 delivered in
the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc., common stock valued at $2.00 per share.
The
fair value of the consideration transferred was valued as of the date of the acquisition as follows:
Cash
|
|
$
|
7,000,000
|
|
Note Payable
|
|
|
10,400,000
|
|
Common Stock
|
|
|
4,750
|
|
Additional Paid-in
Capital
|
|
|
9,495,250
|
|
Total Consideration
|
|
$
|
26,900,000
|
|
Total
allocation for the consideration recorded for the acquisition is as follows:
Equipment
|
|
$
|
18,869,541
|
|
Intellectual property
|
|
|
1,773,436
|
|
Customer relationships
|
|
|
1,666,774
|
|
Tradename
|
|
|
2,472,095
|
|
Loss on Purchase
|
|
|
2,118,154
|
|
Total Consideration
|
|
$
|
26,900,000
|
|
The
fair value of the tangible was determined by cost and market approaches for tangible assets. The fair value of intangible assets
were determined using the relief from royalty and residual income approaches. The acquired intangible assets, have remaining useful
lives ranging from three to five years.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
Seller
is engaged exclusively in the business of full-service stamping involving, among other things, the manufacture and sale of deep
drawn stampings for use in the ammunition casing and projectile industries. Pursuant to the Amended APA, Buyer acquired the Seller’s
munition and casing division assets (including equipment and intellectual property), and is transitioning the associated employees
to its direct workforce to continue the operations at Seller’s Wisconsin facilities.
In
October of 2019, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was
not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory
note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Equipment
for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded
an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated
amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were
originally to be transferred.
In
addition to the Amended APA, the Company entered into an Administrative and Management Services Agreement with Seller on March
15, 2019. The Seller agreed to provide the Company with services including, but not limited to, inventory, rent, maintenance,
engineering, and information systems. Through this agreement the Company purchased approximately $1.9M in Inventory, incurred
$394,128 of rent expenses, and incurred $153,604 of expenses related to support costs such as engineering and maintenance, among
others, for the year ended March 31, 2020.
Subsequent
to March 31, 2020, the Company, Enlight and JSC entered into a Settlement Agreement pursuant to which the parties mutually agreed
to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26,
2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory
notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, both with a maturity
date of August 15, 2021, (ii) general business security agreements granting JSC a security interest in all personal property of
the Company. Pursuant to the Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the
Notes have a mandatory prepayment provision that comes into effect if the Company conducts a publicly registered offering. Pursuant
to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser
of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and
(b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then
aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the
Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as
there are no defaults under the Settlement Agreement.
NOTE
12 – ACCRUED LIABILITIES
At
March 31, 2020 and March 31, 2019, accrued liabilities were as follows:
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
Deferred revenue
|
|
$
|
493,553
|
|
|
$
|
-
|
|
Accrued FAET
|
|
|
353,061
|
|
|
|
145,460
|
|
Accrued interest
|
|
|
197,342
|
|
|
|
35,422
|
|
Accrued payroll
|
|
|
289,603
|
|
|
|
248,027
|
|
Accrued professional fees
|
|
|
131,300
|
|
|
|
74,300
|
|
Other accruals
|
|
|
154,760
|
|
|
|
28,225
|
|
|
|
$
|
1,619,619
|
|
|
$
|
531,434
|
|
NOTE
13 – RELATED PARTY TRANSACATIONS
From
October 2016 through December 2018, our executive offices were located in Scottsdale, Arizona where we leased approximately 5,000
square feet under a month-to-month triple net lease for $3,800 per month. This space housed our principal executive, administration,
and marketing functions. Our Chairman, President, and Chief Executive Officer owned the building in which these offices are currently
leased. For the year ended March 31, 2020 and 2019, the Company paid $21,800 and $53,013, respectively in rent for these offices.
During
the year ended March 31, 2020, we paid $184,575 in service fees to an independent contractor, $6,500 in consulting fees to our
Previous Chief Financial Officer, and 60,000 shares in the aggregate to its Advisory Committee members for service for a total
value of $113,000. Additionally, at March 31, 2020, the Company had a receivable of approximately, $14,700 from its previous Chief
Financial Officer. During the year ended March 31, 2019, we paid approximately $168,000 in consulting fees.
In
connection with the acquisition of the casing division of Jagemann Stamping Company, a promissory note was executed. The promissory
note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March
31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note
bears interest per annum at approximately 4.6% payable in arrears monthly. In May of 2019, the Company paid $1,500,000 on the
balance of the note. As of March 31, 2020 and March 31, 2019, we accrued interest of $352,157 and $22,196, respectively, related
to the note. Subsequent to March 31, 2020, the Company extended the promissory note until August 15, 2021.
In
October of 2019, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was
not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory
note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Equipment
for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded
an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated
amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were
originally to be transferred.
Through
the Administrative and Management Services Agreement the Company with Jagemann Stamping Company, the Company purchased approximately
$1.9M in Inventory, incurred $394,128 of rent expenses, and incurred $153,604 of expenses related to support costs such as engineering
and maintenance, among others for the year ended March 31, 2020.
Subsequent
to March 31, 2020, the Company, Enlight and JSC entered into a Settlement Agreement pursuant to which the parties mutually agreed
to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26,
2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory
notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, both with a maturity
date of August 15, 2021, (ii) general business security agreements granting JSC a security interest in all personal property of
the Company. Pursuant to the Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the
Notes have a mandatory prepayment provision that comes into effect if the Company conducts a publicly registered offering. Pursuant
to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser
of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and
(b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then
aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the
Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as
there are no defaults under the Settlement Agreement.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
On
May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate
was the applicable LIBOR Rate. The promissory note has since been amended and the balance at March 31, 2020 was $278,195. The
note’s original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at
1.25% per month. The Company made $315,000 in principal payments in the year ended March 31, 2020. We have accrued interest on
the note of $9,080. Subsequent to March 31, 2020, the related party note and accrued interest was paid in full.
In
December of 2019, the Company entered into a Promissory Note of $90,000 with Fred Wagenhals, the Company’s Chief Executive
Officer and Chairman of the Board of Directors. The Note originally matured on June 12, 2020 and had an interest rate at the applicable
LIBOR Rate. The promissory note has since been amended and the balance at March 31, 2020 was $156,536 and the amended maturity
date is September 18, 2020. The Company made $70,000 in principal payments in the year ended March 31, 2020. The amended note
bears interest at 1.25% per month. We have accrued interest on the note of $1,287. Subsequent to March 31, 2020, the related party
note and accrued interest was paid in full.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
NOTE
14 – INCOME TAXES
The
income tax (provision) benefit for the periods shown consist of the following:
|
|
2020
|
|
|
2019
|
|
Current
|
|
|
|
|
|
|
|
|
US Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
US
State
|
|
|
-
|
|
|
|
-
|
|
Total current provision
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
|
US Federal
|
|
|
2,678,176
|
|
|
|
1,965,258
|
|
US
State
|
|
|
630,916
|
|
|
|
462,969
|
|
Total deferred benefit
|
|
|
3,309,092
|
|
|
|
2,428,227
|
|
Change in valuation allowance
|
|
|
(3,309,092
|
)
|
|
|
(2,428,227
|
)
|
Income tax (provision)
benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
The
reconciliation of income tax expense computed at the U.S. federal statutory rate of 21% to the income tax provision for the years
ended March 31, 2020 and 2020 is as follows:
|
|
2020
|
|
|
2019
|
|
Computed
tax expense
|
|
$
|
(3,056,903)
|
|
|
$
|
(2,458,977)
|
|
State taxes, net
of Federal income tax benefit
|
|
|
(684,164)
|
|
|
|
(550,342)
|
|
Change in valuation
allowance
|
|
|
3,309,092
|
|
|
|
2,428,227
|
|
Employee stock awards
|
|
|
231,692
|
|
|
|
301,454
|
|
Stock grants
|
|
|
137,477
|
|
|
|
180,679
|
|
Stock for services
|
|
|
90,541
|
|
|
|
5,744
|
|
Rent expense
|
|
|
13,358
|
|
|
|
-
|
|
Non-deductible meals
& entertainment
|
|
|
7,833
|
|
|
|
1,003
|
|
Stock
and warrants on note conversion
|
|
|
-
|
|
|
|
92,212
|
|
Contingent
consideration fair value
|
|
|
(48,926)
|
|
|
|
-
|
|
Total
provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s effective tax rates were 0% and 0% for the years ended March 31, 2020 and 2019, respectively. During the year
ended March 31, 2020, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the
valuation allowance.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
Significant
components of the Company’s deferred tax liabilities and assets at March 31, 2020 and March 31, 2019 are as follows:
|
|
2020
|
|
|
2019
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
7,571,092
|
|
|
$
|
3,950,078
|
|
Loss on purchase
|
|
|
544,366
|
|
|
|
544,366
|
|
Other
|
|
|
211,158
|
|
|
|
2,629
|
|
Total
deferred tax assets
|
|
$
|
8,326,616
|
|
|
$
|
4,497,073
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
$
|
(1,059,771
|
)
|
|
$
|
(512,945
|
)
|
Other
|
|
|
-
|
|
|
|
(26,376
|
)
|
Total
deferred tax liabilities
|
|
$
|
(1,059,771
|
)
|
|
$
|
(539,321
|
)
|
Net deferred tax assets
|
|
$
|
7,266,845
|
|
|
$
|
3,957,752
|
|
Valuation allowance
|
|
|
(7,266,845
|
)
|
|
|
(3,952
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
The Company considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies
in making this assessment. After consideration of all of the information available and due to the last years significant losses
there is substantial doubt related to the Company’s ability to utilize its deferred tax assets, the Company recorded a full
valuation allowance of the deferred tax asset. For the year ended March 31, 2020, the valuation allowance has increased by $3,309,092.
At
March 31, 2020, the Company had Federal net operating loss carry forwards (“NOLs”) for income tax purposes of $29,459,502.
A valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have future taxable
income. There were $5,144,926 of NOLs generated prior to 2018 will begin to expire in 2036. The Coronavirus Aid, Relief, and Economic
Security Act (“CARES Act”) signed in to law on March 27, 2020, provided that NOLs generated in a taxable year beginning
in 2018, 2019, or 2020, may now be carried back five years and forward indefinitely. In addition, the 80% taxable income limitation
is temporarily removed, allowing NOLs to fully offset net taxable income. In accordance with Section 382 of the Internal Revenue
Code, the future utilization of the Company’s net operating loss to offset future taxable income may be subject to an annual
limitation as a result of ownership changes that may have occurred previously or that could occur in the future. The Company does
not believe that such an ownership change has occurred to date.
The
Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded,
such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any,
related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires
management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions
that more likely than not would not be sustained upon examination by applicable taxing authorities. The Company has evaluated
tax positions taken by the Company and has concluded that as of March 31, 2020 and 2019, there are no uncertain tax positions
taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.
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, and 2020 are subject to audit.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020 and March 31, 2019
NOTE
15 – INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
|
|
|
March
31, 2020
|
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,125,076
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
7,074,005
|
|
|
|
5,146,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization – Licensing
Agreements
|
|
|
|
|
|
|
(158,333
|
)
|
|
|
-
|
|
|
|
-
|
|
Accumulated amortization – Patents
|
|
|
|
|
|
|
-
|
|
|
|
(561,096
|
)
|
|
|
-
|
|
Accumulated amortization
– Intangible Assets
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,435,030
|
)
|
|
|
|
|
|
|
$
|
91,667
|
|
|
$
|
6,512,909
|
|
|
$
|
3,649,404
|
|
|
|
|
|
|
March
31, 2019
|
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,666,774
|
|
Intellectual Property
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,773,436
|
|
Tradename
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,472,095
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
7,074,005
|
|
|
|
5,912,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization – Licensing
Agreements
|
|
|
|
|
|
|
(108,333
|
)
|
|
|
-
|
|
|
|
-
|
|
Accumulated amortization – Patents
|
|
|
|
|
|
|
-
|
|
|
|
(134,701
|
)
|
|
|
-
|
|
Accumulated amortization
– Intangible Assets
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(61,803
|
)
|
|
|
|
|
|
|
$
|
141,667
|
|
|
$
|
6,939,304
|
|
|
$
|
5,850,502
|
|
Annual
amortization of intangible assets for the next five years are as follows:
Years
Ended March 31,
|
|
Estimates
for Fiscal Year
|
|
2021
|
|
|
1,971,803
|
|
2022
|
|
|
1,915,690
|
|
2023
|
|
|
923,791
|
|
2024
|
|
|
903,190
|
|
2025
|
|
|
493,351
|
|
Thereafter
|
|
|
4,046,155
|
|
|
|
$
|
10,253,980
|
|
NOTE
16 - SUBSEQUENT EVENTS
In
April of 2020, the Company determined it was necessary to obtain additional funds as a result of the foregoing uncertainty cause
by COVID-19. The Company received approximately $1.0 million in funds through itself and its wholly owned subsidiary Jagemann
Munition Components, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered
by the U.S. Small Business Administration. The Company received approximately $600,000 from Western State Bank and its wholly
owned subsidiary, Jagemann Munition Components, received approximately $400,000 from BMO Harris. The Payroll Protection Notes
provide for an interest rate of 1.00% per year and matures two years after the issuance date. Accordingly, the Company has recorded
these notes as long term liabilities subsequent to March 31, 2020. Principal and accrued interest are payable monthly in equal
installments commencing on the date that is six months after the date funds are first disbursed on the loan and continuing through
the maturity date, unless the Payroll Protection Notes are forgiven. To be available for loan forgiveness, the PPP Note may only
be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility
payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020.
On
June 17, 2020, the Company entered into a revolving inventory loan and security agreement with FSW Funding, LLC. The facility
is for up to $1,750,000 on the lesser of 50% of inventory cost or the maximum loan amount and has an annualized interest rate
of to the greater of (i) the three-month LIBOR rate plus 3.09% or (ii) 8%. A loan fee of 2% will be assessed to the Company at
each anniversary. Additionally, the Company extended its Factoring and Security Agreement with FSW Funding until June 17, 2022
(See Note 6).
Subsequent
to March 31, 2020, the Company issued 180,916 shares of Common Stock to employees as compensation with values per share ranging
from $1.56 to $2.50 for a total value of $339,132. The Company sold 11,500 shares to employees for a total value of $14,375 or
$1.25 per share. Additionally, the Company issued 8,336 shares for services provided to the Company totaling $13,171 or $1.58
per share. There were 279 shares of Common Stock were issued a result of a cashless exercise of 1,967 warrants. Holders of Warrants
of our Common Stock exercised there warrants and received 60,607 shares of Common Stock for a value of $121,214 or $2.00 per share.
Additionally, the Company issued 1,157,143 shares of its Common Stock to investors for Cash at $1.75 per share totaling $2,025,000.
As
reported on the Form 8-K filed July 2, 2020, On June 26, 2020, the Company, its wholly owned subsidiary Enlight Group II LLC (d/b/a
Jagemann Munition Components) and Jagemann Stamping Company (“JSC”) entered into a Settlement Agreement pursuant to
which the parties mutually agreed to settle all disputes and mutually release each other from liabilities related to the Amended
APA occurring prior to June 26, 2020 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company
shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory notes, a note of $5,803,800 related to the Seller
Note and note of $2,635,797 for inventory and services, both with a maturity date of August 15, 2021 (“Notes”), (ii)
general business security agreements granting JSC a security interest in all personal property of the Company. Pursuant to the
Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the Notes have a mandatory prepayment
provision that comes into effect if the Company conducts a publicly registered offering (an “Offering”). Pursuant
to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser
of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and
(b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then
aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the
Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as
there are no defaults under the Settlement Agreement. The Settlement Agreement and Notes are attached as exhibits to this filing.
We
evaluated subsequent events through the date the financial statements were issued, and determined that there are not any other
items to disclose.
AMMO,
Inc.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,413,710
|
|
|
$
|
884,274
|
|
Accounts receivable,
net of allowance for doubtful account of $85,419 at September 30, 2020 and $62,248 at March 31, 2020
|
|
|
5,331,298
|
|
|
|
3,004,839
|
|
Due from related
parties
|
|
|
15,657
|
|
|
|
15,807
|
|
Inventories, at
lower cost or net realizable value, principally average cost method
|
|
|
7,603,031
|
|
|
|
4,408,073
|
|
Prepaid expenses
|
|
|
1,035,322
|
|
|
|
844,117
|
|
Total Current Assets
|
|
|
17,399,018
|
|
|
|
9,157,110
|
|
|
|
|
|
|
|
|
|
|
Equipment, net of accumulated
depreciation of $4,369,737 at September 30, 2020 and $3,060,681 at March 31, 2020
|
|
|
17,917,453
|
|
|
|
18,046,329
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
277,801
|
|
|
|
216,571
|
|
Licensing agreements,
net of accumulated amortization of $183,333 at September 30, 2020 and $158,833 at March 31, 2020
|
|
|
66,667
|
|
|
|
91,667
|
|
Patents, net of accumulated amortization
of $807,766 at September 30, 2020 and $561,096 at March 31, 2019
|
|
|
6,266,239
|
|
|
|
6,512,909
|
|
Other Intangible
Assets, net of accumulated amortization of $2,211,057 at September 30, 2020 and $1,496,833 at March 31, 2020
|
|
|
2,935,180
|
|
|
|
3,649,404
|
|
Right of Use Assets
- Operating Leases
|
|
|
2,488,861
|
|
|
|
3,431,746
|
|
TOTAL ASSETS
|
|
$
|
47,351,219
|
|
|
$
|
41,105,736
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,477,570
|
|
|
$
|
5,197,354
|
|
Factoring liability
|
|
|
2,074,621
|
|
|
|
2,005,979
|
|
Accrued liabilities
|
|
|
2,765,070
|
|
|
|
1,619,619
|
|
Inventory credit
facility
|
|
|
2,250,000
|
|
|
|
-
|
|
Current portion
of operating lease liability
|
|
|
495,102
|
|
|
|
375,813
|
|
Insurance premium
note payable
|
|
|
286,030
|
|
|
|
329,724
|
|
Convertible promissory
notes, net of note issuance cost of $18,278 at September 30, 2020 and $237,611 at March 31, 2020
|
|
|
2,481,722
|
|
|
|
2,262,389
|
|
Note payable related
party
|
|
|
-
|
|
|
|
434,731
|
|
Total Current Liabilities
|
|
|
14,830,115
|
|
|
|
12,225,609
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
payable
|
|
|
652,265
|
|
|
|
709,623
|
|
Notes payable related
party
|
|
|
11,275,298
|
|
|
|
5,803,800
|
|
Paycheck protection
program notes
|
|
|
1,051,985
|
|
|
|
-
|
|
Operating Lease
Liability, net of current portion
|
|
|
2,047,470
|
|
|
|
3,107,911
|
|
Total Liabilities
|
|
|
29,857,133
|
|
|
|
21,846,943
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 200,000,000
shares authorized 48,324,347 and 46,204,139 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively
|
|
|
48,323
|
|
|
|
46,204
|
|
Additional paid-in
capital
|
|
|
56,895,422
|
|
|
|
53,219,834
|
|
Accumulated deficit
|
|
|
(39,449,659
|
)
|
|
|
(34,007,245
|
)
|
Total Shareholders’
Equity
|
|
|
17,494,086
|
|
|
|
19,258,793
|
|
TOTAL LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
$
|
47,351,219
|
|
|
$
|
41,105,736
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
AMMO,
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammunition
sales
|
|
$
|
8,741,280
|
|
|
$
|
1,315,756
|
|
|
$
|
15,152,948
|
|
|
$
|
2,457,255
|
|
Casing
sales
|
|
|
3,271,592
|
|
|
|
1,638,799
|
|
|
|
6,519,894
|
|
|
|
4,795,880
|
|
|
|
|
12,012,872
|
|
|
|
2,954,555
|
|
|
|
21,672,842
|
|
|
|
7,253,135
|
|
Cost
of Goods Sold, for the three and six months ended September 30, 2020 and 2019 includes depreciation and amortization of $780,150,
$723,237, $1,538,652, and $1,336,806 respectively, and federal excise taxes of $864,570, $121,318, $1,505,693, and $235,603,
respectively
|
|
|
10,723,246
|
|
|
|
3,672,599
|
|
|
|
19,311,811
|
|
|
|
8,624,395
|
|
Gross
Margin
|
|
|
1,289,626
|
|
|
|
(718,044
|
)
|
|
|
2,361,031
|
|
|
|
(1,371,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
332,430
|
|
|
|
287,647
|
|
|
|
702,052
|
|
|
|
509,575
|
|
Corporate
general and administrative
|
|
|
1,077,194
|
|
|
|
954,350
|
|
|
|
2,166,178
|
|
|
|
2,053,993
|
|
Employee
salaries and related expenses
|
|
|
1,174,257
|
|
|
|
834,516
|
|
|
|
2,156,746
|
|
|
|
2,052,208
|
|
Depreciation
and amortization expense
|
|
|
415,685
|
|
|
|
450,380
|
|
|
|
826,184
|
|
|
|
905,242
|
|
Loss
on purchase
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
2,999,566
|
|
|
|
2,526,893
|
|
|
|
6,851,160
|
|
|
|
5,521,018
|
|
Loss
from Operations
|
|
|
(1,709,940
|
)
|
|
|
(3,244,937
|
)
|
|
|
(4,490,129
|
)
|
|
|
(6,892,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
(186,600
|
)
|
|
|
-
|
|
|
|
(186,600
|
)
|
|
|
-
|
|
Interest
income/(expense)
|
|
|
(442,085
|
)
|
|
|
(199,323
|
)
|
|
|
(765,685
|
)
|
|
|
(393,384
|
)
|
Total
other expenses
|
|
|
(628,685
|
)
|
|
|
(199,323
|
)
|
|
|
(952,285
|
)
|
|
|
(393,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before Income Taxes
|
|
|
(2,338,625
|
)
|
|
|
(3,444,260
|
)
|
|
|
(5,442,414
|
)
|
|
|
(7,285,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,338,625
|
)
|
|
$
|
(3,444,260
|
)
|
|
$
|
(5,442,414
|
)
|
|
$
|
(7,285,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and fully diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
47,790,105
|
|
|
|
45,416,153
|
|
|
|
47,023,094
|
|
|
|
44,999,342
|
|
Loss
per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.16
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
AMMO,
Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For
the Three Months Ended September 30, 2020 and 2019
(Unaudited)
|
|
Common
Shares
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2020
|
|
|
46,204,139
|
|
|
$
|
46,204
|
|
|
$
|
53,219,834
|
|
|
$
|
(34,007,245
|
)
|
|
$
|
19,258,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
|
1,663,215
|
|
|
|
1,664
|
|
|
|
2,880,207
|
|
|
|
-
|
|
|
|
2,881,871
|
|
Common stock issued
for exercised warrants
|
|
|
121,213
|
|
|
|
120
|
|
|
|
242,305
|
|
|
|
-
|
|
|
|
242,425
|
|
Common stock issued
for cashless warrant exercise
|
|
|
279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock issuance
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(70,000
|
)
|
|
|
-
|
|
|
|
(70,000
|
)
|
Common stock issued
for services
|
|
|
8,336
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
Employee stock awards
|
|
|
327,165
|
|
|
|
327
|
|
|
|
475,409
|
|
|
|
-
|
|
|
|
475,736
|
|
Stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
147,675
|
|
|
|
-
|
|
|
|
147,675
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,442,414
|
)
|
|
|
(5,281,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2020
|
|
|
48,324,347
|
|
|
$
|
48,323
|
|
|
$
|
56,895,422
|
|
|
$
|
(39,449,659
|
)
|
|
$
|
17,494,086
|
|
|
|
Common
Shares
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2019
|
|
|
44,013,075
|
|
|
$
|
44,013
|
|
|
$
|
48,935,485
|
|
|
$
|
(19,450,565
|
)
|
|
$
|
29,528,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
|
1,232,770
|
|
|
|
1,233
|
|
|
|
2,464,307
|
|
|
|
-
|
|
|
|
2,465,540
|
|
Common stock issued
for convertible notes
|
|
|
127,291
|
|
|
|
127
|
|
|
|
318,099
|
|
|
|
-
|
|
|
|
318,226
|
|
Common stock issuance
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(285,981
|
)
|
|
|
-
|
|
|
|
(285,981
|
)
|
Common stock issued
for services
|
|
|
63,492
|
|
|
|
63
|
|
|
|
199,937
|
|
|
|
-
|
|
|
|
200,000
|
|
Employee stock awards
|
|
|
315,000
|
|
|
|
315
|
|
|
|
506,185
|
|
|
|
-
|
|
|
|
506,500
|
|
Stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
379,694
|
|
|
|
-
|
|
|
|
379,694
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,285,662
|
)
|
|
|
(7,285,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2019
|
|
|
45,751,628
|
|
|
$
|
45,751
|
|
|
$
|
52,517,726
|
|
|
$
|
(26,736,227
|
)
|
|
$
|
25,827,250
|
|
For
the Six Months Ended September 30, 2020 and 2019
(Unaudited)
|
|
Common
Shares
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30,
2020
|
|
|
47,454,277
|
|
|
$
|
47,453
|
|
|
$
|
55,421,865
|
|
|
$
|
(37,111,034
|
)
|
|
$
|
18,358,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
|
663,215
|
|
|
|
664
|
|
|
|
1,131,207
|
|
|
|
-
|
|
|
|
1,131,871
|
|
Common stock issued
for exercised warrants
|
|
|
60,606
|
|
|
|
60
|
|
|
|
121,151
|
|
|
|
-
|
|
|
|
121,211
|
|
Common stock issued
for cashless warrant exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock issuance
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(70,000
|
)
|
|
|
-
|
|
|
|
(70,000
|
)
|
Common stock issued
for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Employee stock awards
|
|
|
146,249
|
|
|
|
146
|
|
|
|
220,290
|
|
|
|
-
|
|
|
|
220,436
|
|
Stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
70,909
|
|
|
|
-
|
|
|
|
70,909
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,338,625
|
)
|
|
|
(2,177,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2020
|
|
|
48,324,347
|
|
|
$
|
48,323
|
|
|
$
|
56,895,422
|
|
|
$
|
(39,449,659
|
)
|
|
$
|
17,494,086
|
|
|
|
Common
Shares
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2019
|
|
|
45,269,908
|
|
|
$
|
45,270
|
|
|
$
|
51,594,749
|
|
|
$
|
(23,291,967
|
)
|
|
$
|
28,348,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for cash
|
|
|
334,220
|
|
|
|
334
|
|
|
|
668,106
|
|
|
|
-
|
|
|
|
668,440
|
|
Common stock issued
for convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock issuance
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(96,414
|
)
|
|
|
-
|
|
|
|
(96,414
|
)
|
Common stock issued
for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Employee stock awards
|
|
|
147,500
|
|
|
|
147
|
|
|
|
173,103
|
|
|
|
-
|
|
|
|
173,250
|
|
Stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
178,182
|
|
|
|
-
|
|
|
|
178,182
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,444,260
|
)
|
|
|
(3,444,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2019
|
|
|
45,751,628
|
|
|
$
|
45,751
|
|
|
$
|
52,517,726
|
|
|
$
|
(26,736,227
|
)
|
|
$
|
25,827,250
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
AMMO,
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
|
|
For
the Six Months Ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(5,442,414
|
)
|
|
$
|
(7,285,662
|
)
|
Adjustments to reconcile
Net Loss to Net Cash used by operations:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
2,364,836
|
|
|
|
2,242,048
|
|
Debt discount amortization
|
|
|
219,333
|
|
|
|
24,144
|
|
Employee stock awards
|
|
|
475,736
|
|
|
|
506,500
|
|
Stock grants
|
|
|
147,675
|
|
|
|
379,694
|
|
Stock for services
|
|
|
-
|
|
|
|
200,000
|
|
Contingent consideration
payable fair value
|
|
|
(57,358
|
)
|
|
|
-
|
|
Interest on convertible
promissory notes
|
|
|
-
|
|
|
|
18,226
|
|
Allowance for doubtful
accounts
|
|
|
23,171
|
|
|
|
(103,644
|
)
|
Reduction in right
of use asset
|
|
|
205,205
|
|
|
|
-
|
|
Other (Income)/expense
|
|
|
25,400
|
|
|
|
-
|
|
Loss on Jagemann
Munition Components
|
|
|
1,000,000
|
|
|
|
-
|
|
Changes in Current
Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,349,630
|
)
|
|
|
(1,189,573
|
)
|
Due to (from) related
parties
|
|
|
150
|
|
|
|
(32,376
|
)
|
Inventories
|
|
|
(3,194,958
|
)
|
|
|
(256,614
|
)
|
Prepaid expenses
|
|
|
35,334
|
|
|
|
122,349
|
|
Deposits
|
|
|
(61,230
|
)
|
|
|
(3,960
|
)
|
Accounts payable
|
|
|
1,916,013
|
|
|
|
2,337,445
|
|
Accrued liabilities
|
|
|
1,145,451
|
|
|
|
60,788
|
|
Operating
lease liability
|
|
|
(203,472
|
)
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(3,750,758
|
)
|
|
|
(2,980,635
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchase of
equipment
|
|
|
(2,275,466
|
)
|
|
|
(426,467
|
)
|
Net
cash used in investing activities
|
|
|
(2,275,466
|
)
|
|
|
(426,467
|
)
|
|
|
|
|
|
|
|
|
|
Cash flow from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from inventory
facility
|
|
|
2,250,000
|
|
|
|
-
|
|
Proceeds from factoring
liability
|
|
|
15,289,000
|
|
|
|
-
|
|
Payments on factoring
liability
|
|
|
(15,220,358
|
)
|
|
|
1,036,273
|
|
Proceeds from paycheck
protection program notes
|
|
|
1,051,985
|
|
|
|
-
|
|
Proceeds from note
payable related party issued
|
|
|
3,500,000
|
|
|
|
375,000
|
|
Payments on note
payable - related party
|
|
|
(1,099,030
|
)
|
|
|
(1,500,000
|
)
|
Payments on insurance
premium note payment
|
|
|
(270,233
|
)
|
|
|
(201,238
|
)
|
(Continued)
AMMO,
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Sale
of common stock
|
|
|
2,881,871
|
|
|
|
2,465,540
|
|
Common stock issued
for exercised warrants
|
|
|
242,425
|
|
|
|
-
|
|
Common stock issuance
costs
|
|
|
(70,000
|
)
|
|
|
(285,981
|
)
|
Contingent
consideration payment
|
|
|
-
|
|
|
|
(150,000
|
)
|
Net
cash provided by financing activities
|
|
|
8,555,660
|
|
|
|
1,739,594
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease)
in cash
|
|
|
2,529,436
|
|
|
|
(1,667,508
|
)
|
Cash, beginning
of period
|
|
|
884,274
|
|
|
|
2,181,246
|
|
Cash, end of
period
|
|
$
|
3,413,710
|
|
|
$
|
513,738
|
|
|
|
|
-
|
|
|
|
|
|
Supplemental cash
flow disclosures
|
|
|
|
|
|
|
|
|
Cash paid during
the period for -
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
447,105
|
|
|
$
|
346,800
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing activities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(2,635,797
|
)
|
|
|
-
|
|
Note payable related
party
|
|
|
2,635,797
|
|
|
|
-
|
|
Right of use assets
– operating leases
|
|
|
(737,680
|
)
|
|
|
(4,288,208
|
)
|
Operating lease
liability
|
|
|
737,680
|
|
|
|
4,288,208
|
|
Insurance premium
note payment
|
|
|
226,539
|
|
|
|
165,120
|
|
Prepaid expenses
|
|
|
(226,539
|
)
|
|
|
(165,120
|
)
|
Convertible promissory
note
|
|
|
-
|
|
|
|
(300,000
|
)
|
Convertible
promissory note conversion
|
|
|
-
|
|
|
|
300,000
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and March 31, 2020
(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.
NOTE
2 – GOING CONCERN
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $5,281,214 and $7,285,662
for the six months ended September 30, 2020 and 2019, respectively. Net cash used in operating activities was $3,750,758 and $2,980,635
for the six months ended September 30, 2020 and 2019, respectively.
The
Company anticipates that it will record losses from operations for the foreseeable future. As of September 30, 2020, the Company’s
accumulated deficit was $39,449,659. The Company has limited capital resources, and operations to date have been funded with the
proceeds from equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern
for the period ended a year from the date the financial statements are issued.
The
Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts.
There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or
conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure
our operations, and divest all or a portion of our business. We may seek additional capital through a combination of equity offerings,
and debt financings. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure
such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require
such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not
available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities or file
for bankruptcy and our operations and financial condition may be materially adversely affected. See Note 14 for additional equity
and debt proceeds received subsequent to September 30, 2020.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 - 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and related disclosures for the year ended March 31, 2020 included elsewhere here in this document.
The results for the six month period ended September 30, 2020 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, 2020 and 2019, (b) the financial position at September 30,
2020, and (c) cash flows for the six month period ended September 30, 2020 and 2019.
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. 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.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, Enlight Group
II, LLC (d/b/a Jagemann Munition Components), SNI, LLC, AMMO Munitions, Inc. and AMMO Technologies, Inc. (inactive). 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. 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 September
30, 2020 and March 31, 2020, we reserved $85,419 and $62,248, respectively, of allowance for doubtful accounts.
License
Agreements
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas
limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to
Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale,
and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition
and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
We
are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition
industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of all Jeff Rann Branded Products. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded
Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Amortization
expense for the license agreements for the three and six months ended September 30, 2020 and 2019 was $12,500 and $25,000, respectively.
Patents
On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with
Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce
projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication
date of March 26, 2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies
Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective
as of August 22, 2017, the Merger closing date. This asset will be amortized from September 2017, the first full month of the
acquired rights, through October 29, 2028. Patent amortization expense for the three months ended September 30, 2020 and 2019
was $21,268 and $21,269, respectively, and $42,537 and $42,538, respectively for the six months ended September 30, 2020 and 2019,
respectively.
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 six months ended September 30, 2020 and 2019, the Company accrued $50,803 and $11,317, 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.
Patent amortization expense for the three months ended September 30, 2020 and 2019 was $102,067 and $35,119, respectively, and
$204,133 and $137,186, respectively for the six months ended September 30, 2020 and 2019.
We
intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications
where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other
Intangible Assets
On
March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its
acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the
terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships,
and intellectual property. For the three months ended September 30, 2020 and 2019, amortization of the other intangibles assets
was $357,111 and $410,289, respectively, and $714,224 and $820,578, respectively for the six months ended September 30, 2020 and
2019 and recognized in depreciation and amortization expense.
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 and six months ended September 30, 2020 and 2019.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains
control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in
exchange for those goods and services. The Company applies 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
The
Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to
in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined
to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are
performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance
obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount
of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied
or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’s product,
which typically occurs upon shipment of the product. In the current period, the Company began accepting contract liabilities or
deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The Company will recognize revenue when the performance
obligation is met.
For
the three and six months ended September 30, 2020, the Company’s customers that comprised more than ten percent (10%) of
total revenues and accounts receivable were as follows:
|
|
|
Revenues
at
September
30, 2020
|
|
|
Accounts
Receivable
|
|
PERCENTAGES
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
|
14.7
|
%
|
|
|
14.8
|
%
|
|
|
17.2
|
%
|
|
|
26.5
|
%
|
B
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18.1
|
%
|
|
|
-
|
|
|
|
|
|
14.7
|
%
|
|
|
14.8
|
%
|
|
|
35.3
|
%
|
|
|
26.5
|
%
|
Disaggregated
Revenue Information
The
following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product
types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product
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 type.
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
Ammunition
Sales
|
|
$
|
8,741,280
|
|
|
$
|
1,315,756
|
|
|
$
|
15,152,948
|
|
|
$
|
2,457,255
|
|
Ammunition
Casings Sales
|
|
|
3,271,592
|
|
|
|
1,638,799
|
|
|
|
6,519,894
|
|
|
|
4,795,880
|
|
Total Sales
|
|
$
|
12,012,872
|
|
|
$
|
2,954,555
|
|
|
$
|
21,672,842
|
|
|
$
|
7,253,135
|
|
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.
Advertising
Costs
We
expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. We incurred advertising
of $51,410 and $138,576 for the three and six months ended September 30, 2020, respectively and we
incurred advertising expenses of $200,805 and $295,422 for the three and six months ended September 30, 2019, respectively.
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.
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with ASC 718. There were 146,249 shares of common stock issued
to employees, members of the Board of Directors, and members of the Advisory Committee for services during the quarter ended September
30, 2020.
Effective
April 1, 2020, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other
provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333
shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered
by the agreement.
Effective
June 18, 2020, we entered into an employment agreement with Steve Hilko, Chief Operating Officer, that included, among other provisions,
an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per
quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the
agreement.
From
September 2018 through September 2020, we entered into eight separate employment agreements that included in total, among other
provisions, equity grants of 540,382 shares of restricted common stock that vests annually over the next three years. The total
compensation value is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of September 30, 2020,
our bank account balances exceeded federally insured limits.
Income
Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income
taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC
740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected
to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized,
a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those
positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is
greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change
in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal
to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.
Furthermore,
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES
Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations
on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net
operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer
payroll taxes and evaluating potential employee retention credits.
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 September 30, 2020.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 8,381,192 shares of common stock. 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, 2020 and 2019, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive.
The Company excluded warrants of 8,381,192 and 8,853,432 for the six months ended
September 30, 2020 and 2019, respectively, from the weighted average diluted common shares outstanding because their inclusion
would have been antidilutive.
NOTE
4 – INVENTORIES
At
September 30, 2020 and March 31, 2020, the inventory balances are composed of:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Finished product
|
|
$
|
372,747
|
|
|
$
|
1,916,417
|
|
Raw materials
|
|
|
5,089,516
|
|
|
|
1,771,006
|
|
Work in process
|
|
|
2,140,768
|
|
|
|
720,650
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,603,031
|
|
|
$
|
4,408,073
|
|
NOTE
5 – PROPERTY AND EQUIPMENT
We
state property and equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line
method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years.
Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation
from the accounts and any resulting gain or loss is credited or charged to selling, general, and administrative expenses. 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
Property
and equipment consisted of the following at September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Leasehold Improvements
|
|
$
|
126,558
|
|
|
$
|
118,222
|
|
Furniture and Fixtures
|
|
|
87,790
|
|
|
|
87,790
|
|
Vehicles
|
|
|
103,511
|
|
|
|
103,511
|
|
Equipment
|
|
|
21,749,879
|
|
|
|
19,578,035
|
|
Tooling
|
|
|
126,190
|
|
|
|
126,190
|
|
Construction
in Progress
|
|
|
93,262
|
|
|
|
1,093,262
|
|
Total property and equipment
|
|
$
|
22,287,190
|
|
|
$
|
21,107,010
|
|
Less accumulated
depreciation
|
|
|
(4,369,737
|
)
|
|
|
(3,060,681
|
)
|
Net
property and equipment
|
|
|
17,917,453
|
|
|
|
18,046,329
|
|
Depreciation
Expense for the three and six months ended September 30, 2020 and 2019 totaled $702,889, $627,492, $1,378,942, and $1,210,166,
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 September 30, 2020, the outstanding balance of the Factoring Liability was $2,074,621. Interest expense recognized
on the Factoring Liability was $227,741, including $50,000 of amortization of the commitment fee. Interest expense for the comparable
period ending September 30, 2019 was $40,846, including $25,000 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 September 30, 2020, the outstanding balance of the Inventory
Credit Facility was $2,250,000. Interest expense recognized on the Inventory Credit Facility was $60,725, including $13,485 of
amortization of the annual fee. There was no interest expense for the comparable period ending September 30, 2019 as this transaction
was not yet consummated.
NOTE
8 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ and Manitowoc, 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 September
30, 2020, we are fairly certain that we will exercise the renewal option, and we have included such renewal option in the lease
liabilities and the disclosures herein. 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.
As
of September 30, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $2,488,861 and
$2,047,470, respectively. As of March 31, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet
were $3,431,746 and $3,107,911, respectively. The Operating Lease Liabilities were net of current portions of $495,102 at September
30, 2020 and $375,813 at March 31, 2020.
Consolidated
lease expense for the three and six months ended September 2020 was $207,340 and $392,109, respectively, including $178,621 and
$355,294 of respective operating lease expense and $28,720 and 36,816 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 4.5 years and 10.0%, respectively.
Futures
minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:
Years
Ended March 31,
|
|
|
|
2021
(1)
|
|
$
|
363,140
|
|
2022
|
|
|
732,111
|
|
2023
|
|
|
742,108
|
|
2024
|
|
|
684,836
|
|
Thereafter
|
|
|
639,988
|
|
|
|
|
3,162,183
|
|
Less: Amount
Representing Interest
|
|
|
(619,611
|
)
|
|
|
$
|
2,542,572
|
|
|
(1)
|
This
amount represents future lease payments for the remaining six months of fiscal year 2021. It does not include any lease payments
for the six months ended September 30, 2020.
|
NOTE
9 – CONVERTIBLE PROMISSORY NOTES
On
January 15, 2020, the Company consummated the initial closing of a private placement offering whereby pursuant to the Subscription
Agreements entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes
for an aggregate purchase price of $1,650,000 and five (5) year warrants to purchase shares of the Company’s common stock,
par value $0.001 per share (“Common Stock”).
On
January 30, 2020, the Company consummated the final closing of a private placement whereby pursuant to the Subscription Agreements
entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes for an
aggregate purchase price of $850,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value
$0.001 per share.
The
Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 and October 30, 2020. Additionally, the Notes contain
a mandatory conversion mechanism whereby any principal and accrued interest on the Notes, upon the closing of a Qualified Financing
(as defined in the Notes), converts into shares of the Company’s Common Stock at a conversion price of 66.7% of the per
share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before
the Maturity Date, the Notes shall become convertible into shares of the Company’s Common Stock at a conversion price that
is equal to 50.0% of the arithmetic mean of the VWAP in the ten consecutive Trading Days immediately preceding the Maturity Date.
The Notes contain customary events of default. If an Event of Default occurs, interest under the Notes will accrue at a rate of
fifteen percent (15%) per annum and the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated
damages and other amounts owing with respect to the Notes will become, at the Note holder’s election, immediately due and
payable in cash.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Company analyzed embedded conversion options of the convertible notes at issuance to determine whether the embedded conversion
options should be bifurcated and accounted for as derivative liabilities or if the embedded conversion options contain a beneficial
conversion feature. The Company notes that this determination must be performed at each balance sheet date and makes it possible
for certain instruments to be reclassified between debt and equity at different points in their life. The Company determined that
it will defer recognition of its accounting until such notes become convertible. Additionally, the Company determined that the
embedded conversion options do not require bifurcation and treatment as derivative liabilities, but they included contingent beneficial
conversion features that are indeterminable on the commitment date. The Company notes the embedded conversion options will be
accounted for and recognized, if necessary, when the contingencies are resolved (the date of a Qualified Financing or during the
10 days prior to the Maturity Date). Through September 30, 2020, a Qualified Financing had not occurred and the Note is not yet
convertible under the Voluntary Conversion Option and, as a result, the contingencies have not been resolved, such that the Company
concluded that no measurement or recognition of the beneficial conversion feature was required as of September 30, 2020.
Pursuant
to the Subscription Agreements, each Investor will receive the number of Warrants to purchase shares of Common Stock equal to
the quotient obtained by dividing 50% of the principal amount of the Note by the Conversion Price of the Note. The Warrants are
exercisable at the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has
not occurred on or before the Maturity Date, the warrants shall become exercisable at a price per share that is equal to the closing
ten-day VWAP in the ten trading days immediately preceding the Maturity Date (the “Exercise Price”). The Warrants
contain an anti-dilution protection feature, to adjust the Exercise Price if shares are sold or issued for a consideration per
share less than the exercise price then in effect.
Joseph
Gunnar & Co., LLC acted as placement agent for the Offering. The Placement Agent received cash compensation of $200,000 and
is scheduled to be issued five (5) year warrants to purchase such number of shares of Common Stock equal to five percent (5%)
of the shares underlying the Notes and the Warrants, at an exercise price equal to 125% of the Conversion Price of the Notes,
which price shall not be known until the earlier of the Maturity Date or the closing of the Qualified Financing.
As
of September 30, 2020, the key terms of the investor and placement agent warrants are still unknown such that there is still no
grant of the warrants for accounting purposes. The Company will determine the fair value of the warrants at the time the key terms
of the Warrants become known and the Warrants are issued.
From
October 8, 2020 to October 26, 2020, the Company received notices for voluntary conversion for the total outstanding principal
($2,500,000) and interest ($146,104) of the Convertible Promissory Notes and issued 2,157,358 shares of our Common Stock as a
result of the conversion. The principal and interest related to the Initial Closing and Final Closing were converted at a conversion
prices of $1.21 and $1.26, respectively. Additionally, the Company issued a total of 1,019,121 warrants to purchase shares of
our Common Stock at exercise prices ranging from $2.19 to $2.67.
Additionally,
pursuant to the Subscription Agreements, the Company issued 152,868 warrants to purchase shares of our Common Stock to Joseph
Gunnar & Co. LLC with exercise prices ranging from $1.51 to $1.58. The Company has no further obligation with respect to the
Convertible Promissory Notes.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – NOTES PAYABLE – RELATED PARTY
In
connection with the acquisition of the casing division of Jagemann Stamping Company, a $10,400,000 promissory note was executed.
The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance
at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020.
The note bears interest per annum at approximately 4.6% payable in arrears monthly. In May of 2019, the Company paid $1,500,000
on the balance of the note. As of September 30, 2020, we recognized interest of $178,830 related to the note. The note is secured
by all the equipment purchased from Jagemann Stamping Company.
Post-closing
of the transaction, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was
not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory
note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Equipment
for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded
an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated
amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were
originally to be transferred.
On
June 26, 2020, the Company, Enlight Group II, LLC (“Enlight”), the Company’s wholly owned subsidiary and Jagemann
Stamping Company’s (“JSC”) entered into a Settlement Agreement pursuant to which the parties mutually agreed
to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26,
2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory
notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, which was reclassed
from accounts payable, both with a maturity date of August 15, 2021, (ii) general business security agreements granting JSC a
security interest in all personal property of the Company. Pursuant to the Notes, the Company is obligated to make monthly payments
totaling $204,295 to JSC. In addition, the Notes have a mandatory prepayment provision that comes into effect if the Company conducts
a publicly registered offering. Pursuant to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000
would be obligated to pay the lesser of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding
balance of the Notes; and (b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent
(100%) of the then aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000
of the shares of the Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April
1, 2021 so long as there are no defaults under the Settlement Agreement. The total balance of the two Notes due to JSC as of September
30, 2020 is $7,775,298.
As
a result of the Settlement Agreement, the Company agreed to not receive $1,000,000 in Construction in Progress that the parties
had previously agreed to exchange. As a result, the Company recognized a loss in operating expenses for the six months ended September
30, 2020.
On
November 5, 2020, the Company paid $6,000,000 to JSC allocated as follows: (i) payment in full of Note A, representing the balance
due from the Company to JSC relating to the acquisition of Jagemann Munition Components in March 2019 and (ii) $592,982 remitted
in partial payment of Note B, resulting in the parties’ execution of Amended Note B which has a starting principal balance
of $1,687,664 (“Amended Note B”). The Amended Note B principal balance carries a 9% per annum interest rate and is
amortized equally over the thirty six (36) month term. As a result of the payment in full of Note A JSC shall release the accompanying
security interest in Company assets which secured Note A. Concurrently, upon entry into Amended Note B, JSC and the Company entered
into the First Amendment to General Business Security Agreement to reflect a revised list of collateral in which JSC has a security
interest.
On
May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate
was the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $260,000. The note’s
original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at 1.25% per month.
The Company made $18,195 in principal payments during the six months ended September 30, 2020 and the Note was paid in full in
July of 2020. We recognized $10,327 of interest expenses related to the note during the six months ended September 30, 2020.
In
December of 2019, the Company entered into a Promissory Note of $90,000 with Fred Wagenhals, the Company’s Chief Executive
Officer and Chairman of the Board of Directors. The Note originally matured on June 12, 2020 and had an interest rate at the applicable
LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $131,536 and the amended maturity
date is September 18, 2020. The Company made $25,000 in principal payments during the six months ended September 30, 2020 and
the Note was paid in full in July of 2020. The amended note bears interest at 1.25% per month. We recognized $5,350 of interest
expense on the note for the six months ended September 30, 2020.
On
September 23, 2020, the Company and Enlight entered into a promissory note (the “Forest Street Note”) with Forest
Street, LLC (“Lender”), an Arizona limited liability company wholly owned by our current Chief Executive Officer,
Fred Wagenhals, for the principal sum of Three Million Five Hundred Thousand & 00/100 Dollars ($3,500,000.00), which accrues
interest at 12% per annum. The Note has a maturity date of September 23, 2022.
Pursuant
to the terms of the Forest Street Note, the Company and Enlight (collectively, the borrower pursuant to the note) shall pay Lender;
(i) on a monthly basis, beginning October 23, 2020, all accrued interest (only), (ii) on a quarterly basis, a monitoring fee of
1% of the principal amount and then accrued interest; and (iii) on the maturity date, the remaining outstanding principal balance
of the Loan, together with all unpaid accrued interest thereon.
The
note is an unsecured obligation of the Company and is not convertible into equity securities of the Company.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – PAYCHECK PROTECTION NOTES PAYABLE
In
April of 2020, the Company determined it was necessary to obtain additional funds as a result of the foregoing uncertainty cause
by COVID-19. The Company received approximately $1.0 million in funds through itself and its wholly owned subsidiary Jagemann
Munition Components, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered
by the U.S. Small Business Administration. The Company received approximately $600,000 from Western State Bank and its wholly
owned subsidiary, Jagemann Munition Components, received approximately $400,000 from BMO Harris. The Paycheck Protection Notes
provide for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are
payable monthly in equal installments commencing on the date that is six months after the date funds are first disbursed on the
loan and continuing through the maturity date, unless the Paycheck Protection Notes are forgiven. To be available for loan forgiveness,
the Paycheck Protection Note may only be used for payroll costs, costs related to certain group health care benefits and insurance
premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that
existed before February 15, 2020.
On
November 11, 2020 the Company applied for forgiveness of the $1.0 million Paycheck Protection Program Notes as these funds were
used for qualified expenses. No assurance can be given that the Company will be granted forgiveness of these Paycheck Protection
Program Notes.
NOTE
12 – CAPITAL STOCK
During
the six month period ended September 30, 2020, we issued 2,120,208 shares of common stock as follows:
|
●
|
1,663,215
shares were sold to investors for $2,881,871
|
|
●
|
121,213
shares were issued to investors for exercised warrants valued for $242,245
|
|
●
|
279
shares were issued for cashless exercise of 1,967 warrants
|
|
●
|
8,336
shares were issued for services provided to the Company value at $13,188
|
|
●
|
327,165
shares valued at $475,736 were issued to employees, members of the Board of Directors, and members of the Advisory Committee
as compensation
|
Pursuant
to subscription agreements with certain investors, the Company agreed to file a registration statement for shares purchased by
investors on or before the 75th day following closing. The Company was unable to meet this obligation and is required
to pay a liquidated damage fee to investors on a monthly basis to avoid default until such registration statement is filed. Accordingly,
the Company paid $35,000 in the current period and accrued $126,200 for fees payable subsequent to September 30, 2020. The Company
recorded these fees as issuance costs in Other Expenses.
At
September 30, 2020, 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, 2020
|
|
|
8,504,372
|
|
|
$
|
2.10
|
|
|
|
3.60
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(123,180
|
)
|
|
|
2.00
|
|
|
|
-
|
|
Forfeited or
cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2020
|
|
|
8,381,192
|
|
|
$
|
2.10
|
|
|
|
3.08
|
|
Exercisable at September 30, 2020
|
|
|
8,381,192
|
|
|
$
|
2.10
|
|
|
|
3.08
|
|
As
of September 30, 2020, we had 8,381,192 warrants outstanding. Each warrant provides the holder the right to purchase up to one
share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 966,494
shares of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 4,518,565 shares of
our Common Stock at an exercise price of $2.00 per share from December 2022 through August of 2024; and (3) warrants to purchase
2,896,133 shares of Common Stock at an exercise price of $2.40 from December 2023 through August of 2024.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES
As
of September 30, 2020, we had net operating loss carryforwards of approximately $33 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 six months ended September 30, 2020 and 2019, respectively. During
the six months ended September 30, 2020 and 2019, 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, and 2020 are subject to audit.
NOTE
14 – SUBSEQUENT EVENTS
From
October 7, 2020 to October 21, 2020, the Company issued shares of its Common Stock for the exercise of warrants. There were 60,606
shares of Common Stock issued for warrants exercised at $2.00 per share or an aggregate value of $121,212 and 50,000 shares of
Common Stock issued for warrants exercised at $2.40 per share or an aggregate value of $120,000.
On
October 22, 2020, the stockholders of the Company approved the granting to the Board of Directors of the Company (the “Board”)
the discretion to amend the Company’s Certificate of Incorporation to effect a reverse stock split of our common stock,
by a ratio of not less than 1-for-2 and not more than 1-for-4, such ratio and the implementation and timing of such reverse stock
split to be determined in the sole discretion of the Board.
From
November 5, 2020 to November 10, 2020, the Company entered into Convertible Promissory Notes with three (3) accredited investors
(the “Investors”), for an aggregate purchase price of $1,684,000 (each a “8% Note,” collectively, the
“8% Notes”). The 8% Notes accrue interest at a rate of 8% per annum and mature on November 5, 2022 (the “Maturity
Date”). Additionally, the 8% Notes contain a voluntary conversion mechanism whereby any principal and accrued interest on
the 8% Notes, may be converted in holder’s discretion into shares of the Company’s Common Stock at a conversion price
of $2.00 per share (“Conversion Price”). If not previously paid in full or converted, on the 180th day
following the Maturity Date, the principal and interest due under the 8% Notes shall automatically be converted to common stock
shares at the Conversion Price The 8% Notes contain customary events of default (each an “Event of Default”). If an
Event of Default occurs, the outstanding principal amount of the 8% Notes, plus accrued but unpaid interest, and other amounts
owing with respect to the 8% Notes will become, at the 8% Note holder’s election, due and payable in cash.
On
November 5, 2020, the Company and Enlight (together, “Borrower”), entered into a promissory note (the “12% Note”)
with Lisa Kay, an individual, for the principal sum of Four Million & 00/100 Dollars ($4,000,000.00) (“Principal”),
which accrues interest at 12% per annum (“Interest”). The 12% Note has a maturity date of November 5, 2023 (“Maturity
Date”).
Pursuant
to the terms of the 12% Note, the Borrower shall pay Ms. Kay: (i) on a monthly basis, beginning December 10, 2020, all accrued
interest (only), and (ii) on the Maturity Date, the remaining outstanding principal balance of the Loan, together with all unpaid
accrued interest thereon.
The
12% Note is unsecured and is not convertible into equity securities of the Company. However, Borrower has agreed that it shall
provide commercially reasonable collateral promptly upon the payment of that certain JSC Promissory Note and JSC’s contemporaneous
release of security supporting that financial accommodation. The 12% Note contain terms and events of default customary for similar
transactions. The Company is using the net proceeds from the transaction to pay a portion of the outstanding balance owed to JSC.
8,564,285
Shares of Common Stock
AMMO,
Inc.
PROSPECTUS
|
KINGSWOOD
CAPITAL MARKETS
Division
of Benchmark Investments, Inc.
|
December 1, 2020