Outdoor Holding Co 10-Q for FY2023 Q2
Outdoor Holding Co (POWW)
About this 10-Q
Outdoor Holding Co filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2023 Q2).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $48.29M
- down 20.8% from $61M a year earlier
- Net loss
- $803.51K
- compared with net income of $14.12M a year earlier
- Diluted EPS
- -$0.01
- compared with $0.11 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended | |
| OR | |
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ________ to ________ | |
(Exact Name of Registrant as Specified in its Charter)
(State of incorporation) |
(Commission File No.) |
(I.R.S. Identification Number) |
(Address of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number including area code:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
Capital Market) | ||||
The
Capital Market) |
Indicate
by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
As of November 11, 2022, there were shares of $0.001 par value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
TABLE OF CONTENTS
| 2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
AMMO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2022 | March 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Due from related parties | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Current portion of restricted cash | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| Other Assets: | ||||||||
| Deposits | ||||||||
| Restricted cash, net of current portion | ||||||||
| Patents, net | ||||||||
| Other intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right of use assets – operating leases | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Factoring liability | ||||||||
| Accrued liabilities | ||||||||
| Inventory credit facility | ||||||||
| Current portion of operating lease liability | ||||||||
| Current portion of note payable related party | ||||||||
| Current portion of construction note payable | ||||||||
| Insurance premium note payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Contingent consideration payable | ||||||||
| Notes payable related party, net of current portion | ||||||||
| Construction note payable, net of unamortized issuance costs | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Deferred income tax liability | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity: | ||||||||
| Series A cumulative perpetual preferred Stock | ||||||||
| Common stock, $ par value, shares authorized and shares issued and outstanding at September 30, 2022 and March 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Revenues | ||||||||||||||||
| Ammunition sales | $ | $ | $ | $ | ||||||||||||
| Marketplace revenue | ||||||||||||||||
| Casing sales | ||||||||||||||||
| Total Revenues | ||||||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Corporate general and administrative | ||||||||||||||||
| Employee salaries and related expenses | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income/(Loss) from Operations | ( | ) | ||||||||||||||
| Other Expenses | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income/(expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income/(Loss) before Income Taxes | ( | ) | ||||||||||||||
| Provision for Income Taxes | ||||||||||||||||
| Net Income/(Loss) | ( | ) | ||||||||||||||
| Preferred Stock Dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income/(Loss) Attributable to Common Stock Shareholders | $ | ( | ) | $ | $ | $ | ||||||||||
| Net Income/(Loss) per share | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
| Number | Par Value | Number | Par Value | Paid-In Capital | Accumulated (Deficit) | Total | ||||||||||||||||||||||
| Preferred Stock | Common Shares | Additional | ||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value |
Paid-In Capital | Accumulated (Deficit) | Total | ||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common stock issued for cashless warrant exercise | - | ( | ) | |||||||||||||||||||||||||
| Employee stock awards | - | |||||||||||||||||||||||||||
| Stock grants | - | - | ||||||||||||||||||||||||||
| Preferred stock dividends declared | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common stock issued for exercised warrants | - | |||||||||||||||||||||||||||
| Employee stock awards | - | |||||||||||||||||||||||||||
| Stock grants | - | - | ||||||||||||||||||||||||||
| Preferred stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Preferred Stock | Common Shares | Additional | ||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Paid-In Capital | Accumulated (Deficit) | Total | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Acquisition stock issuances | - | |||||||||||||||||||||||||||
| Common stock issued for exercised warrants | - | |||||||||||||||||||||||||||
| Common stock issued for cashless warrant exercise | - | ( | ) | |||||||||||||||||||||||||
| Common stock issued for services and equipment | - | |||||||||||||||||||||||||||
| Employee stock awards | - | |||||||||||||||||||||||||||
| Stock grants | - | - | ||||||||||||||||||||||||||
| Issuance costs | - | - | ( | ) | ( | |||||||||||||||||||||||
| Issuance of Series A Preferred Stock, net of issuance costs | - | |||||||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Acquisition stock issuances | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for exercised warrants | - | |||||||||||||||||||||||||||
| Common stock issued for cashless warrant exercise | - | ( | ) | |||||||||||||||||||||||||
| Common stock issued for services and equipment | - | |||||||||||||||||||||||||||
| Employee stock awards | - | |||||||||||||||||||||||||||
| Stock grants | - | - | ||||||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| 2022 | 2021 | |||||||
| For the Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to reconcile Net Income to Net Cash provided by operations: | ||||||||
| Depreciation and amortization | ||||||||
| Debt discount amortization | ||||||||
| Employee stock awards | ||||||||
| Stock grants | ||||||||
| Contingent consideration payable fair value | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts | ||||||||
| Gain on disposal of assets | ( | ) | ||||||
| Reduction in right of use asset | ||||||||
| Deferred income taxes | ||||||||
| Changes in Current Assets and Liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Due to (from) related parties | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Deposits | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash provided by/(used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Gemini acquisition | ( | ) | ||||||
| Proceeds from disposal of assets | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities: | ||||||||
| Payments on inventory facility, net | ( | ) | ( | ) | ||||
| Proceeds from factoring liability | ||||||||
| Payments on factoring liability | ( | ) | ( | ) | ||||
| Payments on note payable – related party | ( | ) | ( | ) | ||||
| Payments on insurance premium note payment | ( | ) | ( | ) | ||||
| Proceeds from construction note payable | ||||||||
| Preferred stock dividends paid | ( | ) | ( | ) | ||||
| Payments on assumed debt from Gemini | ( | ) | ||||||
| Payments on note payable | ( | ) | ||||||
| Sale of preferred stock | ||||||||
| Common stock issued for exercised warrants | ||||||||
| Common stock issuance costs | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase/(decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
(Continued)
| 6 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| For the Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Construction note payable | $ | $ | ||||||
| Insurance premium note payment | $ | $ | ||||||
| Dividends accumulated on preferred stock | $ | $ | ||||||
| Operating lease liability | $ | $ | ||||||
| Acquisition stock issuances | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022 and March 31, 2022
(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 their common stock 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 of the issued and outstanding shares of the common stock of the Company. 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). (PRIVCO) subsequently changes its name to AMMO Munitions, Inc.
| 8 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Basis
The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2022. The results for the three and six month period ended September 30, 2022 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, 2022 and 2021, (b) the financial position at September 30, 2022, and (c) cash flows for the six month periods ended September 30, 2022 and 2021.
We use the accrual basis of accounting and U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.
Unless the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company” are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation and warrant-based compensation.
| 9 |
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, 2022 and March 31, 2022, we reserved $4,053,047 and $3,055,252, respectively, of allowance for doubtful accounts.
Restricted Cash
We consider cash to be restricted when withdrawal or general use is legally restricted. Our restricted cash balance is comprised of cash on deposit with banks to secure the Construction Note Payable as discussed in Note 10 . We report restricted cash in the Consolidated Balance Sheets as current or non-current classification based on the expected duration of the restriction.
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. The license agreement grants us the exclusive worldwide rights through April 12, 2026 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.
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 the University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028.
Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $
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, 2022 and 2021, the Company recognized royalty expenses of $
| 10 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.
The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
We intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other Intangible Assets
On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property.
On April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments, LLC, a Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments, LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of Gunbroker.com, an online auction marketplace dedicated to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships, intellectual property, software and domain names.
Impairment of Long-Lived Assets
We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the three and six months ended September 30, 2022 and 2021.
Revenue Recognition
We generate revenue from the production and sale of ammunition, ammunition casings, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to Accounting Standard Codification – Revenue from Contract with Customers (“ASC 606”). When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the following five-step model to determine revenue recognition:
| ● | Identification of a contract with a customer | |
| ● | Identification of the performance obligations in the contact | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the separate performance allocation | |
| ● | Recognition of revenue when performance obligations are satisfied |
| 11 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. Our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of our product, which typically occurs upon shipment of the product or the performance of the service. In the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. We will recognize revenue when the performance obligation is met.
For the three and six months ended September 30, 2022, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:
SCHEDULE OF CONCENTRATION OF RISKS
Revenues
at | Accounts Receivable | |||||||||||||||
| PERCENTAGES | Three Months Ended | Six Months Ended | September 30, 2022 | March 31, 2022 | ||||||||||||
| Customers: | ||||||||||||||||
| A | % | |||||||||||||||
| % | ||||||||||||||||
Disaggregated Revenue Information
The following table represent a disaggregation of revenue from customers by category. We attribute net sales to categories by product or services types; ammunition, ammunition casings, and marketplace fees. We note that revenue recognition processes are consistent between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product and service type.
SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Ammunition Sales | $ | $ | $ | $ | ||||||||||||
| Marketplace fee revenue | ||||||||||||||||
| Ammunition Casings Sales | ||||||||||||||||
| Total Sales | $ | $ | $ | $ | ||||||||||||
Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell directly to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated through our GunBroker.com online auction marketplace.
Advertising Costs
We
expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. Marketplace advertising costs
are expenses as they are incurred in cost of revenues. We incurred advertising expenses of $
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of September 30, 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts receivable, accounts payable, construction note payable and amounts due to related parties. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
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.
| 12 |
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 Codification 710 – Compensation – General (“ASC 710”).
Research and Development
To date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop new technologies and lines of ammunition.
We account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation – Stock Compensation (“ASC 718”). Which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors. Stock-based compensation is recognized on a straight line basis over the vesting periods and forfeitures are recognized in the periods they occur. There were and shares of common stock issued to employees, members of the Board of Directors, and members of our advisory committee for services during the three and six months ended September 30, 2022
Concentrations of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
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.
Excise Tax
As
a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect
an
| 13 |
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 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 up of 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 Parties participated in a successful mediation at the end of June 2022 and all matters relating to this former employee/claimant were confidentially resolved with the lawsuit dismissed with prejudice (Order pending). The settlement was covered by our Employment Practices Liability Policy and did not amount to a material amount. On February 10, 2022, AMMO filed a Texas state court complaint against Expansion Industries pursing eight (8) claims in pursuit of recovery of AMMO’s in primer acquisition deposit monies (i.e., Breach of Contract, Common Law Fraud, Violations of Texas Theft Liability Act, Conversion, Negligent Misrepresentation, Unjust Enrichment, Money Had and Received and Constructive Trust). AMMO has since moved aggressively to further the process, including successfully garnishing a portion of the deposit monies in Expansion bank accounts, filing a Motion for Summary Judgement, continuing to pursue written discovery, and amending the Complaint to add Expansion principal as an individual party. The putative primer manufacturer settled the two related lawsuits in September 2022 by repaying all deposit monies due AMMO, in addition to payment of principally all fees and costs incurred by the Company in pursuit of the resolution. The principal lawsuit and AMMO’s garnishment action adverse the defendant were dismissed with prejudice. Along with countless other suppliers of Remington Outdoors, AMMO was served with an avoidance claim lawsuit by the bankruptcy trustee. AMMO presented substantial “ordinary course” defense evidence to the Trustee and the case was settled for a nominal sum in September 2022, with the lawsuit dismissed with prejudice. AMMO is defended two contract arbitration cases adverse former employees that are presently in discovery, one involving an employee terminated for cause and the second action involving a termination without cause wherein the former employee is seeking contract wages, commissions and allegedly earned common stock. The Company also received notice in October that an OSHA whistleblower complaint had been filed with the US Department of Labor by an employee that had been terminated for cause. The regulatory filing was received after AMMO refused to capitulate to the former employee’s demands. AMMO is presently reviewing the OSHA Complaint for discussion with its insurer and potential participation in a voluntary mediation. There were no other known contingencies at September 30, 2022.
| 14 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We calculate basic income per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants. We use the treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase shares of common stock. Due to the net loss attributable to common shareholders for the three months ended September 30, 2022, potentially dilutive securities, which consists of common stock purchase warrants and equity incentive awards have been excluded from the dilutive EPS calculation as the effect would be antidilutive. The Company excluded warrants of for the six months ended September 30, 2022, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income/(loss) | $ | ( | ) | $ | $ | $ | ) | |||||||||
| Less: Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income/(loss) attributable to common stockholders | $ | ( | ) | $ | $ | $ | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares of common stock – Basic | ||||||||||||||||
| Effect of dilutive common stock purchase warrants | ||||||||||||||||
| Effect of dilutive contingently issuable common stock (1) | ||||||||||||||||
| Effect of dilutive equity incentive awards | ||||||||||||||||
| Weighted average shares of common stock - Diluted | ||||||||||||||||
| Basic earnings per share: | ||||||||||||||||
| Income/(loss) per share attributable to common stockholders – basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted earnings per share: | ||||||||||||||||
| Income/(loss) per share attributable to common stockholders – diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| (1) |
NOTE 4 – INVENTORIES
At September 30, 2022 and March 31, 2022, the inventory balances are composed of:
SCHEDULE OF INVENTORIES
| September 30, 2022 | March 31, 2022 | |||||||
| Finished product | $ | $ | ||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| Inventory net | $ | $ | ||||||
NOTE 5 – PROPERTY AND EQUIPMENT
We state equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years. Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation from the accounts and any resulting gain or loss is credited or charged to other income. We charge expenditures for normal repairs and maintenance to expense as incurred.
We capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.
| 15 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment consisted of the following at September 30, 2022 and March 31, 2022:
SCHEDULE OF EQUIPMENT
| September 30, 2022 | March 31, 2022 | |||||||
| Building | $ | $ | ||||||
| Construction in progress | ||||||||
| Leasehold Improvements | ||||||||
| Furniture and Fixtures | ||||||||
| Vehicles | ||||||||
| Equipment | ||||||||
| Tooling | ||||||||
| Total property and equipment | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
Expense for the three and six months ended September 30, 2022 totaled $
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 $
On
June 17, 2021, this agreement was amended which extended the maturity date to
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 $
NOTE 8 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale, AZ, Atlanta and Marietta, GA, and Manitowoc, WI under contracts we classify
as operating leases. None of our leases are financing leases. The Scottsdale lease does not include a renewal option. In August of 2021
we extended the lease of our Atlanta offices through May of 2027, accordingly we increased our Right of Use Assets and Operating Lease
Liabilities by $
As
of September 30, 2022 and March 31, 2022, total Right of Use Assets were $
| 16 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
weighted average remaining lease term and weighted average discount rate for operating leases were
Future minimum lease payments under non-cancellable leases as of September 30, 2022 are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES
| Years Ended March 31, | ||||
| 2023 (1) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total Lease Payments | ||||
| Less: Amount Representing Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| (1) |
NOTE 9 – NOTES PAYABLE – RELATED PARTY
For
the three and six months ended September 30, 2022, the Company made $
| 17 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONSTRUCTION NOTE PAYABLE
On
October 14, 2021, we entered into a Construction Loan Agreement (the “Loan Agreement”) with Hiawatha National Bank (“Hiawatha”).
The Loan Agreement specifies that Hiawatha may lend up to $
Additionally,
on October 14, 2021, we issued a Promissory Note in favor of Hiawatha (the “Note”) in the amount of up to $
We
can prepay the Note in whole or in part starting in July 2022 with a prepayment premium of one percent (
For
the six months ended September 30, 2022, approximately $
NOTE 11 – CAPITAL STOCK
Our authorized capital consists of shares of common stock with a par value of $ per share.
During the six month period ended September 30, 2022, we issued shares of common stock as follows:
| ● | shares were issued for cashless exercise of warrants | |
| ● |
shares were issued for the exercise of warrants for a total value of $ | |
| ● |
shares valued at $ |
| 18 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2022, outstanding and exercisable stock purchase warrants consisted of the following:
SCHEDULE OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
| Number of Shares | Weighted Average Exercise Price | Weighted Average Life Remaining | ||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Forfeited or cancelled | - | |||||||||||
| Outstanding at September 30, 2022 | $ | |||||||||||
| Exercisable at September 30, 2022 | $ | |||||||||||
As
of September 30, 2022, we had
| 19 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – PREFERRED STOCK
On May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The
Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly
authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series
A Preferred Stock will accrue on the stated amount of $ per share of the Series A Preferred Stock at a rate per annum equal to
Generally, the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event (each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for a limited period of time.
Preferred
dividends accumulated as of September 30, 2022 were $
| 20 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – ACQUISITION
Gemini Direct Investments, LLC
On April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s ownership of the GunBroker.com business. GunBroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and related products. The Merger was completed on the Effective Date.
In
consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i)
the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $
In connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) shares issued without being held in escrow or requiring prior stockholder approval; (b) shares issued subject to the Pledge and Escrow Agreement; and (c) shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the “Additional Securities”).
The
total estimated consideration consisted of cash payment of $
Pursuant
to the Merger Agreement, the Company completed a Post-Closing Adjustment following the close of the Merger equal to the Closing Working
Capital minus the Estimated Working Capital at closing of the Merger. Accordingly, the Company received a cash payment of $
In accordance with the acquisition method of accounting for business combinations, the assets acquired, and the liabilities assumed have been recorded at their respective fair values. The consideration in excess of the fair values of assets acquired, and liabilities assumed are recorded as goodwill.
The fair value of the consideration transferred was valued as of the date of the acquisition as follows:
SCHEDULE OF FAIR VALUE OF CONSIDERATION TRANSFERRED
| Cash | $ | |||
| Working capital adjustment | ||||
| Contingent consideration | ||||
| Common stock | ||||
| Assumed debt | ||||
| Fair value of Patent | $ |
The allocation for the consideration recorded for the acquisition is as follows:
SCHEDULE OF ALLOCATION FOR CONSIDERATION
| Accounts receivable, net | $ | |||
| Prepaid expenses | ||||
| Equipment | ||||
| Deposits | ||||
| Other Intangible assets(1) | ||||
| Goodwill(1) | ||||
| Right of use assets – operating leases | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Total Consideration | $ |
| (1) |
Unaudited Pro Forma Results of Operations
This
pro forma results of operations gives effect to the acquisition as if it had occurred April 1, 2021. Material pro forma adjustments include
the removal of approximately $
SCHEDULE OF UNAUDITED PRO FORMA RESULTS OF OPERATIONS
| INCOME STATEMENT DATA | For
the Six Months | |||
| Net revenues | $ | |||
| Net income | $ | |||
| 21 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We
recorded approximately $
NOTE 14 – GOODWILL AND INTANGIBLE ASSETS
During
our fiscal year ended March 31, 2022, we recorded $
Amortization
expenses related to our intangible assets for the three and six months ended September 30, 2022 were $
SCHEDULE OF INTANGIBLE ASSETS
| September 30, 2022 | ||||||||||||||||
| Life | Licenses | Patent | Other Intangible Assets | |||||||||||||
| Licensing Agreement – Jesse James | $ | $ | - | $ | - | |||||||||||
| Licensing Agreement – Jeff Rann | - | - | ||||||||||||||
| Streak Visual Ammunition patent | - | - | ||||||||||||||
| SWK patent acquisition | - | - | ||||||||||||||
| Jagemann Munition Components: | ||||||||||||||||
| Customer Relationships | - | - | ||||||||||||||
| Intellectual Property | - | - | ||||||||||||||
| Tradename | - | - | ||||||||||||||
| GDI Acquisition: | ||||||||||||||||
| Tradename | - | - | ||||||||||||||
| Customer List | - | - | ||||||||||||||
| Intellectual Property | - | - | ||||||||||||||
| Other Intangible Assets | - | - | ||||||||||||||
| Accumulated amortization – Licensing Agreements | ( | ) | - | - | ||||||||||||
| Accumulated amortization – Patents | - | ( | ) | - | ||||||||||||
| Accumulated amortization – Intangible Assets | - | - | ( | ) | ||||||||||||
| $ | $ | $ | ||||||||||||||
Annual amortization of intangible assets for the next five fiscal years are as follows:
SCHEDULE OF ANNUAL AMORTIZATION OF INTANGIBLE ASSET
| Years Ended March 31, | Estimates for Fiscal Year | |||
| 2023 (1) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Annual amortization of intangible assets | $ | |||
| (1) |
| 22 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – SEGMENTS
On April 30, 2021, we entered into an agreement and plan of merger with Gemini, which, along with its subsidiaries, engages primarily in the operation of an online marketplace dedicated to firearms, hunting, shooting and related products, which created a second reportable segment. Our Chief Executive Officer reviews financial performance based on our two operating segments as follows:
| ● | Ammunition – which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition and ammunition component products. | |
| ● | Marketplace – which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of firearms, ammunition and hunting/shooting accessories. |
In the current period, we began the reporting of the separate allocation of certain corporate general and administrative expenses including non-cash stock compensation expense, as such we have updated the prior period disclosure herein. The following tables set forth certain financial information utilized by management to evaluate our operating segments for the interim period presented:
SCHEDULE OF OPERATING SEGMENTS
| Ammunition | Marketplace | Corporate and other expenses | Total | |||||||||||||
| For the Three Months Ended September 30, 2022 | ||||||||||||||||
| Ammunition | Marketplace | Corporate and other expenses | Total | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Income from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Ammunition | Marketplace | Corporate and other expenses | Total | |||||||||||||
| For the Six Months Ended September 30, 2022 | ||||||||||||||||
| Ammunition | Marketplace | Corporate and other expenses | Total | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Income from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Ammunition | Marketplace | Total | ||||||||||||||
| For the Three Months Ended September 30, 2021 | ||||||||||||||||
| Ammunition | Marketplace | Corporate and other expenses |
Total | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Income from Operations | $ | $ | $ | ( |
) | $ | ||||||||||
| Ammunition | Marketplace | Total | ||||||||||||||
| For the Six Months Ended September 30, 2021 | ||||||||||||||||
| Ammunition | Marketplace | Corporate and other expenses |
Total | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Income from Operations | $ | $ | $ | ( |
) | $ | ||||||||||
NOTE 16 – INCOME TAXES
The
income tax provision effective tax rates were
The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March 31, 2018, 2019, 2020, 2021, and 2022 are subject to audit.
NOTE 17 – RELATED PARTY TRANSACTIONS
Through our acquisition of Gemini, a related party relationship was created through one of our Members of the Board of Directors by ownership
of entities that transacts with Gemini. Our Accounts Receivable consisted of $
NOTE 18 – SUBSEQUENT EVENTS
Settlement Agreement
On November 3, 2022, AMMO, Inc. (the “Company”) entered into a Settlement Agreement (the “Settlement Agreement”) with Steven F. Urvan and Susan T. Lokey (collectively with each of their respective affiliates and associates, the “Urvan Group”).
Pursuant to the Settlement Agreement, the Urvan Group has agreed to withdraw its notice of stockholder nomination of its seven director candidates (the “Urvan Candidates”) and its demand to inspect books and records, pursuant to Section 220 of the General Corporation Law of the State of Delaware, and the Company agreed to immediately increase the size of the Board from seven to nine directors and appoint Christos Tsentas and Wayne Walker (each, a “New Director” and the New Directors together with Mr. Urvan, the “Urvan Group Directors”) to the Board to serve as directors with terms expiring at the 2022 annual meeting of stockholders (the “2022 Annual Meeting”). The Company will include the Urvan Group Directors in its director candidates slate for the 2022 Annual Meeting and any subsequent annual meeting of stockholders of the Company occurring prior to the Termination Date (as defined below). The Company has agreed to not increase the size of the Board above nine directors prior to the Termination Date unless the increase is approved by at least seven directors. Mr. Wagenhals will continue to serve as a director and Chairman of the Board.
Pursuant to the Settlement Agreement, the Company will suspend the previously announced separation of Company into Action Outdoor Sports, Inc. and Outdoor Online, Inc., pending the further evaluation of strategic options by the Board.
The foregoing summary of the Settlement Agreement does not purport to be complete and is subject to, and qualified in its entirety, by reference to the full text of the Settlement Agreement, a copy of which was previously filed as Exhibit 10.1 in the Form 8-K filed with the SEC on November 7,2022, and incorporated herein by reference.
Common Stock Issuances
Subsequent
to the September 30, 2022, the Company issued shares for employees as compensation for a total value of $ or $ per share.
Additionally, shares were issued pursuant the exercise of warrants for a total value of $
| 23 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, our Consolidated Financial Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.
In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc., a Delaware corporate, and its wholly owned consolidated subsidiaries.
Overview
Our vision is to modernize the ammunition industry by bringing new technologies to market. We intend to do that through acquisition and application of intellectual property that is unique to the industry and through investing in manufacturing equipment and processes that enable us to compete globally.
Our innovative line of match grade armor piercing (“AP”), hard armor piercing incendiary (“HAPI”) tactical and ballistically matched (“BMMPR”) rounds are the centerpiece of the Company’s strategy to address the unique needs of the armed forces community. This ammunition was designed around a match grade portfolio of projectiles, that include a solid copper boat tail and armor piercing configuration. The distinction between these rounds and other sold, is that the manufacturing process was engineered to ensure extremely tight tolerances between each projectile manufactured, ensuring for the end user that the ballistic trajectory remains consistent between rounds without regard to the actual configuration or round fired. The Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 7.62x39, .300NM, .338 Lapua, 12.7 mm and .50 caliber BMG configurations. On February 2, 2021, we announced that we restarted our improved .50 caliber manufacturing line to address increased market demand and fulfill current orders.
Through JMC, we offer ammunition casings for pistol ammunition through large rifle ammunition. Jagemann Munitions Components is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann Munition Components™, has become one of the largest brass manufacturers in the country, with the capacity to produce more than 750 million pieces of brass each year with the ability to scale to 1 billion rounds on an annual basis. Proud of its American-made components and capabilities, the Company now has complete control over the manufacturing process. This results in a number of advantages when it comes to the brass that leaves our state-of-the-art facility.
| 24 |
On April 30, 2021, we acquired Gemini and nine of its subsidiaries, all of which are related to Gemini’s ownership of the GunBroker.com business.
GunBroker.com is a large online marketplace dedicated to firearms, hunting, shooting and related products. Third-party sellers list items on the site and federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations are followed using licensed firearms dealers as transfer agents.
The focus for our 2023 fiscal year is to continue to expand our brand presence into the markets identified above and to continue to grow our sales within our targeted markets. We intend to do this through establishing key strategic relationships, enrolling in government procurement programs, establishing relationships with leading law enforcement associations and programs, expanding distributor channels, and revitalized marketing campaigns.
Results of Operations
Our financial results for the three and six months ended September 30, 2022 reflect our newly positioned organization as we transition into our new manufacturing facility. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider and marketplace. We continue to focus on growing our top line revenue, and streamlining our operations, and as a result, we experienced a 3.4% increase in our Net Revenues for the six months ended September 30, 2022 compared with the six months ended September 30, 2021. This was the result of production capacity increase, as well as a full quarter of operations for our new marketplace, GunBroker.com, in comparison to the prior year period.
The following table presents summarized financial information taken from our condensed consolidated statements of operations for the three and six months ended September 30, 2022 compared with the three and six months ended September 30, 2021:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Net Sales | $ | 48,288,559 | $ | 61,002,085 | $ | 109,044,585 | $ | 105,478,417 | ||||||||
| Cost of Revenues | 35,452,850 | 34,786,017 | 78,073,214 | 60,291,455 | ||||||||||||
| Gross Margin | 12,835,709 | 26,216,068 | 30,971,371 | 45,186,962 | ||||||||||||
| Sales, General & Administrative Expenses | 13,339,222 | 11,987,750 | 26,412,143 | 21,278,130 | ||||||||||||
| Income (loss) from Operations | (503,513 | ) | 14,228,318 | 4,559,228 | 23,908,832 | |||||||||||
| Other income (expense) | ||||||||||||||||
| Other expense | (92,167 | ) | (112,806 | ) | (19,156 | ) | (256,660 | ) | ||||||||
| Income (loss) before provision for income taxes | $ | (595,680 | ) | $ | 14,115,512 | $ | 4,540,072 | $ | 23,652,172 | |||||||
| Provision for income taxes | 207,827 | - | 2,090,552 | - | ||||||||||||
| Net Income (Loss) | $ | (803,507 | ) | $ | 14,115,512 | $ | 2,449,520 | $ | 23,652,172 | |||||||
Non-GAAP Financial Measures
We analyze operational and financial data to evaluate our business, allocate our resources, and assess our performance. In addition to total net sales, net loss, and other results under accounting principles generally accepted in the United States (“GAAP”), the following information includes key operating metrics and non-GAAP financial measures we use to evaluate our business. We believe these measures are useful for period-to-period comparisons of the Company. We have included these non-GAAP financial measures in this Quarterly Report on Form 10-Q because they are key measures we use to evaluate our operational performance, produce future strategies for our operations, and make strategic decisions, including those relating to operating expenses and the allocation of our resources. Accordingly, we believe these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Adjusted EBITDA
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| 30-Sep-22 | 30-Sep-21 | 30-Sep-22 | 30-Sep-21 | |||||||||||||
| Reconciliation of GAAP net income to Adjusted EBITDA | ||||||||||||||||
| Net Income (Loss) | $ | (803,507 | ) | $ | 14,115,512 | $ | 2,449,520 | $ | 23,652,172 | |||||||
| Provision for Income Taxes | 207,827 | - | 2,090,552 | - | ||||||||||||
| Depreciation and amortization | 4,294,845 | 4,667,957 | 8,594,968 | 8,154,748 | ||||||||||||
| Excise Taxes | 2,435,051 | 3,937,118 | 6,147,392 | 6,334,889 | ||||||||||||
| Interest expense, net | 97,265 | 112,806 | 217,752 | 278,085 | ||||||||||||
| Employee stock awards | 1,176,375 | 1,153,625 | 2,351,438 | 1,853,125 | ||||||||||||
| Stock grants | 43,750 | 65,098 | 91,594 | 132,012 | ||||||||||||
| Other income, net | (5,098 | ) | - | (198,596 | ) | (21,425 | ) | |||||||||
| Contingent consideration fair value | (23,944 | ) | (3,444 | ) | (25,246 | ) | (60,082 | ) | ||||||||
| Proxy contention fees | 741,131 | - | 741,131 | - | ||||||||||||
| Adjusted EBITDA | $ | 8,163,695 | $ | 24,048,672 | $ | 22,460,505 | $ | 40,323,524 | ||||||||
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Adjusted EBITDA is a non-GAAP financial measure that displays our net income (loss), adjusted to eliminate the effect of certain items as described below.
We have excluded the following non-cash expenses from our non-GAAP financial measures: provision or benefit for income taxes, depreciation and amortization, share-based or warrant-based compensation expenses, changes to the contingent consideration fair value, expenses incurred as a result of a proxy contention. We believe it is useful to exclude these non-cash expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, as these items are not components of our core operations and we have included adjustment for excise taxes..
Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
| ● | Employee stock awards and stock grants expense has been, and will continue to be for the foreseeable future, a significant recurring expense in the Company and an important part of our compensation strategy; | |
| ● | the assets being depreciated or amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and | |
| ● | non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs | |
| ● | other companies, including companies in our industry, may calculate the non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures. |
Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net loss and our other financial results presented in accordance with GAAP.
Net Sales
The following table shows our net sales by proprietary ammunition versus standard ammunition for the three and six months ended September 30, 2022 and 2021. “Proprietary Ammunition” include those lines of ammunition manufactured by our facilities that are sold under the brand names: STREAK VISUAL AMMUNITION™ and Stelth. We define “Standard Ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. Our “Standard Ammunition” is manufactured within our facility and may also include completed ammunition that has been acquired in the open market for sale to others. Also included in this category is low cost target pistol and rifle ammunition, as well as bulk packaged ammunition manufactured by us using reprocessed brass casings. Ammunition within this product line typically carries lower gross margins.
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| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Proprietary Ammunition | $ | 3,351,993 | $ | 1,333,347 | $ | 6,207,926 | $ | 2,443,968 | ||||||||
| Standard Ammunition | 26,034,976 | 38,875,055 | 64,148,926 | 66,116,214 | ||||||||||||
| Ammunition Casings | 4,338,896 | 4,016,467 | 7,620,093 | 7,868,953 | ||||||||||||
| Marketplace Revenue | 14,562,694 | 16,777,216 | 31,067,640 | 29,049,282 | ||||||||||||
| Total Sales | $ | 48,288,559 | $ | 61,002,085 | $ | 109,044,585 | $ | 105,478,417 | ||||||||
Sales for the three and six months ended September 30, 2022 decreased 21% and increased 3%, respectively, or approximately $12.7 million and $3.6 million, over the three and six months ended September 30, 2021. The decrease for the three month period was largely the result of a decrease of $12.8 million in sales in bulk pistol and rifle ammunition, an increase of $2.0 million of sales of Proprietary Ammunition, and a decrease of $2.2 million generated from our marketplace, GunBroker.com. The increase for the six month period was the result of an increase of approximately $3.8 million of sales of Proprietary Ammunition, a decrease of $2.0 million of sales in bulk pistol and rifle ammunition, an increase of approximately and $0.2 million of sales from our casing operations, and an increase of approximately $2.0 million of revenue generated from our marketplace, GunBroker.com, which includes auction revenue, payment processing revenue, and shipping income. Management expects the sales growth rate of Proprietary Ammunition to greatly outpace the sales of our Standard Ammunition.
We are focused on continuing to grow top line revenue quarter-over-quarter as we continue to further expand distribution into commercial markets, introduce new product lines, and continue to initiate sales to U.S. law enforcement, military, and international markets.
Through our acquisition of SWK, the Company has developed and deployed a new line of tactical armor piercing (AP) and hard armor piercing incendiary (HAPI) precision ammunition to meet the lethality requirements of both the US and foreign military customers. This line was formally launched at SHOT Show in Las Vegas, where our team demonstrated or presented the capability to more than 15 countries around the world. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions. The Company has since developed the ballistic match (BMMPR) and signature-on-target (SoT) rounds under contract with the U.S. Government in support of US special operations which have been publicly announced pursuant to governmental authorization. Additional work continues in support of the military operations of the U.S. and its ally military components which is not currently subject to disclosure.
It is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for our Company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution channels, both in the United States and abroad, which are reasonably anticipated to drive sustained sales opportunity in the military, law enforcement, and commercial markets.
Sales outside of the United States require licenses and approval from either the U.S. Department of Commerce or the U.S. State Department, which typically takes approximately 30 days to receive. On June 16, 2022, we renewed our annual registration with the International Traffic in Arms Regulations (“ITAR”), which remains valid through the report date. This permits the Company to export and broker ammunition and other controlled items covered under ITAR.
Cost of Revenues
Cost of Revenues increased by approximately $.7 million and $17.8 million from $34.8 million and $60.3 million to $ 35.5 million and $78.1 million for the three and six months ended September 30, 2022 compared to the comparable period ended in 2021. This was the result of a significant increase in net sales as well increases to non-cash depreciation related to increases in production equipment, expensing of increased labor, overhead, and raw materials used to produce finished product during 2022 as compared to 2021.
Gross Margin
Our gross margin percentage decreased to 26.6% and 28.4% from 42.9% and 42.8% during the three and six months ended September 30, 2022, respectively, as compared to the same period in 2021. The decrease in our gross margin was related to increased costs of raw materials, labor, and overhead costs.
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We believe as we continue to grow sales through new markets and expanded distribution that our gross margins will also increase by efficiencies added through our new production facility scheduled to come online this fiscal year. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:
| ● | Increased product sales, specifically of proprietary lines of ammunition, like the STREAK VISUAL AMMUNITION™, Stelth and now our tactical Armor Piercing (AP) and Hard Armor Piercing Incendiary (HAPI) precision ammunition, all of which carry higher margins as a percentage of their selling price; | |
| ● | Introduction of new lines of ammunition that historically carry higher margins in the consumer and government sectors; | |
| ● | Reduced component costs through operation of our ammunition segment and expansion of strategic relationships with component providers; | |
| ● | Expanded use of automation equipment that reduces the total labor required to assemble finished products; | |
| ● | And better leverage of our fixed costs through expanded production to support the sales objectives. |
Operating Expenses
Overall, for the three and six months ended September 30, 2022, our operating expenses increased by approximately $1.4 million and $5.1 million over the three and six months ended September 30, 2021 and increased as a percentage of sales from 19.7% and 20.1% for the three and six months ended September 30, 2021 to 27.6% and 24.2% for the three and six months ended September 30, 2022. Our operating expenses include non-cash depreciation and amortization expense of approximately $3.2 million and $6.6 million for the three and six months ended September 30, 2022, respectively. Our operating expenses consisted of commissions related to our sales increases, stock compensation expense associated with issuance of our Common Stock in lieu of cash compensation for employees, board members, and key consultants for the organization during the period. Operating expenses for the three and six months ended September 30, 2022 included noncash expenses of approximately $7.2 million and $13.4 million, respectively. We expect to see administrative expenditures decrease as a percentage of sales in the 2023 fiscal year, as we leverage our work force and expand our sales opportunities.
During the three months ended September 30, 2022, our selling and marketing expenses decreased by approximately $0.5 million, while for the six months ended September 30, 2022 our selling and marketing expenses increased by approximately $0.3 million, in comparison to the three and six months ended September 30, 2021. The increase was primarily related to commission on the increases in the sale of our products resulting of approximately $2.0 million for the six months ended September 30, 2022.
Our corporate general & administrative expenses increased approximately $1.0 million and $2.9 million in the three and six months ended September 30, 2022 from the comparable prior period mainly due to inclusion of the full six months of Gemini expenses for the six month period ended September 30, 2022, as compared to partial inclusion during the period ended September 30, 2021, as a result of the acquisition occurring on April 30, 2021, as well as, $0.7 million of fees related to our proxy contention in the three months ended September 30, 2022.
Employee salaries and related expenses increased approximately $1.3 million and $1.7 million for the three and six months ended September 30, 2022 compared to the comparable period ended in 2021. The increase for the six months ended September 30, 2022 when compared to the prior period, was primary related to an increase in stock compensation of approximately $0.5 million.
Depreciation and amortization expenses for the three months ended September 30, 2022 decreased by approximately $0.4 million, and increased for the 6 months ended September 30, 2022 by approximately $0.3 million.
Interest and Other Expenses
For the three and six months ended September 30, 2022, interest expense decreased by approximately $0.1 million and $0.1 million compared with the comparable three and six months ended September 30, 2021. The change from the prior periods was mainly due to the repayment of notes during the three and six months ended September 30, 2022.
Income Taxes
For the three and six months ended September 30, 2022, we recorded a provision for federal and state income taxes of approximately $0.2 million and $2.1 million, respectively. There was no provision for federal and state income taxes during the three and six months ended September 30, 2021.
Net Income
We ended the three months ended September 30, 2022 with a net loss of approximately $.8 million compared with a net income of approximately $14.1 million for the three months ended September 30, 2021. We ended the six months ended September 30, 2022 with a net income of approximately $2.5 million compared with a net income of approximately $23.7 million for the six months ended September 30, 2021.
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Our goal is to continue to improve our operating results as we focus on increasing sales and controlling our operating expenses.
Liquidity and Capital Resources
As of September 30, 2022, we had $29,004,539 of cash and cash equivalents, an increase of $5,723,064 from March 31, 2022.
Working Capital is summarized and compared as follows:
| September 30, 2022 | March 31, 2022 | |||||||
| Current assets | $ | 132,876,446 | $ | 129,691,636 | ||||
| Current liabilities | 31,925,735 | 35,823,311 | ||||||
| $ | 100,950,711 | $ | 93,868,325 | |||||
Changes in cash flows are summarized as follows:
Operating Activities
For the six months ended September 30, 2022, net cash provided by operations totaled approximately $17.7 million. This was primarily the result of net income of approximately $2.5 million, which was offset by increases in our inventories of approximately $9.6 million, decreases in deposits of approximately $2.6 million, decreases in our accounts receivable of approximately $12.5 million, decreases in prepaid expenses of approximately $1.1 million, decreases in our accounts payable of approximately $3.0 million, and decreases of other liabilities of approximately $1.3 million. Non-cash expenses for depreciation and amortization totaled approximately $8.6 million and non-cash expenses for employee stock awards totaled $2.4 million.
For the six months ended September 30, 2021, net cash used in operations totaled approximately $7.1 million. This was primarily the result of net income of approximately $23.7 million, which was offset by increases in our inventories of approximately $19.1 million, increases in deposits of approximately $14.7 million, increases in our accounts receivable of approximately $14.2 million, decreases in prepaid expenses of approximately $1.6 million, and increases in our accounts payable and accrued liabilities of $3.9 million and $1.0 million, respectively. Non-cash expenses for depreciation and amortization totaled approximately $8.2 million and non-cash expenses for employee stock awards totaled $1.9 million.
Investing Activities
During the six months ended September 30, 2022, we used approximately $8.4 million in net cash for investing activities. Net cash used in investing activities consisted of approximately $8.4 million related to purchases of production equipment and the construction of our new manufacturing facility in Manitowoc, WI.
During the six months ended September 30, 2021, we used approximately $55.7 million in net cash for investing activities. Net cash used in investing activities consisted of approximately $50.5 million used in connection with the merger of Gemini, and approximately $5.2 million related to purchases of production equipment and the construction of our new manufacturing facility in Manitowoc, WI.
Financing Activities
During the six months ended September 30, 2022, net cash used in financing activities was approximately $2.6 million. This was the net effect of an approximate $0.8 million reduction in our Inventory Credit Facility, approximately $1.3 million from insurance premium note payments, approximately $1.4 million of Preferred Stock dividends paid, generation of approximately $45.6 million from accounts receivable factoring, which was offset by payments of approximately $45.3 million, and proceeds from our Construction Note Payable of $1.0 million.
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During the six months ended September 30, 2021, net cash used in financing activities was approximately $22.5 million. This was the net effect of a $50.0 million payment on debt assumed from Gemini, $35.0 million of proceeds from the sale of our preferred stock net of approximately $3.2 million of issuance costs, approximately $0.9 million was generated from common stock issued for exercised warrants, the $4.0 million repayment of a note payable, payments on insurance premium note of approximately $1.1 million and an approximate $0.9 million reduction in our Inventory Credit Facility. Additionally, approximately $50.4 million was generated from accounts receivable factoring, which was offset by payments of approximately $49.1 million.
Liquidity
Existing working capital, cash flow from operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes. These sources have been adequate to fund our recurring cash expenditures including but not limited to our working capital requirements, capital expenditures to expand our operations, debt repayments, and acquisitions. We intend to continue use the aforementioned sources of funding for capital expenditures, debt repayments, share repurchases and any potential acquisitions.
Leases
We lease four locations that are used for our offices, production, and warehousing. As of September 30, 2022, we had $3.0 million of fixed lease payment obligations with $1.0 million payable within the next 12 months. Please refer to Note 8– Leases for additional information.
Related Party Note Payable
As of September 30, 2022, we had an outstanding balance on our Related Party Note Payable of approximately $0.5 million, which is due within the next 12 months.
Construction Note Payable
We will finance a portion of our new production facility with our Construction Note Payable. We expect to make $0.8 million in principal and interest payments within the next 12 months. The total principal balance of the Construction Note is expected to be $11.6 million upon completion of the project and will mature on October 14, 2026.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, and stock-based compensation. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended March 31, 2022, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the three and six months ended September 30, 2022. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were not effective. Our controls were ineffective due to the size of the Company and available resources. There are limited personnel to assist with the accounting and financial reporting function, which results in: (i) a lack of segregation of duties and (ii) controls that may not be adequately designed or operating effectively. Despite the existence of material weaknesses, the Company believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the three months ended September 30, 2022, in accordance with GAAP.
Changes in internal controls
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarterly period from July 1, 2022 to September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings, and investigations in the ordinary course of business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations or cash flows. We record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.
Please reference the Contingencies section of Note 2 of our Financial Statements for additional disclosure.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The authorized capital of the Company is 200,000,000 shares of Common Stock with a par value of $0.001 per share and 10,000,000 shares of Preferred Stock with a $0.001 par value per share.
There were no unregistered sales of the Company’s equity securities during the quarter ended September 30, 2022 that were not previously reported in a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed Herewith.
** Furnished Herewith.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AMMO, INC. | ||
| /s/ Fred W. Wagenhals | ||
| Dated: November 14, 2022 | By: | Fred W. Wagenhals, Chief Executive Officer |
| /s/ Robert D. Wiley | ||
| Dated: November 14, 2022 | By: | Robert D. Wiley, Chief Financial Officer |
| 34 |
Exhibit 31.1
CERTIFICATION
I, Fred W. Wagenhals, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of AMMO, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | By: | /s/ Fred W. Wagenhals |
| Name: | Fred W. Wagenhals | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Robert D. Wiley, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of AMMO, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | By: | /s/ Robert D. Wiley |
| Name: | Robert D. Wiley | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Quarterly Report of AMMO, Inc. (the “ Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Fred W. Wagenhals, Chief Executive Officer (Principal Executive Officer) of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Quarterly Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 14, 2022 | By: | /s/ Fred W. Wagenhals |
| Name: | Fred W. Wagenhals | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Quarterly Report of AMMO, Inc. (the “ Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Rob Wiley, Chief Financial Officer (Principal Financial Officer) of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Quarterly Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 14, 2022 | By: | /s/ Rob Wiley |
| Name: | Rob Wiley | |
| Title: | Chief Financial Officer (Principal Financial Officer) |