Outdoor Holding Co 10-Q for FY2022 Q3
Outdoor Holding Co (POWW)
About this 10-Q
Outdoor Holding Co filed this 10-Q on February 14, 2022, covering the quarter ended December 31, 2021 (FY2022 Q3).
Headline figures
Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $64.69M
- up 289.2% from $16.62M a year earlier
- Net income
- $9.07M
- compared with a net loss of $1.91M a year earlier
- Diluted EPS
- $0.07
- compared with -$0.04 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 February 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
| December 31, 2021 | March 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Due from related parties | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Equipment, net | ||||||||
| Other Assets: | ||||||||
| Deposits | ||||||||
| Licensing agreements, net | ||||||||
| Patents, net | ||||||||
| Other intangible assets, net | ||||||||
| Goodwill | - | |||||||
| Right of use assets - operating leases | ||||||||
| Deferred income tax asset | - | |||||||
| 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 | ||||||||
| Insurance premium note payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Contingent consideration payable | ||||||||
| Notes payable related party, net of current portion | ||||||||
| Note payable | - | |||||||
| 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 December 31, 2021 and March 31, 2021, 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)
| For the Three Months Ended December 31, | For the Nine Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 | ||||||||||||||||
| Loss on purchase | - | - | - | |||||||||||||
| Total operating expenses | ||||||||||||||||
| Income/(Loss) from Operations | ( | ) | ( | ) | ||||||||||||
| Other Expenses | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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
For the Three and Nine Months Ended December 31, 2021 and 2020
(Unaudited)
| Preferred Stock | Common Shares | Additional | Stock | |||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Paid-In Capital | Subscription Receivable | Accumulated (Deficit) | Total | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Acquisition stock issuances | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||
| Common stock issued for cash,shares | ||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes | ||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes,shares | ||||||||||||||||||||||||||||||||
| Stock subscription receivable for exercised warrants | ||||||||||||||||||||||||||||||||
| Stock subscription receivable for exercised warrants, Shares | ||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion - related party | ||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion - related party, Shares | ||||||||||||||||||||||||||||||||
| Common stock issuance costs | ||||||||||||||||||||||||||||||||
| Issuance of warrants for convertible notes | ||||||||||||||||||||||||||||||||
| Common stock issued for covertible notes | ||||||||||||||||||||||||||||||||
| Common stock issued for covertible notes, Shares | ||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion | ||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion, Shares | ||||||||||||||||||||||||||||||||
| Issurance of warrants for convertible notes | ||||||||||||||||||||||||||||||||
| 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 of Series A Preferred Stock, net of issuance costs | - | - | - | - | ||||||||||||||||||||||||||||
| Warrant issued for services | - | - | ||||||||||||||||||||||||||||||
| Preferred stock dividends declared | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Balance as of March 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for convertible notes | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for exercised warrants | - | - | - | - | ||||||||||||||||||||||||||||
| Stock subscription receivable for exercised warrants | - | - | ( | ) | - | - | ||||||||||||||||||||||||||
| Common stock issued for debt conversion - related party | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for cashless warrant exercise | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||
| Common stock issuance costs | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | ||||||||||||||||||||||||||||
| Employee stock awards | - | - | - | - | ||||||||||||||||||||||||||||
| Stock grants | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Issuance of warrants for convertible notes | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Preferred Stock | Common Shares | Additional | Stock | |||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Paid-In Capital | Subscription Receivable | Accumulated (Deficit) | Total | |||||||||||||||||||||||||
| Balance as of September 30, 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 | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Warrant issued for services | - | - | ||||||||||||||||||||||||||||||
| Issuance of Series A Preferred Stock, net of issuance costs | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Preferred stock dividends declared | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for convertible notes | - | - | - | - | ||||||||||||||||||||||||||||
| Common stock issued for exercised warrants | - | - | ||||||||||||||||||||||||||||||
| Stock subscription receivable for exercised warrants | ( | ) | - | - | ||||||||||||||||||||||||||||
| Common stock issued for debt conversion | - | - | ||||||||||||||||||||||||||||||
| Common stock issued for cashless warrant exercise | ( | ) | - | - | - | |||||||||||||||||||||||||||
| Common stock issuance costs | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||
| Employee stock awards | - | - | - | - | ||||||||||||||||||||||||||||
| Stock grants | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Issuance of warrants for convertible notes | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| For the Nine Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Income/(Loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile Net Loss to Net Cash used in operations: | ||||||||
| Depreciation and amortization | ||||||||
| Debt discount amortization | ||||||||
| Employee stock awards | ||||||||
| Stock grants | ||||||||
| Stock for services | ||||||||
| Contingent consideration payable fair value | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts | ||||||||
| (Gain)/loss on disposal of assets | ( | ) | ||||||
| Reduction in right of use asset | ||||||||
| Warrant issued for services | - | |||||||
| Deferred income taxes | - | |||||||
| Stock issued in lieu of cash payments | - | |||||||
| Interest on convertible promissory notes | - | |||||||
| Paycheck protection program note forgiveness | - | ( | ) | |||||
| Loss on Jagemann Munition Components | - | |||||||
| Stock and warrants for note conversion | - | |||||||
| 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 used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Gemini acquisition | ( | ) | - | |||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| 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 assumed debt from Gemini | ( | ) | - | |||||
| Payments on note payable - related party | ( | ) | ( | ) | ||||
| Payments on insurance premium note payment | ( | ) | ( | ) | ||||
| Payments on note payable | ( | ) | - | |||||
| Proceeds from paycheck protection program notes | - | |||||||
| Proceeds from note payable related party issued | - | |||||||
| Proceeds from note payable | - | |||||||
| Proceeds from convertible promissory notes | - | |||||||
| Sale of preferred stock | - | |||||||
| Sale of common stock | - | |||||||
| Common stock issued for exercised warrants | ||||||||
| Stock issuance costs | ( | ) | ( | ) | ||||
| Preferred stock dividends paid | ( | ) | - | |||||
| Net cash used in/(provided by) financing activities | ( | ) | ||||||
| Net increase/(decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
(Continued)
| 6 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| For the Nine Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Acquisition stock issuances | $ | $ | ||||||
| Insurance premium note payment | $ | $ | ||||||
| Dividends accumulated on preferred stock | $ | $ | ||||||
| Operating lease liability | $ | $ | ||||||
| Construction note payable | $ | $ | ||||||
| Warrant issued for services | $ | $ | ||||||
| Note payable related party | $ | $ | ||||||
| Convertible promissory note | $ | $ | ||||||
| Note payable related party conversion | $ | $ | ||||||
| Stock subscription receivable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and March 31, 2021
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY
We were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On December 15, 2016, the Company’s majority shareholders sold 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, 2021. The results for the three and nine month periods ended December 31, 2021 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and nine month periods ended December 31, 2021 and 2020, (b) the financial position at December 31, 2021, and (c) cash flows for the nine month periods ended December 31, 2021 and 2020.
We use the accrual basis of accounting and U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.
Unless the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company” are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, 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 December 31, 2021
and March 31, 2021, we reserved $
License Agreements
We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms (“JJF”), a Texas limited liability company. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
We are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded Products. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Patents
On September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by 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 nine months
ended December 31, 2021 and 2020, 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.
Revenue Recognition
We generate revenue from the production and sale of ammunition, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to 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 nine months ended December 31, 2021, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:
SCHEDULE OF CONCENTRATION OF RISKS
Revenues at December 31, 2021 | Accounts Receivable | |||||||||||||||
| PERCENTAGES | Three Months Ended | Nine Months Ended | December 31, 2021 | March 31, 2021 | ||||||||||||
| Customers: | ||||||||||||||||
| A | % | |||||||||||||||
| B | % | |||||||||||||||
| C | % | |||||||||||||||
| D | % | |||||||||||||||
| E | % | |||||||||||||||
| F | % | |||||||||||||||
| % | % | % | ||||||||||||||
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. The Company notes that revenue recognition processes are consistent between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product and service type.
SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| December 31, 2021 | December 31, 2020 | December 31, 2021 | December 31, 2020 | |||||||||||||
| 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 $
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. These provisions are based on our best estimates. At December 31, 2021, and March 31, 2021, we conducted a full analysis of inventory on hand and expensed all inventory not currently in use, or for which there was no future demand.
Research and Development
To date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop new technologies and lines of ammunition.
| 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
Compensated Absences
We accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General (“ASC 710”).
We account for stock-based compensation at fair value in accordance with 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 nine months ended December 31, 2021, respectively. There were and shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during the three and nine ended December 31, 2020, respectively.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of December 31, 2021. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts receivable, accounts payable, and amounts due to related parties. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
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 matter is currently the subject of administrative investigation by the DOL via the Occupational Safety and Health Administration. The Company filed a timely Position Statement with the DOL in October of 2019 in response to the Complaint. The Company received a Due Process letter on January 13, 2022 and responded as directed with supplemental analysis on February 1, 2022. The Company disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The matter was resolved in a confidential manner on or about December 12, 2021. The Company retrieved the unlawfully removed assets, obtained a full release of all claims arising in the subject lawsuit and that might arise in the future relating to contingent consideration the former employee might have been entitled to in the future, subject to certain sales targets being achieved. The lawsuit was dismissed with prejudice, all parties bearing their own fees and costs. There were no other known contingencies at December 31, 2021.
| 14 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We calculate basic income/(loss) per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants. We use the treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase shares of common stock. Due to the loss from operations in the three and nine months ended December 31, 2020, there are no common shares added to calculate the dilutive loss per share for that period as the effect would be antidilutive. The Company excluded warrants of for the three months ended December 31, 2021 and warrants of and for the three and nine months ended December 31, 2020, respectively, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.
| For
the Three Months Ended December 31, | For
the Nine Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 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 | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
NOTE 4 – INVENTORIES
At December 31, 2021 and March 31, 2021, the inventory balances are composed of:
SCHEDULE OF INVENTORIES
| December 31, 2021 | March 31, 2021 | |||||||
| Finished product | $ | $ | ||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| $ | $ | |||||||
NOTE 5 – EQUIPMENT
We
state equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line method at rates intended
to depreciate the cost of assets over their estimated useful lives, which are generally
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
Equipment consisted of the following at December 31, 2021 and March 31, 2021:
SCHEDULE OF EQUIPMENT
| December 31, 2021 | March 31, 2021 | |||||||
| Construction in progress | $ | $ | ||||||
| Leasehold Improvements | ||||||||
| Furniture and Fixtures | ||||||||
| Vehicles | ||||||||
| Equipment | ||||||||
| Tooling | ||||||||
| Total property and equipment | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net equipment | $ | $ | ||||||
Depreciation
Expense for the three and nine months ended December 31, 2021 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, 2020,
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 and Payson, AZ, Atlanta and Marietta, GA, and Manitowoc and Two Rivers,
WI under contracts we classify as operating leases. None of our leases are financing leases. The Payson lease had an option to renew
for
Consolidated
lease expense for the three and nine months ended December 31, 2021 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 December 31, 2021 are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES
| Years Ended March 31, | ||||
| 2022 (1) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | ||||
| Less: Amount Representing Interest | ( | ) | ||
| Operating lease liability, net | $ | |||
| (1) |
| 17 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – NOTES PAYABLE – RELATED PARTY
For
the three and nine months ended December 31, 2021, the Company made $
| 18 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CAPITAL STOCK
During the nine months period ended December 31, 2021, we issued shares of common stock as follows:
| ● |
shares were issued in connection with our merger of Gemini Direct Investments, LLC valued at $ | |
| ● |
shares were issued to investors for exercised warrants valued for $ | |
| ● | shares were issued for cashless exercise of warrants | |
| ● | shares valued at $ were issued for services and equipment provided to the Company | |
| ● |
shares valued at $ |
| 19 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2021, outstanding and exercisable stock purchase warrants consisted of the following:
SCHEDULE OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
Number of Shares | Weighted Averaged Exercise Price | Weighted Average Life Remaining | ||||||||||
| Outstanding at March 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | - | |||||||||
| Forfeited or cancelled | - | |||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Exercisable at December 31, 2021 | $ | |||||||||||
As
of December 31, 2021, we had
| 20 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – PREFERRED STOCK
On May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”), as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, ranks: (1) senior to all classes or series of Common Stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Series A Preferred Stock; (2) on parity with any future class or series of the Company’s capital stock expressly designated as ranking on parity with the Series A Preferred Stock; (3) junior to any future class or series of the Company’s capital stock expressly designated as ranking senior to the Series A Preferred Stock; and (4) junior to all the Company’s existing and future indebtedness.
The Series A Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares for the Series A Preferred Stock are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders (i.e., after satisfaction of all the Company’s liabilities to creditors, if any) an amount equal to $ per share of the Series A Preferred Stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment before any distribution or payment may be made to holders of shares of Common Stock or any other class of or series of the Corporation’s capital stock ranking, as to rights to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up, junior to the Series A Preferred Stock.
The
Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly
authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series
A Preferred Stock will accrue on the stated amount of $ per share of the Series A Preferred Stock at a rate per annum equal to
Generally, the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event (each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for a limited period of time.
On
May 19, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative
of several underwriters (collectively, the “Underwriters”), relating to a firm commitment public offering of newly
issued shares of our 8.75% Series A Preferred Stock at a public offering price of $ per share. Under the terms of the Underwriting
Agreement, we granted the Underwriters a 45-day option to purchase up to an additional shares of Series A Preferred Stock from
us. The gross proceeds to us from the sale of shares of Series A Preferred Stock, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us, was $
On
May 25, 2021, we entered into an additional underwriting agreement with Alexander Capital, L.P. relating to a firm commitment public
offering of newly issued shares of our Series A Preferred Stock at a public offering price of $ per share. The closing of
the offering took place on May 27, 2021. The gross proceeds to us from the sale of shares of Series A Preferred Stock, before
deducting underwriting discounts and commissions and estimated offering expenses payable by us, were $
Preferred
dividends accumulated as of December 31, 2021 were $
| 21 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ACQUISITION
Gemini Direct Investments, LLC
On April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s ownership of the Gunbroker.com business. Gunbroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and related products. The Merger was completed on the Effective Date.
In
consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i)
the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $
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 preliminary fair value of the consideration transferred was valued as of the date of the acquisition as follows:
SCHEDULE OF FAIR VALUE OF CONSIDERATION TRANSFERRED
| Cash | $ | |||
| Estimated working capital adjustment | ||||
| Contingent consideration | ||||
| Common stock | ||||
| Assumed debt | ||||
| Fair value of Patent | $ |
The preliminary 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) | (1) | |||
| Goodwill(1) | (1) | |||
| Right of use assets - operating leases | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Total Consideration | $ |
| (1) |
| 22 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We
recorded approximately $
The purchase price allocation is preliminary. The preliminary estimated fair value recorded for the acquired assets and liabilities assumed with excess consideration recorded as goodwill represent management’s estimate of fair value and are subject to change when additional information may become available. The purchase price allocation will continue to be preliminary until the Company is able to finalize the allocation. The Company expects to finalize the purchase price allocation within the measurement period, but not more than one year following the closing date of the Merger. The final amounts from the valuation may significantly and materially differ from the preliminary allocation herein.
Unaudited Pro Forma Results of Operations
These
pro forma results of operations gives effect to
the acquisition as if it had occurred on 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 Nine Months Ended December 31, 2021 | |||
| Net revenues | $ | |||
| Net income | $ | |||
NOTE 13 – GOODWILL AND INTANGIBLE ASSETS
In
the current period, we recorded $
Amortization
expenses related to our intangible assets for the three and nine months ended December 31, 2021 were $
SCHEDULE OF INTANGIBLE ASSETS
| December 31, 2021 | ||||||||||||||||
| 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 | |||
| 2022 (1) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Annual amortization of intangible assets | $ | |||
| (1) |
| 23 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – SEGMENTS
On April 30, 2021, the Company 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. As a result, at December 31, 2021, our Chief Executive Officer reviews financial performance based on two operating segments as follows:
| ● | Ammunition – which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition and ammunition component products. | |
| ● | Marketplace – which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of firearms, ammunition and hunting/shooting accessories. |
Ammunition
generated approximately
SCHEDULE OF OPERATING SEGMENTS
| For the Three Months Ended December 31, 2021 | ||||||||||||
| Ammunition | Marketplace | Total | ||||||||||
| Net Revenues | $ | $ | $ | |||||||||
| Cost of Revenues | ||||||||||||
| General and administrative expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Income from Operations | $ | $ | $ | |||||||||
| For the Nine Months Ended December 31, 2021 | ||||||||||||
| Ammunition | Marketplace | Total | ||||||||||
| Net Revenues | $ | $ | $ | |||||||||
| Cost of Revenues | ||||||||||||
| General and administrative expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Income from Operations | $ | $ | $ | |||||||||
NOTE 15 – INCOME TAXES
The
income tax provision reflective 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, and 2021 are subject to audit.
Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods.
NOTE 16 – SUBSEQUENT EVENTS
Common Stock Issuances
Subsequent to December 31, 2021, we issued shares of Common Stock to employees as compensation for a total value of $ or $ per share.
Board of Directors Share Repurchase Plan
On February 7, 2021, our Board of Directors authorized a share repurchase program for up to $ million dollars of our outstanding Common Stock. Purchases made pursuant to the program will be made from time to time, at the Company’s discretion, in the open market, through privately negotiated transactions or through other manners as permitted by federal securities laws. The timing, manner, price and amount of any repurchases will be determined by the Company and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program is expected to commence following the public disclosure of our 2022 fiscal third quarter financial results and filing of this report on Form 10-Q and may be suspended or discontinued at any time.
| 24 |
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”) and hard armor piercing incendiary (“HAPI”) tactical rounds are the centerpiece of the Company’s strategy to address the unique needs of the armed forces community. 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 others sold, is that the manufacturing process was engineered to ensure extremely tight tolerances between each projectile manufactured, ensuring for the end user that the ballistic trajectory remains consistent between rounds without regard to the actual configuration or round fired. Our AP and HAPI line are also available with our O.W.L. Technology™. The Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 12.7 mm and .50 caliber BMG configurations. On February 2, 2021, we announced that we restarted our improved .50 caliber manufacturing line to address increased market demand and fulfill current orders.
We offer ammunition casings for pistol ammunition through large rifle ammunition. Our casing operations is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Born from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann™ Casings, has become one of the largest brass manufacturers in the country, with the capacity to produce more than 750 million pieces of brass each year with the ability to scale to 1 billion rounds on an annual basis. Proud of its American-made components and capabilities, the Company now has complete control over the manufacturing process. This results in a number of advantages when it comes to the brass that leaves our state-of-the-art facility.
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On April 30, 2021, we acquired Gemini Direct Investments, LLC (“Gemini”) and nine of its subsidiaries, all of which are related to Gemini’s ownership of the Gunbroker.com marketplace.
GunBroker.com is a large online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo, GunBroker.com currently sells none of the items listed on its website. Third-party sellers list items on the site and federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations are followed using licensed firearms dealers as transfer agents.
With our recent addition of the Gunbroker.com marketplace, we aim to further enhance our vision of bringing technologies to the industry. Gunbroker.com is a marketplace that connects millions of buyers and sellers allowing our users to access a daily average of over one million unique items.
The focus for our 2022 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.
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Results of Operations
Our financial results for the three and nine months ended December 31, 2021 reflect our newly positioned organization. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider and marketplace. We continue to focus on growing our top line revenue, and streamlining our operations, and as a result, we experienced an increase in our gross profit margin for the three and nine months ended December 31, 2021. This was the result of a significant increase in sales allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense as well as the addition of our new marketplace, Gunbroker.com.
The following table presents summarized financial information taken from our condensed consolidated statements of operations for the three and nine months ended December 31, 2021 compared with the three and nine months ended December 31, 2020:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
| December 31, 2021 | December 31, 2020 | December 31, 2021 | December 31, 2020 | |||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||
| Net Sales | $ | 64,689,186 | $ | 16,620,244 | $ | 170,167,603 | $ | 38,293,086 | ||||
| Cost of Revenues | 42,166,320 | 13,278,338 | 102,457,775 | 32,590,149 | ||||||||
| Gross Margin | 22,522,886 | 3,341,906 | 67,709,828 | 5,702,937 | ||||||||
| Sales, General & Administrative Expenses | 11,913,045 | 3,770,713 | 33,191,175 | 10,621,873 | ||||||||
| Income (loss) from Operations | 10,609,821 | (428,807 | ) | 34,518,653 | (4,918,936 | ) | ||||||
| Other income (expense) | ||||||||||||
| Other expense | (189,956 | ) | (1,477,630 | ) | (446,616 | ) | (2,429,915 | ) | ||||
| Income (loss) before provision for income taxes | $ | 10,419,865 | $ | (1,906,437 | ) | $ | 34,072,037 | $ | (7,348,851 | ) | ||
| Provision for income taxes | 1,351,998 | - | 1,351,998 | - | ||||||||
| Net Income (Loss) | $ | 9,067,867 | $ | (1,906,437 | ) | $ | 32,720,039 | $ | (7,348,851 | ) | ||
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 Nine Months Ended | |||||||||||
| 31-Dec-21 | 31-Dec-20 | 31-Dec-21 | 31-Dec-20 | |||||||||
| Reconciliation of GAAP net income to Adjusted EBITDA | ||||||||||||
| Net Income (Loss) | $ | 9,067,867 | $ | (1,906,437 | ) | $ | 32,720,039 | $ | (7,348,851 | ) | ||
| Provision for income taxes | 1,351,998 | 1,351,998 | ||||||||||
| Depreciation and amortization | 4,623,355 | 1,224,130 | 12,778,103 | 3,588,966 | ||||||||
| Loss on purchase | - | - | - | 1,000,000 | ||||||||
| Excise Taxes | 3,982,221 | 1,201,841 | 10,317,110 | 2,707,534 | ||||||||
| Interest expense, net | 190,319 | 1,938,630 | 468,404 | 2,704,315 | ||||||||
| Employee stock awards | 1,045,125 | 240,853 | 2,898,250 | 716,589 | ||||||||
| Stock grants | 65,098 | 65,455 | 197,110 | 213,130 | ||||||||
| Stock for services | 4,200 | 87,500 | 4,200 | 87,500 | ||||||||
| Warrant Issuance | 145,508 | - | 145,508 | - | ||||||||
| Other income, net | (363 | ) | (461,000 | ) | (21,788 | ) | (274,400 | ) | ||||
| Contingent consideration fair value | (359,309 | ) | (30,748 | ) | (362,753 | ) | (88,106 | ) | ||||
| Adjusted EBITDA | $ | 20,116,019 | $ | 2,360,224 | $ | 60,496,181 | $ | 3,306,677 | ||||
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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, loss on purchase, share-based or warrant-based compensation expenses, and changes to the contingent consideration fair value. We believe it is useful to exclude these non-cash expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, as these items are not components of our core operations.
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 nine months ended December 31, 2021 and 2020. “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 Nine Months Ended | |||||||||||
| December 31, 2021 | December 31, 2020 | December 31, 2021 | December 31, 2020 | |||||||||
| Proprietary Ammunition | $ | 3,784,380 | $ | 1,464,202 | $ | 6,228,348 | $ | 4,973,857 | ||||
| Standard Ammunition | 40,285,093 | 11,370,288 | 106,401,307 | 23,013,581 | ||||||||
| Ammunition Casings | 3,022,944 | 3,785,754 | 10,891,897 | 10,305,648 | ||||||||
| Marketplace Revenue | 17,596,769 | - | 46,646,051 | - | ||||||||
| Total Sales | $ | 64,689,186 | $ | 16,620,244 | $ | 170,167,603 | $ | 38,293,086 | ||||
Sales for the three and nine months ended December 31, 2021 increased 289% and 344%, respectively or approximately $48.1 million or $132.0 million, respectively over the three and nine months ended December 31, 2020. This increase was the result of approximately $29.0 million and $83.4 million of respective increased sales in bulk pistol and rifle ammunition, an increase of approximately $2.3 million and $1.3 million of respective sales of Proprietary Ammunition, a decrease of approximately $0.8 million and an increase of approximately $0.6 million of respective sales from our casing operations, and $17.6 million and $46.6 million in respective revenue generated from our recently acquired marketplace, Gunbroker.com, which includes auction revenue, payment processing revenue, and shipping income. Management expects the sales of Proprietary Ammunition to outpace the sales of our Standard Ammunition.
We are focused on continuing to grow top line revenue quarter-over-quarter as we continue to further expand distribution into commercial markets, introduce new product lines, and initiate sales to U.S. law enforcement, military, and international markets.
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. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions.
It is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for our Company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution channels, both in the United States and abroad, which are reasonably anticipated to drive sustained sales opportunity in the military, law enforcement, and commercial markets.
Sales outside of the United States require licenses and approval from either the U.S. Department of Commerce or the U.S. State Department, which typically takes approximately 30 days to receive. On July 21, 2020, we renewed our annual registration with the International Traffic in Arms Regulations (“ITAR”), which remains valid through the report date. This permits the Company to export and broker ammunition and other controlled items covered under ITAR.
On June 23, 2021, we announced that we were awarded a U.S. Department of Defense contract for the development and manufacture of ballistically matched multi-purpose rounds to design and manufacture multiple Ballistically Matched Multi-Purpose Rounds (BM-MPR) in support of U.S. military operations.
On September 23, 2021, we announced that we were awarded a U.S. Department of Defense contract to design and manufacture signature-on-target rounds (“SoT”) in support of U.S. military operations. The SoT ammunition allows the machine gunner to see bullet impacts without a visible signature in flight exposing their firing location in the manner which occurs with currently utilized tracer ammunition.
Cost of Revenues
Cost of Revenues increased by approximately $28.9 million and $69.9 million from $13.3 million and $32.6 million to $42.2 million and $102.5 million for the three and nine months ended December 31, 2021 compared to the comparable period ended in 2020. 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 2021 as compared to 2020, and additional cost of revenues from our recent acquisition of our marketplace, Gunbroker.com. As a percentage of sales, cost of goods sold decreased by 18.4% and 29.3 % when comparing the three and nine months ended December 31, 2021 and 2020.
Gross Margin
Our gross margin percentage increased to 34.8% and 39.8% from 20.1% and 14.9% during the three and nine months ended December 31, 2021, respectively, as compared to the same period in 2020. This was a result of increased sales allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense, and the inclusion of our newly acquired marketplace, Gunbroker.com which, by nature has significantly higher margins than our manufactured products.
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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, as evidenced by the improvement over this time last year. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:
| ● | Increased product sales, specifically of proprietary lines of ammunition, like the STREAK VISUAL AMMUNITION™, 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; | |
| ● | Leverage of our newly acquired marketplace, Gunbroker.com, through the introduction of additional services and product offerings; | |
| ● | 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 nine months ended December 31, 2021, our operating expenses increased by approximately $8.1 million and $22.6 million over the three and nine months ended December 31, 2020, and decreased as a percentage of sales from 22.7% and 27.7% for the three and nine months ended December 31, 2020 to 18.4% and 19.5% for the three and nine months ended December 31, 2021. The increase was primarily related to approximately $14.2 million of additional operating expenses following our merger with Gemini, including $8.8 million of depreciation and amortization expenses. Our operating expenses include non-cash depreciation and amortization expense of approximately $3.7 million and $10.0 million for the three and nine months ended December 31, 2021. 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, and board members, and key consultants for the organization during the period. Operating expenses for the nine months ended December 31, 2021 and 2020 periods included noncash expenses of approximately $12.9 million and $3.2 million, respectively. We expect to see administrative expenditures to continue to decrease as a percentage of sales in the 2022 fiscal year, as we leverage our work force and expand our sales opportunities.
During the three and nine months ended December 31, 2021, our selling and marketing expenses increased by approximately $1.0 million and $3.0 million in comparison to the three and nine months ended December 31, 2020. The increase was primarily related to commissions on the increases in the sale of our products resulting of approximately $0.7 million and $2.5 million of additional expenses for the three and nine months ended December 31, 2021 in comparison to the comparable prior period.
Our corporate general & administrative expenses increased approximately $2.1 million and $7.2 million in the three and nine months ended December 31, 2021 from the comparable prior period mainly due to increased general corporate expenses related to the addition of Gemini of approximately $1.3 million and $3.3 million, respective increases in insurance expenses of $0.8 million and $1.6 million. and increased professional and legal fees of $0.5 million primarily related to our acquisition of Gemini.
Employee salaries and related expenses increased approximately $1.8 million and $4.6 million for the three and nine months ended December 31, 2021 compared to the comparable period ended in 2020. The increase for the three and nine months ended December 31, 2021 when compared to the prior period, was primary related to an increase in stock compensation of approximately $0.8 million and $2.2 million, respectively.
Depreciation and amortization expenses for the three and nine months ended December 31, 2021 increased by approximately $3.3 million and $8.8 million from the comparable prior periods due to depreciation and amortization expenses in connection with the acquisition of Gemini.
Interest and Other Expenses
For the three and nine months ended December 31, 2021, interest expense decreased by approximately $1.7 million and $2.2 million compared with the comparable three and nine months ended December 31, 2020. The change from the prior periods was mainly due to the repayment of notes and conversion of convertible promissory notes in current and prior periods.
Income Taxes
For the three and nine months ended December 31, 2021, we recorded a provision for federal and state income taxes of approximate $1.4 million. There was no provision for federal and state income taxes during the three and nine months ended December 31, 2020.
Net Income
As a result of increases in revenues from increased production as well as our acquisition of Gemini, we ended the three and nine months ended December 31, 2021 with a net income of approximately $9.1 million and $32.7 million, respectively, compared with net losses of approximately $1.9 million and $7.3 million for the three and nine months ended December 31, 2020.
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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 December 31, 2021, we had $27,414,571 of cash and cash equivalents, a decrease of $90,926,900 from March 31, 2021.
Working Capital is summarized and compared as follows:
| December 31, 2021 | March 31, 2021 | |||||
| Current assets | $ | 123,474,142 | $ | 145,620,332 | ||
| Current liabilities | 35,613,312 | 12,098,493 | ||||
| $ | 87,860,830 | $ | 133,521,839 | |||
Changes in cash flows are summarized as follows:
Operating Activities
For the nine months ended December 31, 2021, net cash used in operations totaled approximately $3.6 million. This was primarily the result of net income of approximately $32.7 million, which was offset by increases in our inventories of approximately $30.1 million, increases in deposits of approximately $13.1 million, increases in our accounts receivable of approximately $20.7 million, decreases in prepaid expenses of approximately $1.6 million, and increases in our accounts payable and accrued liabilities of $7.5 million and $1.3 million, respectively. Non-cash expenses for depreciation and amortization totaled approximately $12.8 million and non-cash expenses for employee stock awards totaled $2.9 million.
For the nine months ended December 31, 2020, net cash used in operations totaled $5.3 million. This was primarily the result of a net loss of $7.3 million, increases in our period end inventories and accounts receivable of $5.1 million and $3.9 million, respectively, increases in accounts payable and accrued liabilities of $1.8 million and $2.3 million, respectively, and a loss on Jagemann Munition Components of $1.0 million. The cash used in operations were partially offset by the benefit of non-cash expenses for depreciation and amortization of $3.6 million, non-cash interest expensed recognized for the issuance of warrants of $1.3 million, employee stock compensation of $0.7 million, and stock grants totaling $0.2 million.
Investing Activities
During the nine months ended December 31, 2021, we used approximately $63.3 million in net cash for investing activities. Net cash used in investing activities consisted of approximately $50.5 million uses in connection with the merger of Gemini, and approximately $12.9 million related to purchases of production equipment and the construction of our new manufacturing facility in Manitowoc, WI.
During the nine months ended December 31, 2020, we used $4.5 million in net cash for investing activities to purchase fixed assets such as new production equipment.
Financing Activities
During the nine months ended December 31, 2021, net cash used in financing activities was approximately $24.0 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, and an approximate $0.9 million reduction in our Inventory Credit Facility. Additionally, approximately $86.5 million was generated from accounts receivable factoring, which was offset by payments of approximately $84.2 million.
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During the nine months ended December 31, 2020, net cash provided by financing activities was $27.9 million. This was the net effect of $23.6 million of proceeds from the sale of common stock net of $3.3 million of issuance costs, $3.5 million of proceeds from a related party note, $4.0 million of proceeds from a note payable, $2.3 million generated from our Inventory Credit Facility, $2.3 million was generated from common stock issued for exercised warrants, $2.0 million from the issuance of convertible promissory notes, and $1.0 million proceeds from our paycheck protection program notes payable. Additionally, $26.1 million was generated from accounts receivable factoring, which was offset by payments of $25.8 million. $7.2 million of cash was used for payments on related party notes payable, and $0.5 million toward our insurance premium notes payable.
Liquidity and Capital Resources
Existing working capital, cash used in operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes.
We believe financing will be available, both through conventional financing relationships and through the continued sales of our Common Stock. However, there is no assurance that such funding will be available on terms acceptable to us or at all. We believe that our current cash on hand, coupled with alternative sources of funding, will be sufficient to satisfy intended capital expenditures, potential acquisitions and general liquidity requirements through at least the next twelve months.
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.
Critical Accounting Policies
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, 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, 2021, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the nine months ended December 31, 2021. 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, 2021.
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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 December 31, 2021. Based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures 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 and nine months ended December 31, 2021, 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 periods from April 1, 2021 to December 31, 2021, 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 December 31, 2021 that were not previously reported in a Current Report on Form 8-K except as follows:
During the quarterly period from October 1, 2021 to December 31, 2021, the Company issued 1.5 million shares of unregistered Common Stock related to the Merger Agreement with Gemini for $7.17 per share or a total value of $10,755,000.
The previously mentioned securities were issued in reliance on the exemptions from registration under the Securities Act in Section 4(a)(2) of the Securities Act and/or Regulation D thereunder.
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: February 14, 2022 | By: | Fred W. Wagenhals, Chief Executive Officer |
| /s/ Robert D. Wiley | ||
| Dated: February 14, 2022 | By: | Robert D. Wiley, Chief Financial Officer |
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