NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2022 and March 31, 2022
(Unaudited)
NOTE
1 – ORGANIZATION AND BUSINESS ACTIVITY
We
were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments
and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On
December 15, 2016, the Company’s majority shareholders sold their common stock to Mr. Fred W. Wagenhals (“Mr. Wagenhals”)
resulting in a change in control of the Company. Mr. Wagenhals was appointed as sole officer and the sole member of the Company’s
Board of Directors.
The
Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW, (iii)
an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to Delaware, and
(iv) a 1-for-25 reverse stock split of the issued and outstanding shares of the common stock of the Company. These transactions were
effective as of December 30, 2016.
On
March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (PRIVCO) under which the Company
acquired all of the outstanding shares of common stock of (PRIVCO). (PRIVCO) subsequently changes its name to AMMO Munitions, Inc.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting
Basis
The
accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form
10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for
these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the
rules and regulations of the Securities Exchange Commission (“SEC”).
The
accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2022.
The results for the three and nine month period ended December 31, 2022 are not necessarily indicative of the results that may be expected
for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared
in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments
have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for
the three and nine month periods ended December 31, 2022 and 2021, (b) the financial position at December 31, 2022, and (c) cash flows
for the nine month periods ended December 31, 2022 and 2021.
We
use the accrual basis of accounting and U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of
March 31st.
Unless
the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company”
are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing
the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax
assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation and warrant-based compensation.
Goodwill
We evaluate
goodwill for impairment annually or more frequently when an event occurs or circumstances change that would more likely than not reduce
the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to utilize a qualitative
assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If
our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test
goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting
unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not
that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair
value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows. Forecasts of
future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion,
pricing, market segment share, and general economic conditions. Due to the declines in the value of our stock price and market capitalization,
we assessed qualitative factors to determine if it is more likely than not that the fair value of the Marketplace segment is less than
its carrying amount. Through our analysis we determined our stock price and market capitalization decline it is not indicative of a decrease
in the the fair value of our Marketplace segment and a fair value calculation using the discounted cash flows was more appropriate due
to the operational performance of the reporting segment. Accordingly, the impairment of Goodwill was not warranted for the three and
nine months ended December 31, 2022. As of December 31, 2022, the Company has a goodwill carrying value of $90,870,094, all of which
is assigned to the Marketplace segment. However, due to declines in the value of the Company’s common stock and market capitalization,
it is possible that the book values of our Marketplace segment could exceed its fair value, which may result in the recognition of a
material, noncash impairment of goodwill for the year ending March 31, 2023.
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, 2022
and March 31, 2022, we reserved $4,382,671 and $3,055,252, respectively, of allowance for doubtful accounts.
Restricted
Cash
We
consider cash to be restricted when withdrawal or general use is legally restricted. Our restricted cash balance is comprised of cash
on deposit with banks to secure the Construction Note Payable as discussed in Note 10. We report restricted cash in the Consolidated
Balance Sheets as current or non-current classification based on the expected duration of the restriction.
License
Agreements
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited
liability company. The license agreement grants us the exclusive worldwide rights through April 12, 2026 to Mr. James’ image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse
James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to
reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Patents
On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam,
Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles
and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26,
2013 owned by the University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant
to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017,
the Merger closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October
29, 2028.
Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01
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, 2022 and 2021, the Company recognized royalty expenses of $89,340 and $18,558, respectively under this agreement.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On
October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all
of the liabilities.
The
primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned
and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
We
intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications
where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other
Intangible Assets
On
March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition
of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended
and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property.
On
April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight
Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments, LLC, a
Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight
Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments,
LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of Gunbroker.com, an online auction marketplace dedicated
to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships, intellectual
property, software and domain names.
Impairment
of Long-Lived Assets
We
continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable.
When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows
is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
No impairment expense was recognized for the three and nine months ended December 31, 2022 and 2021.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition, ammunition casings, and marketplace fee revenue, which includes auction
revenue, payment processing revenue, and shipping income. We recognize revenue according to Accounting Standard Codification –
Revenue from Contract with Customers (“ASC 606”). When the customer obtains control over the promised goods or services,
we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the
following five-step model to determine revenue recognition:
|
● |
Identification
of a contract with a customer |
|
● |
Identification
of the performance obligations in the contact |
|
● |
Determination
of the transaction price |
|
● |
Allocation
of the transaction price to the separate performance allocation |
|
● |
Recognition
of revenue when performance obligations are satisfied |
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.
For Ammunition Sales and Casing Sales, 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 Marketplace revenue, the performance
obligation is satisfied, and revenue is recognized as follows:
Auction revenue consists of optional
listing fees with variable pricing components based on customer options selected from the GunBroker website and final value fees based
on a percentage of the final selling price of the listed item. The performance obligation is to process the transactions as initiated
by the customer. Revenue is recognized at a point in time when the transaction is processed.
Payment processing revenue consists
of fees charged to customers on a transactional basis. The performance obligation is to process the transactions as initiated by the customer.
The price is set by the GunBroker user agreement on the website based on stand-alone selling prices. Revenue is recognized at a point
in time when the transaction is processed.
Shipping income consists of fees
charged to customers for shipping of sold items listed on the GunBroker website. The performance obligation is to ship the item sold as
initiated by the customer. The price is set based on the third-party service provider selected to be used by the customer as well as the
speed and location of shipment. Revenue is recognized at a point in time when the shipping label is printed.
Banner Advertising Campaign Revenue
consists of fees charged to customers for advertisement placement and impressions generated through the GunBroker website. The performance
obligation is to generate the number of impressions specified by the customer on banner advertisements on the GunBroker website using
the placement selected by the customer. The price is set by the GunBroker user agreement on the website based on standalone selling prices,
or by advertising insertion order as negotiated by media broker. If the number of impressions promised is not generated, the customer
receives a refund and the refund is applied to the transaction price. Banner advertising campaigns generally run for one month, and revenue
is recognized at a point in time at the end of the selected month.
Product Sales consists of fees
charged for the liquidation of excess inventory for partner distributors. The performance obligation is to sell and ship the inventory
item as initiated by the customer. The price depends on whether the inventory is a fixed price item or an auction item. For a fixed price
item, the Company performs research to determine the current market rate for such an item, and the item is listed at that price. For an
auction item, the price is set by what the buyer is willing to pay. The Company acts as a principal in these transactions due to the extent
of control they have over the product prior to the sale. Due to the principal determination, gross revenue is recognized at a point in
time when the item has been shipped.
Identity Verification
consists of fees charged to customers for identity verification in order to gain access to the GunBroker website. The performance obligation
is to process the identity verification as initiated by the customer. The price is set by the GunBroker user agreement on the website
based on a stand-alone selling price. Revenue is recognized at a point in time when the identity verification is completed.
For
the three and nine months ended December 31, 2022, the Company’s customers that comprised more than ten percent (10%) of total
revenues and accounts receivable were as follows:
SCHEDULE
OF CONCENTRATION OF RISKS
| |
Revenues at December 31, 2022 | | |
Accounts Receivable | |
PERCENTAGES | |
Three Months Ended | | |
Nine Months Ended | | |
December 31, 2022 | | |
March 31, 2022 | |
| |
| | |
| | |
| | |
| |
Customers: | |
| | | |
| | | |
| | | |
| | |
A | |
| 12.5 | % | |
| - | | |
| 18.4 | % | |
| 11.8 | % |
| |
| 12.5 | % | |
| - | | |
| 18.4 | % | |
| 11.8 | % |
Disaggregated
Revenue Information
The
following table represent a disaggregation of revenue from customers by category. We attribute net sales to categories by product or
services types; ammunition, ammunition casings, and marketplace fees. We note that revenue recognition processes are consistent between
product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to
the customers of each product and service type.
SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
| |
| | |
| | |
| | |
| |
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
| | |
| |
| |
December 31, 2022 | | |
December 31, 2021 | | |
December 31, 2022 | | |
December 31, 2021 | |
Ammunition Sales | |
$ | 20,250,965 | | |
$ | 44,069,473 | | |
$ | 90,607,817 | | |
$ | 112,629,655 | |
Marketplace fee revenue | |
| 15,419,202 | | |
| 17,596,769 | | |
| 46,486,842 | | |
| 46,646,051 | |
Ammunition Casings Sales | |
| 3,041,327 | | |
| 3,022,944 | | |
| 10,661,420 | | |
| 10,891,897 | |
Total Sales | |
$ | 38,711,494 | | |
$ | 64,689,186 | | |
$ | 147,756,079 | | |
$ | 170,167,603 | |
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 $912,959 and $448,367 for the nine months
ended December 31, 2022 and 2021, respectively, recognized in selling and marketing expenses and $243,246 and $193,752 of marketplace
advertising expenses recognized in cost of revenues for the nine months ended December 31, 2022 and 2021, 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, 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These
financial instruments include cash, accounts receivable, accounts payable, amounts due to related parties, factoring liability, and the construction note payable. Fair values were assumed
to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are
payable on demand.
Inventories
We
state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists
of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other
costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property
and Equipment
We
state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor
replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated
useful lives, which are generally five to ten years.
Compensated
Absences
We
accrue a liability for compensated absences in accordance with Accounting Standards Codification 710 – Compensation – General
(“ASC 710”).
Research
and Development
To
date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through
our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become
necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop
new technologies and lines of ammunition.
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation –
Stock Compensation (“ASC 718”). Which requires the measurement and recognition of compensation expense for all share-based
payment awards to employees and directors. Stock-based compensation is recognized on a straight line basis over the vesting periods and
forfeitures are recognized in the periods they occur. There were 604,510 and 1,281,635 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, 2022
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2022, our bank
account balances exceeded federally insured limits.
Income
Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under
the asset and liability method in accordance with Accounting Standards Codification 740 – Income Taxes (“ASC 740”).
The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred
tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is
more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance
with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We
measure recognized income tax positions at the largest amount that is greater than 50% likely of being realized. We reflect changes in
recognition or measurement in the period in which the change in judgment occurs.
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 11% excise tax for all products sold into these channels. During the nine months ended December 31, 2022 and 2021, we recognized approximately
$7.8 million and $10.3 million respectively, in excise taxes. For ease in selling to commercial markets, excise tax is included in our
unit price for the products sold. We record this through net sales and expense the offsetting tax expense to cost of goods sold.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Certain conditions may exist as of the date the condensed
consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events
occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing
loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings,
we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived merits of the amount of relief sought
or expected to be sought therein.
If the
assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is
reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and
material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily
terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”).
The Complaint in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a
result of such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient internal
controls, and that the individual was the victim of retaliation and constructive discharge after being removed as a director by
majority vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made up of
independent directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found
the material claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain
corporate governance charter documents and processes which the Company promptly implemented. The Parties participated in a
successful mediation at the end of June 2022 and all matters relating to this former employee/claimant were confidentially resolved
with the lawsuit dismissed with prejudice (Order pending). The settlement was covered by our Employment Practices Liability Policy
and did not amount to a material amount. On February 10, 2022, AMMO filed a Texas state court complaint against Expansion Industries
pursing eight (8) claims in pursuit of recovery of AMMO’s in primer acquisition deposit monies (i.e., Breach of Contract,
Common Law Fraud, Violations of Texas Theft Liability Act, Conversion, Negligent Misrepresentation, Unjust Enrichment, Money Had and
Received and Constructive Trust). AMMO has since moved aggressively to further the process, including successfully garnishing a
portion of the deposit monies in Expansion bank accounts, filing a Motion for Summary Judgement, continuing to pursue written
discovery, and amending the Complaint to add Expansion principal as an individual party. The putative primer manufacturer settled
the two related lawsuits in September 2022 by repaying all deposit monies due AMMO, in addition to payment of principally all fees
and costs incurred by the Company in pursuit of the resolution. The principal lawsuit and AMMO’s garnishment action adverse
the defendant were dismissed with prejudice. Along with countless other suppliers of Remington Outdoors, AMMO was served with an
avoidance claim lawsuit by the bankruptcy trustee. AMMO presented substantial “ordinary course” defense evidence to the
Trustee and the case was settled for a nominal sum in September 2022, with the lawsuit dismissed with prejudice. AMMO is defending
two contract arbitration cases involving adverse former employees that are presently in discovery, one involving an employee
terminated for cause and the second action involving a termination without cause wherein the former employee is seeking contract
wages, commissions and allegedly earned common stock. The
Company also received notice in October that an OSHA whistleblower complaint had been filed with the US Department of Labor by an
employee that had been terminated for cause. The regulatory filing was received after AMMO refused to capitulate to the former
employee’s demands. AMMO has produced documents and submitted its position statement to OSHA and the matter is currently
pending at the agency level. There were no other known contingencies at December 31, 2022.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – INCOME PER COMMON SHARE
We
calculate basic income per share using the weighted-average number of shares of common stock outstanding during each reporting
period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants. We use the
treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to
purchase 2,781,482
shares of common stock. Due to the net loss attributable to common shareholders for the three and nine months ended December 31,
2022, potentially dilutive securities, which consists of 389,544
and 1,070,694
(536,311 and 150,000 warrants, respectively, for the three and nine months ended December 31, 2022 were excluded as a result of the
treasury stock method) common stock purchase warrants and 5,281
and 19,095
equity incentive awards, respectively for the three and nine months ended December 31, 2022, have been excluded from the dilutive
EPS calculation as the effect would be antidilutive.
SCHEDULE
OF INCOME (LOSS) PER COMMON SHARE
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
For the Three Months Ended December
31, | | |
For the Nine Months Ended December
31, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net income/(loss) | |
$ | (4,102,992 | ) | |
$ | 9,067,867 | | |
$ | (1,653,472 | ) | |
$ | 32,720,039 | |
Less: Preferred stock dividends | |
| (782,639 | ) | |
| (782,582 | ) | |
| (2,339,409 | ) | |
| (1,902,966 | ) |
Net income/(loss) attributable to common stockholders | |
$ | (4,885,631 | ) | |
$ | 8,285,285 | | |
$ | (3,992,881 | ) | |
$ | 30,817,073 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares of common stock – Basic | |
| 117,348,511 | | |
| 114,757,014 | | |
| 116,950,013 | | |
| 111,289,024 | |
Effect of dilutive common stock purchase warrants | |
| - | | |
| 1,835,395 | | |
| - | | |
| 1,934,172 | |
Effect of dilutive equity incentive awards | |
| - | | |
| 125,091 | | |
| - | | |
| 127,802 | |
Weighted average shares
of common stock - Diluted | |
| 117,348,511 | | |
| 116,717,500 | | |
| 116,950,013 | | |
| 113,350,998 | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share: | |
| | | |
| | | |
| | | |
| | |
Income/(loss) per share attributable to common stockholders – basic | |
$ | (0.04 | ) | |
$ | 0.07 | | |
$ | (0.03 | ) | |
$ | 0.28 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted earnings per share: | |
| | | |
| | | |
| | | |
| | |
Income/(loss) per share attributable to common stockholders – diluted | |
$ | (0.04 | ) | |
$ | 0.07 | | |
$ | (0.03 | ) | |
$ | 0.27 | |
|
(1) |
Weighted
average of contingently issuable shares measured from the effective date of merger, April 30, 2021 |
NOTE
4 – INVENTORIES
At
December 31, 2022 and March 31, 2022, the inventory balances are composed of:
SCHEDULE
OF INVENTORIES
| |
December 31,
2022 | | |
March 31,
2022 | |
Finished product | |
$ | 20,760,747 | | |
$ | 6,167,318 | |
Raw materials | |
| 31,387,096 | | |
| 33,924,813 | |
Work in process | |
| 14,997,558 | | |
| 18,924,021 | |
Inventory net | |
$ | 67,145,401 | | |
$ | 59,016,152 | |
NOTE
5 – PROPERTY AND EQUIPMENT
We
state equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line method at rates intended
to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years. Upon retirement or sale of
property and equipment, we remove the cost of the disposed assets and related accumulated depreciation from the accounts and any resulting
gain or loss is credited or charged to other income. We charge expenditures for normal repairs and maintenance to expense as incurred.
We
capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements
made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease
term including any renewals that are reasonably assured.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property
and Equipment consisted of the following at December 31, 2022 and March 31, 2022:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
December 31, 2022 | | |
March 31, 2022 | |
Building | |
$ | 28,113,684 | | |
$ | - | |
Construction in progress | |
| 1,834,688 | | |
| 14,335,371 | |
Leasehold Improvements | |
| 257,009 | | |
| 257,009 | |
Furniture and Fixtures | |
| 368,359 | | |
| 343,014 | |
Vehicles | |
| 153,254 | | |
| 153,254 | |
Equipment | |
| 37,689,716 | | |
| 32,524,850 | |
Tooling | |
| 143,710 | | |
| 143,710 | |
Total property and equipment | |
$ | 68,560,420 | | |
$ | 47,757,208 | |
Less accumulated depreciation | |
| (13,270,092 | ) | |
| (10,119,402 | ) |
Net property and equipment | |
$ | 55,290,328 | | |
$ | 37,637,806 | |
Depreciation
Expense for the three and nine months ended December 31, 2022 totaled $1,089,243, and $3,150,691, respectively. Depreciation Expense
for the three and nine months ended December 31, 2021 totaled $1,087,550, and $3,184,976, respectively.
NOTE
6 – FACTORING LIABILITY
On
July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from
time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains
a maximum advance amount of $5,000,000 on 85% of eligible accounts and has an annualized interest rate of the Prime Rate published from
time to time by the Wall Street Journal plus 4.5%. The agreement contains fee of 3% ($150,000) of the Maximum Facility assessed to the
Company. Our obligations under this agreement are secured by present and future accounts receivables and related assets, inventory, and
equipment. The Company has the right to terminate the agreement, with 30 days written notice, upon obtaining a non-factoring credit facility.
This agreement provides the Company with the ability to convert our account receivables into cash. As of December 31, 2022, the outstanding
balance of the Factoring Liability was $1,678,450. For the three and nine months ended December 31, 2022, interest expense recognized
on the Factoring Liability was $42,286 and $111,220 including $37,500 of amortization of the commitment fee and for the three and nine
months ended December 31, 2021, interest expense recognized on the Factoring Liability was $103,876 and $216,242, respectively, including
$37,500 of amortization of the commitment fee.
On
June 17, 2021, this agreement was amended which extended the maturity date to June 17, 2023.
NOTE
7 – INVENTORY CREDIT FACILITY
On
June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line,
and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our
inventory, among other assets, contains a maximum loan amount of $1,750,000 on eligible inventory and has an annualized interest rate
of the greater of the three-month LIBOR rate plus 3.09% or 8%. The agreement contains a fee of 2% of the maximum loan amount ($35,000)
assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory
loan amount to $2,250,000. As of December 31, 2022, there was no outstanding balance of the Inventory Credit Facility. Interest expense
recognized on the Inventory Credit Facility for the nine months ended December 31, 2022 and 2021 was $6,580 and $24,256 (including $8,561
of amortization of the annual fee), respectively.
NOTE
8 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale, AZ, Atlanta and Marietta, GA, and Manitowoc, WI under contracts we
classify as operating leases. None of our leases are financing leases. The Scottsdale lease does not include a renewal option. In
August of 2021 we extended the lease of our Atlanta offices through May of 2027, accordingly we increased our Right of Use Assets
and Operating Lease Liabilities by $501,125
at September 30, 2021. In January of 2022, we extended the lease of our second Manitowoc, WI location and increased our Right of Use
Assets and Operating Lease Liabilities by $308,326.
We terminated our lease agreement in our first Manitowoc, WI location during the nine months ended December 31, 2022. Accordingly,
we decreased our Right of Use Assets and Operating Lease Liabilities by $901,076.
As
of December 31, 2022 and March 31, 2022, total Right of Use Assets were $1,378,711 and $2,791,850, respectively. As of December 31, 2022
and March 31, 2022, total Operating Lease Liabilities were $1,498,787 and $2,922,780, respectively. The current portion of our Operating
Lease Liability on December 31, 2022 and March 31, 2022 is $518,778 and $831,429 respectively and is reported as a current liability.
The remaining $980,009 of the total $1,498,787 for the quarter ended December 31, 2022 and the $2,091,351 of the total $2,922,780 for
the year ended March 31, 2022 of the Operating Lease Liability is presented as a long-term liability net of the current portion.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
weighted average remaining lease term and weighted average discount rate for operating leases were 3.4 years and 10.0%, respectively.
Future
minimum lease payments under non-cancellable leases as of December 31, 2022 are as follows:
SCHEDULE
OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES
Years Ended March 31, | |
| |
2023 (1) | |
$ | 160,757 | |
2024 | |
| 583,768 | |
2025 | |
| 387,214 | |
2026 | |
| 351,962 | |
2027 | |
| 257,508 | |
Thereafter | |
| 43,516 | |
Total Lease Payments | |
| 1,784,725 | |
Less: Amount Representing Interest | |
| (285,938 | ) |
Present
value of lease liabilities | |
$ | 1,498,787 | |
|
(1) |
This
amount represents future lease payments for the remaining three months of fiscal year 2023. It does not include any lease payments
for the nine months ended December 31, 2022. |
NOTE
9 – NOTES PAYABLE – RELATED PARTY
For
the three and nine months ended December 31, 2022, the Company made $173,134 and $507,507 in principal payments, respectively, in connection
with the Amended Note B, an amended related party note payable with Jagemann Stamping Company (“JSC”). We entered into the
Amended Note B with JSC on November 4, 2020 and the note matures on June 26, 2023. We recognized $12,753 and $41,450 in respective interest
expenses for the three and nine months ended December 31, 2022, respectively.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONSTRUCTION NOTE PAYABLE
On
October 14, 2021, we entered into a Construction Loan Agreement (the “Loan Agreement”) with Hiawatha National Bank (“Hiawatha”).
The Loan Agreement specifies that Hiawatha may lend up to $11,625,000 to the Borrower to pay a portion of the construction costs of an
approximately 160,000 square foot manufacturing facility to be constructed on our property (the “Loan”). The first advance
of Loan funds by Hiawatha was made on October 14, 2021 in the amount of $329,843. We expect to receive further advances of Loan funds
approximately every month as our “owner’s equity” is fully funded into the ongoing new plant construction project.
The Loan is an advancing term loan and not a revolving loan so any portion of the principal repaid cannot be reborrowed.
Additionally,
on October 14, 2021, we issued a Promissory Note in favor of Hiawatha (the “Note”) in the amount of up to $11,625,000 with
an interest rate of four and one-half percent (4.5%). The maturity date of the Note is October 14, 2026.
We
can prepay the Note in whole or in part starting in July 2022 with a prepayment premium of one percent (1%) of the principal being prepaid.
The
Loan Agreement contains customary events of default including, but not limited to, a failure to make any payments pursuant to the Loan
Agreement or Note, a failure to complete construction of the project, a lien of $100,000 or more against the property, or a transfer
of the property without Hiawatha’s consent. Upon the occurrence of an event of default, among other remedies, the amounts due pursuant
to the Loan can be accelerated, Hiawatha can foreclose on the property pursuant to the mortgage, and a late charge of five percent (5%)
of the amount due will be owed with all amounts then owed pursuant to the Note bearing interest at an increased rate.
For
the nine months ended December 31, 2022, approximately $11.2 million of Loan funds were advanced including $1.0 million of cash collateral
or restricted cash as security for the Loan. We made $66,585 in principal payments for the three and nine months ended December 31, 2022.
The restricted cash can be released per the terms documented in the Loan Agreement filed with the Commission on Form 10-Q on February
14, 2022. During the nine months ended December 31, 2022, $500,000 of restricted cash was released to the Company.
NOTE
11 – CAPITAL STOCK
Our
authorized capital consists of 200,000,000 shares of common stock with a par value of $0.001 per share.
During
the nine month period ended December 31, 2022, we issued 1,558,670 shares of common stock as follows:
|
● |
99,762
shares were issued for cashless exercise of 100,000 warrants |
|
● |
177,273
shares were issued for the exercise of warrants for a total value of $56,046 |
|
● |
1,281,635
shares valued at $4,457,973 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as
compensation |
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2022, outstanding and exercisable stock purchase warrants consisted of the following:
SCHEDULE OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
| |
Number of Shares | | |
Weighted Average Exercise
Price | | |
Weighted Average
Life Remaining
(Years) | |
Outstanding at March 31, 2022 | |
| 2,933,755 | | |
$ | 2.32 | | |
| 2.29 | |
Granted | |
| 150,000 | | |
| 0.01 | | |
| - | |
Exercised | |
| (277,273 | ) | |
| 0.21 | | |
| - | |
Forfeited or cancelled | |
| (25,000 | ) | |
| 2.00 | | |
| - | |
Outstanding at December 31, 2022 | |
| 2,781,482 | | |
$ | 2.41 | | |
| 1.60 | |
Exercisable at December 31, 2022 | |
| 2,781,482 | | |
$ | 2.41 | | |
| 1.60 | |
As
of December 31, 2022, we had 2,781,482 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of
our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 911 shares of Common
Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 1,769,294 shares of our Common Stock at an exercise
price of $2.00 per share consisting of 30% of the warrants until August 2024, and 70% until February 2026; (3) warrants to purchase 474,966
shares of Common Stock at an exercise price of $2.40 until September 2024; (4) warrants to purchase 386,311 shares of Common Stock at
an exercise price of $2.63 until November 2025, and (5) warrants to purchase 150,000 shares of Common Stock at an exercise price of $6.72
until February 2024.
During
the three months ended December 31, 2022, the Company issued 150,000
warrants for services to purchase 150,000
shares of Common Stock at an exercise price of $0.01.
The total value of the 150,000
warrants was $427,639.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – PREFERRED STOCK
On
May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State
of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications,
terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The
Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly
authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series
A Preferred Stock will accrue on the stated amount of $25.00 per share of the Series A Preferred Stock at a rate per annum equal to 8.75%
(equivalent to $2.1875 per year), payable quarterly in arrears. Dividends on the Series A Preferred Stock declared by our board of directors
(or a duly authorized committee of our board of directors) will be payable quarterly in arrears on March 15, June 15, September 15 and
December 15.
Generally,
the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event
(each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for
a limited period of time.
Preferred
dividends accumulated as of December 31, 2022 were $144,334.
On November 18, 2022, the Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for
the period beginning September 15, 2022 through and including December 14, 2022 payable on December 15, 2022 to holders of record of
Series A Preferred Stock on November 30, 2022 equal to $0.5529514 per share. Dividends totaling $774,132
were paid on December 15, 2022. On August 17, 2022, the Board of Directors of the Company declared a dividend on the Company’s
Series A Preferred Stock for the period beginning June 15, 2022 through and including September 14, 2022 payable on September 15,
20221 to holders of record of Series A Preferred Stock on August 31, 2022 equal to $$0.55902778
per share. Dividends totaling $782,639 were
paid on September 15, 2022. On May 12, 2022, the Board of Directors of the Company declared a dividend on the Company’s Series
A Preferred Stock for the period beginning March 15, 2022 through and including June 14, 2022 payable on June 15, 2022 to holders of
record of Series A Preferred Stock on May 31, 2022 equal to $0.559027777777778
per share. Dividends totaling $782,639
were paid on June 15, 2022.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – ACQUISITION
Gemini
Direct Investments, LLC
On
April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”),
by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company
(“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan,
an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary
of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s
ownership of the GunBroker.com business. GunBroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and
related products. The Merger was completed on the Effective Date.
In
consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i)
the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $50,000,000 (the “Assumed
Indebtedness”); and, (ii) the issued and outstanding membership interests in Gemini (the “Membership Interests”), held
by the Seller, automatically converted into the right to receive (A) $50,000,000 (the “Cash Consideration”), and (B) 20,000,000
shares of common stock of the Company, $0.001 par value per share (the “Stock Consideration”).
In
connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) 14,500,000 shares
issued without being held in escrow or requiring prior stockholder approval; (b) 4,000,000 shares issued subject to the Pledge and Escrow
Agreement; and (c) 1,500,000 shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the
“Additional Securities”).
The
total estimated consideration consisted of cash payment of $50,000,000 less $1,350,046 of acquired cash, a working capital adjustment
of $2,000,000, debt assumption and repayment upon closing of $50,000,000, contingent consideration of $10,755,000 for 1,500,000 Additional
Securities, and 18,500,000 shares of AMMO Inc. Common Stock. The shares were valued at $7.17 per share, the five-day average closing
price of the Company’s Common Stock immediately preceding the signing of the binding agreement.
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 $129,114 and
adjusted the $2,000,000 Estimated Working Capital Adjustment in the fair value of the consideration transferred to $1,870,886.
In
accordance with the acquisition method of accounting for business combinations, the assets acquired, and the liabilities assumed have
been recorded at their respective fair values. The consideration in excess of the fair values of assets acquired, and liabilities assumed
are recorded as goodwill.
The
fair value of the consideration transferred was valued as of the date of the acquisition as follows:
SCHEDULE
OF FAIR VALUE OF CONSIDERATION TRANSFERRED
| |
| | |
Cash | |
$ | 48,649,954 | |
Working capital adjustment | |
| 1,870,886 | |
Contingent consideration | |
| 10,755,000 | |
Common stock | |
| 132,645,000 | |
Assumed debt | |
| 50,000,000 | |
| |
| | |
Fair
value of consideration transferred | |
$ | 243,920,840 | |
The
allocation for the consideration recorded for the acquisition is as follows:
SCHEDULE
OF ALLOCATION FOR CONSIDERATION
| |
| | |
Accounts receivable, net | |
$ | 17,002,362 | |
Prepaid expenses | |
| 478,963 | |
Equipment | |
| 1,051,980 | |
Deposits | |
| 703,389 | |
Other Intangible assets(1) | |
| 146,617,380 | |
Goodwill(1) | |
| 90,870,094 | |
Right of use assets – operating leases | |
| 612,727 | |
Accounts payable | |
| (12,514,919 | ) |
Accrued expenses | |
| (196,780 | ) |
Operating lease liability | |
| (704,356 | ) |
| |
| | |
Total Consideration | |
$ | 243,920,840 | |
(1)
|
Other
intangible assets consist of Tradenames, Customer Relationships, Intellectual Property, and other tangible assets related to the
acquired business. |
Unaudited
Pro Forma Results of Operations
This
pro forma results of operations gives effect to the acquisition as if it had occurred April 1, 2021. Material pro forma adjustments include
the removal of approximately $1.8 million of interest expenses and debt discount amortization and the addition of approximately $0.9
million depreciation and amortization expenses.
SCHEDULE
OF UNAUDITED PRO FORMA RESULTS OF OPERATIONS
INCOME STATEMENT DATA | |
For the Nine Months Ended
December 31, 2021 | |
| |
| |
Net revenues | |
$ | 178,213,024 | |
Net income | |
$ | 37,266,527 | |
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – GOODWILL AND INTANGIBLE ASSETS
During
our fiscal year ended March 31, 2022, we recorded $90,870,094 of Goodwill generated from our Merger with Gemini.
Amortization
expenses related to our intangible assets for the three and nine months ended December 31, 2022 were $3,266,761 and $9,800,281, respectively.
Amortization expenses related to our intangible assets for the three and nine months ended December 31, 2021 were $3,535,805 and $9,593,127.
SCHEDULE
OF INTANGIBLE ASSETS
| |
| | |
December 31, 2022 | |
| |
Life | | |
Licenses | | |
Patent | | |
Other Intangible Assets | |
Licensing Agreement – Jesse James | |
| 5 | | |
$ | 125,000 | | |
$ | - | | |
$ | - | |
Licensing Agreement – Jeff Rann | |
| 5 | | |
| 125,000 | | |
| - | | |
| - | |
Streak Visual Ammunition patent | |
| 11.2 | | |
| - | | |
| 950,000 | | |
| - | |
SWK patent acquisition | |
| 15 | | |
| - | | |
| 6,124,005 | | |
| - | |
Jagemann Munition Components: | |
| | | |
| | | |
| | | |
| | |
Customer Relationships | |
| 3 | | |
| - | | |
| - | | |
| 1,450,613 | |
Intellectual Property | |
| 3 | | |
| - | | |
| - | | |
| 1,543,548 | |
Tradename | |
| 5 | | |
| - | | |
| - | | |
| 2,152,076 | |
GDI Acquisition: | |
| | | |
| | | |
| | | |
| | |
Tradename | |
| 15 | | |
| - | | |
| - | | |
| 76,532,389 | |
Customer List | |
| 10 | | |
| - | | |
| - | | |
| 65,252,802 | |
Intellectual Property | |
| 10 | | |
| - | | |
| - | | |
| 4,224,442 | |
Other Intangible Assets | |
| 5 | | |
| - | | |
| - | | |
| 607,747 | |
| |
| | | |
| 250,000 | | |
| 7,074,005 | | |
| 151,763,617 | |
| |
| | | |
| | | |
| | | |
| | |
Accumulated amortization – Licensing Agreements | |
| | | |
| (250,000 | ) | |
| - | | |
| - | |
Accumulated amortization – Patents | |
| | | |
| - | | |
| (1,917,885 | ) | |
| - | |
Accumulated amortization – Intangible Assets | |
| | | |
| - | | |
| - | | |
| (24,893,412 | ) |
| |
| | | |
$ | - | | |
$ | 5,156,120 | | |
$ | 126,870,205 | |
Annual
amortization of intangible assets for the next five fiscal years are as follows:
SCHEDULE
OF ANNUAL AMORTIZATION OF INTANGIBLE ASSET
Years Ended March 31, | |
Estimates for Fiscal Year | |
2023 (1) | |
$ | 3,294,934 | |
2024 | |
| 13,074,489 | |
2025 | |
| 12,664,775 | |
2026 | |
| 12,664,775 | |
2027 | |
| 12,553,355 | |
Thereafter | |
| 77,773,997 | |
Annual
amortization of intangible assets | |
$ | 132,026,325 | |
(1) |
This
amount represents future amortization for the remaining nine months of fiscal year 2023. It does not include any amortization for
the nine months ended December 31, 2022. |
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 – SEGMENTS
On
April 30, 2021, we entered into an agreement and plan of merger with Gemini, which, along with its subsidiaries, engages primarily in
the operation of an online marketplace dedicated to firearms, hunting, shooting and related products, which created a second reportable
segment. Our Chief Executive Officer reviews financial performance based on our two operating segments as follows:
|
● |
Ammunition
– which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition
and ammunition component products. |
|
● |
Marketplace
– which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of
firearms, ammunition and hunting/shooting accessories. |
In
the current period, we began the reporting of the separate allocation of certain corporate general and administrative expenses including
non-cash stock compensation expense, as such we have updated the prior period disclosure herein. The following tables set forth certain
financial information utilized by management to evaluate our operating segments for the interim period presented:
SCHEDULE
OF OPERATING SEGMENTS
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
For the Three Months Ended December
31, 2022 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 23,292,292 | | |
$ | 15,419,202 | | |
$ | - | | |
$ | 38,711,494 | |
Cost of Revenues | |
| 23,865,275 | | |
| 2,319,040 | | |
| - | | |
| 26,184,315 | |
General and administrative expense | |
| 4,838,081 | | |
| 1,719,707 | | |
| 6,993,592 | | |
| 13,551,380 | |
Depreciation and amortization | |
| 143,378 | | |
| 3,165,696 | | |
| - | | |
| 3,309,074 | |
Income/(Loss) from Operations | |
$ | (5,554,442 | ) | |
$ | 8,214,759 | | |
$ | (6,993,592 | ) | |
$ | (4,333,275 | ) |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
For
the Nine Months Ended December 31, 2022 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 101,269,237 | | |
$ | 46,486,842 | | |
$ | - | | |
$ | 147,756,079 | |
Cost of Revenues | |
| 97,555,732 | | |
| 6,701,797 | | |
| - | | |
| 104,257,529 | |
General and administrative expense | |
| 12,117,828 | | |
| 6,713,561 | | |
| 14,490,456 | | |
| 33,321,845 | |
Depreciation and amortization | |
| 437,694 | | |
| 9,513,058 | | |
| - | | |
| 9,950,752 | |
Income/(Loss) from Operations | |
$ | (8,842,017 | ) | |
$ | 23,558,426 | | |
$ | (14,490,456 | ) | |
$ | 225,953 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and
other expenses | | |
Total | |
| |
For the Three Months Ended December
31, 2021 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and
other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 47,092,417 | | |
$ | 17,596,769 | | |
$ | - | | |
$ | 64,689,186 | |
Cost of Revenues | |
| 39,904,811 | | |
| 2,261,509 | | |
| - | | |
| 42,166,320 | |
General and administrative expense | |
| 3,941,639 | | |
| 2,251,146 | | |
| 1,994,339 | | |
| 8,187,124 | |
Depreciation and amortization | |
| 420,077 | | |
| 3,305,844 | | |
| - | | |
| 3,725,921 | |
Income/(loss) from Operations | |
$ | 2,825,890 | | |
$ | 9,778,270 | | |
$ | (1,994,339 | ) | |
$ | 10,609,821 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and
other expenses | | |
Total | |
| |
For the Nine Months Ended December
31, 2021 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and
other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 123,521,552 | | |
$ | 46,646,051 | | |
$ | - | | |
$ | 170,167,603 | |
Cost of Revenues | |
| 96,203,542 | | |
| 6,254,233 | | |
| - | | |
| 102,457,775 | |
General and administrative expense | |
| 10,068,430 | | |
| 5,400,925 | | |
| 7,676,826 | | |
| 23,146,181 | |
Depreciation and amortization | |
| 1,260,064 | | |
| 8,784,930 | | |
| - | | |
| 10,044,994 | |
Income/(Loss) from Operations | |
$ | 15,989,516 | | |
$ | 26,205,963 | | |
$ | (7,676,826 | ) | |
$ | 34,518,653 | |
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 – INCOME TAXES
The
income tax provision effective tax rates were 14.9% and 482.1% for the three and nine months ended December 31, 2022, 13.0% and 4.0%
for the three and nine months ended December 31, 2021, respectively. During the three and nine months ended December 31, 2022, the effective
tax rate differed from the U.S. federal statutory rate primarily due to state income taxes. For the three and nine months ended December
31, 2021 the effective tax rate differed from the U.S. federal statutory rate due to our valuation. The effective tax rates increased
during the three and nine months ended December 31, 2022 compared to the prior year period due to the removal of our valuation allowance.
The
Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March
31, 2018, 2019, 2020, 2021, and 2022 are subject to audit.
NOTE
17 – RELATED PARTY TRANSACTIONS
Through
our acquisition of Gemini, a related party relationship was created through one of our Members of the Board of Directors by
ownership of entities that transacts with Gemini. Our Accounts Receivable consisted of $182,344
in receivables from these entities at December 31, 2022. We recognized $222,300
in Marketplace Revenue for the nine months ended December 31, 2022 that was attributable to that relationship. We issued 30,000 shares of Common Stock for a total value of $105,000 to this Member of the Board of Directors as consideration for service on the Board.
During
the nine months ended December 31, 2022, we paid $211,712 in service fees to two independent contractors and 45,000 shares in the aggregate
to our advisory committee members for service for a total value of $129,705.
Settlement
Agreement
On
November 3, 2022, AMMO, Inc. (the “Company”) entered into a Settlement Agreement (the “Settlement Agreement”)
with Steven F. Urvan and Susan T. Lokey (collectively with each of their respective affiliates and associates, the “Urvan Group”).
Pursuant
to the Settlement Agreement, the Urvan Group has agreed to withdraw its notice of stockholder nomination of its seven director candidates
(the “Urvan Candidates”) and its demand to inspect books and records, pursuant to Section 220 of the General Corporation
Law of the State of Delaware, and the Company agreed to immediately increase the size of the Board from seven to nine directors and appoint
Christos Tsentas and Wayne Walker (each, a “New Director” and the New Directors together with Mr. Urvan, the “Urvan
Group Directors”) to the Board to serve as directors with terms expiring at the 2022 annual meeting of stockholders (the “2022
Annual Meeting”). The Company will include the Urvan Group Directors in its director candidates slate for the 2022 Annual Meeting
and any subsequent annual meeting of stockholders of the Company occurring prior to the Termination Date (as defined below). The Company
has agreed to not increase the size of the Board above nine directors prior to the Termination Date unless the increase is approved by
at least seven directors. Mr. Wagenhals will continue to serve as a director and Chairman of the Board.
Unless otherwise mutually agreed to in writing by each party, the Settlement
Agreement will remain in effect until the date that is the earlier of (i) 30 days prior to the earlier of (A) the deadline set forth in
the notice requirements of Federal “Universal Proxy Rules” promulgated under Rule 14a-19(a) and Rule 14a-19(b) under the Securities
Exchange Act of 1934, as amended (the “UPR Deadline”) relating to the Company’s 2023 annual meeting of stockholders
(the “2023 Annual Meeting”) and (B) any deadline that may be set forth in the Company’s Amended and Restated Certificate
of Incorporation (as amended from time to time, the “Certificate”) or Bylaws (the “Bylaws”) following the execution
of the Settlement Agreement relating to the nomination of director candidates for election to the Board at the 2023 Annual Meeting, and
(ii) 90 days prior to the first anniversary of the 2022 Annual Meeting (such date, the “Termination Date”). However, if the
Company notifies Mr. Urvan in writing at least 15 days prior to such Termination Date that the Board irrevocably offers to re-nominate
the Urvan Group Directors for election at the 2023 Annual Meeting and Mr. Urvan accepts such offer within 15 days of receipt of such notice,
the Termination Date will be automatically extended until the earlier of (i) 30 days prior to the earlier of (A) the UPR Deadline relating
to the Company’s 2024 annual meeting of stockholders (the “2024 Annual Meeting”) and (B) any deadline that may be set
forth in the Certificate or the Bylaws following execution of the Settlement Agreement relating to the nomination of director candidates
for election to the Board at the 2024 Annual Meeting, and (ii) 90 days prior to the first anniversary of the 2023 Annual Meeting. Notwithstanding
the foregoing, the “Termination Date” shall not occur prior to 20 days after Mr. Urvan’s departure from the Board.
Pursuant
to the Settlement Agreement, the Company will suspend the previously announced separation of Company into Action Outdoor Sports,
Inc. and Outdoor Online, Inc., pending the further evaluation of strategic options by the Board. The Company paid approximately
$500,000 of
the Urvan Group’s costs, fees and expenses per the terms of the Settlement Agreement. Additionally, the Company issued 125,000 shares of Common Stock for a total value of $437,500 to an employee and
issued 110,000 shares of Common Stock for a total value of $385,000 to an independent contractor as a result of termination without cause
per the terms of the Settlement Agreement.
The
foregoing summary of the Settlement Agreement does not purport to be complete and is subject to, and qualified in its entirety, by reference
to the full text of the Settlement Agreement, a copy of which was previously filed as Exhibit 10.1 in the Form 8-K filed with the SEC
on November 7, 2022, and incorporated herein by reference.
NOTE
18 – SUBSEQUENT EVENTS
Common
Stock Issuances
Subsequent
to the December 31, 2022, the Company issued 22,730
shares pursuant the exercise of warrants for a total value of $45,460
and cancelled 25,000 shares previously issued as employee stock awards for a total value of $87,500.