NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
NOTE
1 – ORGANIZATION AND BUSINESS ACTIVITY
We
were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished
garments and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On
December 15, 2016, the Company’s majority shareholders sold 475,681 (11,891,976 pre-split) of their outstanding shares to
Mr. Fred W. Wagenhals (“Mr. Wagenhals”) resulting in a change in control of the Company. Mr. Wagenhals was appointed
as sole officer and the sole member of the Company’s Board of Directors.
The
Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW,
(iii) an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to
Delaware, and (iv) a 1-for-25 reverse stock split (“Reverse Split”) of the issued and outstanding shares of the common
stock of the Company. As a result of the reverse split, the previous issued and outstanding shares of common stock became 580,052
shares; no shareholder was reversed below 100 shares, and all fractional shares resulting from the reverse split were rounded
up to the next whole share. All references to the outstanding stock have been retrospectively adjusted to reflect this split.
These transactions were effective as of December 30, 2016.
On
March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (PRIVCO) under which the
Company acquired all of the outstanding shares of common stock of (PRIVCO). Under the terms of the Agreement, the Company issued
17,285,800 newly issued shares of common stock of the Company. In connection with this transaction the Company retired 475,681
shares of common stock and issued 500,000 shares of common stock to satisfy an issuance commitment. The acquisition was considered
to be a capital transaction. The transaction was the equivalent to the issuance by PRIVCO of 604,371 shares to the Company’s
shareholders accompanied by a recapitalization. The weighted average number of outstanding shares has been adjusted for this transaction.
(PRIVCO) subsequently changes its name to AMMO Munitions, Inc.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting
Basis
The
accompanying unaudited 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 consolidated financial statements and related disclosures are presented pursuant to the
rules and regulations of the Securities Exchange Commission (“SEC”).
The
accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and related disclosures contained in the Company’s Annual Transition Report filed with the SEC on Form 10-KT for three-month
transition period ended March 31, 2018. The results for the three and nine month periods ended December 31, 2018 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, 2018 and 2017, (b)
the financial position at December 31, 2018, and (c) cash flows for the nine month periods ended December 31, 2018 and
2017.
We
use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”)
and all amounts are expressed in U.S. dollars. We have adopted a March 31 year end.
Unless
the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or
the “Company” are to AMMO, Inc., a Delaware corporation.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
Principles
of Consolidation
The
consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, SNI, LLC, AMMO
Munitions, Inc., AMMO Technologies, Inc., and Enlight Group II, LLC. All significant intercompany accounts and transactions
are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months
or less to be cash equivalents.
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, 2018 and March 31, 2018, we reserved $14,046 and $23,046, respectively, of allowance for doubtful accounts.
License
Agreements
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas
limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to
Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale,
and commercial exploitation of Jesse James Branded Products. In addition, Mr. James agreed to make himself available for certain
promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr.
James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses
and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement
with the potential issuance of up to 75,000 additional shares of common stock upon achieving certain gross sales with $15 million
in gross sales required to earn the entire 75,000 shares.
We
are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition
industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of all Jeff Rann Branded Products. Mr. Rann agreed to make himself available for certain promotional activities and to promote
the Branded Products through his own social media outlets. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and
non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued
100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of 75,000 additional
shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.
Amortization
expense for the license agreements for the three and nine months ended December 31, 2018 and 2017 were $12,500, $37,500, $7,222
and $39,583, respectively.
Patents
On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged
with Hallam, Inc, a Texas corporation, with ATI being the survivor. Under the terms of the Merger, we issued to Hallam, Inc.’s
two shareholders, 600,000 shares of our common stock, subject to restrictions, and payment of $200,000. The first payment of $100,000
to the Hallam, Inc. shareholders was paid on September 13, 2017, and the second payment of $100,000 was paid on February 6, 2018.
The
shares were valued at $1.25 and the aggregate value of $950,000 was recorded as a patent asset. This asset will be amortized from
September 2017, the first full month of the acquired rights, through October 29, 2028. Patent amortization expense the three months
and nine months ended December 31, 2018 and 2017 were $21,269, $63,806, $25,166, and $25,166, respectively.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
Under
the terms of the Merger, ATI succeeded to all of the assets of Hallam, Inc. and assumed the liabilities of Hallam, Inc., which
were none. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence
Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by University of Louisiana
at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First
Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing
date. Under the terms of the Exclusive License Agreement, the Company is obligated to pay a royalty to the patent holder, based
on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028.
For the nine months ended December 31, 2018 and 2017, the Company accrued $22,495 and $6,000 respectively under this agreement.
Additionally, $10,783 was accrued for the three month period ended March 31, 2018.
In
August 2018, we applied for additional patent coverage for the manufacturing methods or application of the Hybrid Luminescence
Ammunition Technology on a variety of projectile and ammunition types. The costs of filing this patent were expensed, but may
be recapitalized pending the outcome of the USPTO’s review of the application.
On
October 5, 2018, we completed the acquisition of SW Kenetics Inc. on (See Note 7). Under the terms of the Merger, 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.
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, 2018 and the three
and nine months ended December 31, 2017.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains
control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in
exchange for those goods and services. The Company applies the following five-step model to determine revenue recognition:
|
●
|
Identification
of a contract with a customer
|
|
●
|
Identification
of the performance obligations in the contact
|
|
●
|
determination
of the transaction price
|
|
●
|
allocation
of the transaction price to the separate performance allocation
|
|
●
|
recognition
of revenue when performance obligations are satisfied
|
The
Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to
in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined
to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are
performance obligations, and assesses whether each promised good or service is distinct. If a contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance
obligations require an allocation of the transaction price based on the estimated standalone selling price of each identified
performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the
customer obtains control of the Company’s product, which typically occurs upon shipment of the product.
For
the nine and three months ended December 31, 2018, the Company’s customers that comprised more than ten percent (10%) of
total revenues and accounts receivable were as follows:
PERCENTAGES
|
|
Revenues
|
|
|
Accounts Receivable
|
|
For the Nine-Months ended December 31, 2018
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
A
|
|
|
26.23
|
%
|
|
|
-
|
|
B
|
|
|
21.22
|
%
|
|
|
12.89
|
%
|
C
|
|
|
10.95
|
%
|
|
|
-
|
|
D
|
|
|
-
|
|
|
|
39.36
|
%
|
E
|
|
|
-
|
|
|
|
14.10
|
%
|
|
|
|
58.40
|
%
|
|
|
66.35
|
%
|
For the Three-Months ended December 31, 2018
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
A
|
|
|
-
|
|
|
|
-
|
|
B
|
|
|
-
|
|
|
|
12.89
|
%
|
C
|
|
|
-
|
|
|
|
-
|
|
D
|
|
|
-
|
|
|
|
39.36
|
%
|
E
|
|
|
17.70
|
%
|
|
|
14.10
|
%
|
|
|
|
17.70
|
%
|
|
|
66.35
|
%
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
Advertising
Costs
We
expense advertising costs as they are incurred. We incurred advertising of $180,589 and $436,501 for the three and nine months
ended December 31, 2018, respectively.
Inventories
We
state inventories at the lower of cost or market. 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.
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 seven years.
Compensated
Absences
We
accrue a liability for compensated absences in accordance with
Accounting Standards Codifications 710 – Compensation
– General
.
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). There were 437,500 shares
of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during
the nine months ended December 31, 2018.
On March 12, 2018, we entered into an employment agreement with an executive that included, among other provisions,
an equity grant of 400,000 shares of restricted common stock that vests at the rate of 100,000 shares annually for four years.
The $660,000 compensation value is being recognized ratably on a straight-line basis over the four-year period covered by the agreement.
On
May 1, 2018, we entered into an employment agreement with an executive that included, among other provisions, an equity grant
of 100,000 shares of restricted common stock that vests at the rate of 33,333 shares annually for three years. The $250,000 compensation
value is being recognized on a straight-line basis over the three-year period covered by the agreement.
On September 27, 2018, we entered into three separate employment agreements that each included, among other
provisions, an equity grant of 80,000 shares of restricted common stock that vests at the rate of 20,000 shares annually for four
years. Each compensation value of $261,000 ($783,000 total) is being recognized on a straight-line basis over the four-year period
covered by the agreement.
Concentrations
of Credit Risk
Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.
As of December 31, 2018, our bank account balances exceeded federally insured limits.
Income
Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income
taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC
740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected
to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized,
a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those
positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is
greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change
in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal
to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
Contingencies
Certain
conditions may exist as of the date the consolidated financial statements are issued that may result in a loss to us but will
only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against
us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted
claims and the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
is reasonably estimated, the estimated liability would be accrued in our consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and
material, would be disclosed. There were no known contingencies at December 31, 2018 or March 31, 2018.
Recent
Accounting Pronouncements
In
May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. The revised effective date
for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted,
but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public
entities. We adopted ASU 2014-09 as of January 1, 2018, and it did not have a material impact on the Company’s consolidated
results of operations, financial position or cash flows for the period ended December 31, 2018.
Sales
are initiated in three ways –
|
●
|
third
party sales representative obtains signed purchase order from a customer
|
|
●
|
direct
contact by in-house sales representatives who obtains signed purchase order
|
|
●
|
electronic
purchase order from a customer (usually the very large customers)
|
Once
a customer’s order is received a sales order is generated by authorized sales or management personnel. Once approved for
shipping, the sales order is entered, the inventory control department will pull the purchased items from the inventory or if
needed will request the manufacture of a specific product. When the items that were ordered are available for shipment, the merchandise
is prepared for shipping and shipped by FedEx or common carrier.
All
sales are recorded upon shipment and, depending on credit worthiness of customer, the payment terms will vary from thirty (30)
to sixty (60) days. No refunds are allowed on any product shipped.
Each
product manufactured by the Company has standard specifications and performance objectives. The Company has an extensive product
testing program and, if the Company were given notice of a product defect by a customer, the Company would request the return
of the product so that the manufacturing defect could be identified. From inception to December 31, 2018 the Company has had no
returned products related to product warranty.
The
revenue recognition procedures set forth above have been used by the Company since its inception and are consistent with requirements
of ASC 606 “Revenue from Contracts with Customers”.
In
February 2016, the FASB issued ASU 2016-02 – “Leases (Topic 842)” Under ASU 2016-02, entities will be required
to recognize lease asset and lease liabilities by lessees for those leases classified as operating leases. Among other changes
in accounting for leases, a lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to (and a lessor) should include payments to be made in
optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option
to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of
lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. The amendments in
ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018, including interim periods with those fiscal
years for public business entities. We are currently evaluating the effect of the adoption of ASU 2016-02 will have on our consolidated
results of operations, financial position or cash flows.
On
June 20, 2018, the FASB expanded the scope of Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation,
to include share-based payments to nonemployees for goods and services. The accounting board said the amendments in Accounting
Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, align the guidance for stock compensation to employees and nonemployees. The amended guidance replaces ASC
505-50, Equity – Equity-Based Payments to Non-Employees. We anticipate that this ASC will not have a material effect on
the Company’s financial statements.
The
amendments in ASU No. 2018-07 apply “to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards,” the FASB said. But the
amended guidance does not cover stock compensation that is used to provide financing to the company that issued the shares or
stock awards tied to a sale of goods or services as part of a contract accounted for according to ASC 606, Revenue From Contracts
With Customers.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
The
amendments are effective for public companies for fiscal years that begin after December 15, 2018, and the quarterly and other
interim periods in those years, the FASB said the amended guidance can be applied before it becomes effective, but businesses
are not permitted to use the guidance in ASU No. 2018-07 before they have implemented ASC 606. We have evaluated the effect of
the adoption of ASU 2018-07 will have on our consolidated results of operations, financial position or cash flows and determine
the effects will not be material to the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the
accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under
the circumstances.
Loss
Per Common Share
We
calculate basic loss per share using the weighted-average number of shares of common stock outstanding during each reporting period.
Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants, using various methods,
such as the treasury stock or modified treasury stock method, in the determination of dilutive shares outstanding during each
reporting period. We have issued warrants to purchase 5,510,593 shares of common stock and equity grants of 640,000 shares of
common stock that are potentially dilutive. All weighted average numbers were adjusted for the reverse stock split and merger
transaction. Due to the loss from operations in the three and nine months ended December 31, 2017 and 2018, there are no common
shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive.
NOTE
3 – INVENTORIES
At
December 31, 2018 and March 31, 2018, the inventory balances are composed of:
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
Finished product
|
|
$
|
2,142,831
|
|
|
$
|
809,680
|
|
Raw materials
|
|
|
1,764,544
|
|
|
|
1,471,666
|
|
Work in process
|
|
|
43,933
|
|
|
|
123,661
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,951,308
|
|
|
$
|
2,405,007
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
We
state property and equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line
method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to seven
years. Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation
from the accounts and any resulting gain or loss is credited or charged to selling, general, and administrative expenses. We charge
expenditures for normal repairs and maintenance to expense as incurred.
We
capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements
made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the
lease term including any renewals that are reasonably assured.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
Property
and equipment consisted of the following at December 31, 2018 and March 31, 2018:
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
Leasehold Improvements
|
|
$
|
81,744
|
|
|
$
|
17,772
|
|
Furniture and Fixtures
|
|
|
46,274
|
|
|
|
8,102
|
|
Vehicles
|
|
|
103,511
|
|
|
|
89,388
|
|
Equipment
|
|
|
2,642,997
|
|
|
|
879,871
|
|
Tooling
|
|
|
109,791
|
|
|
|
359,351
|
|
Total property and equipment
|
|
$
|
2,984,317
|
|
|
$
|
1,354,484
|
|
Less accumulated depreciation
|
|
|
(341,330
|
)
|
|
|
(113,158
|
)
|
Net property and equipment
|
|
|
2,642,987
|
|
|
|
1,241,326
|
|
Depreciation
Expense for the nine months and three months ended December 31, 2018 and 2017 totaled $228,172, $91,837, $64,361, and $22,880,
respectively. Depreciation for the three months ended March 31, 2018 was $35,297.
NOTE
5 – CONVERTIBLE PROMISSORY NOTES
On
January 9, 2019, we completed the issuance of 10% Convertible Promissory Notes in the principal amount of $1,710,000 to accredited
investors through a private placement in exchange for cash in an equal amount. The principal amounts were raised from the period
of October 23, 2018 to December 28, 2018. As a result of the issuance of the Convertible Promissory Notes, the placement agent
received an aggregate commission of $171,000, and $5,000 in escrow fees were paid, totaling $176,000 of Note Issuance Costs. As
of December 31, 2018, we recorded $11,505 of interest expense related to the Note Issuance Costs.
The
Maturity Date of the notes is the two year anniversary from the date of issuance. The holders have the option to convert the entire
principal of the Convertible Promissory Note into Common Stock at a conversion price equal to $2.50 per share at any time until
the Maturity Date, subject to “Qualified Financing.” Qualified Financing means the next equity round of financing
of the Company that raises not less than $10,000,000 gross proceeds from institutional(s) or commercial lender(s) in the aggregate
with any combination of Common Stock (valued at the close of the Trading Day on the date of the closing for the financing) or
debt. In the event of Qualified Financing, the Convertible Promissory Notes will automatically convert 100% of the principal amount
into Common Stock at a conversion price equal to $2.50 per share. As of December 31, 2018, we have accrued $22,541 of interest
expense related to the Convertible Promissory Notes.
NOTE
6 – CAPITAL STOCK
During
the nine month period ended December 31, 2018, we issued 6,216,083 shares of common stock as follows:
|
●
|
2,139,886
shares were sold to investors for $3,591,030
|
|
●
|
1,972,800
shares were issued through exercised warrants of $4,767,625
|
|
●
|
10,495
shares were issued through a cashless exercise of 14,719 warrants
|
|
●
|
5,000
shares were issued for services valued at $22,350
|
|
●
|
1,700,002
shares were issued to the shareholders of SW Kenetics, Inc. (subject to claw back provisions) valued $4,617,545 at
in connection with the acquisition
|
|
●
|
437,500
shares valued at $644,724 were issued to employees, members of the Board of Directors, and members of the Advisory Committee
as compensation
|
In
April of 2018, our second placement agreement to secure equity capital from qualified investors to provide funds to our operations
ended.
The offering consisted of Units priced at $1.65, which included one share of common
stock and one five-year warrant to purchase an additional half-share of common stock for an exercise price of $2.00 per share.
Effectively, every two units purchased provided the investor with a five-year warrant at an exercise price of $2.00 per share.
Units sold under this agreement totaled 1,967,886 shares of common stock and 983,943 warrants for $3,247,030 for the nine month
period ended December 31, 2018.
For
services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a
fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of seven years and an exercise price
of $1.65 per share. The cash fee totaled $389,644 for the nine month period ended December 31, 2018, including reimbursed expenses.
In
December of 2018, we entered into a placement agreement to secure equity capital from qualified investors to provide funds
to our operations.
The offering consisted of Units priced at $2.00, which included one share
of common stock and one five-year warrant to purchase an additional half-share of common stock for an exercise price of $2.40
per share. Effectively, every two units purchased provided the investor with a five-year warrant at an exercise price of $2.40
per share. Units sold under this agreement totaled 172,000 shares of common stock and 86,000 warrants for $344,000 for the nine
month period ended December 31, 2018.
For
services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a
fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of seven years and an exercise price
of $2.00 per share. The cash fee totaled $41,280 for the nine month period ended December 31, 2018, including reimbursed expenses.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
At
December 31, 2018, outstanding and exercisable stock purchase warrants consisted of the following:
|
|
Number of Shares
|
|
|
Weighted Averaged Exercise Price
|
|
|
Weighted Average Life Remaining (Years)
|
|
Outstanding at March 31, 2018
|
|
$
|
8,872,160
|
|
|
$
|
2.22
|
|
|
|
1.79
|
|
Granted
|
|
|
1,600,752
|
|
|
|
2.06
|
|
|
|
3.99
|
|
Exercised
|
|
|
(1,987,519
|
)
|
|
|
2.41
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
(2,974,800
|
)
|
|
|
2.47
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
5,510,593
|
|
|
$
|
1.98
|
|
|
|
4.28
|
|
Exercisable at December 31, 2018
|
|
|
5,510,593
|
|
|
$
|
1.98
|
|
|
|
4.28
|
|
As
of December 31, 2018, we had 5,510,593 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
an aggregate of 349,060 shares of Common Stock at an average price of $2.50 per share over the next three years; (2) warrants
to purchase 966,494 shares of Common Stock at an exercise price of $1.65 per share until March 2025; (3) warrants to purchase
4,109,039 shares of our Common Stock at an exercise price of $2.00 per share over the next three to five years; and (4)
warrants to purchase 86,000 shares of Common Stock at an exercise price of $2.40 over the next five years.
On May 24, 2018, per the terms of the private offering dated January 25, 2017, we called for the exercise
of warrants to purchase a total of 4,947,600 shares of our Common Stock. According to the terms of the Warrant Purchase Agreement,
the warrants could be called when the average price of our common stock traded at $5.00 per share or higher, for a consecutive
30 day period. This call provision was met on May 21, 2018. As a result, we issued formal notice to all warrant holders on May
24, 2018, advising them that they had until July 6, 2018, to exercise their warrants, or they would become null and void. The total
number of warrants included in the January 25, 2017 offering were 4,947,600 and were priced as follows: 4,790,100 warrants at an
exercise price of $2.50, 67,500 warrants at an exercise price of $1.25 and 90,000 warrants at an exercise price of $0.50.
As
of July 6, 2018, a total of 1,972,800 warrants were exercised to purchase an equivalent 1,972,800 shares of common stock at an
average price of $2.42 and 2,974,800 warrants to purchase shares of Common Stock were cancelled. On July 12, 2018, the company
filed a Form 8-K to report the activity of this event.
Additionally,
there was a cashless exercise of 14,719 warrants resulting in the issuance of 10,495 shares of Common Stock unrelated to the call
for the exercise of warrants.
On
October 24, 2018, we filed Amended and Restated Articles of Incorporation with the state of Delaware. The Amended Articles increased
our authorized Common Stock to a total of 200,000,000 shares, $0.001 par value, and created 10,000,000 shares of Preferred Stock,
$0.001 par value.
NOTE
7 – ACQUISITIONS
On
September 27, 2018, AMMO Technologies, Inc. (“ATI”) entered into a definitive Agreement and Plan of
Merger with SW Kenetics Inc. (“SWK”), an Arizona corporation and completed the merger on October 5, 2018. Pursuant
to the agreement SWK merged with and into AMMO Technologies, Inc., with ATI being the survivor. Under the
terms of the agreement, we issued to SW Kenetics Inc.’s three shareholders, 1,700,002 restricted shares of our common stock,
payment of $250,000, and a payment obligation of $1,250,000 subject to completion of specific milestones that we have recorded
as Contingent Consideration Payable. Additionally, the 1,700,002 shares of common stock were issued with claw back provisions
to ensure agreed upon objectives are met. Included among the list of milestones or events that must be completed are significant
revenue goals incorporating the product technology of SWK. The initial payment of $250,000 was made as a deposit on August 20,
2018. The shares were each valued at $2.72, the weighted average share price of our Common Stock that was publicly traded and
sold through private placement. We recorded the total purchase consideration to patents as follows:
Cash
|
|
$
|
250,000
|
|
Contingent Consideration Payable
|
|
|
1,250,000
|
|
Common Stock
|
|
|
1,700
|
|
Additional Paid-in Capital
|
|
|
4,622,305
|
|
Gain on Bargain Purchase
|
|
|
1,599,161
|
|
Fair Value of Patent
|
|
$
|
7,723,166
|
|
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and March 31, 2018
(
Unaudited)
The
fair value recorded was determined by a third party valuation firm. SWK’s significant assets only include the patent asset
and the third party valuation firm allocated determined the fair value measurement based on the patent.
SWK
is a research and development firm located in Arizona that has designed a new portfolio of modular projectiles that the Company
believes will advance the force capability of the United States military, as well as NATO member countries. SWK filed a patent
for their technology, which is now pending with the United States Patent and Trademark Office.
On
December 13, 2018, the Company made a $50,000 payment to SW Kenetics, Inc. in connection with the completion of a milestone. The
$50,000 payment was offset to Contingent Consideration Payable.
NOTE
8 - SUBSEQUENT EVENTS
On
January 2, 2019, the Company hired a new President of Global Commercial Sales and Marketing. Included in the compensation for
this position was a stock grant totaling 250,000 shares of the Company’s restricted common stock. Per the terms of the agreement,
50,000 shares were issued as a signing bonus, and the remainder shall vest ratably over the next three years, or as sales hurdles
are achieved.
On
January 11, 2019, Enlight Group II, LLC, a wholly owned subsidiary of Ammo, Inc., entered into Binding Letter of Intent with the
Jagemann Stamping Company, a Wisconsin corporation.
On
January 23, 2019, Enlight Group II, LLC executed a definitive Asset Purchase Agreement whereby Enlight Group II, LLC will acquire
100% of all the assets of Jagemann Stamping Company’s (“JSC”) ammunition casing and projectile manufacturing
and sales operations. The aggregate purchase price is $15,400,000 in cash and 1,000,000 shares of AMMO, Inc.’s Common Stock
for 51% of the assets and JSC will contribute 49% of the assets to Enlight Group II, LLC. The parties expect to complete
the transaction on or before March 31, 2019.
Jagemann Stamping Company
is engaged exclusively in the business of full-service stamping involving, among other things, the manufacture and sale of deep
drawn stampings for use in the ammunition casing and projectile industries.
On
January 22, 2019, we introduced our TAC-P
TM
or Tactical Precision line of ammunition for Military and Specialized Law
Enforcement customers. TAC-P
TM
is our new line of defense ammunition that includes match grade capability in both a
solid copper boat tail and armor piercing configurations. The TAC-P™ line is also available with our patented one-way luminescent
or O.W.L. Technology™.
As
of January 31, 2019, we sold an additional 1,259,500 shares of common stock and 629,750 warrants to purchase common stock at a
price per share of $2.00 totaling $2,519,000. We accrued commissions of $302,280 and 151,140 warrants payable in connection with
the sale of these shares. Additionally, 85,000 shares of common stock were issued to employees for stock bonuses.