NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020 and March 31, 2020
(Unaudited)
NOTE
1 – ORGANIZATION AND BUSINESS ACTIVITY
We
were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished
garments and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On
December 15, 2016, the Company’s majority shareholders sold 475,681 (11,891,976 pre-split) of their outstanding shares to
Mr. Fred W. Wagenhals (“Mr. Wagenhals”) resulting in a change in control of the Company. Mr. Wagenhals was appointed
as sole officer and the sole member of the Company’s Board of Directors.
The
Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW,
(iii) an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to
Delaware, and (iv) a 1-for-25 reverse stock split (“Reverse Split”) of the issued and outstanding shares of the common
stock of the Company. As a result of the reverse split, the previous issued and outstanding shares of common stock became 580,052
shares; no shareholder was reversed below 100 shares, and all fractional shares resulting from the reverse split were rounded
up to the next whole share. All references to the outstanding stock have been retrospectively adjusted to reflect this split.
These transactions were effective as of December 30, 2016.
On
March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (PRIVCO) under which the
Company acquired all of the outstanding shares of common stock of (PRIVCO). Under the terms of the Agreement, the Company issued
17,285,800 newly issued shares of common stock of the Company. In connection with this transaction the Company retired 475,681
shares of common stock and issued 500,000 shares of common stock to satisfy an issuance commitment. The acquisition was considered
to be a capital transaction. The transaction was the equivalent to the issuance by PRIVCO of 604,371 shares to the Company’s
shareholders accompanied by a recapitalization. The weighted average number of outstanding shares has been adjusted for this transaction.
(PRIVCO) subsequently changes its name to AMMO Munitions, Inc.
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, 2020. The results for the three and nine month period ended December 31, 2020 are not necessarily indicative
of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally
included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations
of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary
for a fair statement of (a) the results of operations for the three and nine month periods ended December 31, 2020 and 2019, (b)
the financial position at December 31, 2020, and (c) cash flows for the nine month period ended December 31, 2020 and 2019.
We
use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”)
and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.
Unless
the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or
the “Company” are to AMMO, Inc., a Delaware corporation.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, Enlight Group
II, LLC (d/b/a Jagemann Munition Components), SNI, LLC, AMMO Munitions, Inc. and AMMO Technologies, Inc. (inactive). All significant
intercompany accounts and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements
include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets,
intangible assets, and stock-based compensation.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts
Receivable and Allowance for Doubtful Accounts
Our
accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts
which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At December
31, 2020 and March 31, 2020, we reserved $117,094 and $62,248, respectively, of allowance for doubtful accounts.
License
Agreements
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas
limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to
Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale,
and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition
and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
We
are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition
industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of all Jeff Rann Branded Products. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded
Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Amortization
expense for the license agreements for the three and nine months ended December 31, 2020 and 2019 was $12,500 and $37,500, respectively.
Patents
On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with
Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce
projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication
date of March 26, 2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies
Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective
as of August 22, 2017, the Merger closing date. This asset will be amortized from September 2017, the first full month of the
acquired rights, through October 29, 2028. Patent amortization expense for the three months ended December 31, 2020 and 2019 was
$21,269 and $21,268, respectively, and $63,806 for the nine months ended December 31, 2020 and 2019.
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, 2020 and 2019, the Company recognized royalty expenses of $70,793 and $20,261, respectively
under this agreement.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On
October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed
all of the liabilities.
The
primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were
assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
Patent amortization expense for the three months ended December 31, 2020 and 2019 was $102,067, respectively, and
$306,200 and $239,253, respectively for the nine months ended December 31, 2020 and 2019.
We
intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications
where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other
Intangible Assets
On
March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its
acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the
terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships,
and intellectual property. For the three months ended December 31, 2020 and 2019, amortization of the other intangibles assets
was $357,111 and $249,794, respectively, and $1,071,335 and $729,131, respectively for the nine months ended December 31, 2020
and 2019 and recognized in depreciation and amortization expense.
Impairment
of Long-Lived Assets
We
continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable.
When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether
the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future
cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying
amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair
value less costs to sell. No impairment expense was recognized for the three and nine months ended December 31, 2020 and 2019.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains
control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in
exchange for those goods and services. The Company applies the following five-step model to determine revenue recognition:
|
●
|
Identification
of a contract with a customer
|
|
●
|
Identification
of the performance obligations in the contact
|
|
●
|
determination
of the transaction price
|
|
●
|
allocation
of the transaction price to the separate performance allocation
|
|
●
|
recognition
of revenue when performance obligations are satisfied
|
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to
in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined
to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are
performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance
obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount
of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied
or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’s product,
which typically occurs upon shipment of the product. In the current period, the Company began accepting contract liabilities or
deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The Company will recognize revenue when the performance
obligation is met.
For
the three and nine months ended December 31, 2020, the Company’s customers that comprised more than ten percent (10%) of
total revenues and accounts receivable were as follows:
|
|
|
Revenues
at
December
31, 2020
|
|
|
Accounts
Receivable
|
|
PERCENTAGES
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
December
31,
2020
|
|
|
March
31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
|
15.9
|
%
|
|
|
15.0
|
%
|
|
|
-
|
%
|
|
|
26.5
|
%
|
B
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14.6
|
%
|
|
|
-
|
|
|
|
|
|
15.9
|
%
|
|
|
15.0
|
%
|
|
|
14.6
|
%
|
|
|
26.5
|
%
|
Disaggregated
Revenue Information
The
following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product
types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product
type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers
of each product type.
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
Ammunition
Sales
|
|
$
|
12,834,490
|
|
|
$
|
1,246,414
|
|
|
$
|
27,987,438
|
|
|
$
|
3,703,669
|
|
Ammunition
Casings Sales
|
|
|
3,785,754
|
|
|
|
1,525,595
|
|
|
|
10,305,648
|
|
|
|
6,321,475
|
|
Total
Sales
|
|
$
|
16,620,244
|
|
|
$
|
2,772,009
|
|
|
$
|
38,293,086
|
|
|
$
|
10,025,144
|
|
Ammunition
products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators.
We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers.
Advertising
Costs
We
expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. We incurred advertising
of $51,700 and $190,277 for the three and nine months ended December 31, 2020, respectively and we
incurred advertising expenses of $128,709 and $422,948 for the three and nine months ended December 31, 2019, respectively.
Inventories
We
state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory
consists of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control,
and all other costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories
for obsolescence.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property
and Equipment
We
state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge
minor replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method
over estimated useful lives, which are generally five to ten years.
Compensated
Absences
We
accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation
– General.
Stock-Based
Compensation
We
account for stock-based compensation at fair value in accordance with ASC 718. There were 137,916 shares of common stock issued
to employees, members of the Board of Directors, and members of the Advisory Committee for services during the quarter ended December
31, 2020.
Effective
April 1, 2020, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other
provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333
shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered
by the agreement.
Effective
June 18, 2020, we entered into an employment agreement with Steve Hilko, Chief Operating Officer, that included, among other provisions,
an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per
quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the
agreement.
From
September 2018 through December 2020, we entered into eight separate employment agreements that included in total, among other
provisions, equity grants of 540,382 shares of restricted common stock that vests annually over the next three years. The total
compensation value is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2020,
our bank account balances exceeded federally insured limits.
Income
Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income
taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC
740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected
to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized,
a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those
positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is
greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change
in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal
to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.
Furthermore,
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES
Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations
on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net
operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer
payroll taxes and evaluating potential employee retention credits.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Certain
conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us
but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such
assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are
pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings
or unasserted claims and the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and
material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated
filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint
in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a result of
such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient controls internal controls,
and that the individual was the victim of retaliation and constructive discharge after being removed as a director by majority
vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made of up independent
directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found the material
claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain corporate
governance charter documents and processes which the Company promptly implemented. The matter is currently the subject of administrative
investigation by the DOL via the Occupational Safety and Health Administration. The Company filed a timely Position Statement
with the DOL in October of 2019 in response to the Complaint. The Company disputes the allegations of wrongdoing and believes
the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests
in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW
Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination.
On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant
of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans to aggressively pursue its offensive
claims in order to recover economic damages as a result of its claims while seeking dismissal of the counterclaim. There were
no other known contingencies at December 31, 2020.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Loss
Per Common Share
We
calculate basic loss per share using the weighted-average number of shares of common stock outstanding during each reporting period.
Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants, using various methods,
such as the treasury stock or modified treasury stock method, in the determination of dilutive shares outstanding during each
reporting period. We have issued warrants to purchase 8,910,205 shares of common stock. All weighted average numbers were adjusted
for the reverse stock split and merger transaction. Due to the loss from operations in the three and nine months ended December
31, 2020 and 2019, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive.
The Company excluded warrants of 8,910,205 and 8,629,432 for the nine months ended
December 31, 2020 and 2019, respectively, from the weighted average diluted common shares outstanding because their inclusion
would have been antidilutive.
NOTE
4 – INVENTORIES
At
December 31, 2020 and March 31, 2020, the inventory balances are composed of:
|
|
December
31, 2020
|
|
|
March
31, 2020
|
|
Finished
product
|
|
$
|
351,171
|
|
|
$
|
1,916,417
|
|
Raw
materials
|
|
|
7,010,713
|
|
|
|
1,771,006
|
|
Work
in process
|
|
|
2,186,707
|
|
|
|
720,650
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,548,591
|
|
|
$
|
4,408,073
|
|
NOTE
5 – PROPERTY AND EQUIPMENT
We
state property and equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line
method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years.
Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation
from the accounts and any resulting gain or loss is credited or charged to selling, general, and administrative expenses. We charge
expenditures for normal repairs and maintenance to expense as incurred.
We
capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements
made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the
lease term including any renewals that are reasonably assured.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property
and equipment consisted of the following at December 31, 2020 and March 31, 2020:
|
|
December 31, 2020
|
|
|
March 31, 2020
|
|
Leasehold Improvements
|
|
$
|
126,558
|
|
|
$
|
118,222
|
|
Furniture and Fixtures
|
|
|
87,790
|
|
|
|
87,790
|
|
Vehicles
|
|
|
103,511
|
|
|
|
103,511
|
|
Equipment
|
|
|
23,411,433
|
|
|
|
19,578,035
|
|
Tooling
|
|
|
126,190
|
|
|
|
126,190
|
|
Construction in Progress
|
|
|
649,293
|
|
|
|
1,093,262
|
|
Total property and equipment
|
|
$
|
24,504,775
|
|
|
$
|
21,107,010
|
|
Less accumulated depreciation
|
|
|
(5,100,920
|
)
|
|
|
(3,060,681
|
)
|
Net property and equipment
|
|
|
19,403,855
|
|
|
|
18,046,329
|
|
Depreciation
Expense for the three and nine months ended December 31, 2020 and 2019 totaled $731,183, $677,407, $2,110,125, and $1,887,573,
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, 2020, the outstanding balance of the Factoring Liability was $2,290,598. Interest expense recognized
on the Factoring Liability was $313,747, including $50,000 of amortization of the commitment fee. Interest expense for the comparable
period ending December 31, 2019 was $116,196, including $62,500 of amortization of the commitment fee.
On
June 17, 2020, this agreement was amended which extended the maturity date to June 17, 2022.
NOTE
7 – INVENTORY CREDIT FACILITY
On
June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit
line, and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured
by our inventory, among other assets, contains a maximum loan amount of $1,750,000 on eligible inventory and has an annualized
interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%. The agreement contains a fee of 2% of the maximum
loan amount ($35,000) assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement
to increase the maximum inventory loan amount to $2,250,000. As of December 31, 2020, the outstanding balance of the Inventory
Credit Facility was $2,250,000. Interest expense recognized on the Inventory Credit Facility was $118,202, including $24,962 of
amortization of the annual fee. There was no interest expense for the comparable period ending December 31, 2019 as this transaction
was not yet consummated.
NOTE
8 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ and Manitowoc, WI under contracts we classify as
operating leases. None of our leases are financing leases. The Payson lease has an option to renew for five years. As of December
31, 2020, we are fairly certain that we will exercise the renewal option, and we have included such renewal option in the lease
liabilities and the disclosures herein. The Scottsdale lease does not include a renewal option. As of June 26, 2020, the Company
entered into an amended agreement that modified the Manitowoc lease to monthly payments of $34,071 and decrease the term to March
2025. The agreement does not contain a renewal option. Accordingly, we modified our Right of Use Assets and Operating Lease Liabilities
by $737,680 at June 30, 2020.
As
of December 31, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $2,371,096 and $1,913,304,
respectively. As of March 31, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $3,431,746
and $3,107,911, respectively. The Operating Lease Liabilities were net of current portions of $510,103 at December 31, 2020 and
$375,813 at March 31, 2020.
Consolidated
lease expense for the three and nine months ended December 2020 was $217,140 and $609,250, respectively, including $179,487 and
$534,781 of respective operating lease expense and $37,653 and $74,468 of respective other lease associated expenses such as association
dues, taxes, utilities, and other month to month rentals.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
weighted average remaining lease term and weighted average discount rate for operating leases were 4.2 years and 10.0%, respectively.
Futures
minimum lease payments under non-cancellable leases as of December 31, 2020 are as follows:
Years Ended March 31,
|
|
|
|
2021 (1)
|
|
$
|
181,987
|
|
2022
|
|
|
732,111
|
|
2023
|
|
|
742,108
|
|
2024
|
|
|
684,836
|
|
2025
|
|
|
495,528
|
|
Thereafter
|
|
|
144,460
|
|
|
|
|
2,981,030
|
|
Less: Amount Representing Interest
|
|
|
(557,023
|
)
|
|
|
$
|
2,424,007
|
|
|
(1)
|
This
amount represents future lease payments for the remaining three months of fiscal year 2021. It does not include any lease
payments for the nine months ended December 31, 2020.
|
NOTE
9 – CONVERTIBLE PROMISSORY NOTES
On
January 15, 2020, the Company consummated the initial closing of a private placement offering whereby pursuant to the Subscription
Agreements entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes
for an aggregate purchase price of $1,650,000 and five (5) year warrants to purchase shares of the Company’s common stock,
par value $0.001 per share (“Common Stock”).
On
January 30, 2020, the Company consummated the final closing of a private placement whereby pursuant to the Subscription Agreements
entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes for an
aggregate purchase price of $850,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value
$0.001 per share.
The
Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 and October 30, 2020. Additionally, the Notes contain
a mandatory conversion mechanism whereby any principal and accrued interest on the Notes, upon the closing of a Qualified Financing
(as defined in the Notes), converts into shares of the Company’s Common Stock at a conversion price of 66.7% of the per
share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before
the Maturity Date, the Notes shall become convertible into shares of the Company’s Common Stock at a conversion price that
is equal to 50.0% of the arithmetic mean of the VWAP in the ten consecutive Trading Days immediately preceding the Maturity Date.
The Notes contain customary events of default. If an Event of Default occurs, interest under the Notes will accrue at a rate of
fifteen percent (15%) per annum and the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated
damages and other amounts owing with respect to the Notes will become, at the Note holder’s election, immediately due and
payable in cash.
The
Company analyzed embedded conversion options of the convertible notes at issuance to determine whether the embedded conversion
options should be bifurcated and accounted for as derivative liabilities or if the embedded conversion options contain a beneficial
conversion feature. The Company notes that this determination must be performed at each balance sheet date and makes it possible
for certain instruments to be reclassified between debt and equity at different points in their life. The Company determined that
it will defer recognition of its accounting until such notes become convertible. Additionally, the Company determined that the
embedded conversion options do not require bifurcation and treatment as derivative liabilities, but they included contingent beneficial
conversion features that are indeterminable on the commitment date. The Company notes the embedded conversion options will be
accounted for and recognized, if necessary, when the contingencies are resolved (the date of a Qualified Financing or during the
10 days prior to the Maturity Date). Through the maturity date a Qualified Financing had not occurred and the Note is not yet
convertible under the Voluntary Conversion Option.
Pursuant
to the Subscription Agreements, each Investor will receive the number of Warrants to purchase shares of Common Stock equal to
the quotient obtained by dividing 50% of the principal amount of the Note by the Conversion Price of the Note. The Warrants are
exercisable at the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has
not occurred on or before the Maturity Date, the warrants shall become exercisable at a price per share that is equal to the closing
ten-day VWAP in the ten trading days immediately preceding the Maturity Date (the “Exercise Price”). The Warrants
contain an anti-dilution protection feature, to adjust the Exercise Price if shares are sold or issued for a consideration per
share less than the exercise price then in effect.
Joseph
Gunnar & Co., LLC acted as placement agent for the Offering. The Placement Agent received cash compensation of $200,000 and
is scheduled to be issued five (5) year warrants to purchase such number of shares of Common Stock equal to five percent (5%)
of the shares underlying the Notes and the Warrants, at an exercise price equal to 125% of the Conversion Price of the Notes,
which price shall not be known until the earlier of the Maturity Date or the closing of the Qualified Financing.
From
October 8, 2020 to October 26, 2020, the Company received notices for voluntary conversion for the total outstanding principal
($2,500,000) and interest ($146,104) of the Convertible Promissory Notes and issued 2,157,358 shares of our Common Stock as a
result of the conversion. The principal and interest related to the Initial Closing and Final Closing were converted at a conversion
prices of $1.21 and $1.26, respectively. Additionally, the Company issued a total of 1,019,121 warrants to purchase shares of
our Common Stock at exercise prices ranging from $2.19 to $2.67. The Company recognized $1,198,983 in interest expense
as a result of the issuance of warrants. Subsequent to the issuance of the warrants, the exercise prices of the warrants were
adjusted to $2.00. As a result the Company recognized $116,511 in interest expense for the change in the valuation of the
warrants.
Additionally,
pursuant to the Subscription Agreements, the Company issued 152,868 warrants to purchase shares of our Common Stock to Joseph
Gunnar & Co. LLC with exercise prices ranging from $1.51 to $1.58. The Company has no further obligation with respect to the
Convertible Promissory Notes.
On November 5, 2020 to
November 25, 2020, the Company entered into Convertible Promissory Notes with four (4) accredited investors (the “Investors”),
for an aggregate purchase price of $1,959,000 (each a “8% Note,” collectively, the “8% Notes”). The 8%
Notes accrue interest at a rate of 8% per annum and mature from November 5, 2022 to November 25, 2022. Additionally, the 8% Notes
contain a voluntary conversion mechanism whereby any principal and accrued interest on the 8% Notes, may be converted in holder’s
discretion into shares of the Company’s Common Stock at a conversion price of $2.00 per share (“Conversion Price”).
If not previously paid in full or converted, on the 180th day following the Maturity Date, the principal and interest
due under the 8% Notes shall automatically be converted to common stock shares at the Conversion Price The 8% Notes contain customary
events of default (each an “Event of Default”). If an Event of Default occurs, the outstanding principal amount of
the 8% Notes, plus accrued but unpaid interest, and other amounts owing with respect to the 8% Notes will become, at the 8% Note
holder’s election, due and payable in cash. The Company performed analysis at the 8% Notes respective commitment dates
and determined the 8% Notes contained beneficial conversion features. The Company recorded the $208,855 beneficial conversion
feature as a note issuance cost. The Company recognized $17,000 in interest expense related to the convertible promissory
notes in the current period.
On December 5, 2020, $1,020,000
of the 8% Notes were converted into 510,000 shares of common stock. There were $939,000 in 8% Notes remaining as of December 31,
2020. The Company recognized $73,313 in interest expense for the unamortized issuance costs upon conversion.
Subsequent to December
31, 2020, the remaining $939,000 in principal balance and $17,247 in accrued interest were converted into 478,123 shares of common
stock at a conversion price of $2.00 per share.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – NOTES PAYABLE – RELATED PARTY
In
connection with the acquisition of the casing division of Jagemann Stamping Company, a $10,400,000 promissory note was executed.
The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance
at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020.
The note bears interest per annum at approximately 4.6% payable in arrears monthly. In May of 2019, the Company paid $1,500,000
on the balance of the note. The note was secured by all the equipment purchased from Jagemann Stamping Company.
Post-closing
of the transaction, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was
not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory
note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Equipment
for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded
an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated
amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were
originally to be transferred.
On
June 26, 2020, the Company, Enlight Group II, LLC (“Enlight”), the Company’s wholly owned subsidiary and Jagemann
Stamping Company’s (“JSC”) entered into a Settlement Agreement pursuant to which the parties mutually agreed
to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26,
2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory
notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, which was reclassed
from accounts payable, both with a maturity date of August 15, 2021, (ii) general business security agreements granting JSC a
security interest in all personal property of the Company. Pursuant to the Notes, the Company is obligated to make monthly payments
totaling $204,295 to JSC. In addition, the Notes have a mandatory prepayment provision that comes into effect if the Company conducts
a publicly registered offering. Pursuant to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000
would be obligated to pay the lesser of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding
balance of the Notes; and (b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent
(100%) of the then aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000
of the shares of the Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April
1, 2021 so long as there are no defaults under the Settlement Agreement.
As
a result of the Settlement Agreement, the Company agreed to not receive $1,000,000 in Construction in Progress that the parties
had previously agreed to exchange. As a result, the Company recognized a loss in operating expenses for the nine months ended
December 31, 2020.
On
November 5, 2020, the Company paid $6,000,000 to JSC allocated as follows: (i) payment in full of Note A, representing the balance
due from the Company to JSC relating to the acquisition of Jagemann Munition Components in March 2019 and (ii) $592,982 remitted
in partial payment of Note B, resulting in the parties’ execution of Amended Note B which has a starting principal balance
of $1,687,664 (“Amended Note B”). The Amended Note B principal balance carries a 9% per annum interest rate and is
amortized equally over the thirty six (36) month term. As a result of the payment in full of Note A JSC shall release the accompanying
security interest in Company assets which secured Note A. Concurrently, upon entry into Amended Note B, JSC and the Company entered
into the First Amendment to General Business Security Agreement to reflect a revised list of collateral in which JSC has a security
interest.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
total interest expense recognized on Note A was $84,248 and $216,160, respectively for the three and nine months ended December
31, 2020. The total interest expense recognized on the original Note B was $32,413 and $62,876, respectively, for the three and
nine months ended December 31, 2020
The
Company’s balance of Amended Note B was $1,639,016 at December 31, 2020. The accompany recognized $16,455 in interest expense
on Amended Note B for the three and nine months ended December 31, 2020.
Subsequent
to December 31, 2020, the Company repurchased 1,000,000 shares of the Company’s common stock issued to JSC at a price of
$1.50 per share pursuant to the Amended APA.
On
May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate
was the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $260,000. The note’s
original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at 1.25% per month.
The Company made $18,195 in principal payments during the nine months ended December, 2020 and the Note was paid in full in July
of 2020. We recognized $10,327 of interest expenses related to the note during the nine months ended December 31, 2020.
In
December of 2019, the Company entered into a Promissory Note of $90,000 with Fred Wagenhals, the Company’s Chief Executive
Officer and Chairman of the Board of Directors. The Note originally matured on June 12, 2020 and had an interest rate at the applicable
LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $131,536 and the amended maturity
date is September 18, 2020. The Company made $25,000 in principal payments during the nine months ended December 31, 2020 and
the Note was paid in full in July of 2020. The amended note bears interest at 1.25% per month. We recognized $5,350 of interest
expense on the note for the nine months ended December 31, 2020.
On
September 23, 2020, the Company and Enlight entered into a promissory note (the “Forest Street Note”) with Forest
Street, LLC (“Lender”), an Arizona limited liability company wholly owned by our current Chief Executive Officer,
Fred Wagenhals, for the principal sum of Three Million Five Hundred Thousand & 00/100 Dollars ($3,500,000.00), which accrues
interest at 12% per annum. The Note has a maturity date of September 23, 2022.
Pursuant
to the terms of the Forest Street Note, the Company and Enlight (collectively, the borrower pursuant to the note) shall pay Lender;
(i) on a monthly basis, beginning October 23, 2020, all accrued interest (only), (ii) on a quarterly basis, a monitoring fee of
1% of the principal amount and then accrued interest; and (iii) on the maturity date, the remaining outstanding principal balance
of the Loan, together with all unpaid accrued interest thereon.
On
December 14, 2020, the Company entered into a Debt Conversion Agreement with the Lender Pursuant to the Agreement, the Company
and Forest Street agreed to convert $2,100,000.00 of the Note’s principal into one million (1,000,000) shares of the Company’s
common stock. The share issuance occurred on December 15, 2020. As a result of the Debt Conversion Agreement the outstanding balance
on December 31, 2020 was $1,400,000. The Company recognized $137,666 in interest expense related to the Forest Street Note for
the nine months ended December 31, 2020.
Subsequent
to December 31, 2020, the Company paid the remaining $1,400,000 in principal and accrued interest of the Forest Street Note.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – PAYCHECK PROTECTION NOTES PAYABLE
In
April of 2020, the Company determined it was necessary to obtain additional funds as a result of the foregoing uncertainty cause
by COVID-19. The Company received approximately $1.0 million in funds through itself and its wholly owned subsidiary Jagemann
Munition Components, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered
by the U.S. Small Business Administration. The Company received approximately $600,000 from Western State Bank and its wholly
owned subsidiary, Jagemann Munition Components, received approximately $400,000 from BMO Harris. The Paycheck Protection Notes
provide for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are
payable monthly in equal installments commencing on the date that is six months after the date funds are first disbursed on the
loan and continuing through the maturity date, unless the Paycheck Protection Notes are forgiven. To be available for loan forgiveness,
the Paycheck Protection Note may only be used for payroll costs, costs related to certain group health care benefits and insurance
premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that
existed before February 15, 2020.
On
November 11, 2020, the Company applied for forgiveness of the $1.0 million Paycheck Protection Program Notes as these funds were
used for qualified expenses. No assurance can be given that the Company will be granted forgiveness of these Paycheck Protection
Program Notes.
On
November 23, 2020, the Company received forgiveness in full on the Paycheck Protection Note Payable from Western State Bank. The
Company has recognized the forgiven amount in Other Income.
Subsequent
to December 31, 2020, the Company received forgiveness in full on the Paycheck Protection Note Payable from BMO Harris.
NOTE
12 – CAPITAL STOCK
During
the nine month period ended December 31, 2020, we issued 17,293,906 shares of common stock as follows:
|
●
|
11,512,143
shares were sold to investors for $23,564,619
|
|
●
|
2,667,358
shares were issued for the conversion of convertible promissory notes for $3,874,959
|
|
●
|
1,096,939
shares were issued to investors for exercised warrants valued for $2,288,878
|
|
●
|
160,274
shares were issued for cashless exercise of 287,657 warrants
|
|
●
|
1,000,000
shares were issued pursuant to a debt conversion agreement for $2,100,000
|
|
●
|
58,336
shares were issued for services provided to the Company value at $87,500
|
|
●
|
465,081
shares valued at $716,589 were issued to employees, members of the Board of Directors, and members of the Advisory Committee
as compensation
|
|
●
|
24,000
shares were issued to investors for $48,000 in liquidation damage fees
|
|
●
|
309,775
shares were recorded as a stock subscription receivable for exercised warrants for $664,975
|
On
November 30, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander
Capital, L.P. (“Alexander Capital”), as representative of the underwriters listed therein (the “Underwriters”),
pursuant to which the Company agreed to sell to the Underwriters in a firm commitment underwritten public offering (the “Offering”)
an aggregate of 8,564,285 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”),
at a public offering price of $2.10 per share. In addition, the Underwriters were granted an over-allotment option (the “Over-allotment
Option”) for a period of 45 days to purchase up to an additional 1,284,643 shares of Common Stock. The Offering closed on
December 3, 2020.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Company conducted the Offering pursuant to a Registration Statement on Form S-1, as amended, which was declared effective by the
United States Securities and Exchange Commission on November 30, 2020 (the “Registration Statement”).
The
net proceeds to the Company from the Offering, after deducting the underwriting discount, the underwriters’ fees and expenses
and the Company’s estimated Offering expenses, were $15,850,448.
On
December 11, 2020, the Company completed the closing of the Over-allotment Option. The Underwriters purchases 1,284,643 shares
of the Company’s common stock at the public offering price of $2.10 per share. The net proceeds to the Company from the
Offering, after deducting the underwriting discount, were $2,467,799.
The
Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing,
indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act of 1933, as
amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement
and related “lock-up” agreements, the Company (for a period of one year after the date of the Underwriting Agreement),
and each director and executive officer of the Company (for a period of six months after the date of the final prospectus relating
to the Public Offering), have agreed, subject to customary exceptions, not to sell, transfer or otherwise dispose of securities
of the Company, without the prior written consent of Alexander Capital.
On
December 3, 2020, pursuant to the Underwriting Agreement, the Company entered into an Underwriter’s warrant agreement (the
“Underwriters’ Warrant Agreement”) with the Underwriters and certain affiliates of the Underwriters. Pursuant
to the Underwriters’ Warrant Agreement, the Company provided the Underwriters and certain affiliates of the Underwriters
with a warrant to purchase 428,215 shares of Common Stock in the aggregate. Such warrant may be exercised beginning on
May 29, 2021 (the date that is 180 days after the date on which the Registration Statement became effective) until November 30,
2025 (the date that is five years after the date on which the Registration Statement became effective). The initial exercise price
of the Underwriters’ Warrant Agreement is $2.63 per share.
Pursuant to subscription
agreements with certain investors, the Company agreed to file a registration statement for shares purchased by investors on or
before the 75th day following closing. The Company was unable to meet this obligation and is required to pay a liquidated
damage fee to investors on a monthly basis to avoid default until such registration statement is filed. Accordingly, the Company
paid $245,500 in the current period, of which $48,000 was paid by the issuance of 24,000 share of common stock at a price per
share of $2.00, and accrued $84,300 for fees payable subsequent to December 31, 2020. The Company recorded these fees as issuance
costs in Other Expenses.
At
December 31, 2020, outstanding and exercisable stock purchase warrants consisted of the following:
|
|
Number of
Shares
|
|
|
Weighted Averaged
Exercise Price
|
|
|
Weighted
Average Life
Remaining
(Years)
|
|
Outstanding at March 31, 2020
|
|
|
8,504,372
|
|
|
$
|
2.10
|
|
|
|
3.60
|
|
Granted
|
|
|
2,100,204
|
|
|
|
2.09
|
|
|
|
4.90
|
|
Exercised
|
|
|
(1,694,371
|
)
|
|
|
2.01
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2020
|
|
|
8,910,205
|
|
|
$
|
2.11
|
|
|
|
3.14
|
|
Exercisable at December 31, 2020
|
|
|
8,481,990
|
|
|
$
|
2.09
|
|
|
|
3.05
|
|
As
of December 31, 2020, we had 8,910,205 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 838,590
shares of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 5,098,329 shares
of our Common Stock at an exercise price of $2.00 per share consisting of 71% of the warrants until April 2023, 8% until August
2024, and 21% until December 2025; (3) warrants to purchase 2,545,071 shares of Common Stock at an exercise price of $2.40
until September 2024; and (4) warrants to purchase 428,215 shares of Common Stock at an exercise price of $2.63 until November
2025, but not exercisable before May 29, 2021.
AMMO,
Inc.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES
As
of December 31, 2020, we had net operating loss carryforwards of approximately $33 million which will expire beginning at the
end of 2036. A valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have
future taxable income.
The Company’s
effective tax rates were 0% and 0% for the three and nine months ended December 31, 2020 and 2019, respectively. During
the nine months ended December 31, 2020 and 2019, the effective tax rate differed from the U.S. federal statutory rate primarily
due to the change in the valuation allowance.
The
Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017,
and March 31, 2018, 2019, and 2020 are subject to audit.
NOTE
14 – SUBSEQUENT EVENTS
From January 1, 2021
to February 5, 2021, the Company issued shares of its Common Stock for the exercise of warrants. There were 4,194,623
shares of Common Stock issued for warrants exercised at per share prices ranging from $2.00 to $2.40 for an aggregate
value of $9,014,006. Additionally, there were 543,589 shares of Common Stock issued pursuant to cashless exercises of
974,076 warrants with exercise prices ranging from $1.65 to $2.00.
On January 1, 2021,
The Company issued 70,000 shares of Common Stock to employees as compensation for a total value of $122,500 or $1.75 per share.
Subsequent to December 31, 2020, the Company issued 881,250 shares of Common Stock for services at per share prices ranging from
$1.75 to $2.00 for a total value of $1,612,500.
On February 4, 2020,
the Company entered into a Settlement Agreement and Release with a third party. Per the terms of the agreement, the Company issued
150,000 warrants with an exercise price of $6.72 and paid $125,000. The agreement releases both the Company and the third party
from all claims or disputes that have arisen surrounding previous agreements.