AMMO, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, our Consolidated Financial Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
This document contains certain "forward-looking statements". All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect," or "anticipate," or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.
In our filings with the
Overview
Our vision is to modernize the ammunition industry by bringing new technologies to market. We intend to do that through acquisition and application of intellectual property that is unique to the industry and through investing in manufacturing equipment and processes that enable us to compete globally.
Our innovative line of match grade armor piercing (AP) and hard armor piercing
incendiary (HAPI) tactical rounds are the centerpiece of the Company's strategy
to address the unique needs of the armed forces community. This ammunition was
designed around a match grade portfolio of projectiles, that include a solid
copper boat tail and armor piercing configuration. The distinction between these
rounds and other sold, is that the manufacturing process was engineered to
ensure extremely tight tolerances between each projectile manufactured, ensuring
for the end user that the ballistic trajectory remains consistent between rounds
without regard to the actual configuration or round fired. Our AP and HAPI line
are also available with our O.W.L. Technology™. The Company has aligned its
manufacturing operations to support the large caliber demand from military
personnel, such as the 12.7 mm and .50 caliber
We offer ammunition casings for pistol ammunition through large rifle ammunition. Our casing operations is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann™ Casings, has become one of the largest brass manufacturers in the country, with the capacity to produce more than 750 million pieces of brass each year with the ability to scale to 1 billion rounds on an annual basis. Proud of its American-made components and capabilities, the Company now has complete control over the manufacturing process. This results in a number of advantages when it comes to the brass that leaves our state-of-the-art facility.
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On
GunBroker.com is a large online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo, GunBroker.com currently sells none of the items listed on its website. Third-party sellers list items on the site and federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations are followed using licensed firearms dealers as transfer agents.
With our recent addition of the Gunbroker.com marketplace, we aim to further enhance our vision of bringing technologies to the industry. Gunbroker.com is a marketplace that connects millions of buyers and sellers allowing our users to access a daily average of over one million unique items.
The focus for our 2022 fiscal year is to continue to expand our brand presence into the markets identified above and to continue to grow our sales within our targeted markets. We intend to do this through establishing key strategic relationships, enrolling in government procurement programs, establishing relationships with leading law enforcement associations and programs, expanding distributor channels, and revitalized marketing campaigns.
26 Results of Operations
Our financial results for the three months ended
The following table presents summarized financial information taken from our
condensed consolidated statements of operations for the three months ended
For the Three Months Ending
June 30, 2021 June 30, 2020
(Unaudited) (Unaudited)
Net Sales $ 44,476,332 $ 9,659,970
Cost of Revenues 25,505,438 8,588,565
Gross Profit 18,970,894 1,071,405
Sales, General & Administrative Expenses 9,290,380 3,851,594
Income (loss) from Operations 9,680,514 (2,780,189 )
Other income (expense)
Other income (expense) (143,854 ) (323,600 )
Income (loss) before provision for income taxes $ 9,536,660 $ (3,103,789 )
Provision for income taxes - -
Net Income (Loss) $ 9,536,660 $ (3,103,789 )
Non-GAAP Financial Measures
We analyze operational and financial data to evaluate our business, allocate our
resources, and assess our performance. In addition to total net sales, net loss,
and other results under accounting principles generally accepted in
Adjusted EBITDA
For the Three Months Ended
June 30, 2021 June 30, 2020
Reconciliation of GAAP net income to
Adjusted EBITDA
Net Income (Loss) $ 9,536,660 $ (3,103,789 )
Depreciation and amortization 3,516,851 1,169,001
Loss on purchase - 1,000,000
Excise taxes 2,397,771 -
Interest expense, net 165,279 323,600
Employee stock awards 699,500 255,300
Stock grants 66,914 76,766
Other income, net (21,425 ) -
Contingent consideration fair value (56,638 ) (27,968 )
Adjusted EBITDA $ 16,304,912 $ (307,090 )
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Adjusted EBITDA is a non-GAAP financial measure that displays our net income (loss), adjusted to eliminate the effect of certain items as described below.
We have excluded the following non-cash expenses from our non-GAAP financial measures: depreciation and amortization, loss on purchase, share-based compensation expenses, and changes to the contingent consideration fair value. We believe it is useful to exclude these non-cash expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, as these items are not components of our core operations. We have not included adjustment for any provision or benefit for income taxes as we currently record a valuation allowance and we have included adjustment for excise taxes.
Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
? Employee stock awards and stock grants expense has been, and will continue to
be for the foreseeable future, a significant recurring expense in the Company
and an important part of our compensation strategy;
? the assets being depreciated or amortized may have to be replaced in the
future, and the non-GAAP financial measures do not reflect cash capital
expenditure requirements for such replacements or for new capital expenditures
or other capital commitments; and
? non-GAAP measures do not reflect changes in, or cash requirements for, our
working capital needs
? other companies, including companies in our industry, may calculate the
non-GAAP financial measures differently or not at all, which reduces their
usefulness as comparative measures
Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net loss and our other financial results presented in accordance with GAAP.
Net Sales
The following table shows our net sales by proprietary ammunition versus
standard ammunition for the three months ended
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For the Three Months Ending
June 30, 2021 June 30, 2020
Proprietary Ammunition $ 1,110,621 $ 1,895,141
Standard Ammunition 27,241,159 4,516,527
Ammunition Casings 3,852,486 3,248,302
Marketplace Revenue 12,272,066 -
Total Sales $ 44,476,332 $ 9,659,970 Sales for the three months ended
We are focused on continuing to grow top line revenue quarter-over-quarter as we
continue to further expand distribution into commercial markets, introduce new
product lines, and initiate sales to
Through our acquisition of SWK, the Company has developed and deployed a new line of tactical armor piercing (AP) and hard armor piercing incendiary (HAPI) precision ammunition to meet the lethality requirements of both the US and foreign military customers. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions.
It is important to note that, although
Sales outside of
On
Cost of Revenues
Cost of Revenues increased by approximately
Gross Margin
Our gross margin percentage increased to 42.7% from 11.1% during the three
months ended
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We believe as we continue to grow sales through new markets and expanded distribution that our gross margins will also increase, as evidenced by the improvement over this time last year. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:
? Increased product sales, specifically of proprietary lines of ammunition, like
the STREAK VISUAL AMMUNITION™, Stelth and now our tactical Armor Piercing (AP)
and Hard Armor Piercing Incendiary (HAPI) precision ammunition, all of which
carry higher margins as a percentage of their selling price;
? Introduction of new lines of ammunition that historically carry higher margins
in the consumer and government sectors;
? Leverage of our newly acquired marketplace, Gunbroker.com, through the
introduction of additional services and product offerings;
? Expanded use of automation equipment that reduces the total labor required to
assemble finished products;
? And, better leverage of our fixed costs through expanded production to support
the sales objectives.
Operating Expenses
Overall, for the three months ended
During the three months ended
Our corporate general & administrative expenses increased approximately
Employee salaries and related expenses increased approximately
Depreciation and amortization expenses for the three ended
Interest and Other Expenses
For the three months ended
Net Income
As a result of increases in revenues from increased production as well as our
acquisition of Gemini, we ended the three months ended
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Our goal is to continue to improve our operating results as we focus on increasing sales and controlling our operating expenses.
Liquidity and Capital Resources
As of
Working Capital is summarized and compared as follows:
June 30, March 31,
2021 2021
Current assets $ 106,191,817 $ 145,620,332
Current liabilities 42,714,920 12,098,493
$ 63,476,897 $ 133,521,839 Changes in cash flows are summarized as follows:
Operating Activities
For the three months ended
For the three months ended
Investing Activities
During the three months ended
During the three months ended
Financing Activities
During the three months ended
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During the three months ended
Liquidity and Capital Resources
Existing working capital, cash used in operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes.
We believe financing will be available, both through conventional financing relationships and through the continued sales of our Common Stock. However, there is no assurance that such funding will be available on terms acceptable to us or at all. We believe that our current cash on hand, coupled with alternative sources of funding, will be sufficient to satisfy intended capital expenditures, potential acquisitions and general liquidity requirements through at least the next twelve months.
Off-Balance Sheet Arrangements
As of
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.
32 Inventory
We state inventories at the lower of cost and net realizable value. We determine
cost by using the weighted-average cost of raw materials method, which
approximates the first-in, first-out method and includes allocations of
manufacturing labor and overhead. We make provisions when necessary, to reduce
excess, potential damaged or obsolete inventories. These provisions are based on
our best estimates. At
Research and Development
To date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop new technologies and lines of ammunition.
Revenue Recognition
We generate revenue from the production and sale of ammunition, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the following five-step model to determine revenue recognition:
? Identification of a contract with a customer ? Identification of the performance obligations in the contact ? determination of the transaction price ? allocation of the transaction price to the separate performance allocation ? recognition of revenue when performance obligations are satisfied
We only apply the five-step model when it is probable that we will collect the
consideration we are entitled to in exchange for the goods or services it
transfers to the customer. At contract inception and once the contract is
determined to be within the scope of ASC 606, we assess the goods or services
promised within each contract and 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. Our contracts contain a
single performance obligation and the entire transaction price is allocated to
the single performance obligation. We recognize as revenues the amount of the
transaction price that is allocated to the respective performance obligation
when the performance obligation is satisfied or as it is satisfied. Accordingly,
we recognize revenues (net) when the customer obtains control of our product,
which typically occurs upon shipment of the product. In the year ended
Excise Tax
As a result of regulations imposed by the Federal Government for sales of
ammunition to non-government
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to us as of
33 Income Taxes
We follow ASC subtopic 740-10, "Accounting for Income Taxes" for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggest that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Stock-Based Compensation
We grant stock-based compensation to key employees and directors as a means of attracting and retaining highly qualified personnel. We also grant stock in lieu of cash compensation for key consultants and service providers. We recognize expense related to stock-based payment transactions in which we receive employee or non-employee services in exchange for equity. We measure stock compensation based on the closing fair market value of our Common Stock on the date of grant.
In addition to our base of employees, we also use the services of several contract personnel and other professionals on an "as needed basis". We plan to continue to use consultants, legal and patent attorneys, engineers, and accountants, as necessary. We may also expand our staff to support the market roll-out of our products to both the commercial and government related organizations. A portion of any key employee compensation likely would include direct stock grants, which would dilute the ownership interest of holders of existing shares of our Common Stock.
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