UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-QSB
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(Mark one)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: March 31, 2007
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
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Commission File Number: 0-32379
American Ammunition, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 91-2021594
--------------------------------- -----------------------------
(State of incorporation) (IRS Employer ID Number)
3545 NW 71st Street, Miami, FL 33147
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(Address of principal executive offices)
(305) 835-7400
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [_] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: May 3, 2007: 23,288,306
Transitional Small Business Disclosure Format (check one): YES [_] NO [X]
American Ammunition, Inc.
Form 10-QSB for the Quarter ended March 31, 2007
Table of Contents
Page
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements 3
ITEM 2 - Management's Discussion and Analysis or Plan of Operation 30
ITEM 3 - Controls and Procedures 33
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 34
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds 34
ITEM 3 - Defaults Upon Senior Securities 35
ITEM 4 - Submission of Matters to a Vote of Security Holders 35
ITEM 5 - Other Information 35
ITEM 6 - Exhibits 35
SIGNATURES 36
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
American Ammunition, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2007 and 2006
(Unaudited)
March 31, March 31,
2007 2006
------------- -------------
ASSETS
Current Assets
Cash on hand and in bank $ 700,546 $ 289,712
Accounts receivable - trade, net of
allowance for doubtful accounts of
$-0- and $12,463, respectively 222,944 230,234
Inventory 634,139 425,337
Prepaid expenses 56,857 64,936
------------- -------------
Total Current Assets 1,614,536 1,010,219
------------- -------------
Property and Equipment - at cost
Manufacturing equipment 7,984,501 8,126,135
Office furniture and fixtures 71,437 69,889
Leasehold improvements 184,939 190,277
------------- -------------
8,240,877 8,386,301
Accumulated depreciation (5,617,158) (5,608,472)
Impairment of recoverability of carrying value (2,623,719) (2,777,829)
------------- -------------
Net Property and Equipment - -
------------- -------------
Other Assets
Patents, Trademarks and Noncompetition agreement,
net of accumulated amortization of approximately
$133,251 and $78,112, respectively 142,439 197,578
Loan costs and fees, net of accumulated amortization
of approximately $65,250 and $24,795 - 40,455
Deposits and other 83,660 83,660
------------- -------------
Total other assets 226,099 321,693
------------- -------------
TOTAL ASSETS $ 1,840,635 $ 1,331,912
============= =============
- Continued -
The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part
of these consolidated financial statements.
3
American Ammunition, Inc. and Subsidiaries
Consolidated Balance Sheets - Continued
March 31, 2007 and 2006
(Unaudited)
March 31, March 31,
2007 2006
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to shareholders $ - $ 975,000
Working capital advance - 200,000
Convertible debenture - 226,365
Customer deposits 87,729 188,020
Accounts payable - trade 785,270 1,042,892
Accrued salaries and wages 447,315 253,552
Federal excise taxes payable 38,734 -
Accrued interest payable 53,209 28,361
Accrued dividends payable 78,802 39,780
------------- -------------
Total Current Liabilities 1,491,059 2,953,970
Long-Term Liabilities
Notes payable to shareholders 1,075,000 -
Federal excise taxes payable 273,000 -
------------- -------------
Total Liabilities 2,839,059 2,953,970
------------- -------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock - $0.001 par value
20,000,000 shares authorized.
1,795,320 shares allocated to Series A
91,700 shares allocated to Series B
1,905,882 shares allocated to Series C
200,000 shares allocated to Series E 2,004 2,040
Common stock - $0.001 par value.
300,000,000 shares authorized.
23,007,902 and 4,440,714 shares
issued and outstanding, respectively 23,018 4,441
Additional paid-in capital 33,706,178 25,654,502
Accumulated deficit (34,729,624) (27,108,041)
------------- -------------
(988,425) (1,447,058)
Stock subscription receivable - (175,000)
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Total Stockholders' Equity (998,425) (1,622,058)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,840,634 $ 1,331,912
============= =============
The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part
of these consolidated financial statements.
4
American Ammunition, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
Three months ended March 31, 2007 and 2006
(Unaudited)
Three months Three months
ended ended
March 31, March 31,
2007 2006
------------- -------------
Revenues - net of returns and allowances $ 690,389 $ 710,111
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Cost of Sales
Materials, Direct Labor and other direct costs 875,763 1,347,081
Depreciation 41,376 31,024
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Total Cost of Sales 917,139 1,378,105
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Gross Profit (226,750) (667,994)
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Operating Expenses
Research and development expenses 567 -
Marketing and selling expenses 32,372 55,817
Other operating expenses 274,758 374,908
Interest expense 18,422 37,245
Amortization expense 13,785 13,785
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Total Operating Expenses 339,904 481,755
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Loss from Operations (566,654) (1,149,749)
Other Income (Expense) 89 41,557
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Loss before Income Taxes (566,565) (1,108,192)
Provision for Income Taxes - -
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Net Loss (566,565) (1,108,192)
Other Comprehensive Income - -
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Comprehensive Loss $ (566,565) $ (1,108,192)
============= =============
Preferred Stock Dividends (13,040) (12,050)
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Net Loss available to Common Shareholders $ (579,605) $ (1,120,242)
============= =============
Loss per weighted-average share of common stock outstanding,
computed on net loss available to common shareholders -
basic and fully diluted $ (0.02) $ (0.26)
============= =============
Weighted-average number of
common shares outstanding 23,015,580 4,270,491
============= =============
The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part
of these consolidated financial statements.
5
American Ammunition, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended March 31, 2007 and 2006
(Unaudited)
Three months Three months
ended ended
March 31, March 31,
2007 2006
------------- -------------
Cash flows from operating activities
Net loss for the period $ (566,565) $ (1,106,194)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 55,161 58,295
Expenses paid with common stock - 18,325
(Increase) Decrease in
Accounts receivable 173,644 341,193
Inventory (124,035) 134,753
Prepaid expenses, deposits and other 2,202 (8,147)
Increase (Decrease) in
Customer deposits (102,111) -
Accounts payable - trade 50,009 196,275
Other accrued expenses 44,501 (17,813)
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Net cash (used in) operating activities (467,194) (385,313)
------------- -------------
Cash flows from investing activities
Purchase of property and equipment (41,376) (31,025)
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Net cash (used in) investing activities (41,376) (31,025)
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Cash flows from financing activities
Cash received on working capital advance - 50,000
Cash received from sale of preferred stock - 250,000
Cash paid to acquire capital - (50,000)
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Net cash provided by financing activities 275,000
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Increase (Decrease) in Cash (508,570) (141,338)
Cash at beginning of period 1,209,116 431,050
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Cash at end of period $ 700,546 $ 289,712
============= =============
Supplemental disclosure of interest and income taxes paid
Interest paid for the period $ - $ 4,525
============= =============
Income taxes paid for the period $ - $ -
============= =============
Supplemental disclosure of non-cash investing and
financing activities
Issuance of common stock to pay accrued interest $ - $ 17,261
============= =============
Issuance of common stock to pay accrued dividends $ 4,874 $ -
============= =============
The financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part
of these consolidated financial statements.
6
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2007 and 2006
Note A - Organization and Description of Business
American Ammunition, Inc. (AAI or Company) was incorporated on February 1, 2000
in accordance with the Laws of the State of California. The Company functions as
a holding company providing management oversight services to it's wholly-owned
operating subsidiaries; F&F Equipment, Inc. and Industrial Plating Enterprise
Co.
F&F Equipment, Inc.(F&F) was incorporated on October 4, 1983 in accordance with
the Laws of the State of Florida. F&F is engaged in the design, manufacture and
international sales of small arms ammunition. F&F has conducted its business
operations under the assumed name of "American Ammunition" since its inception.
Industrial Plating Enterprise Co. (IPE), which was incorporated and commenced
production on June 14, 2002. IPE is a fully licensed and approved state of the
art electrochemical metallization facility for processing the Company's line of
small arms projectiles as well as other products and services while employing
environmentally sound water conservation and proven waste treatment techniques.
The facility meets or exceeds all current environmental requirements and enjoys
the "conditionally exempt small quantity generator" status for State and Federal
regulations. All activities of IPE since it's inception have been dedicated to
the needs and demands of F&F.
On January 9, 2006, by written consent in lieu of meeting, a majority of the
Company's stockholders approved a recommendation by the Company's Board of
Directors to effect a one share for twenty shares reverse stock split of our
common stock, par value $.001 per share, with fractional shares rounded up to
the nearest whole share. The reverse split became effective on that date. As a
result of the reverse split, the total number of issued and outstanding shares
of the Company's common stock decreased from 92,576,839 to 4,629,381shares,
after giving effect to rounding for fractional shares. The effect of this action
is reflected in the Company's financial statements as of the first day of the
first period presented.
Note B - Preparation of Financial Statements
The Company and its subsidiaries follow the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of
America and have adopted a year-end of December 31 for all entities.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
7
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note B - Preparation of Financial Statements - Continued
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Annual Report on Form 10-KSB for the year ended
December 31, 2006. The information presented within these interim financial
statements may not include all disclosures required by generally accepted
accounting principles and the users of financial information provided for
interim periods should refer to the annual financial information and footnotes
when reviewing the interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-QSB, are unaudited and contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and cash flows of
the Company for the respective interim periods presented. The current period
results of operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending December 31, 2007.
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
The accompanying consolidated financial statements contain the accounts of
American Ammunition, Inc. and its wholly-owned subsidiaries, F&F Equipment, Inc.
and Industrial Plating Enterprise Co. All significant intercompany transactions
have been eliminated. The consolidated entities are collectively referred to as
"Company".
8
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note C - Going Concern Uncertainty
The Company continues to experience fluctuating periodic revenues, as
demonstrated in Note P. The Company's operations consistently demonstrate a
negative cash flow position as evidenced by net cash used in operating
activities of approximately $(1,716,000), $(1,802,000), $(649,000),
$(2,918,000), $(1,236,000) and $(1,100,000) for each of the respective years
ended December 31, 2006, 2005, 2004, 2003, 2002 and 2001.
The Company has sustained liquidity through the sale of equity securities,
restricted and unrestricted, domestically and in international markets and
significant working capital advances have been made by members of management
and/or existing shareholders. Future liquidity may be dependent upon future
offerings of debt and/or equity securities; however, the availability of further
liquidity from these sources is uncertain.
The Company's continued existence is principally dependent upon its ability to
generate sufficient cash flows from operations to support its daily operations
on a timely basis. There is no assurance that the Company will be able to obtain
raw materials in sufficient quantity, due to its financial condition, to ensure
success of its business plan. Further the ability to obtain additional funding
through the sales of additional equity securities or, that such funding, if
available, will be obtained on terms favorable to or affordable by the Company
is uncertain.
The Company anticipates that additional working capital will be necessary to
support and preserve the integrity of the corporate entity. However, there is no
assurance that the Company will be able to obtain additional funding through
either bank lines-of-credit or the sale of additional equity securities or, that
such funding, if available, will be obtained on terms favorable to or affordable
by the Company.
If no additional operating capital is received during the next twelve months,
the Company will be forced to rely on existing cash in the bank, the cash
generated from operating activities and/or additional funds loaned by the
Company's management and/or shareholders to preserve the integrity of the
corporate entity. In the event, the Company is unable to acquire advances from
management and/or significant stockholders, the Company's ongoing operations
would be negatively impacted to the point that all operating activities are
ceased.
While the Company is of the opinion that good faith estimates of the Company's
ability to secure additional capital in the future to reach our goals have been
made, there is no guarantee that the Company will receive sufficient funding to
sustain operations or implement any future business plan steps.
9
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note D - Summary of Significant Accounting Policies
1. Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Accounts receivable and Revenue Recognition
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which
will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
The Company ships all product on an FOB-Plant, "as-is" basis. Accordingly,
revenue is recognized by the Company at the point at which an order is
shipped at a fixed price, collection is reasonably assured and the Company
has no remaining performance obligations related to the sale. The Company
sells all products with "no right of return" by the purchaser for any
factor other than defects in the product's production.
On rare occasion, the Company may elect to accept product returns from
customers on a case-by-case basis to offset unpaid accounts receivable.
These situations are a "last case" scenario and are initiated by senior
management through negotiations with the respective customer.
3. Inventory
Inventory consists of raw materials, work-in-process and finished goods
related to the production and sale of small arms ammunition. Inventory is
valued at the lower of cost or market using the first-in, first-out method.
In November 2004, Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("Statement") No. 151,
"Inventory Costs - an amendment of Accounting Research Bulletin No. 43,
Chapter 4." Statement No. 151 requires that abnormal amounts of costs,
including idle facility expense, freight, handling costs and spoilage,
should be recognized as current period charges. The provisions of this
Statement became effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Statement No. 151 was adopted the Company on
January 1, 2006. There was no material impact resulting from the adoption
of Statement No. 151 on the Company's financial statements.
10
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note D - Summary of Significant Accounting Policies - Continued
4. Property, plant and equipment
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets using
the straight-line method, generally three to ten years.
Gains and losses from disposition of property and equipment are recognized
as incurred and are included in operations.
In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
Company follows the policy of evaluating all property and equipment as of
the end of each reporting quarter. At December 31, 2005, pursuant to the
requirements of this accounting standard, management recorded an impairment
for the future recoverability of these assets of approximately $2,777,829.
5. Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. At March 31, 2007 and 2006, the deferred tax asset and deferred tax
liability accounts, as recorded when material to the financial statements,
are entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax
and financial reporting purposes, primarily accumulated depreciation and
amortization, allowance for doubtful accounts and vacation accruals.
As of March 31, 2007 and 2006, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved. In the event
that these carryforwards were not fully utilized, they began to expire in
2005.
6. Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements.
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and
warrants).
11
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note D - Summary of Significant Accounting Policies - Continued
6. Earnings (loss) per share - continued
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
As of March 31, 2007 and 2006, and subsequent thereto, the Company had no
options outstanding. The outstanding warrants, mandatory convertible
preferred stock and mandatory convertible debentures are anti- dilutive due
to the Company's net operating loss position.
7. Advertising costs
The Company does not conduct any direct response advertising activities.
For non-direct response advertising, the Company charges the costs of these
efforts to operations at the first time the related advertising is
published.
8. Pending and/or New Accounting Pronouncements
The Company is of the opinion that any pending accounting pronouncements,
either in the adoption phase or not yet required to be adopted, will not
have a significant impact on the Company's financial position or results of
operations.
Note E - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
12
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note F - Inventory
As of March 31, 2007 and 2006, inventory, as valued using the lower-of-cost or
market, consisted of the following components:
March 31, March 31,
2007 2006
---------- ----------
Raw materials $ 427,591 $ 359,157
Work in process 155,376 58,717
Finished goods 51,172 7,463
---------- ----------
Totals $ 634,139 $ 425,337
========== ==========
Note G - Property and Equipment
Property and equipment consist of the following components:
March 31, March 31, Estimated
2007 2006 useful life
----------- ----------- -----------
Manufacturing equipment $ 7,954,501 $ 8,126,135 3-10 years
Office furniture and fixtures 71,437 69,889 3- 7 years
Leasehold improvements 184,939 190,277 8-20 years
----------- -----------
8,240,877 8,386,301
Accumulated depreciation (5,617,158) (5,608,472)
Impairment of recoverability
of carrying value (2,623,719) (2,777,829)
----------- -----------
Net property and equipment $ - $ -
=========== ===========
Total depreciation expense charged to operations for the three month periods
ended March 31, 2007 and 2006, respectively, was approximately $41,376 and
$31,024.
In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
follows the policy of evaluating all property and equipment as of the end of
each reporting quarter. Pursuant to the requirements of this accounting
standard, management recorded, at December 31, 2005, an impairment for the
future recoverability of these assets of approximately $2,777,829.
13
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note H - Loans from Shareholders
March 31, March 31,
2007 2006
---------- ---------
Four separate notes payable to three separate
stockholders. Interest at 8.0%, payable monthly.
Principal due at maturity on December 31, 2008.
Shareholder/lender has the option to convert the
principal amount into common stock of the Company
at the lesser of 66-2/3% of the average closing
bid and ask price on the date of conversion or
$0.08 per share, whichever is less. Each note is
unsecured. $1,075,000 $ 975,000
========== =========
Note I - Federal Excise Taxes Payable
On March 29, 2007, the Company reached a settlement and executed a Payment
Agreement with the Department of the Treasury, Bureau of Alcohol, Tobacco and
Firearms, related to a audit, which commenced during 2006, of the Company's
Federal Excise Taxes obligation. The Department of Treasury, Bureau of Alcohol,
Tobacco and Firearms ratified and affirmed this settlement in writing on April
4, 2007. The Payment Agreement calls for the Company to pay an aggregate total
of $300,000, plus interest at the statutory rate starting on March 29, 2007. The
payment schedule is as follows: April 2007 through March 2008 - $3,000 per
month; April 2008 - March 2009 - $4,000 per month; and April 2009 - March 2013 -
$5,000 per month.
This obligation was fully accrued in the Company's financial statements as of
December 31, 2006.
Note J - Convertible Debenture
On October 4, 2002, the Company entered into a Securities Purchase Agreement
with La Jolla Cove Investors, Inc. ("La Jolla") for the sale of (I) $250,000 in
convertible debentures and (ii) warrants to buy 30,000,000 shares of our common
stock. On March 13, 2003 and May 6, 2003, La Jolla advanced an aggregate of
$350,000 to our company which such funding was allocated towards the principal
balance of our convertible debentures.
12
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note J - Convertible Debenture - Continued
As of September 30, 2006, the outstanding balance on the La Jolla convertible
debenture was fully retired. A recap of the debenture activity is as follows:
Debenture Warrant
(in dollars) (in shares)
------------ -----------
Initial amount $ 600,000 6,000,000
2003 redemptions (208,635) (2,086,350)
2004 redemptions (125,000) (1,250,000)
2005 redemptions (40,000) (400,000)
2006 retirement (226,365) (2,263,650)
------------ -----------
Balances outstanding at September 30, 2006 $ - -
============ ===========
In addition to retiring the debenture, the Company repaid $200,000 in prepaid
warrant exercises and approximately $158,635 in negotiated prepayment and
penalty fees for an aggregate payment of $585,000.
Additionally, the Company recognized a charge to operations, including the
aforementioned $158,635 cash payment, of approximately $354,450 for the issuance
of 56,003 shares of common stock to La Jolla and the forgiveness of $175,000 in
monies due from La Jolla for common stock issued on warrant exercises in prior
periods.
On September 13, 2006, La Terraza Trading and Asset Management Ltd. (La Terraza)
deposited a total of $2,150,000 in escrow for the use and benefit of the
Company. The funds were allocated and used for the following:
1. The sum of $585,000 was paid to La Jolla Cove Investors, Inc. ("La Jolla")
to acquire for La Terraza a full and complete assignment of any and all of
La Jolla's right, title and interest in any and all of the Company's
indebtedness to La Jolla and specifically including La Jolla's rights under
the active SB-2 Registration Statement for the issuance and registration of
securities thereunder; the consent of the Company to the foregoing subject
to the right of the Company to prepay any and all indebtedness thereunder
in the Company's common stock, without penalty, at any time before or after
default.
2. The sum of $275,000 to be used by the Company to redeem and satisfy in full
the Series E Preferred Stock funded by third party investors on or about
July 12, 2006, including a prepayment redemption penalty of $25,000.
3. The sum of $215,000 payable as fees to Capital Investment Services, Inc.
for locating, negotiating and closing the funding.
4. The sum of $100,000 to repay in full, without interest, an unsecured bridge
loan from Investor to the Company dated and funded on August 25, 2006.
5. The sum of $275,000 released to the Company for working capital.
13
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note J - Convertible Debenture - Continued
6. The balance of $700,000, to be retained in escrow and disbursed to the
Company for payment in reduction of the assigned La Jolla debenture and
required warrant exercised thereunder, until the debenture and warrant
obligations are satisfied in full in accordance with the terms of the
assigned La Jolla documents.
The financing transaction required the Company to deposit in escrow for later
delivery a total of 11,470,000 shares of its common stock (to be held as
unissued and not outstanding) to guarantee availability of stock as required for
the reduction of the debenture and satisfaction of warrant obligations. The
agreement also calls for an additional 5,000,000 shares of the restricted common
stock of the Company to be deposited in a separate escrow to be used for any
other expenses and compensation to third parties that may be agreed upon between
La Terraza and the Company for future services to advance the overall business
of the Company. In addition, the Company granted La Terraza a total of 600,000
warrants exercisable at the lesser of $0.1875 per share or the average closing
price per share for the common stock during the twelve (12) month period prior
to the date of exercise. These warrants are exercisable at any time on or before
five (5) years from July 24, 2006. All shares required to be deposited into
escrow were in fact been deposited on September 26, 2006 as required, and were
released to La Terraza on December 27, 2006, effective as of September 13, 2006.
Discussion of retired debenture
The debentures bore interest at 8% and were scheduled to mature on June 31
[sic], 2007, and were convertible into the Company's common stock, at the
selling stockholder's option. The convertible debentures were convertible into
the number of the Company's shares of common stock equal to the principal amount
of the debentures being converted multiplied by 11, less the product of the
conversion price multiplied by 10 times the dollar amount of the debenture. The
conversion price for the convertible debentures is the lesser of (I) $1.00 or
(ii) seventy six percent of the average of the five lowest volume weighted
average prices during the twenty (20) trading days prior to the conversion.
Accordingly, there is in fact no limit on the number of shares into which the
debenture may be converted. However, in the event that our market price is less
than $0.30 per share, the Company will have the option to prepay the debenture
at 125% rather than have the debenture converted. In addition, the selling
stockholder is obligated to exercise the warrant concurrently with the
submission of a conversion notice by the selling stockholder. As of December 31,
2006, the warrant has been cancelled due to the repayment and final settlement
on the convertible debenture.
In December 2004, we entered into an addendum to the convertible debenture and
warrant whereby the Company agreed to the following:
* the discount multiplier was reduced from eighty percent to seventy six
percent;
* within five business days after this registration statement being
declared effective, La Jolla is required to submit a debenture
conversion in the amount of $10,000 and every ten business days
thereafter La Jolla shall submit three additional debenture conversion
in the amount of $10,000 each;
* within five business days after this registration statement being
declared effective, La Jolla shall wire $400,000 to us as a prepayment
towards the exercise of its warrant; and
14
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note J - Convertible Debenture - Continued
Discussion of retired debenture - continued
* immediately following the sale of all shares held by La Jolla in
connection with the debenture conversions in the aggregate amount of
$40,000, La Jolla shall wire $275,000 to us as a prepayment towards
the exercise of its warrant and shall submit a debenture conversion in
the amount of $6,250 on the first business day of each month until the
debenture is no longer outstanding.
In May 2005, we entered into an additional addendum to the convertible debenture
and warrant whereby the Company agreed to the following:
* The Company shall deposit 4,000,000 unregistered shares in the name of
LaJolla with the Company's Escrow Agent and, upon confirmation of
receipt, LaJolla will wire the Company $150,000 as an advance on the
$400,000 amount that LaJolla was obligated to fund pursuant to the
December 2004 Addendum. In the event that the Company's Registration
Statement was not declared effective within nine (9) months of the
date of this Addendum, the 4,000,000 shares in escrow will be released
to LaJolla and sold by LaJolla pursuant to Rule 144. If LaJolla sells
these shares for net sales proceeds of more than $150,000 (without
interest accruing on this amount), the excess over $150,000 will be
refunded to the Company.
* The maturity date of the convertible debenture and warrant was
extended to June 31, [sic], 2007.
* All other terms and conditions remain in full force and effect.
LaJolla has contractually agreed to restrict its ability to convert or exercise
its warrants and receive shares of our common stock such that the number of
shares of common stock held by them and their affiliates after such conversion
or exercise does exceed 4.9% of the then issued and outstanding shares of common
stock.
Due to the contractually agreed mandatory conversion of this Debenture, the
Company has reflected this transaction in its balance sheet as a "mezzanine"
level debt obligation on its balance sheet, between "Total Liabilities" and
"Stockholders' Equity". Upon the respective mandatory conversion, the Company
will relieve the respective portion of the Debenture and the any related
accrued, but unpaid interest, and credit this amount to the respective "common
stock" and "additional paid-in capital" accounts in the stockholder's equity
section for the par value and excess amount over the par value of the respective
shares issued.
As the warrant is non-detachable from the Debenture and requires simultaneous
exercise upon conversion of the Debenture, no value was assigned to the issued
warrant. Upon exercise of the warrant, the Company will record the issuance of
the underlying shares as a new issuance of common stock on the date of each
respective exercise.
15
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note J - Convertible Debenture - Continued
Discussion of retired debenture - continued
On various dates through December 31, 2003, the Debenture Holder elected to
convert an aggregate $208,635, through 24 separate transactions, in outstanding
Debenture principal into restricted, unregistered common stock. This election
caused the Company to issue 4,561,753 shares of restricted, unregistered common
stock to the Debenture Holder. Additionally, pursuant to the contract terms, the
Debenture Holder concurrently exercised a portion of the outstanding Warrant to
purchase 2,086,350 shares of the Company's restricted, unregistered common stock
for gross proceeds of $2,086,350.
On various dates between January 1, 2004 and December 31, 2004, the Debenture
Holder elected to convert an aggregate $125,000, through 6 separate
transactions, in outstanding Debenture principal into registered common stock.
This election caused the Company to issue 4,150,000 shares of common stock to
the Debenture Holder. Additionally, pursuant to the contract terms, the
Debenture Holder concurrently exercised a portion of the outstanding Warrant to
purchase 1,250,000 shares of the Company's common stock for gross proceeds of
$1,250,000. As of December 31, 2004, an aggregate of 1,000,000 shares of the
Company's common stock have been issued by the Company and are being held in
escrow by the Company's counsel pending receipt of the final $175,000 from the
Debenture Holder. As of December 31, 2005, this amount remains unpaid.
On various dates between June 28, 2005 and August 10, 2005, the Debenture Holder
elected to convert an aggregate $40,000, through 4 separate transactions, in
outstanding Debenture principal into registered common stock. This election
caused the Company to issue 5,872,048 shares of common stock to the Debenture
Holder. Additionally, pursuant to the contract terms, the Debenture Holder
concurrently exercised a portion of the outstanding Warrant to purchase 400,000
shares of the Company's common stock for gross proceeds of $400,000.
As of December 31, 2006, the Company has no continuing obligation under the
convertible debenture and attached warrant.
[Balance of this page intentionally left blank.]
16
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note K - Preferred Stock Transactions
Preferred stock consists of the following as of March 31, 2007 and 2006,
respectively:
March 31, 2007 March 31, 2006
------------------ --------------------
# shares value # shares value
--------- -------- --------- ----------
Series A Cumulative Convertible
Preferred Stock 12,000 $ 60,000 12,000 $ 60,000
Series B Cumulative Convertible
Preferred Stock 36,680 183,400 73,360 366,800
Series C Convertible Preferred Stock 1,905,882 324,000 1,905,882 324,000
Series E 8% Convertible Preferred Stock 50,000 250,000 50,000 250,000
--------- -------- --------- ----------
2,004,562 $817,400 2,040,360 $1,000,800
========= ======== ========= ==========
Series A Convertible Preferred Stock
In September, October and November 2001, the Company sold an aggregate 222,600
shares of $5.00 Series A Convertible Preferred Stock (Series A Preferred Stock)
for total proceeds of approximately $1,113,000 through a Private Placement
Memorandum. The Series A Convertible Preferred Stock provides for cumulative
dividends at a rate of 8.0% per year, payable quarterly, in cash or shares of
the Company's common stock at the Company's election. Each share of Series A
Preferred Stock is convertible into 11 shares of the Company's common stock
initially at any time after 6 months of the date of issue and prior to the
notice of redemption at the option of the holder, subject to adjustments for
customary anti-dilution events. In December 2001, at the request of the holders
of the Series A Preferred Stock, the Company and the individual holders modified
the holding period for conversion to allow for conversion in December 2001.
In September 2001, the Company's principal stockholder converted approximately
$4,007,327 of unsecured debt and approximately $3,546,273 of cumulative and
unpaid accrued interest into 1,510,710 shares of Series A Preferred Stock.
In September 2001, a creditor of the Company agreed to convert approximately
$10,000 of trade accounts payable into 2,000 shares of Series A Preferred Stock.
17
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note K - Preferred Stock Transactions - Continued
Series A Convertible Preferred Stock - continued
In December 2001, concurrent with a modification in the holding period prior to
conversion, certain holders of the Series A Preferred Stock orally notified the
Company of their intent to exercise the conversion features on 1,749,720 issued
and outstanding shares of Series A Preferred Stock into 19,246,920 shares of
common stock prior to December 31, 2001. Due to the timing of the requisite
documentation, the clerical activities related to this conversion were not
completed until February 2002.
In conjunction with the Series A Preferred Stock, certain shares were sold after
the Company's common stock was approved for trading by the National Association
of Securities Dealers on the OTC Bulletin Board in October 2001. The shares of
Series A Preferred Stock sold subsequent to this date had an equivalent per
share value of common stock below the ending quoted market price of the
Company's common stock on their respective issue dates. This difference created
a Beneficial Conversion Feature Discount of approximately $1,207,993. This
discount was then amortized over the unexpired time period between the date of
issue of the eligible shares and the eligible conversion date, as amended. All
of the shares sold subsequent to the initial trading date were converted in
December 2001 and, accordingly, the approximate $1,207,993 in Beneficial
Conversion Feature Discount was fully amortized to operations.
In December 2002, a holder of 5,000 shares of Series A Preferred Stock exercised
his conversion rights and converted these shares of Series A Preferred Stock
into 55,000 shares of restricted, unregistered common stock.
In January 2003, three separate holders of 9,000 shares of Series A Preferred
Stock exercised their conversion rights and converted these shares of Series A
Preferred stock into 99,000 shares of restricted, unregistered common stock.
Series B Convertible Preferred Stock
In May 2003, the Company sold an aggregate 91,700 shares of $5.00 Series B
Convertible Preferred Stock (Series B Preferred Stock) for total proceeds of
approximately $458,500 through a separate Private Placement Memorandum. The
Series B Convertible Preferred Stock provides for cumulative dividends at a rate
of 8.0% per year, payable quarterly, in cash or shares of the Company's common
stock at the Company's election. Each share of Series B Preferred Stock is
convertible into 11 shares of the Company's common stock initially at any time
after 6 months of the date of issue and prior to the notice of redemption at the
option of the holder, subject to adjustments for customary anti-dilution events.
In September and December 2004, respectively, the Holders of the Series B
Preferred Stock exercised their conversion rights and exchanged an aggregate
18,340 shares of Series B Preferred Stock for 66,810 post-reverse split shares
of restricted, unregistered common stock.
On March 31, June 30, October 23, and December 27, 2006, respectively, the
holders of the Series B Preferred Stock exercised their conversion rights and
exchanged an aggregate 36,680 shares (9,170 shares per conversion) of Series B
Preferred Stock for 831,412 shares of restricted, unregistered common stock.
18
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note K - Preferred Stock Transactions - Continued
Series C Convertible Preferred Stock
In November 2004, the Company sold 1,905,882 shares of Series C Convertible
Preferred Stock to an existing stockholder and officer of the Company in a
private transaction pursuant to Section (4)2 of the Securities Act of 1933 for
gross proceeds of approximately $324,000. No underwriter was used in conjunction
with this transaction.
The Series C Convertible Preferred Stock provides for dividends at a rate of
4.0% per annum, to be declared and paid monthly in either cash or stock at the
discretion of the Company.
Each share of Series C Preferred Stock is convertible at a rate of $0.18 per
share into 1,800,000 shares of the Company's common stock at any time at the
option of the holder, subject to adjustments for customary anti-dilution events.
Series E 8% Convertible Preferred Stock
On March 1, 2006, the Company issued a Private Placement Memorandum offering up
to 200,000 shares of Series E 8% Convertible Preferred Stock at an offering
price of $5.00 per share on a "best efforts" basis through an unrelated
placement agent.
The Series E 8% Convertible Preferred Stock provides for cumulative dividends at
the rate of 8% per year, payable quarterly, 50% in cash and 50% in shares or
100% in cash at the Company's election. In the event the Company elects to pay
such dividends in shares of the Company's Common Stock, the number of shares to
be issued shall be based on the average of the closing prices of the Company's
Common Stock, as reported on the NASDAQ Over the Counter Bulletin Board (or such
other market on which the Company's Common Stock is then traded) for the 10
consecutive trading days preceding the record date for each such dividend, with
such record date being the 14th day preceding the end of each calendar quarter.
Each share of Series E Convertible Preferred Stock shall be convertible into
shares of the Company's Common Stock at any time after March 1, 2007. The number
of shares to be issued on a conversion shall be based on 80% of the average
closing price of the Common Stock of the Company; as reported on the NASDAQ OTC
Bulletin Board (or such other market on which such stock is traded) for ten (!0)
consecutive trading days preceding the date the Company received notice of such
conversion. Subject to certain restrictions, the Series E 8% Convertible
Preferred Stock shall automatically convert into shares of the Company's Common
Stock upon any of the following events: (I) the sale by the Company of all or
substantially all of its assets; (ii) the consummation of a merger or a
consolidation in which the Company is not the survivor; or (iii) the sale or
exchange of all or substantially all of the outstanding shares of the Company's
common stock (including by way of merger, consolidation, or other similar
action).
19
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note K - Preferred Stock Transactions - Continued
Series E 8% Convertible Preferred Stock - continued
In the event of the liquidation, dissolution or winding up of the Company, the
holders of Series E Convertible Preferred Stock shall have a liquidation
preference over holders of common stock and shares junior to the Series E 8%
Convertible Preferred Stock equal to $5.50 per share. Additionally, the Company
shall not impose or allow any additional liens on it's existing fixed assets in
excess of $1,000,000; provided that at such time as total gross proceeds from
the offering equal or exceed $2,000,000, the Company shall satisfy such existing
liens on its existing fixed assets and shall not impose or allow any additional
liens on its existing fixed assets unless subordinated to the interest of the
Series E 8% Convertible Preferred Stock, with such preference on the fixed
assets equal to the fixed asset value, as determined in accordance with the
United States Generally Accepted Accounting Principles ("GAAP"), of 150% of the
stated value of the aggregate of the outstanding shares of Series E Convertible
Preferred Stock except for fixed assets of the Company that were otherwise
purchased pursuant to a security interest.
The Series E 8% Convertible Preferred Stock shall be redeemable, at the option
of the Company, for cash in the amount of $5.50 per share of Series E
Convertible Preferred Stock or for shares of the Company's Common Stock in
accordance with the Conversion Rate, at any time after March 1, 2007, or in the
event the closing sale price of the Company's Common Stock, as reported on the
NASDAQ Over the Counter Bulletin Board (or such other market on which the
Company's Common Stock is then traded), is greater than or equal to $7.00 after
March 1, 2007 for any consecutive five trading days. In addition, the Series E
8% Convertible Preferred Stock shall be redeemable, at the option of the holder,
at any time for shares of the Company's Common Stock in accordance with the
Conversion Rate. At any time after March 1, 2007, at the option of the holder,
the Series E 8% Convertible Preferred Stock shall be redeemable for cash in the
amount of $5.10 per share of Series E Convertible Preferred Stock or for shares
of the Company's Common Stock in accordance with the Conversion Rate. After such
date, if redemption is for cash, shares will be redeemed at the rate of 1/10 of
such aggregate shares per quarterly period for any 10 consecutive quarters
commencing after March 1, 2007. Any redemption by either the Company or the
holder shall be subject to 15 days written notice.
The Company warrants and agrees that if, at any time within the period
commencing on the date of the final closing of the Offering and expiring on the
5th anniversary of the date thereof, the Company should file a registration
statement with the SEC under the Securities Act (other than in connection with a
merger or other business combination transaction or pursuant to Form S-8), it
will give written notice at least 30 calendar days prior to the filing of each
such registration statement to the holders of the Series E 8% Convertible
20
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note K - Preferred Stock Transactions - Continued
Series E 8% Convertible Preferred Stock - continued
Preferred Stock and the holders of the shares of the Common Stock issued upon
the conversion or redemption of the shares of Series E Convertible Preferred
Stock, or their permitted assigns (Holders) of its intention to do so. If the
Holders notify the Company within 30 calendar days after receipt of any such
notice of its or their desire to include any such shares of Common Stock issued
or issuable upon the conversion or redemption of the Series E 8% Convertible
Preferred Stock in such proposed registration statement, the Company shall use
its "best efforts" to have any such shares of Common Stock is issued or issuable
upon the conversion or redemption of the Series E 8% Convertible Preferred Stock
registered under such registration statement.
Notwithstanding the foregoing, the Company shall have the right at any time
after it shall have given written notice (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof. If the managing underwriter
of an offering to which the above "piggyback registration rights" apply, in good
faith and for valid business reasons, objects to such rights, such objection
shall preclude such inclusion. All expenses incurred by the Company in
registration of the shares of Common Stock issued or issuable upon the
conversion or redemption of The Series E 8% Convertible Preferred Stock,
including with out limitation all registration and filing fees, listing fees,
printing expenses, fees and disbursements of all independent accounts, or
counsel for the Company and the expense of any special audits incident to or
required by any such registration and the expenses of complying with the
securities or blue sky laws of any jurisdiction shall be paid by the Company.
The Company has agreed to pay the Placement Agent a cash commission equal to 10%
of the aggregate Purchase Price of the shares of Series E Convertible Preferred
Stock sold by the Placement Agent in the Offering (Placement Agent Fee). The
Company shall also pay the Placement Agent reasonable expenses associated with
the Offering, which expenses shall not exceed $50,000 (Expense Allowance). In
addition, the Company shall issue to the Placement Agent 500 warrants for each
$50,000 of Series E Convertible Preferred Stock sold by the Placement Agent in
the Offering (Placement Agent Warrants), each warrant entitling the holder to
purchase 1 share of the Company's Common Stock at an exercise price of $0.90 per
share exercisable at any time for a period of 3 years from date of issuance.
Upon completion of the Maximum Offering, the Company will receive net proceeds
of approximately $900,000.00. The Company intends to use the net proceeds for
potential acquisitions, working capital, general corporate purposes and
repayment of outstanding debt.
The Company and the Placement Agent shall have discretion to increase the
Maximum Offering to $2,000,000.00, without notice to investors.
21
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note K - Preferred Stock Transactions - Continued
Series E 8% Convertible Preferred Stock - continued
Through June 30, 2006, the Company sold 100,000 shares in a two separate
transactions under this Private Placement Memorandum and has received the gross
sales proceeds of $500,000 and has paid an aggregate of $50,000 to the Placement
Agent for the 10% fees due on these transactions.
On September 13, 2006, the Company exercised it's repurchase rights and retired
50,000 shares of the Series E 8% Convertible Preferred Stock, including a 10%
prepayment penalty, for $275,000 cash.
Note L - Common Stock Transactions
On January 9, 2006, by written consent in lieu of meeting, a majority of the
Company's stockholders approved a recommendation by the Company's Board of
Directors to effect a one share for twenty shares reverse stock split of our
common stock, par value $.001 per share, with fractional shares rounded up to
the nearest whole share. The reverse split became effective on that date. As a
result of the reverse split, the total number of issued and outstanding shares
of the Company's common stock decreased from 92,576,839 to 4,629,381shares,
after giving effect to rounding for fractional shares. The effect of this action
is reflected in the Company's financial statements as of the first day of the
first period presented.
In conjunction with the above discussed reverse stock split, all share
references in the following paragraphs reflect the January 9, 2006 reverse split
action.
Calendar 2006 Transactions
In February 2006, the Company issued approximately 41,666 shares of
unregistered, restricted common stock to Paul Goebel, the Company's Director of
Domestic Sales, as an employee bonus. These shares were valued at approximately
$17,500, which approximated the market value of the shares on the transaction
date. The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended, for an exemption from registration of these shares and no underwriter
was used in this transaction.
22
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note L - Common Stock Transactions - Continued
Calendar 2006 Transactions - continued
In February 2006, the Company issued approximately 226,065 shares of restricted,
unregistered common stock, valued at approximately $18,325, to an existing
stockholder as for payment of accrued interest associated with approximately
$875,000 short-term working capital loans to the Company and reimbursement of
direct public relation expenses. The Company relied upon Section 4(2) of the
Securities Act of 1933, as amended, for an exemption from registration of these
shares and no underwriter was used in this transaction. As the per share value
of this transaction was substantially less than the "fair value" of the
Company's common stock, per the closing price of the Company's common stock on
the transaction date, the Company recognized "consulting expense related to the
issuance of common stock at less than "fair value" in the amount of
approximately $70,080 on this transaction.
In May 2006, the Company issued approximately 266,511 shares of restricted,
unregistered common stock, valued at approximately $21,054, to an existing
stockholder as for payment of accrued interest associated with approximately
$975,000 short-term working capital loans to the Company and reimbursement of
direct public relation expenses. The Company relied upon Section 4(2) of the
Securities Act of 1933, as amended, for an exemption from registration of these
shares and no underwriter was used in this transaction. As the per share value
of this transaction was substantially less than the "fair value" of the
Company's common stock, per the closing price of the Company's common stock on
the transaction date, the Company recognized "consulting expense related to the
issuance of common stock at less than "fair value" in the amount of
approximately $69,293 on this transaction.
In September 2006, the Company issued approximately 275,229 shares of
restricted, unregistered common stock, valued at approximately $22,018, to an
existing stockholder as for payment of accrued interest associated with
approximately $975,000 short-term working capital loans to the Company and
reimbursement of direct public relation expenses. The Company relied upon
Section 4(2) of the Securities Act of 1933, as amended, for an exemption from
registration of these shares and no underwriter was used in this transaction. As
the per share value of this transaction was substantially less than the "fair
value" of the Company's common stock, per the closing price of the Company's
common stock on the transaction date, the Company recognized "consulting expense
related to the issuance of common stock at less than "fair value" in the amount
of approximately $118,348 on this transaction.
In December 2006, the Company issued approximately 284,168 shares of restricted,
unregistered common stock, valued at approximately $22,733, to an existing
stockholder as for payment of accrued interest associated with approximately
$975,000 short-term working capital loans to the Company and reimbursement of
direct public relation expenses. The Company relied upon Section 4(2) of the
23
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note L - Common Stock Transactions - Continued
Calendar 2006 Transactions - continued
Securities Act of 1933, as amended, for an exemption from registration of these
shares and no underwriter was used in this transaction. As the per share value
of this transaction was substantially less than the "fair value" of the
Company's common stock, per the closing price of the Company's common stock on
the transaction date, the Company recognized "consulting expense related to the
issuance of common stock at less than "fair value" in the amount of
approximately $90,934 on this transaction.
On March 31, June 30, October 23, and December 27, 2006, respectively, the
holders of the Series B Preferred Stock exercised their conversion rights and
exchanged an aggregate 36,680 shares (9,170 shares per conversion) of Series B
Preferred Stock for 831,412 shares of restricted, unregistered common stock.
On September 13, 2006, the Company issued 56,003 shares of common stock to La
Jolla Cove Investors, Inc. to complete all obligations to La Jolla and assign
any and all of La Jolla's right, title and interest in any and all of the
Company's indebtedness to La Jolla and specifically including La Jolla's rights
under the active SB-2 Registration Statement for the issuance and registration
of securities thereunder; the consent of the Company to the foregoing subject to
the right of the Company to prepay any and all indebtedness thereunder in the
Company's common stock, without penalty, at any time before or after default to
La Terraza Trading and Asset Management, Inc.
In July, August and October 2006, in three separate transactions, the Company
issued an aggregate 50,135 shares of restricted, unregistered common stock in
payment of approximately $19,177 in accrued dividends payable on the Company's
outstanding Series B Preferred Stock for the quarters ended March 31, June 30
and September30, 2006, respectively. The Company relied upon Section 4(2) of the
Securities Act of 1933, as amended, for an exemption from registration of these
shares and no underwriter was used in this transaction.
On December 27, 2006, effective as of September 13, 2006, the Company and La
Terraza agreed that all pertinent conditions had been met and the Company
released the aforementioned 11,470,000 shares of common stock issued pursuant to
the Company's active Registration Statement on Form SB-2 to La Terraza in
exchange for the previous receipt of approximately $2,150,000 in cash proceeds,
the use of which has previously be discussed. The Company paid placement fees of
approximately $215,000 in connection with the sale of these securities and the
retirement of the La Jolla convertible debentures. As the per share value of
this transaction was substantially less than the "fair value" of the Company's
common stock, per the closing price of the Company's common stock on the
transaction date, the Company recognized "consulting expense related to the
issuance of common stock at less than "fair value" in the amount of
approximately $3,704,810 on this transaction.
24
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note L - Common Stock Transactions - Continued
Calendar 2006 Transactions - continued
On December 27, 2006, the Company issued an additional 5,333,335 shares of
common stock to La Terraza for gross proceeds of approximately $1,000,000. The
Company paid placement fees of approximately $100,000 in connection with the
sale of these securities. As the per share value of this transaction was
substantially less than the "fair value" of the Company's common stock, per the
closing price of the Company's common stock on the transaction date, the Company
recognized "consulting expense related to the issuance of common stock at less
than "fair value" in the amount of approximately $1,136,000 on this transaction.
Calendar 2007 Transactions
In January 2007, the Company issued an aggregate 10,470 shares of restricted,
unregistered common stock in payment of approximately $4,874 in accrued
dividends payable on the Company's outstanding Series B Preferred Stock for the
quarter ended December 31, 2006. The Company relied upon Section 4(2) of the
Securities Act of 1933, as amended, for an exemption from registration of these
shares and no underwriter was used in this transaction.
In April 2007, the Company issued approximately 269,934 shares of restricted,
unregistered common stock, valued at approximately $21,595, to an existing
stockholder as for payment of accrued interest associated with approximately
$975,000 short-term working capital loans to the Company and reimbursement of
various operating expenses paid in cash on behalf of the Company. The Company
relied upon Section 4(2) of the Securities Act of 1933, as amended, for an
exemption from registration of these shares and no underwriter was used in this
transaction.
Note M - Stock Warrants
In conjunction with the Company's Private Placement Memorandum for the sale of
Series E Convertible Preferred Stock, the Company agreed to issue to the
Placement Agent warrants to purchase up to 500 shares of the Company's common
stock for each $50,000 of Series E Convertible Preferred Stock sold by the
Placement Agent in the Offering (Placement Agent Warrants), each warrant
entitling the holder to purchase 1 share of the Company's Common Stock at an
exercise price of $0.90 per share exercisable at any time for a period of 3
years from date of issuance.
On September 6, 2006, in conjunction with the $2,150,000 Financing Agreement
with La Terraza, the Company issued warrants to purchase 600,000 shares of
common stock at the lesser of $0.1875 per share or the average closing price per
share for the Company's common stock over the twelve (12) month period prior to
the date of such exercise, with the warrants being exercisable at any time from
25
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note M - Stock Warrants - Continued
the issue date through July 24, 2011. The following table presents warrant
activity through March 31, 2007:
Weighted
Average
Number of Exercise
Shares Price
----------- -----------
Balance at January 1, 2005 2,663,650 $ 1.00
Issued - -
Exercised (40,000) $ 1.00
Expired - -
----------- -----------
Balance at December 31, 2005 2,263,650 $ 1.00
Issued
Placement agent warrants 1,000 $ 0.90
La Terraza warrants 600,000 $ 0.1875
Exercised - -
Expired (2,263,650) $ 1.00
----------- -----------
Balance at December 31, 2006 601,000 $ 0.1887
Issued - -
Exercised - -
Expired - -
----------- -----------
Balance at March 31, 2007 601,000 $0.1887
=========== ============
Note N - Rental Commitments
The Company leases its corporate office and manufacturing facility from its
controlling stockholder under a long-term operating lease agreement. The lease
requires a monthly payment of approximately $5,735, including applicable sales
taxes. The Company is responsible for all utilities and maintenance expenses.
The lease expires on December 1, 2009 and contains a clause that upon
expiration, the Company and the controlling shareholder shall renegotiate the
annual rental amount.
The Company's subsidiary, IPE, leases it's manufacturing facility from an
unrelated third-party under a long-term operating lease agreement. This lease is
for a period of five (5) years and requires graduated monthly payments, changing
on the lease anniversary date, ranging from approximately $1,751 to $1,914, plus
the applicable sales taxes. The Company is responsible for all utilities and
26
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note N - Rental Commitments - Continued
maintenance expenses. The lease expires on February 28, 2007 and may be renewed
for an additional five (5) year term at a rental rate of approximately $1,971,
plus applicable sales taxes for the first renewal year and 3.0% increase on each
succeeding anniversary date. Total rent expense under this lease was
approximately $23,057 and 22,176, respectively, for each of the years ended
December 31, 2006 and 2005.
In May 2004, the Company entered into a long-term lease agreement for a
warehouse facility adjacent to the Company's primary office and manufacturing
facility. This lease was for a period of two (2) years and required payments of
approximately $6,206 per month for the first 12 months and approximately $6,393
for the second 12 months, plus applicable sales taxes. The Company was
responsible for all utilities and maintenance expenses. This lease expired on
May 31, 2006 and the Company has no further responsibility under this lease
agreement.
Future minimum rental payments on the above leases are as follows:
Year ended
December 31, Amount
------------ ----------
2007 $ 72,643
2008 68,815
2009 68,815
----------
Totals $ 210,273
==========
For the respective years ended December 31, 2006 and 2005, the Company paid an
aggregate of $125,862 and $158,947 in rent under these agreements.
Note O - Income Taxes
The components of income tax (benefit) expense for the three month periods ended
March 31, 2007 and 2006, respectively, are as follows:
Three months ended Three months ended
March 31, 2007 March 31, 2006
------------------ ------------------
Federal:
Current $ - $ -
Deferred - -
------- ------
- -
------- ------
State:
Current - -
Deferred - -
------- ------
- -
------- ------
Total $ - $ -
======= ======
27
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note O - Income Taxes - Continued
As of December 31, 2006, the Company has a net operating loss carryforward of
approximately $14,500,000 to offset future taxable income. Subject to current
regulations, components of this carryforward began to expire in 2005. The amount
and availability of the net operating loss carryforwards may be subject to
limitations set forth by the Internal Revenue Code. Factors such as the number
of shares ultimately issued within a three year look-back period; whether there
is a deemed more than 50 percent change in control; the applicable long-term tax
exempt bond rate; continuity of historical business; and subsequent income of
the Company all enter into the annual computation of allowable annual
utilization of the carryforwards.
The Company's income tax expense (benefit) for the three month periods ended
March 31, 2007 and 2006, respectively, differed from the statutory federal rate
of 34 percent as follows:
Three months Three months
ended ended
March 31, March 31,
2007 2006
------------ ------------
Statutory rate applied to loss before income taxes $ (192,600) $ (376,800)
Increase (decrease) in income taxes resulting from:
State income taxes - -
Other, including reserve for deferred tax asset 192,600 376,800
------------ ------------
Income tax expense $ - $ -
============ ============
Temporary differences, consisting primarily of the net operating loss
carryforward and statutory differences in the depreciable lives for property and
equipment, between the financial statement carrying amounts and tax bases of
assets and liabilities give rise to deferred tax assets and liabilities as of
December 31, 2006 and 2005, respectively:
Year ended Year ended
December 31, December 31,
2006 2005
------------ ------------
Deferred tax assets - long-term
Net operating loss carryforwards $ 4,930,000 $ 4,080,000
Deferred tax liabilities - long-term
Statutory depreciation differences (500,000) (525,000)
------------ ------------
4,430,000 3,555,000
Less valuation allowance (4,430,000) (3,555,000)
------------ ------------
Net Deferred Tax Asset $ - $ -
============ =============
During the years ended December 31, 2006 and 2005, respectively, the valuation
allowance increased (decreased) by approximately $875,000 and $1,576,000.
28
American Ammunition, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
March 31, 2007 and 2006
Note P - Contingent Liability
The Company and the Miami-Dade County Property Appraiser are in negotiations
related to an audit of the Company's Tangible Personal Property assessments for
the years ended December 31, 2002, 2003, 2004 and 2005. The Company is
cooperating fully with all requests and is aggressively challenging all claims
and using all defenses available to it. The ultimate outcome, and impact on the
Company's financial statements, is not readily determinable at this time.
Note Q - Selected Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the three
months ended March 31, 2007 and for each of the years ended December 31, 2006
and 2005, respectively.
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
March 31, June 30, September 30, December 31, December 31,
-------------- -------------- ------------- ------------ ------------
CALENDAR 2007
Revenues - net $ 690,389
Gross profit $ (226,750)
Net earnings after
provision for
income taxes $ (566,565)
Basic and fully diluted
earnings per share $ (0.02)
Weighted average
number of shares
issued and outstanding 23,015,580
Calendar 2006
Revenues - net $ 710,111 $ 669,386 $ 305,805 $ 556,057 $ 2,241,399
Gross profit $ (667,994) $ 4,297 $ (389,262) $ (194,382) $ (1,247,341)
Net earnings after
provision for
income taxes $ (1,108,192) $ (396,668) $ (1,179,115) $ (5,416,082) $ (8,100,057)
Basic and fully diluted
earnings per share $ (0.26) $ (0.09) $ (0.23) $ (0.31) $ (0.96)
Weighted average
number of shares
issued and outstanding 4,270,491 4,797,286 5,199,890 17,449,148 8,524,241
Calendar 2005
Revenues - net $ 1,170,317 $ 684,693 $ 378,326 $ 1,010,297 $ 3,243,633
Gross profit $ (366,263) $ (676,300) $ (757,023) $ 451,009 $ (1,348,577)
Net earnings after
provision for
income taxes $ (786,044) $ (1,155,474) $ (1,118,089) $ (2,882,062) $ (5,941,669)
Basic and fully diluted
earnings per share $ (0.21) $ (0.32) $ (0.29) $ (0.70) $ (1.52)
Weighted average
number of shares
issued and outstanding 3,742,585 3,557,402 3,812,069 4,126,366 3,907,499
29
ITEM 2 - Management's Discussion and Analysis or Plan of Operation
Caution Regarding Forward-Looking Information
Certain statements contained in this Registration Statement including,
without limitation, statements containing the words "believes", "anticipates",
"expects" and words of similar import, constitute forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national
and local general economic and market conditions: demographic changes; the
ability of the Company to sustain, manage or forecast its growth; the ability of
the Company to successfully make and integrate acquisitions; raw material costs
and availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Quarterly Report on Form 10-QSB
and investors in our equity securities are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
General
American Ammunition, Inc. is a holding company with two operating
subsidiaries: F&F Equipment, Inc. and Industrial Plating Enterprise Co.
F&F Equipment, Inc. (F&F) was incorporated on October 4, 1983 under the
laws of the State of Florida. F&F was formed to engage principally in the
"import, export, retail & wholesale of firearms equipment, ammunition & other
devices and for the purpose of transacting any and/or all lawful business." F&F
conducts its business operations under the assumed name of "American
Ammunition."
In June 2002, American Ammunition, Inc. formed a wholly owned subsidiary,
Industrial Plating Enterprise Co. (IPE), which started production on June 14,
2002. IPE is a fully licensed and approved electrochemical metallization
facility with significant capacity for processing our line of projectiles as
well as other products and services while employing environmentally sound water
conservation and proven waste treatment techniques.
30
Results of Operations
Three months ended March 31, 2007 compared with the three months ended March 31,
2006.
During the three months ended March 31, 2007, we experienced aggregate net
revenues of approximately $690,000, as compared to approximately $710,000 during
the first quarter of Calendar 2006.
We experienced costs of goods sold of approximately $917,000 for the three
months ended March 31,2007 as compared to approximately $1,378,000 for the three
months ended March 31, 2006.
We have expanded our product line during the last quarter of 2006 and the
first quarter of 2007 as we have identified a market demand for additional rifle
cartridges and "cowboy action shooting" calibers. While we continue to
experience strong interest and/or demand and are experiencing increasing orders
for these products, our current volumes cause production delays in managing our
production tooling setups to produce all of the products in our catalog. We
believe that our order quantities will increase to a level to allow for more
efficient utilization of our production capacities.
The various raw materials that are integral components of our manufacturing
processes are currently subject to rapidly increasing pressures caused by
foreign demand, limitations on mining/production and commodity market
speculation for both our costs and the overall availability of these resources.
We are experiencing direct pressure in the marketplace for the brass component
of our ammunition manufacture by recent orders for copper placed by the People's
Republic of China. We have also experienced periodic limitations or allocations
on the availability of lead for projectile manufacture due to increased demand
for this commodity and limitations on the opening of new domestic mines for lead
due to various Federal and State environmental laws and regulations. In
conjunction with the large order for raw copper placed by the Chinese, the
marketplace has experienced a substantial increase in futures speculation on
this and other comparable commodities in the financial exchanges. Further, we
experience competition for raw materials from our competitors that are better
funded and have earned priority status among our suppliers.
We are also experiencing the effect of rapidly increasing energy costs, not
only in our own plant; but, in the costs of our raw materials and supplies being
purchased from other vendors that are forced to pass these costs through to
their customers, including us.
All of these discussed factors are causing significant fluctuation in the
prices that we must pay for our raw materials that may or may not be able to be
passed through to our customers through price increases. Our management is
monitoring both the cost side of this equation and the availability of price
increases to our customers and to their end- users. The balancing of these
events is highly unpredictable and uncertain as we go forward into future
periods.
31
During 2006 and 2005, we experienced negative trends off of our standard
production costs for material and labor due to difficulties in training new
employees, adding new products to our catalog and lower than expected orders due
to uncontrollable delays in ordering by various U. S. Governmental entities.
Management is of the opinion that the production labor force is stable and able
to maintain a constant standard of quality for future periods. We experience
variable costs in the area of material consumption and direct labor. We have
recognized depreciation expense on production equipment of approximately $41,300
and $31,000, respectively, in the above cost of goods expense totals. These
depreciation levels are anticipated to fluctuate nominally in future periods
based upon either the full depreciation of older equipment and/or the addition
of new equipment to expand capacity. In the second quarter of 2006, management
took drastic steps to reduce excess labor capacity through the elimination of
the 2nd shift, which was never able to reach full utilization. This action is
not expected to have any adverse impact on our ability to meet our existing and
future product demands.
For the three months ended March 31, 2007 and 2006, respectively, we
generated a negative gross profit of approximately $(227,000) or (32.84%), and
approximately $(668,000) or (94.06%). While we have a backlog of orders and
future order commitments from retail customers, distributors and/or governmental
agencies, we anticipate that we should be able to generate a positive gross
profit in future periods; however, there are no guarantees or any certainty that
this will occur.
We experienced nominal research and development expenses of approximately
$600 and $-0-, during each of the three month periods ended March 31, 2007 and
2006, principally related to research related to the potential expansion of our
product line.
In 2004, the Company initiated a direct solicitation program for a "dealer
direct" sales program. This endeavor has received a very positive response from
the qualified retail resellers of our products. However, we are realizing that
the existence of previously announced contracts with various U. S. Governmental
agencies and orders from foreign governments are becoming more erratic in their
order placements. Accordingly, management is realizing that a consistent demand
from the U. S. retail segment will be our best source of consistent sales.
Further, we have identified certain production issues which has inhibited the
full realization of existing product demands and management believes that the
necessary steps are being taken to remedy any production deficiencies.
During the first quarters of 2007 and 2006, we expended approximately
$32,400 and $56,000, respectively, in advertising and marketing expenses,
principally in continuing the promotion and expansion of our retail dealer
direct program. We anticipate to continue our marketing efforts in this area in
future periods; however, the volume and frequency of our expenditures may
fluctuate as management allocates available capital to these efforts.
Other general and administrative expenses increased nominally from
approximately $275,000 for the three months ended March 31, 2007 as compared to
approximately $375,000 for the three months ended March 31, 2006. Management is
32
of the opinion that these costs are relatively stable and should not experience
significant increases except for inflationary pressures caused principally by
increases in energy costs which are affecting all businesses in all sectors of
the U. S. economy.
We recognized a net loss of approximately $(567,000) and $(1,108,000) for
the respective three month periods ended March 31, 2007 and 2006, respectively,
or $(0.02) and $(0.26) per share. We wish to note that the loss per share
includes the effect of our 1 for 20 reverse stock split on January 9, 2006.
Liquidity And Capital Resources
As of March 31, 2007, December 31, 2006 and March 31, 2006, respectively,
we had working capital of approximately $123,000, $684,000 and $(1,944,000). Our
working capital position continues to fluctuate based on collections on our
trade accounts receivable. We anticipate that we have sufficient inventory
levels to support our order demand and have access to raw material suppliers
that will enable us to receive raw materials for future periods. We also note
that at the end of 2006, we renegotiated $1,075,000 in notes payable to existing
shareholders to long-term status with renewed maturity dates of December 31,
2008. Due to this relationship, these notes may or may not be renegotiated,
repaid in common stock of the Company or otherwise reclassified prior to their
maturity on December 31, 2008.
We have used cash in operating activities of approximately $(467,000) and
$(385,000) during each of the quarters ended March 31, 2007 and 2006,
respectively. Due to our history of operating losses, our resources for
additional working capital are becoming more scarce.
We anticipate that our liquidity position will continue to improve as
management is of the opinion that, with the current changes to our production
capacity, the Company will be in a position to better support all existing
orders and accept existing and future inquiries.
During the quarters ended March 31, 2007 and 2006, respectively, we added
approximately $41,000 and $31,000 in new equipment. Any equipment to be added in
future periods is fully dependent upon the Company's cash position, the
availability of either new equity or debt capital and the ultimate realization
of communicated future product sales demand. However, we may not be able to
obtain additional funding or, that such funding, if available, will be obtained
on terms favorable to or affordable by us.
ITEM 3 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the Security and Exchange Commission's rules and
33
forms, and that such information is accumulated and communicated to the
Company's management, including the Company's Chief Executive Officer and
Chief Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosure. Management necessarily applied its judgment
in assessing the costs and benefits of such controls and procedures, which,
by their nature, can provide only reasonable assurance regarding
management's control objectives.
The Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and
Chief Accounting Officer, on the effectiveness of the design and operation
of its disclosure controls and procedures pursuant to Exchange Act Rules
13a-15 and 15d-15 as of the end of the period covered by this report. Based
upon that evaluation, the Company's Chief Executive Officer and Chief
Accounting Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to information relating to
the Company required to be included in the Company's Exchange Act reports.
While the Company believes that its existing disclosure controls and
procedures have been effective to accomplish their objectives, the Company
intends to continue to examine, refine and document its disclosure controls
and procedures and to monitor ongoing developments in this area.
(b) Changes in Internal Controls
During the quarter ended March 31, 2007, there were no changes (including
corrective actions with regard to significant deficiencies or material
weaknesses) in the Company's internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
From time to time the Company may become subject to various legal
proceedings that are incidental to the ordinary conduct of its business. The
Company does not consider any such proceedings to date, either individually or
in the aggregate, to be material to its business or likely to result in a
material adverse effect on its future operating results, financial condition, or
cash flows.
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds
In January 2007, the Company issued an aggregate 10,470 shares of
restricted, unregistered common stock in payment of approximately $4,874 in
accrued dividends payable on the Company's outstanding Series B Preferred Stock
for the quarter ended December 31, 2006. The Company relied upon Section 4(2) of
the Securities Act of 1933, as amended, for an exemption from registration of
these shares and no underwriter was used in this transaction.
34
In April 2007, the Company issued approximately 269,934 shares of
restricted, unregistered common stock, valued at approximately $21,595, to an
existing stockholder as for payment of accrued interest associated with
approximately $975,000 short-term working capital loans to the Company and
reimbursement of various operating expenses paid in cash on behalf of the
Company. The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended, for an exemption from registration of these shares and no underwriter
was used in this transaction.
ITEM 3 - Defaults on Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) The following sets forth those exhibits filed pursuant to Item 601 of
Regulation S-K:
Exhibit
number Descriptions
-------- -----------------------
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
------------
* Filed herewith.
(b) The following sets forth the Company's reports on Form 8-K that have
been filed during the quarter for which this report is filed:
None.
35
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Ammunition, Inc.
Date: May 7, 2007
By: /s/ Andres F. Fernandez
-------------------------------
Andres F. Fernandez
President, Chief Executive Officer
Chief Financial Officer and Director
36