United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
--------------------------------------------------------------------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
------- ACT OF 1934
For the quarterly period ended March 31, 2002
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
-------- 1934
For the transition period from ______________ to _____________
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Commission File Number: 0-32379
American Ammunition, Inc.
(Exact name of small business issuer as specified in its charter)
California 91-2021594
-------------------------- -------------------------
(State of incorporation) (IRS Employer ID Number)
3545 NW 71st Street, Miami, FL 33147
(Address of principal executive offices)
(305) 835-7400
(Issuer's telephone number)
--------------------------------------------------------------------------------
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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: April 16, 2002: 51,642,276
Transitional Small Business Disclosure Format (check one): YES NO X
---- ----
American Ammunition, Inc.
Form 10-QSB for the Quarter ended March 31, 2002
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 18
Part II - Other Information
Item 1 Legal Proceedings 21
Item 2 Changes in Securities 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 21
2
Item 1 - Part 1 - Financial Statements
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and 2001
(Unaudited)
March 31, March 31,
2002 2001
---------------------------
ASSETS
Current Assets
Cash on hand and in bank $ 466,934 $ -
Accounts receivable - trade, net of
factored accounts of approximately
$-0- and $-0- and allowance for
doubtful accounts of $-0- and $-0-, respectively 198,927 67,115
Inventory 619,449 388,286
Prepaid expenses 15,560 -
----------- -----------
Total Current Assets 1,300,870 455,401
----------- -----------
Property and Equipment - at cost or contributed value
Manufacturing equipment 6,560,626 6,375,421
Office furniture and fixtures 50,856 48,802
Leasehold improvements 183,052 181,814
----------- -----------
6,794,534 6,606,037
Accumulated depreciation (2,897,980) (2,257,840)
----------- -----------
Net Property and Equipment 3,896,554 4,348,197
----------- -----------
Other Assets
Loan costs, net of accumulated amortization of
approximately $-0- and $25,940, respectively - 43,394
Deposits and other 77,710 59,712
----------- -----------
Total Other Assets 77,710 103,106
----------- -----------
TOTAL ASSETS $5,275,134 $4,906,704
=========== ===========
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements.
3
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 2002 and 2001
(Unaudited)
March 31, March 31,
2002 2001
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Cash overdraft $ - $ 245,243
Notes payable to a bank - 1,143,381
Current maturities of leases payable 8,365 20,349
Accounts payable - trade 462,255 469,124
Accrued excise taxes payable 37,501 50,935
Accrued interest payable - 3,388,185
Customer deposits - 204,556
Note payable to stockholder - 4,007,327
----------- -----------
Total Current Liabilities 508,121 9,529,100
Long-Term Liabilities
Note payable to a bank 950,000 -
Capital leases payable 15,340 79,875
----------- -----------
Total Liabilities 1,473,461 9,608,975
----------- -----------
Commitments and Contingencies
Mandatory Convertible Preferred Stock
45,600 shares issued and outstanding 228,000 -
----------- -----------
Stockholders' Equity
Preferred stock - $0.001 par value
20,000,000 shares authorized.
1,795,320 shares allocated to Series A - -
Common stock - $0.001 par value.
300,000,000 shares authorized.
51,642,276 and 26,850,000
shares issued and outstanding 51,642 26,850
Additional paid-in capital 15,324,105 4,974,150
Accumulated deficit (11,802,074) (9,703,271)
----------- -----------
Total Stockholders' Equity 3,573,673 (4,702,271)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,275,134 $4,906,704
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Three months ended March 31, 2002 and 2001
(Unaudited)
Three months Three months
ended ended
March 31, 2002 March 31, 2001
----------------------------
Revenues $272,493 $223,804
----------- -----------
Cost of Sales
Materials, Direct Labor and other direct costs 259,767 205,747
Depreciation 157,697 157,231
----------- -----------
Total Cost of Sales 417,464 362,978
----------- -----------
Gross Profit (144,971) (139,174)
----------- -----------
Operating Expenses
Research and development expenses 2,048 5,090
Marketing and promotion expenses 550 1,432
Other operating expenses 42,145 117,533
Interest expense 43,974 83,381
Depreciation expense 2,566 2,728
----------- -----------
Total Operating Expenses 91,283 210,164
----------- -----------
Loss from Operations (236,254) (349,338)
Other Income (Expense) - -
----------- -----------
Loss before Income Taxes (236,254) (349,338)
Provision for Income Taxes - -
----------- -----------
Net Loss (236,254) (349,338)
Other Comprehensive Income - -
----------- -----------
Comprehensive Loss $(236,254) $(349,338)
=========== ===========
Loss per weighted-average share of common
stock outstanding, computed on net loss -
basic and fully diluted $(0.01) $(0.01)
=========== ===========
Weighted-average number of
common shares outstanding 50,165,120 26,850,000
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2002 and 2001
(Unaudited)
Three months Three months
ended ended
March 31, 2002 March 31, 2001
----------------------------
Cash flows from operating activities
Net loss for the year $(236,254) $ (349,338)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 160,263 162,121
Common stock issued for fees and services 24,000 -
(Increase) Decrease in
Accounts receivable (198,927) (6,700)
Inventory (304,708) (54,876)
Prepaid expenses, deposits and other (9,502) -
Increase (Decrease) in
Accounts payable - trade 353 (215,550)
Interest payable - 80,147
Excise taxes payable 28,860 23,555
Customer deposits - 204,556
----------- -----------
Net cash provided by (used in) operating activities (535,915) (156,085)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (91,562) (8,722)
----------- -----------
Net cash used in investing activities (91,562) (8,722)
----------- -----------
Cash flows from financing activities
Increase in cash overdraft - 172,009
Principal paid on long-term capital leases (2,008) (8,060)
Cash received on sale of common stock 500,000 -
----------- -----------
Net cash provided by financing activities 497,992 163,949
----------- -----------
INCREASE (DECREASE) IN CASH (129,485) (858)
Cash at beginning of year 596,419 858
----------- -----------
Cash at end of year $466,934 $ -
============ ===========
Supplemental disclosure of interest
and income taxes paid
Interest paid for the period $ 1,072 $ 19,974
============ ===========
Income taxes paid for the period $ - $ -
============ ===========
Supplemental disclosure of non-cash
investing and financing activities
Conversion of debt and accrued interest
payable to a shareholder into common stock $125,000 $ -
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Description of Business
American Ammunition, Inc. (AAI or Company) was incorporated on February 1, 2000
in the State of California as FirsTelevision.com. AAI subsequently changed its
corporate name to FBI Fresh Burgers International with a business plan of
marketing the concept of a national "fast food" restaurant chain to children and
young adults, with a menu of fresh burgers, fries and sandwiches. However, there
was no assurance that this business concept would be successful.
On September 29, 2001, the Company, F&F Equipment, Inc. (F&F) and the individual
shareholders of F&F entered into an "Agreement For The Exchange Of Common Stock"
(Exchange Agreement) whereby the shareholders of F&F exchanged 100.0% of the
issued and outstanding stock of F&F for 21,000,000 post-forward split shares of
restricted, unregistered common stock of the Company. F&F Equipment, Inc. then
became a wholly-owned subsidiary of the Company.
The acquisition of F&F Equipment, Inc., on September 29, 2001, by the Company
effected a change in control and was accounted for as a "reverse acquisition"
whereby F&F Equipment, Inc. is the accounting acquiror for financial statement
purposes. Accordingly, for all periods subsequent to the September 29, 2001
change in control transaction, the financial statements of the Company reflect
the historical financial statements of F&F Equipment, Inc. from its inception on
October 4, 1983 and the operations of the Company subsequent to September 29,
2001.
Concurrent with the September 29, 2001 reverse acquisition transaction, the
Company amended its Articles of Incorporation to change the Company's name to
American Ammunition, Inc. and modified the Company's capital structure to allow
for the issuance of up to 320,000,000 total equity shares consisting of
20,000,000 shares of preferred stock and 300,000,000 shares of common stock.
Both classes of stock have a par value of $0.001 per share.
On October 9, 2001, the Company effected a three (3) for one (1) forward stock
split. This action caused the then issued and outstanding shares to increase
from 2,990,400 to 8,971,200 on the action date. The effect of this action is
reflected in the accompanying financial statements as of the first day of the
first period presented.
F&F Equipment, Inc.(Company) was incorporated on October 4, 1983 under the laws
of the State of Florida. The Company 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." The
Company conducts its business operations under the assumed name of "American
Ammunition".
The Company and its subsidiary have a year-end of December 31 and use the
accrual method of accounting.
The accompanying consolidated financial statements contain the accounts of
American Ammunition, Inc. (formerly FBI Fresh Burgers International) and its
wholly-owned subsidiary, F&F Equipment, Inc. All significant intercompany
transactions have been eliminated. The consolidated entities are collectively
referred to as "Company".
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note B - 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, including accounts in book overdraft positions,
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
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.
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.
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.
5 Loan costs
Amounts paid for origination fees related to loans payable are amortized
over the scheduled maturity of the corresponding debt.
6. Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. At March 31, 2002 and 2001, 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, 2002 and 2001, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved. If these
carryforwards are not utilized, they will begin to expire in 2005.
8
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note B - Summary of Significant Accounting Policies - Continued
7. Earnings (loss) per share
-------------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of March 31, 2002 and 2001, and subsequent
thereto, the Company had no warrants and/or options outstanding.
8. 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.
Note C - 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.
Note D - Inventory
As of March 31, 2002 and 2001, inventory consisted of the following
components:
March 31, March 31,
2002 2001
--------------------------------
Raw materials $166,759 $109,104
Work in process 387,866 246,983
Finished goods 64,824 32,199
--------- ---------
Totals $619,449 $388,286
======= =======
9
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note E - Property and Equipment
Property and equipment consist of the following components:
March 31, March 31, Estimated
2002 2001 useful life
----------------------------------------------------
Manufacturing equipment $6,560,626 $6,375,421 10 years
Office furniture and fixtures 50,856 48,802 7 years
Leasehold improvements 183,052 181,814 20 years
---------- ----------
6,794,534 6,606,037
Accumulated depreciation (2,897,980) (2,257,840)
---------- ----------
Net property and equipment $3,896,554 $4,348,197
========== ==========
Total depreciation expense charged to operations for the three months ended
March 31, 2002 and 2001, respectively, was approximately $160,263 and
$159,959, respectively.
Included in the amounts reflected in the accompanying balance sheet are the
following fixed assets on long-term capital leases:
March 31, March 31,
2002 2001
---------------------------
Manufacturing and processing equipment $153,400 $153,400
Less accumulated depreciation (43,014) (27,674)
-------- --------
$110,386 $125,726
======= =======
Note F - Notes payable to a Bank
Notes payable to a Bank consist of the following at March 31, 2002 and
2001, respectively:
March 31, March 31,
2002 2001
----------------------------------
$200,000 line of credit payable to a bank. Interest at the
Bank's prime rate plus 1.50% or 2.00%, respectively. (11.00
% at December 31, 2000). Interest payable monthly. Advances
and accrued, but unpaid, interest mature on the 60th day
following funding. Agreement is renegotiable annually on the
anniversary date in November of each calendar year.
Collateralized by all accounts receivable, inventory and
fixed assets of the Company and the personal guaranty of the
Company's President. $ - $ 200,000
10
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note F - Notes payable to a Bank - Continued
Notes payable to a Bank consist of the following at March 31, 2002 and
2001, respectively:
March 31, March 31,
2002 2001
----------------------------------
$250,000 installment note payable to a bank. Interest at the
Wall Street Journal published prime rate plus 2.0% (11.00%
at December 31, 2000). Payable in monthly installments of
approximately $2,083, plus accrued interest. Final payment
due in December 2009. Collateralized by all accounts
receivable, inventory and fixed assets of the Company, the
personal guaranty of the Company's President and a mortgage
on the Company's corporate offices and manufacturing
facility owned by the Company's stockholder. - 235,417
$738,090 (originally $1,000,000) installment note payable to
a bank. Interest at the Wall Street Journal published prime
rate plus 2.50% (11.0% at December 31, 2000). Payable in
monthly installments of approximately $7,530, plus accrued
interest. Final payment due in March 2008. Collateralized by
all accounts receivable, inventory and fixed assets of the
Company and the personal guaranty of the Company's
President.. - 707,964
------------ ------------
Total notes payable to a bank $ - $1,143,381
============ ============
As of March 31, 2001, the Company was operating under a bank approved
moratorium on the payment of principal and interest on all of the above
listed notes payable. During 2001, the Company and its President commenced
litigation against the lending institution and , on June 29, 2001, the
Company and the Bank executed a Settlement and Compromise Agreement whereby
all loans and debts of the Company to the Bank were settled and cancelled
for a one-time cash payment of $550,000. Accordingly, due to the
circumstances surrounding the final settlement and retirement of these
loans, they were classified as "current" on March 31, 2001 in the
accompanying consolidated balance sheets. The source of funds for the
$550,000 settlement came from a new $950,000 note payable to another
financial institution.
As a result of the June 29, 2001, the Company recognized a one-time gain on
the settlement of approximately $754,830 on the settlement date.
10
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note G - Capital Leases Payable
Capital leases payable consist of the following as of March 31, 2002 and 2001,
respectively:
March 31, March 31,
2002 2001
----------------------------------
Three and six capital leases, respectively, payable to
various equipment financing companies. Interest, at December
31, 2001, ranging between 11.37% and 14.05%. Payable in
aggregate monthly installments of approximately $935,
including accrued interest, as of March 31, 2002. Final
maturities occur between September 2004 and December 2004.
Collateralized the underlying leased manufacturing
equipment. $ 23,705 $ 100,224
Less current maturities (8,365) (20,349)
--------- ----------
Long-term portion $15,340 $ 79,875
========= ==========
Future maturities of capital leases payable are as follows:
Year ending
December 31 Amount
------------------------
2002 $8,365
2003 9,507
2004 5,833
-----
Totals $23,705
======
Note H - Loan payable to Stockholder
March 31, March 31,
2002 2001
----------------------------------
$4,007,327 note payable to the Company's stockholder.
Interest at 8.0%. Principal and accrued interest payable at
maturity. Maturity at December 31 annually and automatically
renews for an equivalent annual period unless called by the
Stockholder at least 90 days prior to maturity. Unsecured.
Converted to preferred stock during 2001. $ - $4,007,327
============ ==========
11
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note I - Long-Term Debt Payable to a Bank
On June 28, 2001, in anticipation of the settlement of litigation with a
financial institution, the Company executed a new $950,000 note payable to
another financial institution. This new note bears interest at the Wall
Street Journal published prime rate plus 2.0%. The new note has payment
terms as follows: For the first year (through June 28, 2002), interest
only, payable monthly. Thereafter, starting on July 28, 2002, equal monthly
payments of principal and interest shall be due until June 28, 2007 which
payments shall represent the amount necessary to fully amortize the
remaining principal balance of the note. The monthly payments shall be
recalculated at the time of any change in the applicable interest rate. The
note is secured by virtually all of the Company's real and personal
property. A portion of the proceeds from the financing were used to pay the
$550,000 required in the Settlement and Compromise Agreement.
Note J - Preferred Stock Transactions
In September and October 2001, the Company issued 222,600 shares of $5.00
Series A Convertible Preferred Stock (Series A Preferred Stock) for total
proceeds of approximately $1,113,000 through an ongoing private placement.
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
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 2001, the Company's principal shareholder 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.
In February 2002, certain holders of the Series A Preferred Stock 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. Due to the timing of the conversion in
relation to the Company's year-end and the first available date for such
conversion, the effect of the conversion exercise is reflected in the
accompanying financial statements as if the conversion had occurred on
December 31, 2001.
In conjunction with the issuance of certain shares of the Series A
Preferred Stock, certain shares were issued with an equivalent per share
value of common stock below the ending quoted market price of the Company's
common stock on the issue date. 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 initial eligible conversion date. Approximately
$392,114 was amortized to operations and the unamortized balance was
reclassified to additional paid-in capital on December 31, 2001 as a result
of the February 2002 conversion exercise.
12
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note K - Common Stock Transactions
Concurrent with the September 29, 2001 reverse acquisition transaction, the
Company amended its Articles of Incorporation to change the Company's name
to American Ammunition, Inc. and modified the Company's capital structure
to allow for the issuance of up to 320,000,000 total equity shares
consisting of 20,000,000 shares of preferred stock and 300,000,000 shares
of common stock. Both classes of stock have a par value of $0.001 per
share.
On October 9, 2001, the Company effected a three (3) for one (1) forward
stock split. This action caused the then issued and outstanding shares to
increase from 2,990,400 to 8,971,200 on the action date. The effect of this
action is reflected in the accompanying financial statements as of the
first day of the first period presented.
In February 2000, the Company issued 5,430,000 post-forward split shares
(1,810,000 pre-forward split shares) of restricted, unregistered common
stock to its founders for administrative services and services related to
the development and implementation of the Company's business plan, in
effect at the time. These transactions were cumulatively valued at
approximately $1,810, which approximates the "fair value" of the services
provided. These amounts are charged to operations in the accompanying
pre-acquisition consolidated financial statements.
In June 2000, the Company issued 420,000 post-forward split shares (140,000
pre-forward split shares) of restricted, unregistered common stock to two
unrelated individuals for services related to the implementation of the
Company's business plan, in effect at the time. These transactions were
cumulatively valued at approximately $140, which approximates the "fair
value" of the services provided. These amounts are charged to operations in
the accompanying pre-acquisition consolidated financial statements.
In March and May 2001, the Company issued an aggregate 496,200 post-reverse
split shares (165,400 pre-forward split shares) of common stock, pursuant
to a Registration Statement on Form SB-2, to various individuals providing
investment, financial and acquisition consulting services to the Company.
These transactions were cumulatively valued at approximately $165,400,
which approximates the "fair value" of the services provided. These amounts
are charged to operations in the accompanying pre-acquisition consolidated
financial statements.
In September 2001, the Company issued 2,625,000 post-reverse split shares
(875,000 pre-forward split shares) of common stock, pursuant to a
Registration Statement on Form SB-2, to six individuals providing
investment and financial consulting services to the Company. These
transactions were cumulatively valued at approximately $875,000, which
approximates the "fair value" of the services provided. These amounts are
charged to operations in the accompanying pre-acquisition consolidated
financial statements.
In September 2001, the Company issued an aggregate 21,000,000 post-forward
split shares of restricted, unregistered common stock to the shareholders
of F&F Equipment, Inc. in exchange for 100.0% of the issued and outstanding
stock of F&F Equipment, Inc. F&F Equipment, Inc. became a wholly-owned
subsidiary of the Company as a result of this transaction.
In December 2001, the Company issued 222,222 shares of post-forward split
shares of restricted, unregistered common stock to an unrelated entity in
exchange for the cancellation of $100,000 of short-term debt. On February
27, 2002, the Company issued an additional 277,777 shares of restricted,
unregistered common stock in payment for $100,000 in short-term debt
payable and $25,000 in agreed-upon interest payable to a shareholder,
thereby satisfying all outstanding short-term debt in full.
13
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note K - Common Stock Transactions - Continued
In December 2001, the Company issued 535,272 shares of restricted,
unregistered common stock to a creditor in settlement of approximately
$242,872 in open trade accounts payable.
In March 2002, in two separate transactions, the Company sold an aggregate
1,388,885 shares of restricted, unregistered common stock to two separate
investors for aggregate proceeds of approximately $500,000. Each sale was
made at a price of $0.36 per share, which approximates the discounted "fair
value" of the Company's common stock based on the quoted closing price of
the Company's common stock on the date of each respective transaction.
Note L - Related Party Transactions
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 $5,410, inclusive of
applicable sales taxes. Further, the Company is responsible for all
utilities and maintenance expenses. The lease expires on October 31, 2003
and contains a clause that the lease may be renewed for an additional ten
year period upon written notification to the lessor no later than 120 days
prior to the scheduled expiration date at a rental rate based upon the fair
value for similar space in a similar location.
Note M - Income Taxes
The components of income tax (benefit) expense for the years ended March 31,
2002 and 2001, respectively, are as follows:
Three months Three months
ended ended
March 31, 2002 March 31, 2001
----------------------------
Federal:
Current $ - $ -
Deferred - -
------- ------
- -
------- ------
State:
Current - -
Deferred - -
------- ------
- -
------- ------
Total $ - $ -
======= ======
As of March 31, 2002, the Company has a net operating loss carryforward of
approximately $2,600,000 to offset future taxable income. Subject to
current regulations, components of this carryforward will begin to expire
in 2003. 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.
14
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note M - Income Taxes - Continued
The Company's income tax expense (benefit) for the three months ended March
31, 2002 and 2001, respectively, differed from the statutory federal rate
of 34 percent as follows:
Three months Three months
ended ended
March 31, 2002 March 31, 2001
----------------------------
Statutory rate applied to loss before income taxes $(80,325) $(120,000)
Increase (decrease) in income taxes resulting from:
State income taxes - -
Other, including reserve for deferred tax asset 80,325 120,000
-------- ---------
Income tax expense $ - $ -
======== =========
Temporary differences, consisting primarily of 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 March 31, 2002 and 2001, respectively:
Three months Three months
ended ended
March 31, 2002 March 31, 2001
----------------------------
Deferred tax assets - long-term
Net operating loss carryforwards $ 884,000 $ -
Less valuation allowance (884,000) -
--------- --------
Net Deferred Tax Asset $ - $ -
========== ========
During the three months ended March 31, 2002 and 2001, respectively, the
valuation allowance increased (decreased) by approximately $884,000 and
$-0-.
Note N - Contingencies
In May 1998, the Company entered into a $500,000 accounts receivable
factoring facility with its then financial institution. The facility
provided for the purchase of various trade accounts receivable by the bank
from the Company at 80.0% of the face value of the underlying invoice. The
Company paid a discount fee of 1.5% for invoices settled between 1 and 30
days of invoice date, 3.0% for invoices settled between 31 and 60 days of
invoice date and an additional 1.5% for each additional 30 days thereafter.
All accounts receivable invoices were factored with full recourse to the
Company and the Company bears all credit risk associated with the factored
invoices. At March 31, 2001, the Company was at risk for approximately $-0-
of factored invoices. The Company experienced no losses related to the
factoring agreement. This Agreement was terminated in conjunction with the
execution of the Settlement and Compromise Agreement on June 29, 2001.
15
AMERICAN AMMUNITION, INC.
(formerly FBI Fresh Burgers International)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note O - Significant Customers
During the years ended December 31, 2001 and 2000, respectively, the
Company had a single customer responsible for approximately 51% and 32% of
total sales. There were no other customers responsible for more than 10.0%
of total net sales during 2001 and 2000, respectively. These trends were
also in place at March 31, 2002 and 2001, respectively, and are anticipated
to continue for the foreseeable future.
(Remainder of this page left blank intentionally)
16
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(1) Caution Regarding Forward-Looking Information
Certain statements contained in this annual filing, 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 Form 10-QSB and investors 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.
(2) Summary
American Ammunition, Inc. (AAI or Company) was incorporated on February 1, 2000
in the State of California as FirsTelevision.com. AAI subsequently changed its
corporate name to FBI Fresh Burgers International with a business plan of
marketing the concept of a national "fast food" restaurant chain to children and
young adults, with a menu of fresh burgers, fries and sandwiches. However, there
was no assurance that this business concept would be successful.
On September 29, 2001, the Company, F&F Equipment, Inc. (F&F) and the individual
shareholders of F&F entered into an "Agreement For The Exchange Of Common Stock"
(Exchange Agreement) whereby the shareholders of F&F exchanged 100.0% of the
issued and outstanding stock of F&F for 21,000,000 post-forward split shares of
restricted, unregistered common stock of the Company. F&F Equipment, Inc. then
became a wholly-owned subsidiary of the Company.
The acquisition of F&F Equipment, Inc., on September 29, 2001, by the Company
effected a change in control and was accounted for as a "reverse acquisition"
whereby F&F Equipment, Inc. is the accounting acquiror for financial statement
purposes. Accordingly, for all periods subsequent to the September 29, 2001
change in control transaction, the financial statements of the Company reflect
the historical financial statements of F&F Equipment, Inc. from its inception on
October 4, 1983 and the operations of the Company subsequent to September 29,
2001.
Concurrent with the September 29, 2001 reverse acquisition transaction, the
Company amended its Articles of Incorporation to change the Company's name to
American Ammunition, Inc. and modified the Company's capital structure to allow
for the issuance of up to 320,000,000 total equity shares consisting of
20,000,000 shares of preferred stock and 300,000,000 shares of common stock.
Both classes of stock have a par value of $0.001 per share.
On October 9, 2001, the Company effected a three (3) for one (1) forward stock
split. This action caused the then
17
issued and outstanding shares to increase from 2,990,400 to 8,971,200 on the
action date. The effect of this action is reflected in the accompanying
financial statements as of the first day of the first period presented.
F&F Equipment, Inc.(Company) was incorporated on October 4, 1983 under the laws
of the State of Florida. The Company 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." The
Company conducts its business operations under the assumed name of "American
Ammunition".
The Company and its subsidiary have a year-end of December 31 and uses the
accrual method of accounting.
All discussions in this section pertain to the historical operations of F&F
Equipment, Inc. as the accounting successor to the September
(3) Results of Operations
Three months ended March 31, 2002 compared to Three months ended March 31, 2001
During the first quarter of 2001, the Company filed a lawsuit against its
financial institution extending the Company various working capital credit. As a
result of this litigation, the Company became unable to access credit lines for
working capital, offer selling terms comparable to its competitors and,
accordingly, experienced a significant reduction in sales from prior years. This
litigation was settled during June 2001 and the Company negotiated a new working
capital note with a different financial institution which provided liquidity for
the remainder of 2001.
During the three months ended March 31, 2002, the Company experienced revenues
of approximately $272,000 as compared to approximately $224,000 for the first
three months ended March 31, 2001. The Company continues to experience positive
demand for the Company's products. During the quarter ended March 31, 2002,
management elected to focus its efforts, capital resources and energies in
streamlining production methods, securing key sources of raw material and
exploring the addition of equipment to allow the Company to produce certain
components of its manufacturing process which are currently being outsourced to
unrelated third parties. Management anticipates several events occurring in
future quarters including increased levels of expenditures for marketing,
increased product demand as a result of increased market exposure and the
introduction of new products under development.
The Company experienced costs of goods sold of approximately $417,000 and
$363,000 for the three months ended March 31, 2002 and 2001, respectively. The
Company experiences variable costs in the area of material consumption and
direct labor. The Company has recognized depreciation expense on production
equipment of approximately $158,000 and $157,000, respectively, in the above
cost of goods expense totals. These depreciation levels are anticipated to
remain fairly constant for future periods unless the Company is successful in
its plans to expand production or add equipment to produce certain components
which are being outsourced to unrelated third parties.
Due to the lack of liquidity, the Company has been unable to reach its
break-even point. This situation has generated a negative gross profit of
approximately $(145,000), or (53.20%) and approximately $(139,000), or (62.19%)
for the three months ended March 31, 2002 and 2001, respectively. The Company
anticipates that with adequate liquidity, it will be able to generate a positive
gross profit during Calendar 2002.
The Company experiences relatively consistent expenditure levels for executive
and administrative compensation, interest expense and depreciation expense. The
Company renegotiated its working capital note payable in June 2001. This note
bears interest at the Wall Street Journal published prime rate plus 2.0%. The
new note has payment terms as follows: For the first year (through June 28,
2002), interest only, payable monthly. Thereafter, starting on July 28, 2002,
equal monthly payments of principal and interest shall be due until June 28,
2007 which payments shall represent the amount necessary to fully amortize the
remaining principal balance of the note. The monthly payments shall be
recalculated at the time of any change in the applicable interest rate. The note
is secured by virtually all of the Company's real and personal property. A
portion of the proceeds from the financing were used to pay the
18
$550,000 required in the Settlement and Compromise Agreement. Accordingly, the
Company anticipates relatively stable interest expense, or declining levels, in
future periods depending on expansion and additional equipment financing
requirements. The Company does not anticipate the addition of significant
additions to office and administrative personnel.
The Company experienced nominal research and development expenses during the
three months ended March 31, 2002 and 2001 related to the development of a new
patent-pending projectile for use in ammunition specifically for the public
safety and security marketplace, especially in the rapidly expanding U. S. Air
Marshall program and other product improvements.
Due to the lack of liquidity in 2001 and prior years, the Company has not
developed an extensive marketing effort. Accordingly, expenditures in this area
have been nominal. Due to improved liquidity during the last 1/2 of 2001 and for
future periods, the Company anticipates, as internally generated funds are
available, to increase its marketing efforts to boost sales.
Other general and administrative expenses decreased significantly from
approximately $210,000 for the first three months of 2001 to approximately
$91,000 for the first three months of 2002. The most significant reductions came
in the areas of legal and professional fees and other general and administrative
fees.
The Company recognized a net loss of approximately $(236,000) and $(349,000) for
the respective three month periods ended March 31, 2002 and 2001, respectively,
or $(0.01) and $(0.01) per share.
(4) Liquidity and Capital Resources
As of March 31, 2002, December 31, 2001, and March 31, 2001, respectively, the
Company had working capital of approximately $793,000, $341,000, and
$(9,074,000). The Company's working capital position improved significantly in
Calendar 2001 with the settlement of litigation involving its outstanding debt
to its-then financial institution and the concurrent restructuring of working
capital debt into a long-term instrument.
The Company has generated (used) cash in operating activities of approximately
$(536,000), $(1,100,000) and $(156,000) during the three months ended March 31,
2002, the year ended December 31, 2001 and the three months ended March 31,
2001. The most significant use of cash during the quarter ended March 31, 2002
was the buildup of inventory and the cost of sales related to the sale of
merchandise on "industry standard" credit terms causing an increase in accounts
receivable.
The Company anticipates that its improved liquidity position beginning in the
last half of Calendar 2001 will allow for improved sales and, accordingly,
improved liquidity in future periods.
The Company has plans to increase its production capability in the immediate
future by 50% to 100%. Accordingly, this expansion will require additional
capital which is anticipated to be raised in various combinations of capital
leases, bank debt and/or equity offerings. At this time, the Company has no
definitive budgets or timetables for such expansion and this expansion, if any,
will be dependent upon market demand for the Company's products. Management is
of the opinion that sufficient demand will be present, as supported by new
product development and increased product marketing efforts, to justify this
expansion. However, there can be no assurance that the Company will be able to
obtain additional funding or, that such funding, if available, will be obtained
on terms favorable to or affordable by the Company.
(5) Product Research and Development
The Company believes that research and development activities will allow for the
development and introduction of new products into the ammunition marketplace.
Over the next 12 calendar months, the Company anticipates completing the design,
development and introduction of its new patent-pending projectile for use in
ammunition specifically for the public safety and security marketplace,
especially in the rapidly expanding U. S. Air Marshall
19
program. Management also believes that this projectile will have wide acceptance
in the home security and sport hunting markets.
Further, additional ammunition calibers and/or projectiles may be developed by
the Company depending upon market research, acceptance in the marketplace of
existing products and production capabilities. At this time, there are no
definitive plans for the further introduction of other new products into the
marketplace.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
On February 27, 2002, the Company issued an aggregate 277,777 shares of
restricted, unregistered common stock, at $0.45 per share, to Forus Investments,
Inc., an existing shareholder, in satisfaction of a $100,000 short-term working
capital loan payable and $25,000 in agreed-upon interest payable to a
shareholder, thereby satisfying all outstanding short-term debt in full. The
valuation of this transaction was based on the discounted "fair value" of the
Company's common stock based upon the quoted closing price on the date of the
transaction.
On March 25, 2002, the Company sold 611,110 shares of restricted, unregistered
common stock, at $0.36 per share, to Kissimmul, Inc., a Toronto, Ontario, Canada
corporation, for gross proceeds of approximately $220,000. The valuation of this
transaction was based on the discounted "fair value" of the Company's common
stock based upon the quoted closing price on the date of the transaction. The
Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for
an exemption from registration on these shares.
On March 28, 2002, the Company sold 777,775 shares of restricted, unregistered
common stock, at $0.36 per share, to Tomina Associates, Ltd., a Vancouver, B.
C., Canada corporation, for gross proceeds of approximately $280,000. The
valuation of this transaction was based on the discounted "fair value" of the
Company's common stock based upon the quoted closing price on the date of the
transaction. The Company relied upon Section 4(2) of The Securities Act of 1933,
as amended, for an exemption from registration on these shares.
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
Exhibits - None
Reports on Form 8-K - None
--------------------------------------------------------------------------------
20
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.
April 16 , 2002 /s/ Andres Fernandez
------ -------------------------------
Andres Fernandez
President and Director
21