SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING BASIS

The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America ("GAAP" accounting) and all amounts are expressed in U.S. dollars. The Company has adopted a December 31 year end.

The consolidated financial statements and notes are the representations of the Company's management who are responsible for their integrity and objectivity.

The financial statements and related disclosures as of December 31, 2017 and 2016 are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Unless the context otherwise requires, all references to "Ammo", "we", "us", "our" or the Company are to Ammo, Inc.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Ammo, Inc. and its wholly-owned subsidiaries, SNI, LLC and Ammo Technologies, Inc. All significant intercompany accounts and transactions are eliminated in consolidation

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company's accounts receivable represents amounts due from customers for products sold. Allowance for uncollectible accounts is estimated based on the aging of the accounts receivable and management's estimate of uncollectible amounts. At December 31, 2017 and 2016, the Company provided $26,046 and $0, respectively, of allowance for doubtful accounts.

LICENSING AGREEMENTS

The Company issued 100,000 shares of its common stock at the execution date of the licensing agreement with Jesse James.  The shares were valued at $1.25 and the aggregate value of $125,000 was recorded as a licensing agreement asset. This asset will be amortized from January, 2017, the period when the first ammunition was delivered, through December 31, 2021. Amortization of the Licensing Agreement for the twelve months ended December 31, 2017 was $25,000.

The Company issued 100,000 shares of its common stock at the execution date of the licensing agreement with Jeff Rann.  The shares were valued at $1.25 and the aggregate value of $125,000 was recorded as a licensing agreement asset. This asset will be amortized from March, 2017, the first full month of the licensing agreement, through February 28, 2022. Amortization of the Licensing Agreement for the twelve months ended December 31, 2017 was $20,833.

PATENT

On August 22, 2017, the parties signed and closed on a Forward Triangular Merger Agreement (the "Merger") by which Ammo Technologies Inc., an Arizona corporation, which is 100% owned by Ammo, Inc., merged with Hallam, Inc, a Texas corporation, with Ammo Technologies Inc. being the survivor.  The formal Merger was consummated on or about September 28, 2017 when both the states of Texas and Arizona approved the Merger and granted the Certificate of Merger.  Under the terms of the Merger, Ammo, Inc., the sole shareholder of Ammo Technologies Inc. provided Hallam, Inc.'s two (2) shareholders 600,000 shares of Ammo, Inc. common stock, subject to restrictions, and payment of $200,000. The first payment of $100,000 to the Hallam, Inc. shareholders was paid on or about September 13, 2017 and the second payment of $100,000 was paid on February 6, 2018.

The shares were valued at $1.25 and the aggregate value of $950,000 was recorded as a patent asset.  This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028. Amortization of the patent for the twelve months ended December 31, 2017 was $25,166.

Under the terms of the Merger, all of the assets of Hallam, Inc. devolved into Ammo Technologies, Inc. subject to the liabilities of Hallam, Inc., which were none.  The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent US 8402896 B1 with a publication date of March 26, 2013 owned by University of Louisiana at Lafayette.  The License was formally amended and assigned to Ammo Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized in 2017 and 2016.

REVENUE RECOGNITION

Revenue is recognized when the earnings process is complete and the risk and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon the receipt of product by the customer. The earnings process is complete once the customer order has been placed and approved, the product shipped has been received by the customer, and there is reasonable assurance of the collection of the sales proceeds.

Approximately 57.6% of total revenues were derived from one customer and 47.2% of the accounts receivable are due from two customers at December 31, 2017.

ADVERTISING COSTS

The Company expenses advertising costs as they are incurred. The Company incurred advertising and marketing costs of $220,154 for the twelve months ended December 31, 2017.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures its options and warrants at fair value in accordance with Accounting Standards Codification 820 – Fair Value Measurement ("ASC 820"). The objective of ASC 820 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 specifies a valuation hierarchy based on whether the inputs to those valuation techniques are observable or unobservable. 

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's own assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets;

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and 

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value.

All common stock issued for services are valued on the date of the agreements, using the price at which shares were being sold to private investors or at the value of the services performed.

Warrants issued for services and interest were valued at grant dates of August 22, 2017 and November 28, 2017, by the Company using valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk free interest rate, volatility and expected life.

Assumptions included:

Risk free interest rate	1.31 - 1.5%
Expected volatility	250%
Excepted term	1 - 1.5 years
Expected dividend yield	0%

Equipment acquired in the foreclosure transaction and the patent were valued by outside appraisers.

	Quoted Active Markets for Identified Assets		Significant Other Observable Inputs			Significant Unobservable Inputs		Total
	(Level 1)		(Level 2)			(Level 3)
December 31, 2017
Common stock issued for legal, advisory and consulting fees		-		$	454,625		-		$	454,625
Employee stock awards		-			160,000		-			160,000
Common stock for licensing agreement		-			125,000		-			125,000
Patent acquisition, noncash element		-			-		750,000			750,000
Warrants issued for interest		-			-		46,188			46,188
Warrants issued for services		-			-		67,000			67,000
Assets acquired in foreclosure		-					543,115			543,115
Common Stock issued for prepaid legal fees		-			224,000		-			224,000

INVENTORIES

Inventories are stated at the lower of cost or market.  Cost is determined using the average cost method. The Company's inventory consists of raw materials, work in progress and finished goods. Cost of inventory includes cost of parts, labor, quality control and all other costs incurred to bring our inventories to condition ready to be sold. The inventory is periodically evaluated for obsolescence.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.  Major renewals and improvements are capitalized, while minor replacements, maintenance and repairs are charged to current operations.  Depreciation is computed by applying the straight-line method over the estimated useful lives, which are generally five to seven years.  

COMPENSATED ABSENCES

The Company has not accrued a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General, as the amount of the liability cannot be reasonably estimated at December 31, 2017 and 2016.

STOCK-BASED COMPENSATION

Stock-based compensation is accounted for at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). To date, the Company has not adopted a stock option plan and has not granted any stock options.

CONCENTRATIONS OF CREDIT RISK

Accounts at banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 at various times and, as of December 31, 2017, bank account balances exceeded federally insured limits.

INCOME TAXES

The Company files federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes ("ASC 740"). The provision for income taxes includes federal, state and local income taxes currently payable, as well as deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company currently has substantial net operating loss carryforwards. The Company has recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.

CONTINGENCIES

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company's management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is possible that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company's consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. There was no known contingency at December 31, 2017.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

LOSS PER COMMON SHARE

Basic loss per share is calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.  The Company does not have any potentially dilutive instruments. All weighted average numbers were adjusted for the reverse stock split and merger transaction.