SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Hammitt, Inc. – ‘1-SA’ for 6/30/22

On:  Thursday, 9/22/22, at 1:20pm ET   ·   For:  6/30/22   ·   Accession #:  1104659-22-102277

Previous ‘1-SA’:  ‘1-SA’ on 11/2/21 for 6/30/21   ·   Latest ‘1-SA’:  This Filing   ·   4 References:   To:  Hammitt, Inc. – ‘1-U’ on 7/18/22 for 6/27/22 To:  Hammitt, Inc. – ‘1-K’ on 4/28/22 for 12/31/21 To:  Hammitt, Inc. – ‘1-A/A’ on 9/3/21 To:  Hammitt, Inc. – ‘1-A’ on 8/18/21 

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 9/22/22  Hammitt, Inc.                     1-SA        6/30/22    1:624K                                   Toppan Merrill/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 1-SA        Semi-Annual Report or Special Financial Report      HTML    623K 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

FORM 1-SA

SEMIANNUAL REPORT PURSUANT TO REGULATION A

For the fiscal semiannual period ended: June 30, 2022

Hammitt, Inc. 

(Exact name of issuer as specified in its charter)

(310) 292-5200 

(Registrant’s telephone number, including area code)

Class B Common Stock 

(Title of each class of securities issued pursuant to Regulation A)

In this semi-annual report, the term “Hammitt,” “we,” “us, “our” or “the Company” refers to Hammitt, Inc., a California corporation.

The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “could,” “expect,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “possible,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

Item 1. Management’s discussion and analysis of financial condition and results of operations

SUMMARY

Overview

Hammitt, Inc. was organized in the State of California on August 12, 2008. The Company designs, markets and sells luxury handbags and accessories. The Company’s products are sold through traditional (wholesale) retail channels and online (direct to consumer (“DTC”)). Our handbags and accessories are available on our website at www.hammitt.com.

Our mission: A client-focused, functional and fresh approach to modern handbags.

In 2008, a small team of Californians began shaping a new, client-focused initiative to create a handbag Company where fashion meets function. Using what we believe to be only the highest quality materials, our experienced design team began creating products where comfort and style reign supreme. Since then, we have committed our design efforts to surprise and delight our clients through innovation and evolving functionality.

Each style starts with an idea to solve a problem – making our clients’ lives easier and also more colorful. Our designs come to life through carefully selected materials and thoughtful development and testing. Over the years, our unique, eye-catching handbags with our signature rivets have developed a loyal and passionate following. We are also happy to report that we believe we have been successful in growing the brand without sacrificing quality or compromising our clients’ needs.

Our products

The Company sells luxury handbags and accessories. The products aim to be functional and fashionable and are typically adorned with our signature rivets.

Handbag styles change, but as of the date of this semi-annual report the Company sells this current product mix of handbags:

In addition to handbags, the Company also sells various accessories, including but not limited to the following:

Factors Affecting Operating Results

We generate revenue from DTC sales and wholesale sales of handbags and accessories. Revenue is influenced by advertising, discounts and promotions, merchandising, packaging, and in the wholesale channel, the availability of display space at retailers, all of which have a significant impact on consumers’ buying decisions.

We deduct promotional discounts and refunds expected to be issued to determine net revenue. Customers who receive a damaged product or are dissatisfied with a product may receive a full or partial refund, full or partial credit against future purchase, or replacement, at our sole discretion. Continued growth of net revenues and profits will depend, substantially, on the continued popularity of new and existing products, the ability to effectively manage the sales channels, and the ability to maintain sufficient product supply to meet expected growth in demand. We may periodically provide promotional offers, including discounts, such as percentage discounts off current purchases and other similar offers. These offers are treated as a reduction to the purchase price of the related transaction and are reflected as an adjustment to arrive to net revenues. Such offers are discretionary, and we expect incentive offers to vary from period to period as a percentage of sales for the foreseeable future.

The cost of goods sold relates to the cost of materials, manufacturing, inbound shipping, receiving and import duty costs.

Operating expenses largely consist of selling, marketing, advertising, retail operations, and general and administrative expenses.

Other income and expense consist primarily of interest expense associated with the Company’s outstanding debt.

During the year ended December 31, 2021, management determined as part of the Company’s adoption of Topic 606 all deferred advertising costs should be expensed beginning in the year ended December 31, 2020. In addition, management determined it was necessary to record a reserve for refunds. See “Note 19 – Restatement” of the Company’s financial statements for further details.

Results of Operations

Revenue

Revenue for the six-month period ended June 30, 2022 (“Interim 2022”) was $18,233,251, a nearly 60% increase from $11,426,532 for the six-month period ended June 30, 2022 (restated) (“Interim 2022”). Revenue from Direct to Consumer (“DTC”) DTC or online sales increased 33%, to $9,451,854 for Interim 2022 from $7,107,081 for Interim 2021. This was primarily driven by the increase in new customers and existing customer sales. Order volumes increased as the Company continued its planned pivot to a DTC focus Company.

Revenues from wholesale sales increased by 103%, to $8,781,399for Interim 2022, from $4,319,451 for Interim 2021 including shipping charges made to wholesalers. The increase relates to the re-opening of department stores and boutiques after the COVID-19 related shutdown.

Cost of Goods Sold

Cost of revenues for Interim 2022, was $7,475,656 compared to $3,907,311 for Interim 2021, an increase of 91%. The increase in cost of goods sold relates to the increase in revenues.

Accordingly, our gross profit increased 43% to $10,757,595 for Interim 2022, from $7,519,221 for Interim 2021and our gross margins decreased to 59% for Interim 2022 from 66% in Interim 2021.

Operating Expenses

Total operating expenses for Interim 2022 increased to $12,984,484 from $7,171,854 for Interim 2021. For Interim 2022, the Company incurred $11,020,004 in costs related to selling compared to $6,057,011 in Interim 2021, a 82% increase. The increase in selling was primarily related to an increase in the amount spent on advertising. Spending on advertising increased by 84% to $5,497,733 in Interim 2022 from $2,986,160 for Interim 2021. The increase in advertising was primarily driven by increased spending with Facebook and Google to acquire new customers. General and administrative expenses increased by 76% to $1,964,480 from $1,114,843 as the Company added staff to support the Company’s continued growth. Accordingly, the Company incurred an operating loss of ($2,226,889) for Interim 2022 compared to an operating profit of $347,367 for Interim 2021.

Other Income (Expense)

The company had an interest expense of $690,504 for Interim 2022, compared with an interest expense of $254,634 for Interim 2021, a 171% increase, due to increased borrowings to support the Company’s growth.

Income Tax (Expense) Benefit

In Interim 2022, the Company recognized an income tax benefit related to operating losses. The Company recognized an income tax benefit in Interim 2022 of $729,348 compared with an income tax expense of $69,288 in Interim 2021.

As a result of the foregoing, the Company generated a net loss of ($2,188,045) for Interim 2022 compared to earning net income in the amount of $23,445 for Interim 2021.

Liquidity and Capital Resources

Our operations have been financed to date by a combination of cash generated from operations, debt, and investment capital. Our primary cash needs have been to fund working capital requirements (primarily marketing to increase growth and inventory to support that growth), debt service payments (interest and principal payments), and operating expenses.

As of June 30, 2022, we had cash on hand of $793,926, inventory (net) of $7,548,304, and accounts receivable (net) of $2,962,316 and total liabilities of $20,849,287. As of March 1, 2022, the Company refinanced a line of credit with an $9,000,000 term loan agreement with a different financial institution. The balance of the note was $8,000,000 as of June 30, 2022, see “—Long Term Obligations” (below).

We expect that our liquidity needs for the next twelve months will be met by continued use of operating cash flows, our line of credit and funds generated from this offering. We believe that we will be able to continue to operate our business for the foreseeable future.

Recent offerings of Securities and Outstanding Debt

On September 10, 2021, the Company commenced a Regulation A offering.  On September 8, 2022, the Company closed the offering. As of June 30, 2022, the Company sold 861,812 shares of Class B Common Stock for gross proceeds of $947,994. As of September 8, 2022, the Company sold another 75,517 shares of Class B Common Stock for gross proceeds of $83,069.

Indebtedness

Trends

Our Company primarily operates in the U.S. luxury leather handbag market. As of the date of this report, this market is estimated by management, based on industry data reports, including from Statista, at $12 billion a year and is expected in grow at 5% per annum for the next five years. The market is fragmented with few barriers to entry.

Within this market, leather bags, the main product of the Company, dominate and account for 48.5% share of the revenue by offering better durability, dustproof, and crack-proof properties. This durability associated with this product attracts consumers to spend on these luxury products. (Grandview Research 2017)

It’s reported by “thatFashion,” clothing and accessories were the leading online shopping category with 71% of women buying a product in the category in the last 3 months and, unlike footwear or apparel, handbags do not face the same challenges of size and fit. Therefore, the Company plans to continue its focus on selling direct to consumers online.

Further, the COVID-19 pandemic, prompted an increase in demand for our products, primarily as a result of changes to consumer behaviors resulting from the various stay-at-home restriction orders. Due to the change in consumer behaviors, as of the date of this report, the Company has experienced increased overall demand for its products and it does not expect that COVID-19 will have a material negative impact on its business, results of operations, or financial position, accordingly, reinforcing the Company’s plans to continue its focus on selling direct to consumers online.

None.

The accompanying semiannual consolidated financial statements are unaudited and have been prepared in accordance with the instructions to Form 1-SA. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with accounting principles generally accepted in the United States of America. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 1-K for the year ended December 31, 2021. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included, and all such adjustments are of a normal recurring nature. Operating results for the six months ended June 30, 2022, are not necessarily indicative of the results that can be expected for the year ending December 31, 2022.

HAMMITT, INC.

FINANCIAL STATEMENTS

(UNAUDITED)

As of June 30, 2022, December 31, 2021, and

June 30, 2021 (Restated) and the Six Months

Ended June 30, 2022 and 2021 (Restated)

HAMMITT, INC.

BALANCE SHEETS (Unaudited)

June 30, 2022, December 31, 2021 and June 30, 2021 (Restated)          

HAMMITT, INC.

STATEMENTS OF OPERATIONS (Unaudited)

Six Months Ended June 30, 2022 and 2021 (Restated)      

⁽¹⁾ Prior period amounts have been retroactively adjusted to reflect the six-for-one stock split in August 24, 2021.  See Note 12 for details.      

HAMMITT, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited)

Six Months Ended June 30, 2022, December 31, 2021 and June 30, 2021

⁽¹⁾ Prior period amounts have been retroactively adjusted to reflect the six-for-one stock split in August 24, 2021.  See Note 12 for details.                            

HAMMITT, INC.

STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended June 30, 2022 and 2021 (Restated)      

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Organization and Purpose

Hammitt, Inc. was organized in the state of California on August 12, 2008. The Company designs, markets and sells luxury handbags and accessories. The Company’s products are sold through traditional retail sales channels and online direct to consumer.

During the year ended December 31, 2021, the board of directors approved a Regulation A+ Tier II offering of up to $25 million shares of Class B Common Stock.

This summary of significant accounting policies of Hammitt, Inc. (the “Company”) is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the presentation of the financial statements.

Accounts Receivable

Accounts receivable are recorded at the invoiced amounts and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts annually. All account balances are reviewed on an individual basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Trade accounts receivable is presented net of an allowance for doubtful accounts of $6,577 at June 30, 2022, December 31, 2021 and June 30, 2021.

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in first-out method. The Company reviews inventory for indicators of impairment and records an allowance as deemed necessary. The Company has recorded a reserve for obsolete and slow moving inventories of $25,000 at June 30, 2022, December 31, 2021 and June 30, 2021.

Prepaid Expenses and Other Current Assets

The Company has made payments for trade shows and other consumables that will be received, consumed or used in a future period.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives:

Expenditures for maintenance and repairs are expensed when incurred, and betterments which extend the economic useful life of an asset are capitalized. Gains and losses on the disposal of property and equipment are recorded in other income.

Intangible Assets

The Company’s intangible assets consist of certain capitalized costs associated with software and trademarks. Website upgrades and software upgrades are being amortized over their estimated economic life of 3 years. The trademarks have an infinite life and are not being amortized.

Revenue Recognition

Revenue is recognized when obligations under the terms of a contract (purchase orders) with customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration we expect to receive in exchange for the transferring of goods. The Company records amounts billed to customers related to shipping and handling as revenue. Shipping and handling costs are recognized in cost of sales. The Company recognizes revenue as of a point in time when the products have been shipped or at point-of-sale at physical store locations. Revenues are recorded net of estimated returns. The Company records a reserve obligation for estimated returns and an associated right of return asset. The reserve for refunds liability is included on a separate line of the balance sheet and the right of return asset is included in “inventories” on the balance sheet (see Note 3). Returns are estimated by developing an expected value based on historical experience.

Recently Issued Accounting Pronouncements

The Company has considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition or cash flows based on current information.

Estimates

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, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances in making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statement and tax basis of assets and liabilities as measured by the currently enacted tax rates in effect for the years in which those differences are expected to reverse. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities.

The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in other income in the statements of operations.

The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods. Management believes it is no longer subject to selection for income tax examinations for years prior to 2018.

Stock-based Compensation

The Company issues equity-settled, stock-based payments to certain employees. Equity-settled, stock-based payments are measured at the fair value of the equity instruments at the date of grant. Stock-based awards are expensed on a straight-line basis over the vesting period, based on estimates of the number of instruments expected to vest.

NOTE 2 – FAIR VALUE MEASUREMENTS

The Company reports its fair value measures using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy, established by generally accepted accounting principles, requires that entities maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

Level 1. Quoted prices for identical assets or liabilities in active markets to which the Company has access at the measurement date.

Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3. Unobservable inputs for the asset or liability. Unobservable inputs should be used to measure fair value to the extent that observable inputs are not available.

The primary uses of fair value measures in the Company’s financial statements relate to stock-based compensation. Stock-based compensation is valued using Level 3 fair value inputs.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 3 – INVENTORIES

Inventories consist of the following at June 30, 2022, December 31, 2021 and June 30, 2021:

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following at June 30, 2022, December 31, 2021 and June 30, 2021:

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at June 30, 2022, December 31, 2021 and June 30, 2021:

Depreciation expense totals $120,000 and $56,527 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 6 – INTANGIBLE ASSETS

The gross carrying amount and associated accumulated amortization of intangible assets is as follows at June 30, 2022, December 31, 2021 and June 30, 2021:

Amortization expense for the six months ended June 30, 2022 and 2021, totaled $73,479 and $0, respectively. Software development in the amount of $166,543 had not been implemented at June 30, 2022, and amortization has not begun. Estimated amortization for future years is as follows:

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 7 – ACCRUED EXPENSES

Accrued expenses consist of the following at June 30, 2022, December 31, 2021 and June 30, 2021:

NOTE 8 – LINE OF CREDIT

The Company maintained a $4,000,000 line of credit with a financial institution with an interest rate of 10.8%. Advances on the line of credit could be made up of 85% of eligible accounts receivable and 70% of eligible finished goods inventory. The carrying amount of accounts receivable that served as collateral totaled $2,602,005 and $1,538,242 at December 31, 2021 and June 30, 2021, respectively. The carrying amount of accounts receivable and finished goods inventory that served as collateral totaled $5,630,236 and $2,499,496 at December 31, 2021 and June 30, 2021, respectively. The line of credit required monthly payments of accrued interest and a lump sum payment of principal and interest at maturity. The line of credit was refinanced in March 2022 with a different financial institution (see Note 10). The Company had an outstanding balance on the line of credit of $0, $3,895,922 and 3,265,922 at June 30, 2022, December 31, 2021 and June 30, 2021, respectively.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

In conjunction with the line of credit above, the Company issued warrants. The warrants are exercisable for 545,454 shares of Class B Common Stock at an exercise price of $0.3667 per share. The warrants, which expire November 20, 2025, were assigned a value of $9,769, estimated using the Black-Scholes valuation model. The following assumptions were used to determine the fair value of the warrants using the Black-Scholes valuation model:

Management determined the value of warrants was insignificant and amortized the full amount to interest expense during 2021 in the amount of $9,769. In March 2022, the Company refinanced the line of credit. The warrant obligations were not impacted by the refinance.

NOTE 9 – SHORT-TERM NOTE PAYABLE

In March 2020, the Company entered into a $500,000 note payable with a vendor. The note bears interest at 10% and is not collateralized. Equal monthly interest payments began in January 2021. The note matures in January 2023.

NOTE 10 – LONG-TERM OBLIGATIONS

In January 2020, the Company entered into an agreement with a vendor converting $1,500,000 of accounts payable to a note payable. The note was entered into to allow more time to finalize a stock purchase agreement between the Company and the vendor. The note bore interest at 10% and was not collateralized. In accordance with the loan agreement, all unpaid principal and interest shall be repaid either through the conversion of the note into preferred stock or through monthly payments beginning December 31, 2020 through December 31, 2021. No principal or interest was paid during 2020 and the note was converted to Series B Preferred Stock in March 2021.

On March 1, 2022, the Company refinanced a line of credit (see Note 8) with an $8,000,000 term loan agreement with a different financial institution. The term loan was disbursed based on a borrowing base. Advances on the loan were based on up to 90% of eligible accounts receivable, verified purchase orders, and unrestricted cash and 70% of eligible inventory less reserves. Of the $8,000,000, advances totaling $2,000,000 were available upon satisfaction of certain conditions. The loan bears interest at 10.75% and is secured by all assets of the Company. Interest only payments are due for 12 months after which principal and interest payments will be due based on a 24-month amortization. The loan matures at the end of the 24-month amortization. On April 22, 2022, the loan was amended to increase the loan to $9,000,000. The additional $1,000,000 was disbursed August 12, 2022. The balance of the note was $8,000,000 at June 30, 2022.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

Future maturities of long-term obligations are as follows:

In conjunction with the term loan obtained in March 2022, the Company incurred loan fees totaling $486,179. At June 30, 2022, total deferred loan fees were $381,103 and were net of accumulated amortization of $105,076. The loan fees are amortized over lives ranging from 12 to 36-months. Amortization expense during the six months ended June 30, 2022, totaled $105,076.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 11 – INCOME TAXES

Income tax (expense) benefit for the six months ended June 30, 2022 and 2021, consist of the following:

Deferred tax assets consist of the following at June 30, 2022, December 31, 2021 and June 30, 2021:

NOTE 12 – EQUITY

The equity of the Company is comprised of classes of equity divided into Class A Common Stock, Class B Common Stock, Class C Common Stock, Class A Preferred Stock, and Class B Preferred Stock.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

Common Stock

Common Stock has Class A Common Stock, Class B Common Stock and Class C Common Stock. Except as otherwise required by law, the Class A Common Stock, Class B Common Stock, and Class C Common Stock have identical rights, powers and preferences, including rights to dividends and in liquidation. Class A Common Stock have the right to one vote per share whereas Class B Common Stock does not have any voting rights. Class C Common Stock have the right to three votes per share and are not assignable or transferable without first converting into Class A Common Stock, except by will or by the laws of descent and distribution. Each share of Class A Common Stock is convertible, at the option of the holder thereof, into one fully paid and non-assessable share of Class B Common Stock. Each share of Class C Common Stock is convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into one fully paid and non-assessable share of Class A Common Stock.

Preferred Stock

Class A Preferred Stock and Class B Preferred Stock are convertible, at the option of the holder, at any time without payment of additional consideration into the number of shares of Class A Common Stock as determined by the original issue price by the Class A conversion price in effect at the time of conversion, adjusted for the effects of any dilution. The Class A Conversion Price is equal to $0.1320. The Class B Conversion Price is equal to $0.2203. Conversion Prices and the rate at which shares of Preferred Stock may be converted into shares of Class A Common Stock is subject to adjustment. Preferred stockholders are entitled to the number of votes and dividends equal to the number of common shares into which the preferred stock is convertible. Preferred stock does not carry an annual dividend obligation. Preferred stock has preference over common stock in the case of liquidation. Preferred stock is required to receive or simultaneously receive a dividend on each outstanding share of Preferred Stock in an amount at least equal to any dividend on shares of any other class or series of capital stock of the Company.

Stock Split

On August 17, 2021, the Company’s board of directors approved the adoption of the Company’s Fourth Amended and Restated Articles of Incorporation, which increased the total number of shares of common stock and preferred stock that the Company is authorized to issue as follows:

The Fourth Amended and Restated Articles of Incorporation became effective on August 24, 2021. Effective August 24, 2021, the Company’s board of directors authorized a six-for-one split of the common stock and preferred stock. Accordingly, all references to numbers of common and preferred shares and per-share data in the financial statements have been adjusted to reflect the stock split on a retroactive basis. At the same time as the stock split, the board of directors authorized more shares of Class B Common Stock equal to the number of shares shown above.

HAMMITT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 13 – STOCK-BASED COMPENSATION

Stock Option Grants

The Company’s Board of Directors has approved stock option grants to key employees to acquire the Company’s common stock. The awards vest over a 3-year period and have a grant date contractual life of 10 years. Compensation cost is recognized on a straight-line basis over the vesting period.

The following represents stock option activity during the six months ended June 30, 2022 and 2021: