UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

AMMO, Inc.

(Exact Name of Registrant as Specified in its Charter)

delaware

001-13101

83-1950534

(State

of incorporation)

(Commission

File No.)

(I.R.S. Identification

Number)

7681 E Gray Road, Scottsdale, AZ 85260

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number including area code: (480) 947-0001

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

POWW

The Nasdaq Stock Market LLC (Nasdaq

Capital Market)

8.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value

POWWP

The Nasdaq Stock Market LLC (Nasdaq

Capital Market)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 13, 2021, there were 113,153,460 shares of $0.001 par value Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

TABLE OF CONTENTS

PART I

ITEM 1:	FINANCIAL STATEMENTS	3
	Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and March 31, 2021	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2021 and 2020	4
	Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three months ended June 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash flow (Unaudited) for the three months ended June 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	25
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	34
ITEM 4:	CONTROLS AND PROCEDURES	34

PART II
ITEM 1:	LEGAL PROCEEDINGS	35
ITEM 1A:	RISK FACTORS	35
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	35
ITEM 4:	MINE SAFETY DISCLOSURE	35
ITEM 5:	OTHER INFORMATION	36
ITEM 6:	EXHIBITS	36
SIGNATURES		37

PART I

ITEM 1. FINANCIAL STATEMENTS

AMMO, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2021			March 31, 2021
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	50,972,447		$	118,341,471
Accounts receivable, net		23,800,569			8,993,920
Due from related parties		18,657			15,657
Inventories, at lower of cost or net realizable value, principally average cost method		27,939,525			15,866,918
Prepaid expenses		3,460,619			2,402,366
Total Current Assets		106,191,817			145,620,332

Equipment, net		23,173,432			21,553,226

Other Assets:
Deposits		5,653,310			1,833,429
Licensing agreements, net		29,167			41,667
Patents, net		5,896,233			6,019,567
Other intangible assets, net		146,452,655			2,220,958
Goodwill		90,999,208			-
Right of use assets - operating leases		2,675,803			2,090,162
TOTAL ASSETS	$	381,071,625		$	179,379,341

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	23,906,989		$	4,371,974
Factoring liability		1,095,989			1,842,188
Accrued liabilities		3,789,179			3,462,785
Inventory credit facility		258,955			1,091,098
Current portion of contingent consideration payable		10,755,000			-
Current portion of operating lease liability		948,894			663,784
Current portion of note payable related party		639,636			625,147
Insurance premium note payable		1,320,278			41,517
Total Current Liabilities		42,714,920			12,098,493

Long-term Liabilities:
Contingent consideration payable, net of current portion		533,254			589,892
Notes payable related part, net of current portion		700,507			865,771
Note payable		-			4,000,000
Operating lease liability, net of current portion		1,857,697			1,477,656
Total Liabilities		45,806,378			19,031,812

Shareholders’ Equity:
Series A Cumulative Perpetual Preferred Stock 7.25%, ($25.00 per share, $0.001 par value) 1,400,000 shares issued and outstanding as of June 30, 2021		1,400			-
Common stock, $0.001 par value, 200,000,000 shares authorized 113,046,766 and 93,099,067 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively		113,047			93,100
Additional paid-in capital		367,771,424			202,073,968
Accumulated deficit		(32,620,624	)		(41,819,539	)
Total Shareholders’ Equity		335,265,247			160,347,529
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	381,071,625		$	179,379,341

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	2021			2020
	For the Three Months Ended June 30,
	2021			2020

Net Revenues
Ammunition sales	$	28,351,780		$	6,411,668
Marketplace revenue		12,272,066			-
Casing sales		3,852,486			3,248,302
Total Net Revenues		44,476,332			9,659,970
Cost of Revenues, for the three months ended June 30, 2021 and 2020 includes depreciation and amortization of $905,790 and $758,502, respectively, and federal excise taxes of $2,397,771 and $641,123, respectively		25,505,438			8,588,565
Gross Profit		18,970,894			1,071,405

Operating Expenses
Selling and marketing		1,165,849			369,622
Corporate general and administrative		3,156,597			1,088,984
Employee salaries and related expenses		2,356,873			982,489
Depreciation and amortization expense		2,611,061			410,499
Loss on purchase		-			1,000,000
Total operating expenses		9,290,380			3,851,594
Income/(Loss) from Operations		9,680,514			(2,780,189	)

Other Expenses
Other income		21,425			-
Interest expense		(165,279	)		(323,600	)
Total other expenses		(143,854	)		(323,600	)

Income (Loss) before Income Taxes		9,536,660			(3,103,789	)

Provision for Income Taxes		-			-

Net Income/(Loss)		9,536,660			(3,103,789	)

Preferred Stock Dividend		(337,745	)		-

Net Income/(Loss) Attributable to Common Stock Shareholders	$	9,198,915		$	(3,103,789	)

Net Income/(Loss) per share
Basic	$	0.09		$	(0.07	)
Diluted	$	0.08		$	(0.07	)

Weighted average number of shares outstanding
Basic		105,876,867			46,247,654
Diluted		109,051,682			46,247,654

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three Months Ended June 30, 2021 and 2020

(Unaudited)

	Number		Par Value		Number		Par Value		Capital			(Deficit)			Total
	Preferred Stock				Common Shares				Additional Paid-In			Accumulated
	Number		Par Value		Number		Par Value		Capital			(Deficit)			Total

Balance as of March 31, 2021		-	$	-		93,099,967	$	93,100	$	202,073,968		$	(41,819,539	)	$	160,347,529

Acquisition stock issuances, net of issuance costs		-		-		18,500,000		18,500		131,947,282			-			131,965,782
Common stock issued for exercised warrants		-		-		219,144		219		477,592			-			477,811
Common stock issued for cashless warrant exercise		-		-		275,155		275		(275	)		-			-
Common stock issued for services		-		-		750,000		750		1,499,250			-			1,500,000
Employee stock awards		-		-		202,500		203		699,297			-			699,500
Stock grants		-		-		-		-		66,914			-			66,914
Issuance of Series A Preferred Stock, net of issuance costs		1,400,000		1,400		-		-		31,007,396			-			31,008,796
Dividends accumulated on preferred stock		-		-		-		-		-			(337,745	)		(337,745	)
Net income/(loss)		-		-		-		-		-			9,536,660			9,536,660

Balance as of June 30, 2021		1,400,000	$	1,400		113,046,766	$	113,047	$	367,771,424		$	(32,620,624	)	$	335,265,247

Balance as of March 31, 2020		-	$	-		46,204,139	$	46,204	$	53,219,834		$	(34,007,245	)	$	19,258,793

Common stock issued for cash		-		-		1,000,000		1,000		1,749,000			-			1,750,000
Common stock issued for exercised warrants		-		-		60,607		60		121,154						121,214
Common stock issued for cashless warrant exercise		-		-		279		-		-						-
Common stock issued for services		-		-		8,336		8		(8	)		-			-
Employee stock awards		-		-		180,916		181		255,119			-			255,300
Stock grants		-		-		-		-		76,766			-			76,766
Net income/(loss)		-		-		-		-		-			(3,103,789	)		(3,103,789	)

Balance as of June 30, 2020		-	$	-		47,454,277	$	47,453	$	55,421,865		$	(37,111,034	)	$	18,358,284

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	2021			2020
	For the Three Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net Income/(Loss)	$	9,536,660		$	(3,103,789	)
Adjustments to reconcile Net Loss to Net Cash provided by/(used in) operations:
Depreciation and amortization		3,516,851			1,169,001
Debt discount amortization		-			109,667
Employee stock awards		699,500			255,300
Stock grants		66,914			76,766
Contingent consideration payable fair value		(56,638	)		(27,968	)
Allowance for doubtful accounts		71,157			15,906
Gain on disposal of assets		(12,044	)		-
Reduction in right of use asset		27,087			90,321
Loss on Jagemann Munition Components		-			1,000,000
Changes in Current Assets and Liabilities
Accounts receivable		2,124,556			(1,145,584	)
Due to (from) related parties		-			150
Inventories		(12,072,607	)		(2,110,684	)
Prepaid expenses		1,114,473			214,014
Deposits		(3,119,492	)		(156,184	)
Accounts payable		7,021,584			1,095,093
Accrued liabilities		(208,131	)		847,466
Operating lease liability		(39,203	)		(89,455	)
Net cash provided by/(used in) operating activities		8,670,667			(1,759,980	)

Cash flows from investing activities
GDI acquisition		(50,651,444	)		-
Purchase of equipment		(1,611,316	)		(471,882	)
Proceeds from disposal of assets		59,800			-
Net cash used in investing activities		(52,202,960	)		(471,882	)

Cash flow from financing activities
Payments on inventor facility		(832,143	)		-
Proceeds from factoring liability		23,651,000			6,952,000
Payments on factoring liability		(24,397,199	)		(7,050,191	)
Payments on assumed debt from GDI		(50,000,000	)			-
Proceeds from inventory facility		-			1,758,003
Proceeds from paycheck protection program notes		-			1,051,985
Payments on note payable - related party		(150,775	)		(247,490	)
Payments on insurance premium note payment		(415,003	)		(129,510	)
Payments on note payable		(4,000,000	)		-

(Continued)

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	For the Three Months Ended June 30,
	2021			2020

Common stock issued for exercised warrants		477,811			30,304
Common stock issuance costs		(3,170,422	)		-
Sale of preferred stock		35,000,000			-
Net cash provided by/(used in) financing activities		(23,836,731	)		2,365,101

Net increase/(decrease) in cash		(67,369,024	)		133,239
Cash, beginning of period		118,341,471			884,274
Cash, end of period	$	50,972,447		$	1,017,513

Supplemental cash flow disclosures
Cash paid during the period for -
Interest	$	189,116		$	160,195
Income taxes	$	-		$	-

Non-cash investing and financing activities:
Acquisition stock issuances	$	132,645,000		$	-
Insurance premium note payment	$	1,693,764		$	-
Dividends accumulated on preferred stock	$	337,745		$	-
Operating lease liability	$	-		$	737,680
Note payable related party	$	-		$	2,635,797
Stock subscription receivable	$	-		$	1,840,910

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021 and March 31, 2021

(Unaudited)

NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY

We were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments and fabrics. We were inactive until the following series of events in December 2016 and March 2017.

On December 15, 2016, the Company’s majority shareholders sold 475,681 (11,891,976 pre-split) of their outstanding shares to Mr. Fred W. Wagenhals (“Mr. Wagenhals”) resulting in a change in control of the Company. Mr. Wagenhals was appointed as sole officer and the sole member of the Company’s Board of Directors.

The Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW, (iii) an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to Delaware, and (iv) a 1-for-25 reverse stock split (“Reverse Split”) of the issued and outstanding shares of the common stock of the Company. As a result of the reverse split, the previous issued and outstanding shares of common stock became 580,052 shares; no shareholder was reversed below 100 shares, and all fractional shares resulting from the reverse split were rounded up to the next whole share. All references to the outstanding stock have been retrospectively adjusted to reflect this split. These transactions were effective as of December 30, 2016.

On March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (PRIVCO) under which the Company acquired all of the outstanding shares of common stock of (PRIVCO). Under the terms of the Agreement, the Company issued 17,285,800 newly issued shares of common stock of the Company. In connection with this transaction the Company retired 475,681 shares of common stock and issued 500,000 shares of common stock to satisfy an issuance commitment. The acquisition was considered to be a capital transaction. The transaction was the equivalent to the issuance by PRIVCO of 604,371 shares to the Company’s shareholders accompanied by a recapitalization. The weighted average number of outstanding shares has been adjusted for this transaction. (PRIVCO) subsequently changes its name to AMMO Munitions, Inc.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2021. The results for the three month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended June 30, 2021 and 2020, (b) the financial position at June 30, 2021, and (c) cash flows for the three month period ended June 30, 2021 and 2020.

We use the accrual basis of accounting and U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31^st.

Unless the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company” are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At June 30, 2021 and March 31, 2021, we reserved $1,514,872 and $148,540, respectively, of allowance for doubtful accounts.

License Agreements

We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.

We are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded Products. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.

Patents

On September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 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. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028.

Under the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the three months ended June 30, 2021 and 2020, the Company recognized royalty expenses of $3,404 and $24,759, respectively under this agreement.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.

The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.

We intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.

Other Intangible Assets

On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property.

On April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments, LLC, a Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments, LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of Gunbroker.com, an online auction marketplace dedicated to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships, intellectual property, software and domain names.

Impairment of Long-Lived Assets

We continually monitor 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, we assess 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, we recognize 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 for the three ended June 30, 2021 and 2020.

Revenue Recognition

We generate revenue from the production and sale of ammunition, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the following five-step model to determine revenue recognition:

	●	Identification of a contract with a customer
	●	Identification of the performance obligations in the contact
	●	determination of the transaction price
	●	allocation of the transaction price to the separate performance allocation
	●	recognition of revenue when performance obligations are satisfied

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of our product, which typically occurs upon shipment of the product or the performance of the service. In the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. We will recognize revenue when the performance obligation is met.

For the three months ended June 30, 2021 the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

SCHEDULE OF CONCENTRATION OF RISKS

	Revenues at June 30, 2021			Accounts Receivable
PERCENTAGES	Three Months Ended			June 30, 2021		March 31, 2021

Customers:
A		19.8	%		-		-
B		11.3	%		-		11.9	%
C		-			-		23.3	%
D		-			-		10.6	%
		31.1	%		-		45.8	%

Disaggregated Revenue Information

The following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product or services types; ammunition, ammunition casings, and marketplace fees. The Company notes that revenue recognition processes are consistent between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product and service type.

	For the Three Months Ended
	June 30, 2021		June 30, 2020
Ammunition sales	$	28,351,780	$	6,411,668
Marketplace fee revenue		12,272,066		-
Ammunition casings sales		3,852,486		3,248,302
Total Revenues	$	44,476,332	$	9,659,970

Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated through our Gunbroker.com online auction marketplace.

Advertising Costs

We expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. Marketplace advertising costs are expenses as they are incurred in cost of revenues. We incurred advertising of $116,433 and $87,167 for the three months ended June 30, 2021 and 2020, respectively, recognized in selling expenses and $19,000 of advertising expenses recognized in cost of revenues for the three months ended June 30, 2021.

Inventories

We state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our 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. We periodically evaluate and adjust inventories for obsolescence.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

We state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated useful lives, which are generally five to ten years.

Compensated Absences

We accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General (“ASC 710”).

Stock-Based Compensation

We account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation – Stock Compensation (“ASC 718”). which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors. Stock-based compensation is recognized on a straight line basis over the vesting periods and forfeitures are recognized in the periods they occur. There were 202,500 shares of common stock issued to employees, members of the Board of Directors, and members of our advisory committee for services during the three months ended June 30, 2021.

Concentrations of Credit Risk

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2021, our bank account balances exceeded federally insured limits.

Income Taxes

We file 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, and deferred taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities 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. We measure recognized income tax positions at the largest amount that is greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contingencies

Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We 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 us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and 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 probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed 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. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a result of such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient controls internal controls, and that the individual was the victim of retaliation and constructive discharge after being removed as a director by majority vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made of up independent directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found the material claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain corporate governance charter documents and processes which the Company promptly implemented. The matter is currently the subject of administrative investigation by the DOL via the Occupational Safety and Health Administration. The Company filed a timely Position Statement with the DOL in October of 2019 in response to the Complaint. The Company disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans to aggressively pursue its offensive claims in order to recover economic damages as a result of its claims while seeking dismissal of the counterclaim. There were no other known contingencies at June 30, 2021.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INCOME/(LOSS) PER COMMON SHARE

We calculate basic income/(loss) per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants. We use the treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase 3,047,960 shares of common stock and contingently issuable shares of common stock of 1,500,000. All weighted average numbers were adjusted for the reverse stock split and merger transaction. Due to the loss from operations in the three months ended June 30, 2020, there are no common shares added to calculate the dilutive loss per share for that period as the effect would be antidilutive. The Company excluded warrants of 8,441,798 for the three months ended June 30, 2020, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.

	Net income/(loss) attributable to common stock holders					Weighted average shares				Net income/(loss) attributable to common stock holders per share
	2021		2020			2021		2020		2021			2020

Basic income/(loss) per share	$	9,198,915	$	(3,103,789	)		105,876,867		46,247,654	$	0.09		$	(0.07	)
Effect of dilutive common stock purchase warrants		-		-			2,024,037		-		(0.01	)		-
Effect of dilutive contingently issuable common stock ⁽¹⁾		-		-			1,010,869		-		-			-
Effect of dilutive equity incentive awards		-		-			139,909		-		-			-
Diluted income/(loss) per share	$	9,198,915	$	(3,103,789	)		109,051,682		46,247,654	$	0.08		$	(0.07	)

(1)

Weighted average of contingently issuable shares measured from the effective date of merger, April 30, 2021

NOTE 4 – INVENTORIES

At June 30, 2021 and March 31, 2021, the inventory balances are composed of:

SCHEDULE OF INVENTORY

	June 30, 2021		March 31, 2021
Finished product	$	3,207,574	$	899,266
Raw materials		18,109,674		12,440,548
Work in process		6,622,277		2,527,104
Inventory, net	$	27,939,525	$	15,866,918

NOTE 5 – EQUIPMENT

We state equipment at historical cost less accumulated depreciation. We compute depreciation using the straight-line method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally five to ten years. Upon retirement or sale of property and equipment, we remove the cost of the disposed assets and related accumulated depreciation from the accounts and any resulting gain or loss is credited or charged to other income. We charge expenditures for normal repairs and maintenance to expense as incurred.

We capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Equipment consisted of the following at June 30, 2021 and March 31, 2021:

SCHEDULE OF EQUIPMENT

	June 30, 2021			March 31, 2021
Building	$	955,810		$	-
Leasehold Improvements		250,887			126,558
Furniture and Fixtures		331,490			87,790
Vehicles		152,101			142,691
Equipment		27,305,838			26,425,221
Tooling		143,710			121,790
Construction in Progress		882,310			544,939
Total property and equipment	$	30,022,146		$	27,448,989
Less accumulated depreciation		(6,848,714	)		(5,895,763	)
Net equipment	$	23,173,432		$	21,553,226

Depreciation Expense for the three months ended June 30, 2021 and 2020 totaled $995,334, and $676,053, respectively.

NOTE 6 – FACTORING LIABILITY

On July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains a maximum advance amount of $5,000,000 on 85% of eligible accounts and has an annualized interest rate of the Prime Rate published from time to time by the Wall Street Journal plus 4.5%. The agreement contains fee of 3% ($150,000) of the Maximum Facility assessed to the Company. Our obligations under this agreement are secured by present and future accounts receivables and related assets, inventory, and equipment. The Company has the right to terminate the agreement, with 30 days written notice, upon obtaining a non-factoring credit facility. This agreement provides the Company with the ability to convert our account receivables into cash. As of June 30, 2021, the outstanding balance of the Factoring Liability was $1,095,989. For the three months ending June 30, 2021, interest expense recognized on the Factoring Liability was $41,579 and for the three months ending June 30, 2020 was $114,060, including $37,500 of amortization of the commitment fee.

On June 17, 2020, this agreement was amended which extended the maturity date to June 17, 2022.

NOTE 7 – INVENTORY CREDIT FACILITY

On June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line, and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our inventory, among other assets, contains a maximum loan amount of $1,750,000 on eligible inventory and has an annualized interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%. The agreement contains a fee of 2% of the maximum loan amount ($35,000) assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory loan amount to $2,250,000. As of June 30, 2021, the outstanding balance of the Inventory Credit Facility was $258,955. Interest expense recognized on the Inventory Credit Facility was $17,659, including $8,561 of amortization of the annual fee for the three months ended June 30, 2021 and $7,490, including $2,917 of amortization of the annual fee for the three months ended June 30, 2020.

NOTE 8 – LEASES

We lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ, Atlanta and Marietta, GA, and Manitowoc and Two Rivers, WI under contracts we classify as operating leases. None of our leases are financing leases. The Payson lease has an option to renew for five years. As of June 30, 2021, we are fairly certain we will not exercise the renewal option. The Scottsdale lease does not include a renewal option. As of June 26, 2020, the Company entered into an amended agreement that modified the Manitowoc lease to monthly payments of $34,071 and decrease the term to March 2025. The agreement does not contain a renewal option. Accordingly, we modified our Right of Use Assets and Operating Lease Liabilities by $737,680 at June 30, 2020.

Consolidated lease expense for the three months ended June 30, 2021 and 2020 was $273,296 and $184,769, respectively, including $263,197 and $176,673 of respective operating lease expense and $10,099 and $8,096 of respective other lease associated expenses such as association dues, taxes, utilities, and other month to month rentals.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The weighted average remaining lease term and weighted average discount rate for operating leases were 3.0 years and 10.0%, respectively.

Futures minimum lease payments under non-cancellable leases as of June 30, 2021 are as follows:

Years Ended March 31,
2022 (1)	$	905,641
2023		1,018,689
2024		873,420
2025		472,306
2026		-
Thereafter		-
Total lease payments		3,270,056
Less: Amount Representing Interest		(463,465	)
Present value of lease liabilities	$	2,806,591

(1)

This amount represents future lease payments for the remaining nine months of fiscal year 2022. It does not include any lease payments for the three months ended June 30, 2021.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – NOTES PAYABLE – RELATED PARTY

For the three months ended June 30, 2021, the Company made $150,755 in principal payments in connection with the Amended Note B, an amended related party note payable with Jagemann Stamping Company (“JSC”). We entered to the Amended Note B with JSC on November 4, 2020 and the note matures on June 26, 2023. We recognized $33,141 in interest expenses for the three months ended June 30, 2021.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – CAPITAL STOCK

During the three month period ended June 30, 2021, we issued 19,946,799 shares of common stock as follows:

	●	18,500,000 shares were issued in connection with our merger of Gemini Direct Investments, LLC valued at $132,645,000
	●	219,144 shares were issued to investors for exercised warrants valued for $477,811
	●	275,155 shares were issued for cashless exercise of 340,841 warrants
	●	750,000 shares valued at $1,500,000 were issued for services provided to the Company
	●	202,500 shares valued at $699,500 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2021, outstanding and exercisable stock purchase warrants consisted of the following:

	Number of Shares			Weighted Averaged Exercise Price		Weighted Average Life Remaining (Years)
Outstanding at March 31, 2021		3,607,945		$	2.31		3.24
Granted		-			-		-
Exercised		(559,985	)		1.91		-
Forfeited or cancelled		-			-		-
Outstanding at June 30, 2021		3,047,960		$	2.39		2.92
Exercisable at June 30, 2021		3,047,960		$	2.39		2.92

As of June 30, 2021, we had 3,047,960 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 2,730 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 1,934,414 shares of our Common Stock at an exercise price of $2.00 per share consisting of 71% of the warrants until April 2023, 31% until August 2024, and 69% until February 2026; (3) warrants to purchase 564,029 shares of Common Stock at an exercise price of $2.40 until September 2024; (4) warrants to purchase 396,787 shares of Common Stock at an exercise price of $2.63 until November 2025, and (5) warrants to purchase 150,000 shares of Common Stock at an exercise price of $6.72 until February 2024.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – PREFERRED STOCK

On May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.

The Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”), as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, ranks: (1) senior to all classes or series of Common Stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Series A Preferred Stock; (2) on parity with any future class or series of the Company’s capital stock expressly designated as ranking on parity with the Series A Preferred Stock; (3) junior to any future class or series of the Company’s capital stock expressly designated as ranking senior to the Series A Preferred Stock; and (4) junior to all the Company’s existing and future indebtedness.

The Series A Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares the Series A Preferred Stock are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders (i.e., after satisfaction of all the Company’s liabilities to creditors, if any) an amount equal to $25.00 per share of the Series A Preferred Stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment before any distribution or payment may be made to holders of shares of Common Stock or any other class of or series of the Corporation’s capital stock ranking, as to rights to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up, junior to the Series A Preferred Stock.

The Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series A Preferred Stock will accrue on the stated amount of $25.00 per share of the Series A Preferred Stock at a rate per annum equal to 8.75% (equivalent to $2.1875 per year), payable quarterly in arrears. Dividends on the Series A Preferred Stock declared by our board of directors (or a duly authorized committee of our board of directors) will be payable quarterly in arrears on March 15, June 15, September 15 and December 15.

Generally, the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event (each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for a limited period of time.

On May 19, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative of several underwriters (collectively, the “Underwriters”), relating to a firm commitment public offering of 1,097,200 newly issued shares of our 8.75% Series A Preferred Stock at a public offering price of $25.00 per share. Under the terms of the Underwriting Agreement, we granted the Underwriters a 45-day option to purchase up to an additional 164,580 shares of Series A Preferred Stock from us. The gross proceeds to us from the sale of 1,097,200 shares of Series A Preferred Stock, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, was $27,430,000. The closing of the offering took place on May 21, 2021.

On May 25, 2021, we entered into an additional underwriting agreement with Alexander Capital, L.P. relating to a firm commitment public offering of 138,220 newly issued shares of our Series A Preferred Stock at a public offering price of $25.00 per share. The closing of the offering took place on May 27, 2021. The gross proceeds to us from the sale of 138,220 shares of Series A Preferred Stock, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, were $3,455,500. Additionally, the Underwriters exercised its previously announced over-allotment option to purchase 164,580 shares of Series A Preferred Stock pursuant to that certain Underwriting Agreement dated May 19, 2021, by and between us and Alexander Capital, L.P., as representative of the several underwriters identified therein. We closed the exercise of the over-allotment option on May 27, 2021. The gross proceeds from the exercise of the over-allotment option were $4,114,500, before deducting underwriting discounts and commissions.

Preferred dividends accumulated as of June 30, 2021 were $337,745.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - ACQUISITION

Gemini Direct Investments, LLC

On April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s ownership of the Gunbroker.com business. Gunbroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and related products. The Merger was completed on the Effective Date.

In consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i) the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $50,000,000 (the “Assumed Indebtedness”); and, (ii) the issued and outstanding membership interests in Gemini (the “Membership Interests”), held by the Seller, automatically converted into the right to receive (A) $50,000,000 (the “Cash Consideration”), and (B) 20,000,000 shares of common stock of the Company, $0.001 par value per share (the “Stock Consideration”).

In connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) 14,500,000 shares issued without being held in escrow or requiring prior stockholder approval; (b) 4,000,000 shares issued subject to the Pledge and Escrow Agreement; and (c) 1,500,000 shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the “Additional Securities”).

The total estimated consideration consisted of cash payment of $50,000,000 less $1,350,046 of acquired cash, a working capital adjustment of $2,000,000, debt assumption and repayment upon closing of $50,000,000, contingent consideration of $10,755,000 for 1,500,000 Additional Securities, and 18,500,000 shares of AMMO Inc. Common Stock. The shares were valued at $7.17 per share, the five-day average closing price of the Company’s Common Stock immediately preceding the signing of the binding agreement.

In accordance with the acquisition method of accounting for business combinations, the assets acquired, and the liabilities assumed have been recorded at their respective fair values. The consideration in excess of the fair values of assets acquired, and liabilities assumed are recorded as goodwill.

The preliminary fair value of the consideration transferred was valued as of the date of the acquisition as follows:


Cash	$	48,649,954
Estimated working capital adjustment		2,000,000
Contingent consideration		10,755,000
Common stock		132,645,000
Assumed debt		50,000,000

Fair Value of Patent	$	244,049,954

The preliminary allocation for the consideration recorded for the acquisition is as follows:


Accounts receivable, net	$	17,002,362
Prepaid expenses		478,963
Equipment		1,051,980
Deposits		703,389
Intangible assets		146,617,380
Goodwill		90,999,208
Right of use assets - operating leases		612,727
Accounts payable		(12,514,919	)
Accrued expenses		(196,780	)
Operating lease liability		(704,356	)

Total Consideration	$	244,049,954

⁽¹⁾

Preliminary estimate of Other Intangible Assets and Goodwill. Other intangible assets to consist of Tradenames, Customer Relationships, Intellectual Property, and other tangible assets related to the acquired business.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We recorded approximately $1.3 million in transaction costs in the three months ended June 30, 2021.

The purchase price allocation is preliminary. The preliminary estimated fair value recorded for the acquired assets and liabilities assumed with excess consideration recorded as goodwill represent management’s estimate of fair value and are subject to change when additional information, such as post-close working capital adjustments and valuations become available. The purchase price allocation will continue to be preliminary until the Company is able to finalize the allocation. The Company expects to finalize the purchase price allocation within the measurement period, but not more than one year following the closing date of the Merger. The final amounts from the valuation may significantly and materially differ from the preliminary allocation herein.

Unaudited Pro Forma Results of Operations

This pro forma results of operations gives effect to the acquisition as if it had occurred April 1, 2021. Material pro forma adjustments include the removal of approximately $1.8 million of interest expenses and debt discount amortization and the addition of approximately $0.9 million depreciation and amortization expenses.

	2021
INCOME STATEMENT DATA	For the Three Months Ended June 30, 2021

Net revenues	$	52,521,753
Net income	$	14,083,148

NOTE 13 – GOODWILL AND INTANGIBLE ASSETS

In the current period, we recorded $90,999,208 of Goodwill generated from our Merger with Gemini.

Amortization expenses related to our intangible assets for the three months ended June 30, 2021 and 2020 were $2,521,517 and $492,948, respectively.

SCHEDULE OF INTANGIBLE ASSETS

			June 30, 2021
	Life		Licenses			Patent			Other Intangible Assets
Licensing Agreement – Jesse James		5	$	125,000		$	-		$	-
Licensing Agreement – Jeff Rann		5		125,000			-			-
Streak Visual Ammunition patent		11.2		-			950,000			-
SWK patent acquisition		15		-			6,124,005			-
Jagemann Munition Components:
Customer Relationships		3		-			-			1,450,613
Intellectual Property		3		-			-			1,543,548
Tradename		5		-			-			2,152,076
GDI Acquisition:
Tradename		15		-			-			76,532,389
Customer List		10		-			-			65,252,802
Intellectual Property		10		-			-			4,224,442
Other Intangible Assets		5		-			-			607,747
				250,000			7,074,005			151,763,617

Accumulated amortization – Licensing Agreements				(220,833	)		-			-
Accumulated amortization – Patents				-			(1,177,772	)		-
Accumulated amortization – Intangible Assets				-			-			(5,310,962	)
			$	29,167		$	5,896,233		$	146,452,655

Annual amortization of intangible assets for the next five fiscal years are as follows:

Years Ended March 31,	Estimates for Fiscal Year
2022 (1)	$	10,659,051
2023		13,095,215
2024		12,966,879
2025		12,664,775
2026		12,674,904
Thereafter		90,317,231
	$	157,378,055

(1)	This amount represents future amortization for the remaining nine months of fiscal year 2022. It does not include any amortization for the three months ended June 30, 2021.

NOTE 14 – SEGMENTS

On April 30, 2021, the Company entered into an agreement and plan of merger with SpeedLight Group I, LLC, which, along with its subsidiaries, engages primarily in the operation of an online marketplace dedicated to firearms, hunting, shooting and related products. As a result, at June 30, 2021, our chief operating decision maker, our Chief Executive Officer, reviews financial performance based on two operating segments as follows:

	●	Ammunition– which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition and ammunition component products.
	●	Marketplace – which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of firearms, ammunition and hunting/shooting accessories.

Ammunition generated approximately 72% of our revenue in the three months ended June 30, 2021, while Marketplace generated approximately 77% of our operating income in the three months ended June 30, 2021.The following tables set forth certain financial information utilized by management to evaluate our operating segments for the interim period presented:

SCHEDULE OF OPERATING SEGMENTS

	Ammunition		Marketplace		Total
	For the Three Months Ended June 30, 2021
	Ammunition		Marketplace		Total

Net Revenues	$	32,204,266	$	12,272,066	$	44,476,332
Cost of Revenues		23,848,248		1,657,190		25,505,438
General and administrative expense		5,676,755		1,002,564		6,679,319
Depreciation and amortization		420,242		2,190,819		2,611,061
Operating Income	$	2,259,021	$	7,421,493	$	9,680,514

NOTE 15 – INCOME TAXES

As of June 30, 2021, we had net operating loss carryforwards of approximately $22 million which will expire beginning at the end of 2036. A valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have future taxable income.

The Company’s effective tax rates were 0% and 0% for the three months ended June 30, 2021 and 2020, respectively. During the three months ended June 30, 2021 and 2020, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance.

The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March 31, 2018, 2019, 2020, and 2021 are subject to audit.

Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods.

NOTE 16 – SUBSEQUENT EVENTS

From July 1, 2021 to August 13, 2021, we issued 57,692 shares of Common Stock pursuant to warrant exercises at per share prices ranging from $2.40 to $2.63 for an aggregate value of $137,234. Additionally, 1,752 shares of Common Stock were issued pursuant to the cashless exercise of 2,269 warrants.

Subsequent to June 30, 2021, the Company issued 47,250 shares of Common Stock to employees for a total value of $165,375.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, our Consolidated Financial Statements and Supplementary Data.

FORWARD-LOOKING STATEMENTS

This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.

In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc., a Delaware corporate, and its wholly owned consolidated subsidiaries.

Overview

Our vision is to modernize the ammunition industry by bringing new technologies to market. We intend to do that through acquisition and application of intellectual property that is unique to the industry and through investing in manufacturing equipment and processes that enable us to compete globally.

Our innovative line of match grade armor piercing (AP) and hard armor piercing incendiary (HAPI) tactical rounds are the centerpiece of the Company’s strategy to address the unique needs of the armed forces community. This ammunition was designed around a match grade portfolio of projectiles, that include a solid copper boat tail and armor piercing configuration. The distinction between these rounds and other sold, is that the manufacturing process was engineered to ensure extremely tight tolerances between each projectile manufactured, ensuring for the end user that the ballistic trajectory remains consistent between rounds without regard to the actual configuration or round fired. Our AP and HAPI line are also available with our O.W.L. Technology™. The Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 12.7 mm and .50 caliber BMG configurations. On February 2, 2021, we announced that we restarted our improved .50 caliber manufacturing line to address increased market demand and fulfill current orders.

We offer ammunition casings for pistol ammunition through large rifle ammunition. Our casing operations is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann™ Casings, has become one of the largest brass manufacturers in the country, with the capacity to produce more than 750 million pieces of brass each year with the ability to scale to 1 billion rounds on an annual basis. Proud of its American-made components and capabilities, the Company now has complete control over the manufacturing process. This results in a number of advantages when it comes to the brass that leaves our state-of-the-art facility.

On April 30, 2021, we acquired Gemini Direct Investments, LLC (“Gemini”) and nine of its subsidiaries, all of which are related to Gemini’s ownership of the Gunbroker.com marketplace.

GunBroker.com is a large online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo, GunBroker.com currently sells none of the items listed on its website. Third-party sellers list items on the site and federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations are followed using licensed firearms dealers as transfer agents.

With our recent addition of the Gunbroker.com marketplace, we aim to further enhance our vision of bringing technologies to the industry. Gunbroker.com is a marketplace that connects millions of buyers and sellers allowing our users to access a daily average of over one million unique items.

The focus for our 2022 fiscal year is to continue to expand our brand presence into the markets identified above and to continue to grow our sales within our targeted markets. We intend to do this through establishing key strategic relationships, enrolling in government procurement programs, establishing relationships with leading law enforcement associations and programs, expanding distributor channels, and revitalized marketing campaigns.

Results of Operations

Our financial results for the three months ended June 30, 2021 reflect our newly positioned organization. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider and marketplace. We continue to focus on growing our top line revenue, and streamlining our operations, and as a result, we experienced an increase in our gross profit margin for the three months ended June 30, 2021. This was the result of a significant increase in sales allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense as well as the addition of our new marketplace, Gunbroker.com

The following table presents summarized financial information taken from our condensed consolidated statements of operations for the three months ended June 30, 2021 compared with the three months ended June 30, 2020:

	For the Three Months Ending
	June 30, 2021			June 30, 2020
	(Unaudited)			(Unaudited)
Net Sales	$	44,476,332		$	9,659,970
Cost of Revenues		25,505,438			8,588,565
Gross Profit		18,970,894			1,071,405
Sales, General & Administrative Expenses		9,290,380			3,851,594
Income (loss) from Operations		9,680,514			(2,780,189	)
Other income (expense)
Other income (expense)		(143,854	)		(323,600	)
Income (loss) before provision for income taxes	$	9,536,660		$	(3,103,789	)
Provision for income taxes		-			-
Net Income (Loss)	$	9,536,660		$	(3,103,789	)

Non-GAAP Financial Measures

We analyze operational and financial data to evaluate our business, allocate our resources, and assess our performance. In addition to total net sales, net loss, and other results under accounting principles generally accepted in the United States (“GAAP”), the following information includes key operating metrics and non-GAAP financial measures we use to evaluate our business. We believe these measures are useful for period-to-period comparisons of the Company. We have included these non-GAAP financial measures in this Quarterly Report on Form 10-Q because they are key measures we use to evaluate our operational performance, produce future strategies for our operations, and make strategic decisions, including those relating to operating expenses and the allocation of our resources. Accordingly, we believe these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA

	For the Three Months Ended
	June 30, 2021			June 30, 2020

Reconciliation of GAAP net income to Adjusted EBITDA
Net Income (Loss)	$	9,536,660		$	(3,103,789	)
Depreciation and amortization		3,516,851			1,169,001
Loss on purchase		-			1,000,000
Excise taxes		2,397,771			-
Interest expense, net		165,279			323,600
Employee stock awards		699,500			255,300
Stock grants		66,914			76,766
Other income, net		(21,425	)		-
Contingent consideration fair value		(56,638	)		(27,968	)
Adjusted EBITDA	$	16,304,912		$	(307,090	)

Adjusted EBITDA is a non-GAAP financial measure that displays our net income (loss), adjusted to eliminate the effect of certain items as described below.

We have excluded the following non-cash expenses from our non-GAAP financial measures: depreciation and amortization, loss on purchase, share-based compensation expenses, and changes to the contingent consideration fair value. We believe it is useful to exclude these non-cash expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, as these items are not components of our core operations. We have not included adjustment for any provision or benefit for income taxes as we currently record a valuation allowance and we have included adjustment for excise taxes.

Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:

	●	Employee stock awards and stock grants expense has been, and will continue to be for the foreseeable future, a significant recurring expense in the Company and an important part of our compensation strategy;
	●	the assets being depreciated or amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and
	●	non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs
	●	other companies, including companies in our industry, may calculate the non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures

Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net loss and our other financial results presented in accordance with GAAP.

Net Sales

The following table shows our net sales by proprietary ammunition versus standard ammunition for the three months ended June 30, 2021 and 2020. “Proprietary Ammunition” include those lines of ammunition manufactured by our facilities that are sold under the brand names: STREAK VISUAL AMMUNITION™ and Stelth. We define “Standard Ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. Our “Standard Ammunition” is manufactured within our facility and may also include completed ammunition that has been acquired in the open market for sale to others. Also included in this category is low cost target pistol and rifle ammunition, as well as bulk packaged ammunition manufactured by us using reprocessed brass casings. Ammunition within this product line typically carries lower gross margins.

	For the Three Months Ending
	June 30, 2021		June 30, 2020
Proprietary Ammunition	$	1,110,621

SEC Form 10-Q filed by AMMO, Inc.