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, 2022

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 12, 2022, there were 116,961,005 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, 2022 (Unaudited) and March 31, 2022	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2022, and 2021	4
	Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three months ended June 30, 2022, and 2021	5
	Condensed Consolidated Statements of Cash flow (Unaudited) for the three months ended June 30, 2022, and 2021	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	33
ITEM 4:	CONTROLS AND PROCEDURES	33

PART II
ITEM 1:	LEGAL PROCEEDINGS	34
ITEM 1A:	RISK FACTORS	34
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	34
ITEM 4:	MINE SAFETY DISCLOSURE	34
ITEM 5:	OTHER INFORMATION	35
ITEM 6:	EXHIBITS	35
SIGNATURES		36

PART I

ITEM 1. FINANCIAL STATEMENTS

AMMO, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2022			March 31, 2022
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	20,901,109		$	23,281,475
Accounts receivable, net		38,997,537			43,955,084
Due from related parties		1,559,000			15,000
Inventories		64,588,248			59,016,152
Prepaid expenses		4,576,824			3,423,925
Current portion of restricted cash		500,000			-
Total Current Assets		131,122,718			129,691,636

Equipment, net		46,669,664			37,637,806

Other Assets:
Deposits		11,829,304			11,360,322
Restricted cash, net of current portion		500,000			-
Patents, net		5,402,852			5,526,218
Other intangible assets, net		133,156,993			136,300,387
Goodwill		90,870,094			90,870,094
Right of use assets – operating leases		2,583,344			2,791,850
TOTAL ASSETS	$	422,134,969		$	414,178,313

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	23,807,732		$	26,817,083
Factoring liability		228,026			485,671
Accrued liabilities		7,012,674			6,178,814
Inventory credit facility		92,332			825,675
Current portion of operating lease liability		811,139			831,429
Current portion of note payable related party		700,507			684,639
Current portion of construction note		200,133
Insurance premium note payable		1,501,846			-
Total Current Liabilities		34,354,389			35,823,311

Long-term Liabilities:
Contingent consideration payable		202,840			204,142
Notes payable related party, net of current portion		-			181,132
Construction note payable, net of unamortized issuance costs		5,634,368			38,330
Operating lease liability, net of current portion		1,900,559			2,091,351
Deferred income tax liability		2,037,445			1,536,481
Total Liabilities		44,129,601			39,874,747

Shareholders’ Equity:
Series A cumulative perpetual preferred Stock 8.75%, ($25.00 per share, $0.001 par value) 1,400,000 shares issued and outstanding as of June 30, 2022 and March 31, 2022, respectively		1,400			1,400
Common stock, $0.001 par value, 200,000,000 shares authorized 116,923,884 and 116,485,747 shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively		116,924			116,487
Additional paid-in capital		386,648,901			385,426,431
Accumulated deficit		(8,761,857	)		(11,240,752	)
Total Shareholders’ Equity		378,005,368			374,303,566
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	422,134,969		$	414,178,313

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

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	2022			2021
	For the Three Months Ended June 30,
	2022			2021

Net Revenues
Ammunition sales	$	40,969,883		$	28,351,780
Marketplace revenue		16,504,946			12,272,066
Casing sales		3,281,197			3,852,486
Total Revenues		60,756,026			44,476,332

Cost of Revenues		42,620,364			25,505,438
Gross Profit		18,135,662			18,970,894

Operating Expenses
Selling and marketing		1,908,170			1,165,849
Corporate general and administrative		5,029,297			3,156,597
Employee salaries and related expenses		2,785,098			2,356,873
Depreciation and amortization expense		3,350,356			2,611,061
Total operating expenses		13,072,921			9,290,380
Income from Operations		5,062,741			9,680,514

Other Expenses
Other income		193,498			21,425
Interest expense		(120,487	)		(165,279	)
Total other income/(expense)		73,011			(143,854	)

Income before Income Taxes		5,135,752			9,536,660

Provision for Income Taxes		1,882,725			-

Net Income		3,253,027			9,536,660

Preferred Stock Dividend		(774,132	)		(337,745	)

Net Income Attributable to Common Stock Shareholders	$	2,478,895		$	9,198,915

Net Income per share
Basic	$	0.02		$	0.09
Diluted	$	0.02		$	0.08

Weighted average number of shares outstanding
Basic		116,560,372			105,876,867
Diluted		117,879,639			109,051,682

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, 2022 and 2021

(Unaudited)

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

Balance as of March 31, 2022		1,400,000	$	1,400		116,485,747	$	116,487	$	385,426,431		$	(11,240,752	)	$	374,303,566

Common stock issued for cashless warrant exercise		-		-		99,762		99		(99	)		-			-
Employee stock awards		-		-		338,375		338		1,174,725			-			1,175,063
Stock grants		-		-		-		-		47,844			-			47,844
Preferred stock dividends declared													(638,071	)		(638,071	)
Dividends accumulated on preferred stock		-		-		-		-		-			(136,061	)		(136,061	)
Net income		-		-		-		-		-			3,253,027			3,253,027

Balance as of June 30, 2022		1,400,000	$	1,400		116,923,884	$	116,924	$	386,648,901		$	(8,761,857	)	$	378,005,368

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

Acquisition stock issuances		-		-		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		-		-		-		-		-			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		1,400,000	$	1,400		113,046,766	$	113,047	$	367,771,424		$	(32,620,624	)	$	335,265,247

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

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	2022			2021
	For the Three Months Ended June 30,
	2022			2021

Cash flows from operating activities:
Net Income		3,253,027			9,536,660
Adjustments to reconcile Net Income to Net Cash provided by operations:
Depreciation and amortization		4,300,123			3,516,851
Debt discount amortization		20,813			-
Employee stock awards		1,175,063			699,500
Stock grants		47,844			66,914
Contingent consideration payable fair value		(1,302	)		(56,638	)
Allowance for doubtful accounts		711,372			71,157
Gain on disposal of assets		-			(12,044	)
Reduction in right of use asset		208,506			27,087
Deferred income taxes		500,964			-
Changes in Current Assets and Liabilities
Accounts receivable		4,246,175			2,124,556
Due from related parties		(1,544,000	)		-
Inventories		(5,572,096	)		(12,072,607	)
Prepaid expenses		882,620			1,114,473
Deposits		(493,982	)		(3,119,492	)
Accounts payable		(3,009,351	)		7,021,584
Accrued liabilities		697,799			(208,131	)
Operating lease liability		(211,082	)		(39,203	)
Net cash provided by operating activities		5,212,493			8,670,667

Cash flows from investing activities:
Purchase of equipment		(5,264,863	)		(1,611,316	)
Gemini acquisition		-			(50,651,444	)
Proceeds from disposal of assets		-			59,800
Net cash used in investing activities		(5,264,863	)		(52,202,960	)

Cash flow from financing activities:
Payments on inventory facility, net		(733,343	)		(832,143	)
Proceeds from factoring liability		24,700,000			23,651,000
Payments on factoring liability		(24,957,645	)		(24,397,199	)
Payments on note payable – related party		(165,264	)		(150,775	)
Payments on insurance premium note payment		(533,673	)		(415,003	)
Proceeds from construction note payable		1,000,000
Preferred stock dividends paid		(638,071	)		-
Payments on assumed debt from Gemini		-			(50,000,000	)
Payments on note payable		-			(4,000,000	)
Sale of preferred stock		-			35,000,000
Common stock issued for exercised warrants		-			477,811
Common stock issuance costs		-			(3,170,422	)
Net cash used in financing activities		(1,327,996	)		(23,836,731	)

Net decrease in cash		(1,380,366	)		(67,369,024	)
Cash, beginning of period		23,281,475			118,341,471
Cash and restricted cash, end of period	$	21,901,109		$	50,972,447

(Continued)

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	For the Three Months Ended June 30,
	2022		2021

Supplemental cash flow disclosures:
Cash paid during the period for:
Interest	$	100,876	$	189,116
Income taxes	$	-	$	-

Non-cash investing and financing activities:
Construction note payable	$	4,800,358	$	-
Insurance premium note payment	$	2,035,519	$	1,693,764
Dividends accumulated on preferred stock	$	136,061	$	337,745
Acquisition stock issuances	$	-	$	132,645,000

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

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022 and March 31, 2022

(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 their common stock 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 of the issued and outstanding shares of the common stock of the Company. 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). (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, 2022. The results for the three month period ended June 30, 2022 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, 2022 and 2021, (b) the financial position at June 30, 2022, and (c) cash flows for the three month periods ended June 30, 2022 and 2021.

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, goodwill, intangible assets, stock-based compensation and warrant-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, 2022 and March 31, 2022, we reserved $3,766,624 and $3,055,252, respectively, of allowance for doubtful accounts.

Restricted Cash

We consider cash to be restricted when withdrawal or general use is legally restricted. Our restricted cash balance is comprised of cash on deposit with banks to secure the Construction Note Payable as discussed in Note 11. We report restricted cash in the Consolidated Balance Sheets as current or non-current classification based on the expected duration of the restriction.

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. The license agreement grants us the exclusive worldwide rights through April 12, 2026 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.

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 the 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, 2022 and 2021, the Company recognized royalty expenses of $44,044 and $3,404, 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 and nine months ended June 30, 2022 and 2021.

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 Accounting Standard Codification - Revenue from Contract with Customers (“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 determine those that are performance obligations, and assess 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, 2022, 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, 2022			Accounts Receivable
PERCENTAGES	Three Months Ended			June 30, 2022			March 31, 2022

Customers:
A		10.6	%		-			11.8	%
B		-			14.5	%		-
		10.6	%		14.5	%		11.8	%

Disaggregated Revenue Information

The following table represent a disaggregation of revenue from customers by category. We attribute net sales to categories by product or services types; ammunition, ammunition casings, and marketplace fees. We note 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.

	March 31, 2022		March 31, 2021
	For the Three Months Ended
	June 30, 2022		June 30, 2021
Ammunition sales	$	40,969,883	$	28,351,780
Marketplace fee revenue		16,504,946		12,272,066
Ammunition casings sales		3,281,197		3,852,486
Total Revenues	$	60,756,026	$	44,476,332

Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell directly 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 expenses of $550,447 and $116,433 for the three months ended June 30, 2022 and 2021, respectively, recognized in selling and marketing expenses and $182,104 and $19,000 of marketplace advertising expenses recognized in cost of revenues for the three months ended June 30, 2022 and 2021, respectively.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of June 30, 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts receivable, accounts payable, and amounts due to related parties. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

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”).

Research and Development

To date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop new technologies and lines of ammunition.

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 338,375 and 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, 2022 and 2021, respectively.

Concentrations of Credit Risk

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2022, 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.

Excise Tax

As a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect an 11% excise tax for all products sold into these channels. During the three months ended June 30, 2022 and 2021, we recognized approximately $3.7 million and $2.4 million respectively, in excise taxes. For ease in selling to commercial markets, excise tax is included in our unit price for the products sold. We record this through net sales and expense the offsetting tax expense to cost of goods sold.

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 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 up of 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 Parties participated in a successful mediation at the end of June 2022 and all matters relating to this former employee/claimant were confidentially resolved with the lawsuit dismissed with prejudice (Order pending). The settlement was covered by our Employment Practices Liability Policy and didn’t amount to a material amount. On February 10, 2022, AMMO filed a Texas state court complaint against Expansion Industries pursing eight (8) claims in pursuit of recovery of AMMO’s in primer acquisition deposit monies (i.e. Breach of Contract, Common Law Fraud, Violations of Texas Theft Liability Act, Conversion, Negligent Misrepresentation, Unjust Enrichment, Money Had and Received and Constructive Trust). AMMO has since moved aggressively to further the process, including successfully garnishing a portion of the deposit monies in Expansion bank accounts, filing a Motion for Summary Judgement, continuing to pursue written discovery, and amending the Complaint to add Expansion principal as an individual party. Discovery continues at this date while the Company awaits the ruling on its Motion for Summary Judgment. AMMO will continue to move forward aggressively with the claims to recover the deposit monies. There were no other known contingencies at June 30, 2022.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INCOME PER COMMON SHARE

We calculate basic income 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 2,833,755 shares of common stock. The Company excluded warrants of 150,000 for the three months ended June 30, 2022, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.

	2022			2021
	For the Three Months Ended June 30,
	2022			2021

Numerator:
Net income	$	3,253,027		$	9,536,660
Less: Preferred stock dividends		(774,132	)		(337,745	)
Net income attributable to common stockholders	$	2,478,895		$	9,198,915

Denominator:
Weighted average shares of common stock - basic		116,560,372			105,876,867
Effect of dilutive common stock purchase warrants		1,287,280			2,024,037
Effect of dilutive equity incentive awards		31,987			139,909
Effect of dilutive contingently issuable common stock		-			1,010,869
		117,879,639			109,051,682

Basic earnings per share:
Income/(loss) per share attributable to common stockholders - basic	$	0.02		$	0.09

Diluted earnings per share:
Income/(loss) per share attributable to common stockholders - diluted	$	0.02		$	0.08

NOTE 4 – INVENTORIES

At June 30, 2022 and March 31, 2022, the inventory balances are composed of:

SCHEDULE OF INVENTORIES

	June 30, 2022		March 31, 2022
Finished product	$	11,906,050	$	6,167,318
Raw materials		32,918,290		33,924,813
Work in process		19,763,908		18,924,021
Inventory net	$	64,588,248	$	59,016,152

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, 2022 and March 31, 2022:

SCHEDULE OF EQUIPMENT

	June 30, 2022			March 31, 2022
Construction in progress	$	22,564,493		$	14,335,371
Leasehold Improvements		257,009			257,009
Furniture and Fixtures		343,014			343,014
Vehicles		153,254			153,254
Equipment		34,360,949			32,524,850
Tooling		143,710			143,710
Total property and equipment	$	57,822,429		$	47,757,208
Less accumulated depreciation		(11,152,765	)		(10,119,402	)
Net equipment	$	46,669,664		$	37,637,806

Depreciation Expense for the three months ended June 30, 2022 and 2021 totaled $1,033,363 and $995,334, respectively. Of these totals, $826,401 and $769,956 were included in cost of goods sold for the three months ending June 30, 2022 and 2021. Additionally, $206,962 and $225,378 were included in depreciation and amortization expenses in operating expenses.

NOTE 6 – DUE FROM RELATED PARTIES

On June 30, 2022, we posted a bond of approximately $1.6 million related to a judgement assessed to GunBroker.com. Per the terms of the Merger Agreement, the Seller is required to pay or be liable for these losses (capitalized terms are defined in Note 14). Accordingly, on August 1, 2022, we received these funds.

NOTE 7 – 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, 2022, the outstanding balance of the Factoring Liability was $228,026. For the three months ended June 30, 2022, interest expense recognized on the Factoring Liability was $59,816 including $37,500 of amortization of the commitment fee and for the three months ended June 30, 2021 was $41,579.

On June 17, 2021, this agreement was amended which extended the maturity date to June 17, 2023.

NOTE 8 – 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, 2022, the outstanding balance of the Inventory Credit Facility was $92,332. Interest expense recognized on the Inventory Credit Facility was $5,142 for the three months ended June 30, 2022 and $17,659, including $8,561 of amortization of the annual fee for the three months ended June 30, 2021.

NOTE 9 – LEASES

We lease office, manufacturing, and warehouse space in Scottsdale, 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 Scottsdale lease does not include a renewal option. In August of 2021 we extended the lease of our Atlanta offices through May of 2027, accordingly we increased our Right of Use Assets and Operating Lease Liabilities by $501,125 at September 30, 2021. In January of 2022, we extended the lease of our second Manitowoc, WI location and increased our Right of Use Assets and Operating Lease Liabilities by $308,326.

As of June 30, 2022 and March 31, 2022, total Right of Use Assets were $2,583,344 and $2,791,850, respectively. As of June 30, 2022 and March 31, 2022, total Operating Lease Liabilities were $2,711,698 and $2,922,780, respectively. The current portion of our Operating Lease Liability on June 30, 2022 and March 31, 2022 is $811,139 and $831,429 respectively and is reported as a current liability. The remaining $1,900,559 of the total $2,711,698 for the quarter ended June 30, 2022 and the $2,091,351 of the total $2,922,780 for the year ended March 31, 2022 of the Operating Lease Liability is presented as a long-term liability net of the current portion.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The weighted average remaining lease term and weighted average discount rate for operating leases were 3.4 years and 10.0%, respectively.

Future minimum lease payments under non-cancellable leases as of June 30, 2022 are as follows:

Years Ended March 31,
2022 ⁽¹⁾	$	782,069
2023		992,620
2024		796,066
2025		351,962
2026		257,508
Thereafter		43,660
Total Lease Payments		3,223,885
Less: Amount Representing Interest		(512,187	)
	$	2,711,698

(1)

This amount represents future lease payments for the remaining nine months of fiscal year 2023. It does not include any lease payments for the three months ended June 30, 2022.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – NOTES PAYABLE – RELATED PARTY

For the three months ended June 30, 2022 and 2021, the Company made $165,264 and $150,755 in principal payments, respectively, 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 $18,652 and $33,141 in interest expenses for the three months ended June 30, 2022 and 2021, respectively.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – CONSTRUCTION NOTE PAYABLE

On October 14, 2021, we entered into a Construction Loan Agreement (the “Loan Agreement”) with Hiawatha National Bank (“Hiawatha”). The Loan Agreement specifies that Hiawatha may lend up to $11,625,000 to the Borrower to pay a portion of the construction costs of an approximately 160,000 square foot manufacturing facility to be constructed our property (the “Loan”). The first advance of Loan funds by Hiawatha was made on October 14, 2021 in the amount of $329,843. We expect to receive further advances of Loan funds approximately every month as our “owner’s equity” is fully funded into the ongoing new plant construction project. The Loan is an advancing term loan and not a revolving loan so any portion of the principal repaid cannot be reborrowed.

Additionally, on October 14, 2021, we issued a Promissory Note in favor of Hiawatha (the “Note”) in the amount of up to $11,625,000 with an interest rate of four and one-half percent (4.5%). The maturity date of the Note is October 14, 2026.

We can prepay the Note in whole or in part starting in July 2022 with a prepayment premium of one percent (1%) of the principal being prepaid.

The Loan Agreement contains customary events of default including, but not limited to, a failure to make any payments pursuant to the Loan Agreement or Note, a failure to complete construction of the project, a lien of $100,000 or more against the property, or a transfer of the property without Hiawatha’s consent. Upon the occurrence of an event of default, among other remedies, the amounts due pursuant to the Loan can be accelerated, Hiawatha can foreclose on the property pursuant to the mortgage, and a late charge of five percent (5%) of the amount due will be owed with all amounts then owed pursuant to the Note bearing interest at an increased rate.

For the three months ended June 30, 2022, approximately $5.8 million of Loan funds were advanced including $1.0 million of cash collateral or restricted cash as security for the Loan. The restricted cash can be released per the terms documented in the Loan Agreement filed with the Commission on Form 10-Q on February 14, 2022.

NOTE 12 – CAPITAL STOCK

Our authorized capital consists of 200,000,000 shares of common stock with a par value of $0.001 per share.

During the three month period ended June 30, 2022, we issued 438,137 shares of common stock as follows:

	●	99,762 shares were issued for cashless exercise of 100,000 warrants
	●	338,375 shares valued at $1,175,063 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, 2022, outstanding and exercisable stock purchase warrants consisted of the following:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Life Remaining (Years)
Outstanding at March 31, 2022		2,933,755		$	2.32		2.29
Granted		-			-		-
Exercised		(100,000	)		0.01		4.44
Forfeited or cancelled		-			-		-
Outstanding at June 30, 2022		2,833,755		$	2.40		2.01
Exercisable at June 30, 2022		2,833,755		$	2.40		2.01

As of June 30, 2022, we had 2,833,755 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 911 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 1,821,567 shares of our Common Stock at an exercise price of $2.00 per share consisting of 32% of the warrants until August 2024, and 68% until February 2026; (3) warrants to purchase 474,966 shares of Common Stock at an exercise price of $2.40 until September 2024; (4) warrants to purchase 386,311 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 13 – 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 for 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.

We accumulated $136,061 and $337,745 of Preferred Dividends as of June 30, 2022 and 2021, respectively.

On May 12, 2022, the Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning March 15, 2022 through and including June 14, 2022 payable on June 15, 2022 to holders of record of Series A Preferred Stock on May 31, 2022 equal to $0.559027777777778 per share. Dividends totaling $782,639 were paid on June 15, 2022.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - 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.

Pursuant to the Merger Agreement, the Company completed a Post-Closing Adjustment following the close of the Merger equal to the Closing Working Capital minus the Estimated Working Capital at closing of the Merger. Accordingly, the Company received a cash payment of $129,114 and adjusted the $2,000,000 Estimated Working Capital Adjustment in the fair value of the consideration transferred to $1,870,886.

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


Cash	$	48,649,954
Working capital adjustment		1,870,886
Contingent consideration		10,755,000
Common stock		132,645,000
Assumed debt		50,000,000

Fair value of Patent	$	243,920,840

The 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
Other Intangible assets⁽¹⁾		146,617,380
Goodwill⁽¹⁾		90,870,094
Right of use assets - operating leases		612,727
Accounts payable		(12,514,919	)
Accrued expenses		(196,780	)
Operating lease liability		(704,356	)

Total Consideration	$	243,920,840

⁽¹⁾	Other intangible assets consist of Tradenames, Customer Relationships, Intellectual Property, and other tangible assets related to the acquired business.

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.

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

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

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 15 – GOODWILL AND INTANGIBLE ASSETS

During our fiscal year ended March 31, 2022, we recorded $90,870,094 of Goodwill generated from our Merger with Gemini.

Amortization expenses related to our intangible assets for the three months ended June 30, 2022 and 2021 were $3,266,760 and $2,521,517, respectively.

SCHEDULE OF INTANGIBLE ASSETS

			June 30, 2022
	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				(250,000	)		-			-
Accumulated amortization – Patents				-			(1,671,153	)		-
Accumulated amortization – Intangible Assets				-			-			(18,606,624	)
			$	-		$	5,402,852		$	133,156,993

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

Years Ended March 31,	Estimates for Fiscal Year
2023 (1)	$	9,828,455
2024		13,074,489
2025		12,664,775
2026		12,664,775
2027		12,553,355
Thereafter		77,773,996
	$	138,559,845

(1)	This amount represents future amortization for the remaining nine months of fiscal year 2023. It does not include any amortization for the three months ended June 30, 2022.

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SEGMENTS

On April 30, 2021, we entered into an agreement and plan of merger with Gemini, which, along with its subsidiaries, engages primarily in the operation of an online marketplace dedicated to firearms, hunting, shooting and related products, which created a second reportable segment. Our Chief Executive Officer reviews financial performance based on our 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.

In the current period, we began the reporting of the separate allocation of certain corporate general and administrative expenses including non-cash stock compensation expense, as such we have updated the prior period disclosure herein. 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		Corporate and other reconciling items(a)			Total
	For the Three Months Ended June 30, 2022
	Ammunition		Marketplace		Corporate and other expenses			Total

Net Revenues	$	44,251,080	$	16,504,946	$	-		$	60,756,026
Cost of Revenues		40,337,015		2,283,349		-			42,620,364
General and administrative expense		3,673,112		2,433,729		3,615,724			9,722,565
Depreciation and amortization		146,412		3,203,944		-			3,350,356
Income from Operations	$	94,541	$	8,583,924	$	(3,615,724	)	$	5,062,741

	Ammunition		Marketplace		Corporate and other reconciling items(a)			Total
	For the Three Months Ended June 30, 2021
	Ammunition		Marketplace		Corporate and other expenses			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		2,877,354		1,002,564		2,799,401			6,679,319
Depreciation and amortization		420,242		2,190,819		-			2,611,061
Income from Operations	$	5,058,422	$	7,421,493	$	(2,799,401	)	$	9,680,514

NOTE 17 – INCOME TAXES

The income tax provision effective tax rates were 37.0% and 0.0% for the three months ended June 30, 2022 and 2021, respectively. During the three months ended June 30, 2022 and 2021, the effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes for the three months ended June 30, 2022 and the change in the valuation allowance for the three months ended June 30, 2021. The effective tax rates increased during the three months ended June 30, 2022 compared to the prior year period due to an increase in income from operations.

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, 2021, and 2022 are subject to audit.

NOTE 18 – SUBSEQUENT EVENTS

Manufacturing Business Spin-Off

On August 15, 2022, we announced that our Board of Directors have unanimously approved the spin-off of our manufacturing business into a separate publicly traded company. We expect that this the transaction will be in the form of a distribution to our shareholders of 100% of the stock of the new independent publicly traded company. The distribution is intended to be tax-free to both companies and their shareholders for U.S. federal income tax purposes The marketplace business will remain a part of the Company, operating under a new name and ticker symbol. As of this date, we reasonably anticipate the transaction will be completed in the 2023 calendar year, subject to final approval by our Board of Directors, a Form 10 registration statement being declared effective by the U.S. Securities and Exchange Commission, regulatory approvals and satisfaction of other standard and necessary terms and conditions. There can be no assurance the transaction will be consummated or as concerns the ultimate timing of the proposed transaction.

Common Stock Issuances

Subsequent to the June 30, 2022, the Company issued 25,000 shares for employees as compensation for a total value of $87,500 or $3.50 per share. Additionally, 12,121 shares were issued pursuant the exercise of warrants for a total value of $24,242.

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”), hard armor piercing incendiary (“HAPI”) tactical and ballistically matched (“BMMPR”) 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. The Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 7.62x39, .300NM, .338 Lapua, 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.

Through JMC, we offer ammunition casings for pistol ammunition through large rifle ammunition. Jagemann Munitions Components 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 Munition Components™, 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

SEC Form 10-Q filed by AMMO Inc.