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 September 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 November 11, 2022, there were 117,449,755 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 September 30, 2022 (Unaudited) and March 31, 2022	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended September 30, 2022, and 2021	4
	Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three and six months ended September 30, 2022, and 2021	5
	Condensed Consolidated Statements of Cash flow (Unaudited) for the six months ended September 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	24
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	31
ITEM 4:	CONTROLS AND PROCEDURES	31

PART II

ITEM 1:	LEGAL PROCEEDINGS	32
ITEM 1A:	RISK FACTORS	32
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	32
ITEM 4:	MINE SAFETY DISCLOSURE	32
ITEM 5:	OTHER INFORMATION	33
ITEM 6:	EXHIBITS	33
SIGNATURES		34

PART I

ITEM 1. FINANCIAL STATEMENTS

AMMO, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2022			March 31, 2022
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	29,004,539		$	23,281,475
Accounts receivable, net		30,430,044			43,955,084
Due from related parties		6,000			15,000
Inventories		68,607,008			59,016,152
Prepaid expenses		4,328,855			3,423,925
Current portion of restricted cash		500,000			-
Total Current Assets		132,876,446			129,691,636

Property and Equipment, net		53,786,118			37,637,806

Other Assets:
Deposits		8,701,667			11,360,322
Restricted cash, net of current portion		500,000			-
Patents, net		5,279,486			5,526,218
Other intangible assets, net		130,013,599			136,300,387
Goodwill		90,870,094			90,870,094
Right of use assets – operating leases		2,393,817			2,791,850
TOTAL ASSETS	$	424,421,227		$	414,178,313

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	23,799,668		$	26,817,083
Factoring liability		794,389			485,671
Accrued liabilities		5,019,029			6,178,814
Inventory credit facility		-			825,675
Current portion of operating lease liability		836,544			831,429
Current portion of note payable related party		531,397			684,639
Current portion of construction note payable		243,372			-
Insurance premium note payable		701,336			-
Total Current Liabilities		31,925,735			35,823,311

Long-term Liabilities:
Contingent consideration payable		178,896			204,142
Notes payable related party, net of current portion		-			181,132
Construction note payable, net of unamortized issuance costs		10,616,164			38,330
Operating lease liability, net of current portion		1,683,052			2,091,351
Deferred income tax liability		2,353,791			1,536,481
Total Liabilities		46,757,638			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 September 30, 2022 and March 31, 2022, respectively		1,400			1,400
Common stock, $0.001 par value, 200,000,000 shares authorized 117,274,755 and 116,485,747 shares issued and outstanding at September 30, 2022 and March 31, 2022, respectively		117,275			116,487
Additional paid-in capital		387,892,917			385,426,431
Accumulated deficit		(10,348,003	)		(11,240,752	)
Total Shareholders’ Equity		377,663,589			374,303,566
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	424,421,227		$	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			2022			2021
	For the Three Months Ended September 30,						For the Six Months Ended September 30,
	2022			2021			2022			2021

Net Revenues
Ammunition sales	$	29,386,969		$	40,208,402		$	70,356,852		$	68,560,182
Marketplace revenue		14,562,694			16,777,216			31,067,640			29,049,282
Casing sales		4,338,896			4,016,467			7,620,093			7,868,953
Total Revenues		48,288,559			61,002,085			109,044,585			105,478,417

Cost of Revenues		35,452,850			34,786,017			78,073,214			60,291,455
Gross Profit		12,835,709			26,216,068			30,971,371			45,186,962

Operating Expenses
Selling and marketing		1,068,501			1,550,394			2,976,671			2,716,243
Corporate general and administrative		5,055,699			4,082,236			10,084,996			7,238,833
Employee salaries and related expenses		3,923,700			2,647,108			6,708,798			5,003,981
Depreciation and amortization expense		3,291,322			3,708,012			6,641,678			6,319,073
Total operating expenses		13,339,222			11,987,750			26,412,143			21,278,130
Income/(Loss) from Operations		(503,513	)		14,228,318			4,559,228			23,908,832

Other Expenses
Other income		5,098			-			198,596			21,425
Interest expense		(97,265	)		(112,806	)		(217,752	)		(278,085	)
Total other income/(expense)		(92,167	)		(112,806	)		(19,156	)		(256,660	)

Income/(Loss) before Income Taxes		(595,680	)		14,115,512			4,540,072			23,652,172

Provision for Income Taxes		207,827			-			2,090,552			-

Net Income/(Loss)		(803,507	)		14,115,512			2,449,520			23,652,172

Preferred Stock Dividend		(782,639	)		(782,639	)		(1,556,771	)		(1,120,384	)

Net Income/(Loss) Attributable to Common Stock Shareholders	$	(1,586,146	)	$	13,332,873		$	892,749		$	22,531,788

Net Income/(Loss) per share
Basic	$	(0.01	)	$	0.12		$	0.01		$	0.21
Diluted	$	(0.01	)	$	0.11		$	0.01		$	0.20

Weighted average number of shares outstanding
Basic		116,927,607			113,174,363			116,744,972			109,545,553
Diluted		116,927,607			116,721,949			118,063,619			112,848,821

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

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)

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

Common stock issued for exercised warrants		-		-		12,121		12		24,230			-			24,242
Employee stock awards		-		-		338,750		339		1,176,036			-			1,176,375
Stock grants		-		-		-		-		43,750			-			43,750
Preferred stock dividend		-		-		-		-		-			(646,595	)		(646,595	)
Dividends accumulated on preferred stock		-		-		-		-		-			(136,044	)		(136,044	)
Net loss		-		-		-		-		-			(803,507	)		(803,507	)

Balance as of September 30, 2022		1,400,000	$	1,400		117,274,755	$	117,275	$	387,892,917		$	(10,348,003	)	$	377,663,589

	Preferred Stock				Common Shares				Additional
	Number		Par Value		Number		Par Value		Paid-In Capital			Accumulated (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		-		-		18,500,000		18,500		132,626,500			-			132,645,000
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 and equipment		-		-		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 costs		-		-		-		-		(4,670,422	)		-			(4,670,422)
Issuance of Series A Preferred Stock, net of issuance costs		1,400,000		1,400		-		-		34,998,600			-			35,000,000
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	$	1,400.00		113,046,766	$	113,047	$	367,771,424		$	(32,620,624	)	$	335,265,247

Acquisition stock issuances		-		-		-		-		(29,500	)		-			(29,500	)
Common stock issued for exercised warrants		-		-		160,998		161		343,684			-			343,845
Common stock issued for cashless warrant exercise		-		-		1,752		2		(2	)		-			-
Common stock issued for services and equipment		-		-		21,250		21		127,479			-			127,500
Employee stock awards		-		-		352,250		352		1,153,273			-			1,153,625
Stock grants		-		-		-		-		65,098			-			65,098
Dividends accumulated on preferred stock		-		-		-		-		-			(782,639	)		(782,639	)
Net income		-		-		-		-		-			14,115,512			14,115,512

Balance as of September 30, 2021		1,400,000	$	1,400		113,583,016	$	113,583	$	369,431,456		$	(19,287,751	)	$	350,258,688
Balance		1,400,000	$	1,400		113,583,016	$	113,583	$	369,431,456		$	(19,287,751	)	$	350,258,688

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 Six Months Ended September 30,
	2022			2021

Cash flows from operating activities:
Net Income	$	2,449,520		$	23,652,172
Adjustments to reconcile Net Income to Net Cash provided by operations:
Depreciation and amortization		8,594,968			8,154,748
Debt discount amortization		41,626			-
Employee stock awards		2,351,438			1,853,125
Stock grants		91,594			132,012
Contingent consideration payable fair value		(25,246	)		(60,082	)
Allowance for doubtful accounts		934,135			585,260
Gain on disposal of assets		-			(12,044	)
Reduction in right of use asset		398,033			268,693
Deferred income taxes		817,310			-
Changes in Current Assets and Liabilities
Accounts receivable		12,590,905			(14,210,318	)
Due to (from) related parties		9,000			(277	)
Inventories		(9,590,856	)		(19,093,960	)
Prepaid expenses		1,130,589			1,635,683
Deposits		2,633,655			(14,683,669	)
Accounts payable		(3,017,415	)		3,921,049
Accrued liabilities		(1,295,829	)		1,010,222
Operating lease liability		(403,184	)		(284,694	)
Net cash provided by/(used in) operating activities		17,710,243			(7,132,080	)

Cash flows from investing activities:
Purchase of equipment		(8,405,180	)		(50,520,840	)
Gemini acquisition		-			(5,235,749	)
Proceeds from disposal of assets		-			59,800
Net cash used in investing activities		(8,405,180	)		(55,696,789	)

Cash flow from financing activities:
Payments on inventory facility, net		(825,675	)		(896,287	)
Proceeds from factoring liability		45,600,000			50,355,962
Payments on factoring liability		(45,291,282	)		(49,066,474	)
Payments on note payable – related party		(334,374	)		(305,061	)
Payments on insurance premium note payment		(1,334,183	)		(1,074,210	)
Proceeds from construction note payable		1,000,000			-
Preferred stock dividends paid		(1,420,727	)		(337,745	)
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		24,242			949,156
Common stock issuance costs		-			(3,199,922	)
Net cash used in financing activities		(2,581,999	)		(22,574,581	)

Net increase/(decrease) in cash		6,723,064			(85,403,450	)
Cash, beginning of period		23,281,475			118,341,471
Cash and restricted cash, end of period	$	30,004,539		$	32,938,021

(Continued)

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	For the Six Months Ended September 30,
	2022		2021

Supplemental cash flow disclosures:
Cash paid during the period for:
Interest	$	141,131	$	308,695
Income taxes	$	1,302,811	$	-

Non-cash investing and financing activities:
Construction note payable	$	9,804,580	$	-
Insurance premium note payment	$	2,035,519	$	2,166,852
Dividends accumulated on preferred stock	$	136,044	$	782,639
Operating lease liability	$	-	$	501,125
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

September 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 and six month period ended September 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 and six month periods ended September 30, 2022 and 2021, (b) the financial position at September 30, 2022, and (c) cash flows for the six month periods ended September 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 September 30, 2022 and March 31, 2022, we reserved $4,053,047 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 10 . 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 six months ended September 30, 2022 and 2021, the Company recognized royalty expenses of $80,546 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 six months ended September 30, 2022 and 2021.

Revenue Recognition

We generate revenue from the production and sale of ammunition, ammunition casings, 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 and six months ended September 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 September 30, 2022				Accounts Receivable
PERCENTAGES	Three Months Ended		Six Months Ended		September 30, 2022		March 31, 2022

Customers:
A		-		-		-		11.8	%
		-		-		-		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.

	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
	For the Three Months Ended				For the Six Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Ammunition Sales	$	29,386,969	$	40,208,402	$	70,356,852	$	68,560,182
Marketplace fee revenue		14,562,694		16,777,216		31,067,640		29,049,282
Ammunition Casings Sales		4,338,896		4,016,467		7,620,093		7,868,953
Total Sales	$	48,288,559	$	61,002,085	$	109,044,585	$	105,478,417

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 $695,537 and $55,194 for the six months ended September 30, 2022 and 2021, respectively, recognized in selling and marketing expenses and $220,219 and $72,711 of marketplace advertising expenses recognized in cost of revenues for the six months ended September 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 September 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, construction note 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 Codification 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 558,375 shares of common stock issued to employees, members of the Board of Directors, and members of our advisory committee for services during the three and six months ended September 30, 2022

Concentrations of Credit Risk

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of September 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 six months ended September 30, 2022 and 2021, we recognized approximately $6.1 million and $6.3 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 Sept

SEC Form 10-Q filed by AMMO Inc.