Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

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 ☒

The registrant had ~~14,000,834~~14,104,127 shares of common stock, par value $0.001, outstanding as of ~~December 10, 2020.~~

For the Three ~~and Six~~ Months Ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020

~~1st Response®, 24/7®,~~ Accumax®, ~~Ammo Vault®, Black Ops®,~~ BOG®~~, Boneyard®~~, Bubba®, Caldwell®, Deadshot®, Deathgrip®, Delta Series®, ~~Delta Force®,~~ E-MAX®~~, Extreme Ops®~~, F.A.T. Wrench®, Fieldpod®, ~~Flexware®,~~ Frankford Arsenal®~~, Frontier®, Galaxy®~~, Golden Rod®, ~~Great Divide®, Grip A Legend®, Gun Butler®, Homeland Security®,~~ Hooyman®~~, H.R.T.®, Hydrosled®~~, Imperial®, Intellidropper®~~, Key Gear®, Jolt®~~, Lead Sled®, Lockdown®, ~~M-Press®, M.A,G.I.C.®,~~ Mag Charger®~~, Magnum Rifle Gong®, Night Guard®, Night Terror®, Nitro®, Non-Typical Wildlife Solutions®~~, Old Timer®, ~~One Cut and You’re Through®, Orange Peel®, Outback®, Pico Light®, S.W.A.T.®, Safe-T-Lock®,~~ Schrade®~~, Schrade Tough®, Search & Rescue®~~, Sharpfinger®, ~~Special Ops®, Special Tactical®, Spright®, Stable Table®, Sure-Lock®, Switcheroo®, Switch-it®, Tack Driver®,~~ Tipton®~~, U-Dig-It®, Ultra Glide®~~, Uncle Henry®, ust®, Wheeler®, XLA Bipod®, ~~®, Zinx®, 10,000 Rounds in Your Pocket®, Color Guard®, Complete Focus®,~~ Crimson Trace®~~, Kryptonyte®~~, Lasergrips®, Laserguard®, Laserlyte®, ~~Lightguard®~~Lasersaddle®, ~~LINQ®, Quick Tyme®~~Lightguard®, Rail Master®, ~~Reaction Tyme®, Rumble Tyme®, Score Tyme®, Shockstop®, Steel Tyme®, Trigger Tyme®, and Triple Tyme®~~ are some of the registered U.S. trademarks of our company or one of our subsidiaries. ~~Adrenaline™~~AOB Products Company™, ~~Bloodmoon™, Built for Generations™, Clandestine™, Dominion™,~~Dock and Unlock ™, Don’t ~~Settle for Average. Demand Perfection™, Duro™~~Be Outdoorsy – Be Outdoors™, Engineered for the Unknown™, ~~Field General™, Flex Change™, It’s not protected unless it’s on LOCKDOWN™, Learn and Live™~~From Niche to Known™, Lockdown Puck™~~, Magnum Magnet™~~, MEAT!™, MEAT Your Maker!™, ~~Officer™, On the Edge of Adventure™, Pile Driver™, Stinger™, Survival Born, Adventure Ready™,~~ Secure Your Lifestyle™, The Ultimate Lifestyle™~~, Triple Play™, Tunnel Vision™, Turkinator™~~, Unmatched Accuracy at the Bench and in the Field™, ~~UST™, Velociradar™,~~ Water to Plate™, Your Land. Your Legacy™, ~~Accu-Guard™, Accu-Grips™, Dart Tyme™, Defender Series™, Instant Activation™, Instinctive Activation™, Lasersaddle™, Master Series™, and Popper Tyme™~~ are some of the unregistered trademarks of our company or one of our subsidiaries. Trademarks licensed to us by Smith & Wesson Brands, Inc. in connection with the manufacture, distribution, marketing, advertising, promotion, merchandising, shipping, and sale of certain licensed accessory product categories include ~~Gemtech®,~~ M&P®, Performance Center®, Smith & Wesson®, T/C®, and Thompson/Center Arms™, among others. This report also may contain trademarks and trade names of other companies.

The statements contained in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding:

A number of factors could cause our actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among others, the following:

All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements.

We are subject to the informational requirements of the Exchange Act, and we file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information we file with the SEC are available free of charge at https://ir.aob.com/financial-information/sec-filings as soon as practicable after such reports are available on the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

		As of:					As of:
		October 31, 2020 (Unaudited)		April 30, 2020			July 31, 2021 (Unaudited)		April 30, 2021
		(In thousands, except per share data)					(In thousands, except per share data)
ASSETS	ASSETS					ASSETS
Current assets:
Cash and cash equivalents		$	33,880	$	234		$	56,343	$	60,801
Accounts receivable, net of allowance for credit losses of $408 on October 31, 2020 and $448 on April 30, 2020			57,971		35,096
Accounts receivable, net of allowance for credit losses of $89 on July 31, 2021 and $119 on April 30, 2021								33,525		37,487
Inventories			73,575		59,999			92,042		74,296
Prepaid expenses and other current assets			2,842		3,244			9,022		7,098
Income tax receivable			—		104			—		149
Total current assets			168,268		98,677			190,932		179,831
Property, plant, and equipment, net			10,230		9,677			10,950		10,992
Intangible assets, net			61,588		69,152			50,321		53,643
Goodwill			64,315		64,315			64,315		64,315
Right-of-use assets			26,126		2,772			24,984		25,375
Deferred income taxes			4,360		3,580			6,793		6,683
Other assets			533		242			364		424
		$	335,420	$	248,415
Total assets							$	348,659	$	341,263
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	19,944	$	8,936		$	20,182	$	16,021
Accrued expenses			11,842		7,655			12,322		9,843
Accrued payroll and incentives			4,444		3,249			3,242		6,774
Accrued income taxes			2,442		—			720		—
Lease liabilities, current			1,734		1,324			1,793		1,771
Accrued profit sharing			303		217			2,181		1,933
Total current liabilities			40,709		21,381			40,440		36,342
Lease liabilities, net of current portion			25,632		2,830			24,327		24,780
Other non-current liabilities			294		106			85		236
Total liabilities			66,635		24,317			64,852		61,358
Commitments and contingencies (Note 11)
Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized, 0 shares issued or outstanding			—		—			—		—
Common stock, $0.001 par value, 100,000,000 shares authorized, 13,991,736 shares issued and outstanding on October 31, 2020			14		—
Former net parent company investment			—		224,098
Common stock, $0.001 par value, 100,000,000 shares authorized, 14,099,641 shares issued and outstanding on July 31, 2021 and 14,059,440 shares issued and outstanding on April 30, 2021								14		14
Additional paid in capital			263,519		—			265,807		265,362
Retained earnings			5,252		—			17,986		14,529
Total equity			268,785		224,098			283,807		279,905
		$	335,420	$	248,415
Total liabilities and equity							$	348,659	$	341,263

See accompanying notes to unaudited consolidated and combined financial statements.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~(LOSS)/~~INCOME

	For the Three Months Ended October 31,					For the Six Months Ended October 31,					For the Three Months Ended July 31,
	2020		2019			2020		2019			2021			2020
	(In thousands, except per share data)										(In thousands, except per share data)
Net sales (including $882,000 and $2.4 million of related party sales for the one month and four months of our fiscal year 2021, respectively, prior to the Separation and $6.2 million and $10.3 million of related party sales for the three and six months ended October 31, 2019, respectively)	$	79,098	$	47,742		$	129,565	$	80,959
Net sales (including $1.5 million of related party sales for the three months ended July 31, 2020 prior to the Separation)											$	60,768		$	50,468
Cost of sales		42,025		28,651			68,762		48,201			31,785			26,737
Gross profit		37,073		19,091			60,803		32,758			28,983			23,731
Operating expenses:
Research and development		1,932		1,193			3,162		2,525			1,521			1,230
Selling, marketing, and distribution		15,679		9,964			26,305		17,682			13,200			10,543
General and administrative		9,898		9,406			19,308		21,243			10,039			9,494
Total operating expenses		27,509		20,563			48,775		41,450			24,760			21,267
Operating income/(loss)		9,564		(1,472	)		12,028		(8,692	)
Other (expense)/income, net:
Other income/(expense), net		127		(5	)		211		(7	)
Interest income, net		56		1,178			392		2,116
Total other (expense)/income, net		183		1,173			603		2,109
Income/(loss) from operations before income taxes		9,747		(299	)		12,631		(6,583	)
Income tax expense/(benefit)		2,408		94			3,503		(1,204	)
Net income/(loss)/comprehensive income/(loss)		7,339		(393	)	$	9,128	$	(5,379	)
Net income/(loss) per share:
Operating income												4,223			2,464
Other income/(expense), net:
Other income, net												129			84
Interest (expense)/income, net												(46	)		336
Total other income, net												83			420
Income from operations before income taxes												4,306			2,884
Income tax expense												849			1,095
Net income/comprehensive income											$	3,457		$	1,789
Net income per share:
Basic	$	0.52	$	(0.03	)	$	0.65	$	(0.38	)	$	0.25		$	0.13
Diluted	$	0.52	$	(0.03	)	$	0.65	$	(0.38	)	$	0.24		$	0.13
Weighted average number of common shares outstanding:
Basic		13,981		13,975			13,978		13,975			14,083			13,975
Diluted		14,155		13,975			14,125		13,975			14,301			13,975

See accompanying notes to unaudited consolidated and combined financial statements.


	Common Stock				Former Net Parent			Additional		Retained		Total			Common Stock				Former Net Parent		Additional
(In thousands)	Shares		Amount		Company Investment			Paid-In Capital		Earnings		Equity
Balance at April 30, 2019		—	$	—	$	324,614		$	—	$	—	$	324,614
Net loss		—		—		(4,983	)		—		—		(4,983	)
Net transfers from former Parent		—		—		2,035			—		—		2,035
Balance at July 31, 2019		—	$	—	$	321,666		$	—	$	—	$	321,666

Net income		—		—		(393	)		—		—		(393	)
Net transfers from former Parent		—		—		2,021			—		—		2,021
Balance at October 31, 2019		—	$	—	$	323,294		$	—	$	—	$	323,294
															Shares		Amount		Company Investment		Paid-In Capital			Retained Earnings		Total Equity
Balance at April 30, 2020		—		—		224,098			—		—		224,098			—	$	—	$	224,098	$	—		$	—	$	224,098
Net income		—		—		1,789			—		—		1,789			—		—		1,789		—			—		1,789
Net transfers from former Parent		—		—		1,455			—		—		1,455			—		—		1,455		—			—		1,455
Balance at July 31, 2020		—	$	—	$	227,342		$	—	$	—	$	227,342			—	$	—	$	227,342	$	—		$	—	$	227,342

Net income		—		—		2,087			—		5,252		7,339

															Common Stock				Former Net Parent		Additional
															Shares		Amount		Company Investment		Paid-In Capital			Retained Earnings		Total Equity
Balance at April 30, 2021																14,059	$	14	$	—	$	265,362		$	14,529	$	279,905
Net Income																—		—		—		—			3,457		3,457
Stock-based compensation		—		—		—			776		—		776			—		—		—		752			—		752
Issuance of common stock under restricted stock unit awards		17		—		—			—		—		—
Net transfers from former Parent		—		—		33,328			—		—		33,328
Issuance of common stock and reclassification of former net parent company investment		13,975		14		(262,757	)		262,743		—		—
Balance at October 31, 2020		13,992	$	14	$	—		$	263,519	$	5,252	$	268,785
Proceeds from exercise of stock options																3		—		—		5			—		5
Issuance of common stock under restricted stock unit awards, net of tax																38		—		—		(312	)		—		(312	)
Balance at July 31, 2021																14,100	$	14	$	—	$	265,807		$	17,986	$	283,807

See accompanying notes to unaudited consolidated and combined financial statements.

	For the Six Months Ended October 31,						For the Three Months Ended July 31,
	2020			2019			2021			2020
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income/(loss)	$	9,128		$	(5,379	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Net income							$	3,457		$	1,789
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization		10,459			12,156			4,179			5,388
Provision for losses on notes and accounts receivable		174			610
Loss on sale/disposition of assets								127			—
Provision for credit losses on accounts receivable								23			97
Deferred income taxes		(780	)		—			(110	)		—
Stock-based compensation expense		1,196			666			752			298
Changes in operating assets and liabilities:
Accounts receivable		(23,049	)		(5,925	)		3,939			(6,031	)
Inventories		(13,576	)		(4,553	)		(17,746	)		(9,594	)
Prepaid expenses and other current assets		(1,560	)		158			(1,924	)		(1,190	)
Income taxes		2,546			102			869			(32	)
Accounts payable		11,716			(455	)		4,226			6,165
Accrued payroll and incentives		2,421			(1,425	)		(3,532	)		66
Right of use assets		586			395			403			232
Accrued profit sharing		86			(170	)		248			58
Accrued expenses		5,690			2,489			2,479			3,340
Other assets		(451	)		(25	)		39			223
Lease liabilities		(728	)		(485	)		(443	)		(322	)
Other non-current liabilities		598			(73	)		(151	)		77
Net cash provided by/(used in) operating activities		4,456			(1,914	)
Net cash (used in)/provided by operating activities								(3,165	)		564
Cash flows from investing activities:
Payments to acquire patents and software		(378	)		(110	)		(127	)		(105	)
Payments to acquire property and equipment		(1,728	)		(784	)		(859	)		(879	)
Net cash used in investing activities		(2,106	)		(894	)		(986	)		(984	)
Cash flows from financing activities:
Net transfers from former Parent		31,706			3,072			—			186
Cash paid for debt issuance costs		(410	)		—
Net cash provided by financing activities		31,296			3,072
Net increase in cash and cash equivalents		33,646			264
Proceeds from exercise of options to acquire common stock								5			—
Payment of employee withholding tax related to restricted stock units								(312	)		—
Net cash (used in)/provided by financing activities								(307	)		186
Net decrease in cash and cash equivalents								(4,458	)		(234	)
Cash and cash equivalents, beginning of period		234			162			60,801			234
Cash and cash equivalents, end of period	$	33,880		$	426		$	56,343		$	—
Supplemental disclosure of cash flow information
Cash paid for:
Interest							$	38		$	—
Income taxes							$	85		$	—

See accompanying notes to unaudited consolidated and combined financial statements.

	For the Six Months Ended October 31,				For the Three Months Ended July 31,
	2020		2019		2021		2020
	(In thousands)				(In thousands)
Purchases of property and equipment included in accounts payable	$	82	$	—
Non-cash transfers to/from former parent		1,398		—
Purchases of property and equipment and intangibles included in accounts payable					$	178	$	65
Changes in right of use assets for operating lease obligations		23,940		3,369		12		—
Changes in lease liabilities for operating lease obligations		23,940		4,449		12		—

See accompanying notes to unaudited consolidated and combined financial statements.

For the Three ~~and Six~~ Months Ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020

On ~~November 13, 2019,~~August 24, 2020, Smith & Wesson Brands, Inc., or ~~SWBI, announced that it was proceeding with a plan to~~our former parent, completed the spin-off of its outdoor products and accessories business, or the Separation, to our company ~~American Outdoor Brands, Inc., a newly formed wholly owned subsidiary formed in anticipation of the Separation~~ (our “company,” “we,” “us,” or “our”)~~, resulting in two distinct,~~.

The consolidated and combined financial statements prior to the Separation, including the three months ended July 31, 2020, do not necessarily reflect what the financial position, results of operations, and cash flows would have been had we operated as an independent, publicly traded ~~companies.~~

~~On August 24,~~company during the historical periods presented. For the three months ended July 31, 2020, SWBI completed the Separation through a pro-rata distribution, or the Distribution, of all the outstanding shares of our common stock to the stockholders of record of SWBI as of the close of business on August 10, 2020, the record date for the Distribution, or the Record Date. Each SWBI stockholder of record received ~~one~~ share of our common stock, $0.001 par value, for every four shares of SWBI common stock, $0.001 par value, held by such stockholder as of the close of business on the Record Date. SWBI distributed 13,975,104 shares of our common stock in the Distribution, which was effective at 12:01 a.m., Eastern Time, on August 24, 2020, or the Distribution Date. SWBI was determined to be the spinnor for accounting and legal purposes. As a result of the Distribution, we became an independent public company and our common stock became listed under the symbol “AOUT” on the Nasdaq Global Select Market. Prior to the Separation, the unaudited combined financial statements ~~reflect~~were prepared on a “carve-out” basis.

Basis of Presentation – Unaudited Consolidated and Combined Financial Statements

Our unaudited consolidated and combined financial statements for the three months ended July 31, 2021 are consolidated financial statements based on the reported results of our company as a standalone company. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and Article 10 of Regulation S-X. The consolidated and combined balance sheet at April 30, 2021 was derived from audited financial statements.

The consolidated and combined financial statements at July 31, 2021 and for the three months ended July 31, 2021 and 2020 are unaudited, but in our opinion include all normal recurring adjustments necessary for a fair statement of the results for the interim periods. The results reported in these consolidated and combined financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. These consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

Prior to the Separation and for the three months ended July 31, 2020, the unaudited combined financial statements reflected the financial position, results of operations, and cash flows for the periods presented as historically managed by ~~SWBI. For those periods~~our former parent and were derived from the consolidated financial statements and accounting records of our former parent in accordance with GAAP.

In addition, for purposes of preparing the combined financial statements, prior to the Separation, ~~the unaudited combined financial statements were prepared~~ on a ~~“carve out”~~“carve-out” basis, a portion of our former parent’s total corporate expenses were allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenue, employee headcount, delivery units, or square footage, as ~~described below.~~

~~In connection with~~applicable. These expense allocations included the ~~Separation, we entered into several agreements with SWBI that govern the relationship~~cost of ~~the parties following the Separation,~~corporate functions and resources provided by our former parent, including a Separation and Distribution Agreement, a Tax Matters Agreement, a Transition Services Agreement, a Trademark License Agreement, and an Employee Matters Agreement. Under the terms of the Transition Services Agreement, SWBI and we have agreed to provide each other certain transitional services, including information technology, informationexecutive management, ~~and other limited~~finance, accounting, legal, human resources, ~~legal, compliance,~~internal audit, and ~~finance~~the related benefit costs associated with such functions, such as stock-based compensation and ~~accounting related services~~the cost of our former parent’s Springfield, Massachusetts corporate headquarters. We were allocated $2.1 million for ~~a certain period following~~ the ~~Separation. We have~~three months ended July 31, 2020 for such corporate expenses, which were included within general and administrative expenses in the consolidated and combined statements of operations and comprehensive income. For the three months ended July 31, 2020, we were also ~~entered into certain commercial arrangements with SWBI. Expense reimbursements under these agreements are recorded~~allocated $1.6 million of such distribution expenses, which were included within cost of ~~goods sold or operating~~sales; selling, marketing, and distribution expenses; and general and administrative expenses ~~based on~~in the ~~nature~~consolidated and combined statements of operations and comprehensive income.

For the ~~arrangements.~~three months ended July 31, 2020, our net sales to our former parent totaled $1.5 million, which are included in net sales in the consolidated and combined statements of operations and comprehensive income.

We are a leading provider of outdoor products and accessories encompassing hunting, fishing, camping, shooting, and personal security and defense products for rugged outdoor enthusiasts. We conceive, design, produce or source, and sell our products and accessories, including shooting supplies, rests, vaults, and other related accessories; lifestyle products, such as premium sportsman knives and tools for fishing and hunting; land management tools for hunting preparedness; harvesting products for post-hunt or post-fishing activities; electro-optical devices, including hunting optics, firearm aiming devices, flashlights, and laser grips; reloading, gunsmithing, and firearm cleaning supplies; and survival, camping, and emergency preparedness products. We develop and market

our products at our facility in Columbia, Missouri and contract for the manufacture and assembly of most of our products with third-parties located in Asia. We also manufacture some of our electro-optics products inat our facility in Wilsonville, Oregon.

We focus on our brands and the establishment of product categories in which we believe our brands will resonate strongly with the activities and passions of consumers and enable us to capture an increasing share of our overall addressable markets. Our owned brands include Caldwell, Wheeler, Tipton, Frankford Arsenal, Hooyman, BOG, MEAT!, Uncle Henry, Old Timer, Imperial, Crimson Trace, LaserLyte, Lockdown, ~~UST,~~Ust, BUBBA, and Schrade, and we license for use in association with certain products we sell additional brands, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and Thompson/Center Arms. In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into 4four brand lanes, each of which focuses on one of 4four distinct consumer verticals – Marksman, Defender, Harvester, and Adventurer – with each of our brands included in one of the brand lanes. Our sales activities are focused and measured on how we go to market within the e-commerce and traditional distribution channels. These two channels involve distinct strategies to increase net sales and enhance market share. Our sales team is organized by customer groups, which we refer to as classes of trade, within the e-commerce and traditional channels and sells our products from all brands in all 4 of our brand lanes. We measure our success through sales performance in these distribution channels against prior results and our own expectations.

Our Marksman brands address product needs arising from consumer activities that take place primarily at the shooting range and where firearms are cleaned, maintained, and worked on. Our Defender brands include products that help consumers aim their firearms more accurately, including situations that require self-defense, and products that help secure, store, and maintain connectivity to those possessions that some consumers would consider to be high value or high consequence. Our Harvester brands focus on the activities hunters typically engage in, including hunting preparation, the hunt itself, and the activities that follow a hunt, such as meat processing. Our Adventurer brands include products that help enhance consumers’ fishing and camping experiences.

Our financial statements for the periods through the Separation date of August 24, 2020 are combined financial statements prepared on a “carve out” basis as discussed below. Our financial statements for the period from August 24, 2020 through October 31, 2020 are consolidated financial statements based on the reported results of American Outdoor Brands, Inc. as a standalone company. Accordingly, the second quarter of fiscal 2021 included ~~consolidated and combined~~ financial statements, while all prior periods included combined financial statements. These financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. The Combined Balance Sheet at April 30, 2020 was derived from audited financial statements.

The consolidated and combined financial statements at October 31, 2020 and for the three and six months ended October 31, 2020 and 2019 are unaudited, but in our opinion include all normal recurring adjustments necessary for a fair statement of the results for the interim periods. The results reported in these consolidated and combined financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our registration statement on ~~Form 10~~ ~~(File No. 001-39366), initially filed with the Securities and Exchange Commission, or SEC, on July 2, 2020, as amended by Amendment No. 1 filed with the SEC on July 13, 2020, or the Form 10.~~

We have adjusted the accompanying ~~combined~~consolidated balance sheet as of April 30, ~~2020 for an immaterial correction of an error~~2021 to ~~appropriately present deferred~~reclassify $4.8 million from accounts receivable, net, to other current assets, to conform with our current presentation. This reclassification had 0 impact on the previously reported net income ~~taxes, in the amount of $3.6 million, as non-current, which was previously presented as a current asset.~~or comprehensive income.

We recognize revenue for the sale of our products at the point in ~~accordance with~~time when the ~~provisions~~control of ~~Accounting Standards Update, or ASU 2016-10,~~ ~~Revenue~~ ~~from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Performance obligations are satisfied and revenue is recognized when title~~ownership has transferred to the customer. The transfer of control typically occurs at a point in time based on consideration of when the customer ~~which~~has i) a payment obligation, ii) physical possession of goods has been received, iii) legal title to goods has passed, iv) risks and rewards of ownership of goods has passed to customers, and v) the customer has accepted the goods. The timing of revenue recognition occurs either on shipment or delivery of goods based on contractual terms with the customer.

The duration of contractual arrangements with customers in our wholesale channels is ~~generally upon shipment, but could be delayed until the receipt of customer acceptance.~~

~~In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which~~typically less than one year. Payment terms with customers are entitled to receive free goods based upon their purchase of our products, which we have identified as a material right. The fulfillment of these free goods is our responsibility. In such instances, we allocate the transaction price of the promotional sales based on the estimated level of participation in the sales promotional programtypically between 20 and the timing of the shipment of all of the products included in the promotional program, including the free goods. We recognize revenue related to the material right proportionally as each performance obligation is satisfied. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

~~We generally sell our products free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to~~ 90 days, ~~of product shipment~~ with a discount available ~~to some customers~~in certain cases for early payment. ~~Generally, framework~~For contracts ~~define~~with discounted terms, we determine the ~~general~~transaction price upon establishment of the contract that contains the final terms of ~~sales,~~the sale, including ~~payment terms, freight terms, insurance requirements, and cancelation provisions. Purchase orders define~~ the ~~terms for specific sales, including~~ description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to ~~promotional programs.~~our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year. In

We have elected to treat all ~~cases, we consider our costs related to~~ shipping and handling activities as fulfillment costs and recognize the costs as distribution expenses at the time we recognize the related revenue. Shipping and handling costs billed to customers are included in net sales.

The amount of revenue recognized reflects the expected consideration to be ~~a cost of fulfilling~~received for providing the ~~contract with~~goods or services to the ~~customer.~~

~~We sponsor direct to consumer~~ customer, ~~loyalty programs in~~ which ~~customers earn rewards from qualifying purchases or activities. We defer revenue~~includes estimates for a portion of the transaction price from product sales to customers that earn loyalty points. We recognize revenue upon shipment of the products associated with the loyalty points and record an offsetting reserve utilizing a breakage factor based on historical redemption.

~~Net sales reflects adjustments for estimated~~variable consideration. Variable consideration includes allowances for trade ~~terms, sales incentive programs,~~term discounts, ~~markdowns,~~ chargebacks, and product returns. ~~These allowances~~Estimates of variable consideration are ~~estimated~~determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. We apply the portfolio approach as a practical expedient and utilize the expected value method in determining estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions. We have co-op advertising program expense, which we record within advertising expense, in recognition of a distinct service that we receive from our customers at the retail level.

The following table sets forth certain information regarding trade channel net sales for the three months ended July 31, 2021 and 2020 (dollars in thousands):

Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their revenue from consumer purchases at their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of their revenue from consumer purchases at their brick-and-mortar locations.

We sell our products worldwide. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended July 31, 2021 and 2020 (dollars in thousands):

We record trade accounts receivable at net realizable value that include estimated allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks, and returns as discussed under Revenue Recognition above. We extend credit to our domestic customers and some foreign distributors based on their credit worthiness. We sometimes offer discounts for early payment on invoices. When we believe the extension of credit is not advisable, we rely on either a prepayment or a letter of credit. We write off balances deemed uncollectible by us against our allowance for credit loss accounts.

We maintain an allowance for credit losses related to accounts receivable for future expected credit losses resulting from the inability or unwillingness of our customers to make required payments. We estimate our allowance for credit losses based on relevant information such as historical experience, current conditions, and future expectation and in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics and similar financial assets. The allowance is adjusted as appropriate to reflect differences in current conditions as well as changes in forecasted macroeconomic conditions.

In November 2020, we entered into a factoring arrangement with a designated financial institution specifically designed to factor trade receivables with a certain customer that has extended terms, which are traditional to the customer’s industry. Under this factoring arrangement, from time to time, we sell this certain customer’s trade receivables at a discount on a non-recourse basis. These transactions are accounted for as sales and cash proceeds are included in cash provided by operating activities in the statement of cash flows. During the three months ended July 31, 2021, we recorded an immaterial amount of factoring fees related to factoring transactions, which are included in other income/(expense), net on our consolidated and combined statement of operations.

Financial instruments that potentially subject us to concentration of credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents in overnight U.S. government securities. Concentrations of credit risk with respect to trade receivables are limited by the large number of customers comprising our customer base and their geographic and business dispersion. We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral.

For the three ~~and six~~ months ended ~~October~~July 31, 2021, 1 of our customers accounted for more than 10% of our net sales, accounting for $11.0 million, or 18.1%, of our net sales. As of July 31, 2021, 2 of our customers exceeded 10% or more of our accounts receivable, accounting for $9.4 million, or 27.9%, and $3.8 million, or 11.4%, respectively, of our accounts receivable.

For the three months ended July 31, 2020, 1 of our customers accounted for more than 10% of our net sales, ~~and accounted~~accounting for ~~$18.9, or 23.9%, and $38.2~~$19.2 million, or ~~29.5%~~38.1%, of our net sales. As of ~~October~~July 31, 2020, 1 of our customers exceeded 10% or more of our accounts receivable, ~~and accounted~~accounting for ~~$19.7~~$20.4 million, or ~~33.9%~~48.1%, of our accounts receivable.

~~The following table sets forth certain information regarding trade channel net sales for the three months ended October 31, 2020 and 2019 (dollars in thousands):~~

Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their revenue from consumer purchases from their retail websites. ~~Our e-commerce channels also include our direct-to-consumer sales.~~ Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of revenue from consumer purchases in their brick-and-mortar locations.

~~The following table sets forth certain information regarding trade channel net sales for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

~~The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

Recently Issued Accounting Standards – In March 2020, the Financial Accounting Standards Board, or FASB, issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“or ASU ~~2020-04”)~~2020-04, to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships, and other transactions affected by reference rate reform if certain criteria are met. ~~This~~ ASU 2020-04, which was effective upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate or any other reference rate expected to be discontinued. We are currently evaluating the new guidance and the expected effect on our consolidated and combined financial statements and related disclosures.

Recently Adopted Accounting Standards –In December 2019, ~~the~~ FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“or ASU ~~2019-12”),~~2019-12, an amendment of the FASB Accounting Standards Codification. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions for intraperiod tax allocations and deferred tax liabilities for equity method investments and adds guidance regarding whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. ~~This~~ ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We ~~are evaluating the new guidance~~adopted ASU 2019-12 on May 1, 2021 and the ~~expected~~cumulative effect ~~on its~~of the adoption was not material to our consolidated and combined financial statements and related disclosures.

~~Recently Adopted Accounting Standards –~~ ~~In June 2016, the FASB issued ASU 2016-13, Financial Instruments —~~ ~~Credit Losses~~ (Topic 326): Measurement of Credit Losses on Financial Instruments. Effective May 1, 2020, we adopted ASU 2016- 13, which requires financial assets measured at amortized cost, such as our trade receivables, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial assets. We adopted ASU 2016-13 using the modified retrospective method, whereby the guidance is applied prospectively as of the date of adoption and prior periods are not restated. The cumulative effect of adoption was not material.

We lease certain of our real estate, ~~machinery, photocopiers, and vehicles~~as well as other equipment, under non-cancelable operating lease agreements.

We recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease ~~term.~~terms. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. Tenant improvement allowances are recorded as an offsetting adjustment included in our calculation of the respective right-of-use asset.

Many of our leases include renewal options that can extend the lease term. ~~The execution of those~~These renewal options isare at our sole discretion and are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

The amounts of assets and liabilities related to our operating leases as of ~~October~~July 31, ~~2020~~2021 are as follows (in thousands):

	October 31, 2020			July 31, 2021
Operating Leases
Right-of-use assets	$	27,443		$	27,461
Accumulated amortization		(1,317	)		(2,477	)
Right-of-use assets, net	$	26,126		$	24,984

Lease liabilities, current portion	$	1,734		$	1,793
Lease liabilities, net of current portion		25,632			24,327
Total operating lease liabilities	$	27,366		$	26,120

We recorded ~~$1.2 million of operating lease costs, of which $185,000 were short-term operating lease costs, during the six months ended October 31, 2020. We recorded $865,000~~$901,000 of operating lease costs, of which $51,000 were short-term operating lease costs, ~~during~~for the three months ended ~~October~~July 31, ~~2020.~~2021. We recorded ~~$766,000~~$335,000 of operating lease costs, of which ~~$223,000~~$133,000 were short-term operating lease costs, ~~during the six months ended October 31, 2019. We recorded $392,000 of operating lease costs, of which $166,000 were short-term operating lease costs, during~~for the three months ended ~~October~~July 31, ~~2019.~~2020. As of ~~October~~July 31, ~~2020,~~2021, our weighted average lease term and weighted average discount rate for our operating leases ~~was 16.8~~were 16.5 years and ~~5.3%~~5.4%, respectively. The depreciable lives of ~~Right-of-use~~right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.

On August 24, 2020 and as part of the Separation, we entered into an 18-year sublease for our corporate offices and warehouse with SWBI, which is payable in 216 monthly installments through fiscal 2039. We evaluated this lease under ASC 842-10 – ~~Leases,~~ ~~which requires that leases be evaluated and classified as operating or finance leases for financial reporting purposes~~. Based on our evaluation under ASC 842-10, we determined that the sublease qualified as an operating lease because the net present value of all the lease payments did not exceed 90% of the fair market value of the subleased building space. We recorded an operating Right-of-use lease asset and liability in the amount of $24.5 million. The effective interest rate for this lease is 5.4%.

During the six months ended October 31, 2020, we terminated an operating lease for office space in Park City, Utah. We recorded a reduction of Right-of-use asset and lease liability of approximately $640,000 for terminating this lease.

During the six months ended October 31, 2020, we entered into an operating lease for administrative office space in Chicopee, Massachusetts and recorded a Right-of-use asset and lease liability of $369,000.

During the six months ended October 31, 2020, we terminated an operating lease for office space in Bentonville, Arkansas. We recorded a reduction of Right-of-use asset and lease liability of approximately $240,000 for terminating this lease.

Future lease payments for all our operating leases for the remainder of fiscal ~~2021~~2022 and for succeeding fiscal years are as follows (in thousands):

	Operating			Operating
2021	$	1,594
2022		3,093		$	2,350
2023		2,990			3,005
2024		2,014			2,030
2025		2,048			2,059
2026					2,005
2027					2,033
Thereafter		30,552			26,514
Total future lease payments		42,291			39,996
Less amounts representing interest		(14,925	)		(13,876	)
Present value of lease payments		27,366			26,120
Less current maturities of lease liabilities		(1,734	)		(1,793	)
Long-term maturities of lease liabilities	$	25,632		$	24,327

~~During the six months ended October 31, 2020, the~~The cash paid for amounts included in the measurement of the liabilities and the operating cash flows was ~~$728,000.~~$443,000 and $322,000 for the three months ended July 31, 2021 and 2020, respectively.

The following table ~~presents a summary of~~summarizes intangible assets as of ~~October~~July 31, ~~2020~~2021 and April 30, ~~2020~~2021 (in thousands):

	October 31, 2020							April 30, 2020							July 31, 2021							April 30, 2021
	Gross							Gross							Gross							Gross
	Carrying		Accumulated			Net Carrying		Carrying		Accumulated			Net Carrying		Carrying		Accumulated			Net Carrying		Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount		Amount		Amortization			Amount		Amount		Amortization			Amount
Customer relationships	$	89,980	$	(55,697	)	$	34,283	$	89,980	$	(51,049	)	$	38,931	$	89,980	$	(62,248	)	$	27,732	$	89,980	$	(60,347	)	$	29,633
Developed technology		21,588		(13,508	)		8,080		21,588		(12,529	)		9,059		21,588		(14,903	)		6,685		21,588		(14,456	)		7,132
Patents, trademarks, and trade names		49,912		(31,769	)		18,143		49,697		(29,229	)		20,468		50,024		(35,474	)		14,550		50,007		(34,308	)		15,699
Backlog		1,250		(1,250	)		—		1,150		(1,150	)		—
		162,730		(102,224	)		60,506		162,415		(93,957	)		68,458		161,592		(112,625	)		48,967		161,575		(109,111	)		52,464
Patents in progress		652		—			652		490		—			490		924		—			924		749		—			749
Total definite-lived intangible assets		163,382		(102,224	)		61,158		162,905		(93,957	)		68,948		162,516		(112,625	)		49,891		162,324		(109,111	)		53,213
Indefinite-lived intangible assets		430		—			430		204		—			204		430		—			430		430		—			430
Total intangible assets	$	163,812	$	(102,224	)	$	61,588	$	163,109	$	(93,957	)	$	69,152	$	162,946	$	(112,625	)	$	50,321	$	162,754	$	(109,111	)	$	53,643

We amortize intangible assets with determinable lives over a weighted-average period of approximately five years. The weighted-average periods of amortization by intangible asset class is approximately five years for customer relationships, ~~five~~six years for developed technology, and five years for patents, trademarks, and trade names. Amortization expense amounted to ~~$8.3~~$3.5 million and ~~$9.6~~$4.0 million for the ~~six~~three months ended ~~October~~July 31, 2021 and 2020, ~~and 2019,~~ respectively.

~~Estimated~~Future expected amortization expense ~~of intangible assets~~ for the remainder of fiscal ~~2021~~2022 and for succeeding ~~full~~ fiscal years, isas of July 31, 2021, are as follows (in thousands):

Fiscal	Amount		Amount
2021	$	8,150
2022		13,863		10,363
2023		11,426		11,429
2024		9,688		9,690
2025		6,045		6,048
2026				4,955
2027				2,963
Thereafter		11,334		3,519
Total	$	60,506	$	48,967

As of ~~October~~July 31, ~~2020,~~2021, we had $64.3 million of goodwill. We did 0t have any adjustments to goodwill during the ~~six~~three months ended ~~October~~July 31, 2021 and 2020, ~~and 2019.~~respectively. As of ~~April 30, 2020,~~July 31, 2021, we had recorded $109.3 million of goodwill impairment charges since fiscal 2015 on gross goodwill of $173.6 million.

We follow the provisions of ASC 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Financial assets and liabilities recorded on the accompanying consolidated and combined balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled ~~$33.9~~$56.3 million as of ~~October~~July 31, ~~2020~~2021 and ~~$234,000~~$60.8 million as of April 30, ~~2020. We utilized~~2021. Cash and cash equivalents are reported at fair value based on market prices for identical assets in active markets, and therefore classified as Level 1 of the value ~~hierarchy to determine the fair values of these assets.~~hierarchy.

Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.

We currently do 0t have any Level 2 or Level 3 financial assets or liabilities as of July 31, 2021.

The following table sets forth a summary of inventories, ~~net of reserves,~~ stated at lower of cost or net realizable value, as of ~~October~~July 31, ~~2020~~2021 and April 30, ~~2020~~2021 (in thousands):

	October 31, 2020		April 30, 2020		July 31, 2021		April 30, 2021
Finished goods	$	61,594	$	50,171	$	79,745	$	62,465
Finished parts		4,599		3,499		4,833		4,629
Work in process		219		249		420		445
Raw material		7,163		6,080		7,044		6,757
Total inventories	$	73,575	$	59,999	$	92,042	$	74,296

On August 24, 2020, we entered into a ~~new~~ financing arrangement consisting of a $50.0 million revolving line of credit secured by substantially all our assets, maturing five years from the closing date, with available borrowings determined by a borrowing base calculation. Based on this calculation, the entire $50.0 million was available to us as of ~~October~~July 31, ~~2020.~~2021. The revolving line includes an option to increase the credit commitment for an additional $15.0 million. The revolving line bears interest at a fluctuating rate equal to the Base Rate or LIBOR, as applicable, plus the applicable margin. If adequate means do not exist for ascertaining LIBOR, any borrowing under the credit facility may be converted into Base Rate Loans. The applicable margin can range from a minimum of 0.75% to a maximum of 2.25% based on certain conditions as defined in the credit agreement. The financing arrangement contains covenants relating to minimum debt service coverage. As of ~~October~~July 31, ~~2020,~~2021, there were 0 borrowings under the revolving line of credit. If we would have had borrowings at ~~October~~July 31, ~~2020,~~2021, those borrowings would have borne interest at approximately ~~1.97%~~1.87%, which is equal to ~~the~~ LIBOR ~~rate~~ plus the applicable margin. ~~We recorded $410,000 of debt issuance costs associated with entering into this financing arrangement.~~

On August 24, 2020, the date of consummation of the Separation, ~~SWBI~~our former parent distributed 13,975,104 shares of our common stock, par value $0.001 per share, to ~~SWBI~~our former parent’s stockholders of record as of August 10, ~~2020, the Record Date. This~~2020. We utilize this share amount ~~is being utilized~~ for the calculation of basic and diluted earnings per share for ~~all periods presented prior to~~ the ~~Separation~~three months ended July 31, 2020 as all common stock was owned by ~~SWBI~~our former parent prior to the Separation. For the ~~2019 quarter to date calculations,~~three months ended July 31, 2020, these shares are treated as issued and outstanding ~~at October 31, 2019~~ for purposes of calculating historical basic and diluted earnings per share. For periods prior to the Separation, it is assumed that there are no dilutive equity instruments as ~~there were~~we had no ~~AOUT~~ stock-based awards outstanding prior to the Separation.

We compute d~~Diluted~~iluted earnings per share ~~is computed~~ by giving effect to all potentially dilutive stock awards that are outstanding. ~~For periods subsequent to the Separation, the~~The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards when the effect of the potential exercise would be anti-dilutive. There were 0 shares excluded from the computation of diluted earnings per share for the three ~~and six~~ months ended ~~October~~July 31, 2020. After the Separation, the weighted-average number of common shares outstanding for basic and diluted earnings per share for the three and six months ended October 31, 2020 was based on the weighted-average number of actual common shares outstanding assuming the number of shares of AOUT common stock outstanding on August 24, 2020 had been outstanding at the beginning of each period presented.2021.

The following table provides a reconciliation of the net ~~income/(loss)~~income amounts and weighted average number of common and common equivalent shares used to determine basic and diluted ~~earnings/(loss)~~earnings per share for the three months ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020 (in thousands, except per share data):

The following table provides a reconciliation of the net income/(loss) amounts and weighted average number of common and common equivalent shares used to determine basic and diluted earnings/(loss) per share for the six months ended October 31, 2020 and 2019 (in thousands, except per share data):

For the Six Months Ended October 31,

2020

2019

Net

Per Share

Net

Per Share

Income

Shares

Amount

Loss

Shares

Amount

Basic earnings/(loss)
$

9,128

13,978

$

0.65

$

(5,379
)

13,975

$

(0.38
)
Effect of dilutive stock awards

—

147

—

—

—

—

Diluted earnings/(loss)
$

9,128

14,125

$

0.65

$

(5,379
)

13,975

$

(0.38
)

	For the Three Months Ended July 31,
	2021								2020
	Net					Per Share			Net					Per Share
	Income			Shares		Amount			Income			Shares		Amount
Basic earnings	$		3,457		14,083	$	0.25		$		1,789		13,975	$		0.13
Effect of dilutive stock awards		—			218		(0.01	)		—		—			—
Diluted earnings	$		3,457		14,301	$	0.24		$		1,789		13,975	$		0.13

Prior to the Separation and Distribution, our employees participated in 2 SWBI sponsored incentive stock plans. All grants made prior to the Separation and Distribution covering all participants were issued under those plans.

~~Certain of our employees have participated in SWBI’s 2013 Incentive Stock Plan. The following disclosures of stock-based compensation expense recognized by us, prior to the Separation, arebased~~on~~grantsrelateddirectly~~to~~ouremployeesand~~an~~allocation~~of~~SWBI corporateandsharedemployeestock-basedcompensationexpenses. Accordingly,theamountspresentedarenotnecessarilyindicative~~of~~futureawardsand~~do~~notnecessarilyreflecttheresultsthat~~we~~wouldhave experienced~~asan~~independentcompanyfortheperiodspresented.~~

In connection with the Separation, outstanding and vested awards granted to employees under SWBI’s incentive stock plans were converted into AOUT stock-based awards. Unvested awards held by our employees were converted into AOUT stock-based awards. The ratio used to convert the SWBI incentive plan awards was intended to preserve the aggregate intrinsic value of each award immediately after the Separation when compared to the aggregate intrinsic value immediately prior to the Separation. All performance-based restricted share units, or PSUs, outstanding on the Distribution Date were converted to PSUs using payout metrics based on a combination of actual performance through the Distribution Date and the target for the remainder of the performance period. Due to the conversion, we expect to incur $711,000 of incremental stock-based compensation expense to be recognized over the awards' remaining 1.8 year vesting period.

~~Post-Separation, we~~We have a ~~separate~~ stock incentive plan, or the 2020 Incentive Compensation Plan, under which we can grant new awards to our employees and directors. The 2020 Incentive Compensation Plan authorizes the issuance of awards covering up to 1,397,510 shares of our common stock. The plan permits the grant of options to acquire common stock, restricted stock awards, restricted stock units, or RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our board of directors, or a committee established by our board, administers the ~~incentive~~ plan, selects recipients to whom awards are granted, and determines the grants to be awarded. ~~Options~~Stock options granted under the plan are exercisable at a price determined by our ~~Board~~board of ~~Directors~~directors or a committee thereof at the time of grant, but in no event, less than fair market value of our common stock on the date granted. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the ~~incentive~~ plan are generally nontransferable and subject to forfeiture.

Unless terminated earlier by our ~~Board~~board of ~~Directors,~~directors, the 2020 Incentive Compensation Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of the 2020 Incentive Compensation Plan, or (2) such time as 0 shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan. The date of grant of an award is deemed to be the date upon which our ~~Board~~board of ~~Directors~~directors or a committee thereof authorizes the granting of such award.

Except in specific circumstances, grants generally vest over a period of three or four years and grants of stock options are exercisable for a period of 10 years. The 2020 Incentive Compensation Plan also permits the grant of awards to non-employees.

19We recognized $752,000 and $298,000 of stock-based compensation expense during the three months ended July 31, 2021 and 2020, respectively. Of the total stock-based compensation expense recognized by us for the three months ended July 31, 2020, prior to the Separation, $172,000 related directly to our employees, while $126,000 related to allocations of our former parent’s corporate and shared employee stock-based compensation.

Stock-based compensation expense is included in the cost of sales, sales and marketing, research and development, and general and administrative expenses.

NOTES TO ~~COMBINED~~CONSOLIDATED AND ~~CONSOLIDATED~~COMBINED FINANCIAL STATEMENTS (UNAUDITED)

For the Three ~~and Six~~ Months Ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020

~~Prior~~We grant RSUs to employees and directors. The awards are made at no cost to the ~~Separation,~~recipient. An RSU represents the right to receive one share of our common stock and does not carry voting or dividend rights. Except in specific circumstances, RSU grants to employees generally vest over a period of four years with one-fourth of the units vesting on each anniversary of the grant date. The aggregate fair value of our RSU grants is amortized to compensation expense over the vesting period. Awards that do not vest are forfeited.

We grant performance stock units, or PSUs, to our executive officers and certain employees from time to time. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. We incorporate the following variables into the valuation model:

The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding three-year performance period. Our PSUs have a maximum aggregate award equal to 200% of the target unit amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or the RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by 5% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.

During the three months ended July 31, 2021, we granted an aggregate of 26,809 market-condition PSUs to our executive officers. We also granted 60,276 service-based RSUs during the three months ended July 31, 2021, including 26,809 RSUs to executive officers and 33,467 to non-executive officer employees under our 2020 Incentive Compensation Plan. In addition, in connection with a 2018 grant, we vested 10,800 market-condition PSUs (i.e., the target amount granted), which achieved 200% of the maximum aggregate award possible, resulting in awards totaling 21,600 shares to certain of our executive officers and employees ~~have participated in SWBI’s Employee Stock Purchase Plan, or~~of our former parent that were granted as part of the ~~SWBI ESPP, in which each participant is~~Separation. During the three months ended July 31, 2021, we cancelled 360 service-based RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the three months ended July 31, 2021, we delivered common stock to our employees, including our executive officers and directors with a total market value of $1.5 million.

During the three months ended July 31, 2020, our former parent granted an ~~option~~aggregate of 1,465 service-based RSUs to ~~purchase SWBI~~our non-executive officer employees under our former parent’s stock incentive plan, prior to the Separation. During the three months ended July 31, 2020, 7,896 service-based RSUs were cancelled as a result of the service condition not being met. In connection with the vesting of RSUs, during the three months ended July 31, 2020, our former parent delivered our former parent’s common stock ~~on each subsequent exercise date during~~to our employees, including our executive officers, with a total market value of $321,000.

For the ~~offering period (as such terms are defined in~~Three Months Ended July 31, 2021 and 2020

A summary of activity for unvested RSUs and PSUs under our 2020 Incentive Compensation Plan for the ~~SWBI ESPP) in accordance with the terms~~three months ended July 31, 2021 is as follows:

As of ~~the SWBI ESPP.~~July 31, 2021, there was $4.1 million of unrecognized compensation expense related to unvested RSUs and PSUs. We expect this expense to be recognized over a weighted average remaining contractual term of 1.8 years.

~~Post-Separation, we~~We have ~~a separate~~an employee stock purchase plan, or the ESPP, which authorizes the sale of up to 419,253 shares of our common stock to employees. All options and rights to participate in our ESPP are nontransferable and subject to forfeiture in accordance with our ESPP guidelines. Our current ESPP will be implemented in a series of successive offering periods, each with a maximum duration of 12 months. If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of a 12-month offering period, then that offering period will automatically terminate and a new 12-month offering period will begin on the next business day. Each offering period will begin on April 1 or October 1, as applicable, immediately following the end of the previous offering period. Payroll deductions will be on an after-tax basis, in an amount of not less than 1% and not more than 20% (or such greater percentage as the committee appointed to administer our ESPP may establish from time to time before the first day of an offering period) of a participant’s compensation on each payroll date. The option exercise price per share will equal 85% of the lower of the fair market value on the first day of the offering period or the fair market value on the exercise date. The maximum number of shares that a participant may purchase during any purchase period is the greater of 2,500 shares, or a total of $25,000 in shares, based on the fair market value on the first day of the offering period. Our ESPP will remain in effect until the earliest of (a) the exercise date that participants become entitled to purchase a number of shares greater than the number of reserved shares available for purchase under our ESPP, (b) such date as is determined by our board of directors in its discretion, or (c) the tenth anniversary of the effective date. In the event of certain corporate transactions, each option outstanding under our ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation.

We recognized $899,000 and $352,000 of stock-based compensation expense during the three months ended October 31, 2020 and 2019, respectively. Of the total stock-based compensation expense recognized by us during the three months ended October 31, 2020 and 2019, $800,000 and $124,000, respectively, related directlyto~~our employeesand~~ ~~$99,000~~ ~~and$228,000,respectively,related~~to~~allocationsof SWBIcorporateandsharedemployeestock-basedcompensation~~expenses. We recognized $1.2 million and $666,000 of stock-based compensation expense during the six months ended October 31, 2020 and 2019, respectively. Of the total stock-based compensation expense recognized by us during the six months ended October 31, 2020 and 2019, $972,000 and $233,000, respectively, related directlyto~~our employeesand~~ ~~$224,000~~ ~~and$433,000,respectively,related~~to~~allocationsof SWBIcorporateandsharedemployeestock-basedcompensationexpenses. Stock-based compensation expense is included in cost of sales, sales and marketing, research and development, and general and administrative expenses.~~

We grant service-based restricted stock units, or RSU, to employees and directors. The awards are made at no cost to the recipient. An RSU represents the right to receive one share of AOUT common stock and does not carry voting or dividend rights. Except in specific circumstances, RSU grants to employees generally vest over a period of four years with one-fourth of the units vesting on each anniversary of the grant date. The aggregate fair value of our RSU grants is amortized to compensation expense over the vesting period. Awards that do not vest are forfeited.

We grant PSUs to our executive officers. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. We incorporate the following variables into the valuation model:

~~The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding~~ ~~three-year~~ performance period. Our PSUs have a maximum aggregate award equal to 200% of the target unit amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by 5% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.

During the six months ended October 31, 2020, we granted an aggregate of 165,559 service-based RSUs to executive officers, non-executive officer employees, and directors, and 78,045 PSUs to certain executive officers under our 2020 Incentive Compensation Plan. During the six months ended October 31, 2020, we cancelled 312 service-based RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the six months ended October 31, 2020, we delivered common stock to directors under our 2020 Incentive Compensation Plan with a total market value of $235,000.

During the six months ended October 31, 2019, we granted an aggregate of 29,513 service-based RSUs to non-executive officer employees. During the six months ended October 31, 2019, we cancelled 46,754 service-based RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the six months ended October 31, 2019, we delivered common stock to our employees, including our executive officers, with a total market value of $135,000.

~~A summary of activity for unvested RSUs and PSUs under our 2020 Incentive Compensation Plan for the six months ended October 31, 2020 is as follows:~~

As of October 31, 2020, there was $3.3 million of unrecognized compensation expense related to unvested RSUs and PSUs. This expense is expected to be recognized over a weighted average remaining contractual term of 1.9 years.

The following table sets forth other accrued expenses as of ~~October~~July 31, ~~2020~~2021 and April 30, ~~2020~~2021 (in thousands):

	October 31, 2020		April 30, 2020		July 31, 2021		April 30, 2021
Accrued allowances	$	3,739	$	2,441
Accrued freight		3,986		1,646	$	4,852	$	2,466
Accrued sales allowances						3,222		2,931
Accrued commissions		2,268		954		1,254		1,578
Accrued taxes other than income						1,099		1,052
Accrued professional fees						787		701
Accrued warranty						701		717
Accrued employee benefits		378		754		272		153
Accrued professional fees		469		787
Accrued taxes other than income		579		197
Accrued warranty		333		336
Accrued other		90		540		135		245
Total accrued expenses	$	11,842	$	7,655	$	12,322	$	9,843

NOTES TO ~~COMBINED~~CONSOLIDATED AND ~~CONSOLIDATED~~COMBINED FINANCIAL STATEMENTS (UNAUDITED)

For the Three ~~and Six~~ Months Ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020

The income tax ~~expense/(benefit)~~expense included in the consolidated and combined statements of operations is based upon the estimated effective tax rate for the year, adjusted for the impact of discrete items which are accounted for in the period in which they occur. We recorded income tax expense of ~~$2.4~~$849,000 for the three months ended July 31, 2021 and income tax expense of $1.1 million for the three months ended ~~October~~July 31, ~~2020 and income tax expense of $94,000 for the three months ended October 31, 2019.~~2020. The effective tax rate for the three months ended ~~October~~July 31, 2021 and 2020 was 19.7% and ~~2019 was 24.7% and (31.4)%~~38.0%, respectively. Income tax expense for the three months ended July 31, 2021 included a discrete tax benefit of $190,000 associated with stock-based compensation. Income tax expense for three months ended ~~October~~July 31, 2020 ~~and 2019~~ included a discrete tax benefit of ~~$210,000 and $642,000, respectively,~~$377,000 associated with the allocation of a portion of SWBI’s total corporate and distribution expenses for the purposes of presenting the combined financial statements on a carve-out basis. We recorded income tax expense of $3.5 million for the six months ended October 31, 2020 and an income tax benefit of $1.2 million for the six months ended October 31, 2019. The effective tax rate for the six months ended October 31, 2020 and 2019 was 27.7% and 18.3%, respectively. Income tax expense/(benefit) for six months ended October 31, 2020 and 2019 included a discrete tax benefit of $579,000 and $1.3 million respectively, associated with the allocation of a portion of SWBI’sour former parent’s total corporate and distribution expenses for the purposes of presenting the combined financial statements on a carve-out basis. For the period prior to the Separation, income taxes were recorded based on a carve-out basis. Prior to the Separation, our portion of income taxes were settled in the period the related tax expense was recorded. After the Separation, our income taxes are prepared on a stand-alone basis.

From time to time, we are involved in lawsuits, claims, investigations, and proceedings, including those relating to product liability, intellectual property, commercial relationships, employment issues, and governmental ~~matters. Litigation, regardless~~matters, which arise in the ordinary course of business.

For the ~~merits, can be expensive, time consuming,~~three months ended July 31, 2021 and ~~divert the time~~2020, respectively, we did not incur any material expenses in defense and ~~attention of management personnel, and unfavorable outcomes can harm our business. We actively monitor the status of litigation and vigorously defend claims and assert all appropriate defenses~~administrative costs relative to ~~litigation against us.~~product liability litigation. In addition, we did not encounter any settlement fees related to product liability cases in those fiscal years.

We have evaluated our operations under ASC 280-10-50-1 – Segment Reporting and have concluded that we are operating as 1 segment based on several key factors, including the reporting and review process used by the chief operating decision maker, our ~~President and~~ Chief Executive Officer, who reviews only ~~one set of complete~~consolidated financial ~~statements~~information and makes decisions to allocate resources based on those financial statements. ~~Although~~We analyze revenue streams in various ways, including class of trade, brands, and customer channels. However, this information does not include a full set of discrete financial information. In addition, although we currently sell our products under 20 distinct brands that are organized into 4 brand lanes and include specific product sales that have identified revenue streams, these brand lanes are focused almost entirely on product development and marketing activities and do not qualify as separate reporting units under ASC 280-10-50-1. Other sales and customer focused activities, operating activities, and administrative activities are not divided by brand lane and, therefore, expenses related to each brand lane are not accumulated or reviewed individually. Our business is evaluated based upon a number of financial and operating measures, including sales, gross profit and gross margin, operating expenses, and operating margin.

Our business includes our outdoor products and accessories products, which we develop, source, market, and distribute atfrom our ~~facilities~~facility in Columbia, Missouri, and our electro-optics products, which we assemble in our Wilsonville, Oregon facility. We report operating costs based on the activities performed.

Prior to the Separation, the combined financial statements were prepared on a standalone basis and were derived from the consolidated financial statements and accounting records of SWBI, the former Parent. The following discussion summarizes activity between us and the former Parent prior to the Separation on August 24, 2020 (and its affiliates that are not part of the Separation).

Prior to the Separation, the combined statements of operations and comprehensive income/(loss) included expenses for certain centralized functions and other programs provided and administered by the former Parent that were charged directly to us. In addition, for purposes of preparing these combined financial statements on a carve-out basis, we have allocated a portion of the former Parent total corporate and selling, marketing, and distribution expenses to us. See Note 1 – ~~Background, Description of Business, and Basis of Presentation~~ for a discussion of the methodology used to allocate corporate-related costs and selling, marketing, and distribution expenses for purposes of preparing these financial statements on a carve-out basis.

For the period prior to the Separation in fiscal 2021, our sales to the former Parent totaled $882,000 and $2.4 million during our second fiscal quarter 2021 and our fiscal year 2021, respectively, which are included in net sales in the combined statements of operations and comprehensive income/(loss). Our sales to the former Parent totaled $6.2 million and $10.3 million for the three and six months ended October 31, 2019, respectively. Our cost of goods sold included an immaterial amount for items purchased from the former Parent for the three months ended October 31, 2020 and 2019. As of October 31, 2020, and April 30, 2020, the aggregate amount of inventories purchased from the former Parent that remained on our consolidated and combined balance sheet was $443,000 and $435,000, respectively.

Prior to the Separation, the former Parent utilized a centralized approach to cash management and financing its operations. Disbursements were made through centralized accounts payable systems, which were operated by the former Parent. Cash receipts were transferred to centralized accounts, which were also maintained by the former Parent. As cash was received and disbursed by the former Parent, it was accounted for by us through the former parent company investment. Certain related party transactions between us and the former Parent have been included within the former parent company investment in the combined balance sheets in the historical periods presented. All notes to and from the former parent company were settled in connection with the Separation. As of April 30, 2020, the former net parent company investment included related party receivables due from the former Parent of $85.0 million. The interest income and expense related to the activity with the former Parent that was historically included in our results prior to the Separation is presented on a net basis in the combined statements of operations and comprehensive income/(loss). Interest income on the activity with the former Parent was $424,000 during the first four months of our fiscal year 2021 and prior to the Separation and $2.1 million for the six months ended October 31, 2019. The total effect of the settlement of these related party transactions is reflected as a financing activity in the combined statements of cash flows. On August 24, 2020, the former Parent capitalized our company with $25.0 million of cash as part of the Separation.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations for the three ~~and six~~ months ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020 should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~and the audited combined financial statements and the notes thereto contained~~ in our Annual Report on Form ~~10.~~10-K for fiscal year ended April 30, 2021. This discussion and analysis should also be read in conjunction with our unaudited consolidated and combined financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed above in “Statement Regarding Forward-Looking Information” in this Form 10-Q. In addition, this section sets forth key objectives and performance indicators used by us as well as key industry data tracked by us.

On ~~November 13, 2019, Smith & Wesson Brands, Inc., or SWBI, announced that it was proceeding with a plan to~~August 24, 2020, our former parent completed the spin-off of its outdoor products and accessories business to our ~~company, American Outdoor Brands, Inc., a newly formed wholly owned subsidiary formed in anticipation of the Separation, resulting in two distinct, publicly traded companies.~~company.

On August 24, 2020, SWBI completed the Separation through a pro-rata distribution, or the Distribution, of all the outstanding shares of our common stock to the stockholders of record of SWBI as of the close of business on August 10, 2020, or the Record Date. Each SWBI stockholder of record received one share of our common stock, $0.001 par value, for every four shares of SWBI common stock, $0.001 par value, held by such stockholder as of the close of business on the Record Date. SWBI distributed 13,975,104 shares of our common stock in the Distribution, which was effective at 12:01 a.m., Eastern Time, on August 24, 2020. As a result of the Distribution, we became an independent public company and our common stock became listed under the symbol “AOUT” on the Nasdaq Global Select Market. Prior to the Separation and for the three months ended July 31, 2020, the unaudited combined financial statements reflected the financial position, results of operations, and cash flows for the periods presented as historically managed by ~~SWBI. For those periods prior to the Separation, the unaudited combined financial statements were prepared on a “carve out” basis as described below.~~

Prior to the Separation, we operated as part of SWBI and not as a standalone company. The accompanying combined financial statements included in this Quarterly Report on Form 10-Q were prepared in connection with the Separation and were derived from the consolidated financial statements and accounting records of ~~SWBI.~~

~~These consolidated and combined financial statements reflect~~ our ~~historical financial position, results of operations, and cash flows as they were historically managed~~former parent in accordance with accounting principles generally accepted in the United States, or GAAP. The ~~consolidated and~~ combined financial statements ~~may not be indicative of our future performance and~~for the three months ended July 31, 2020 do not necessarily reflect what the financial position, results of operations, and cash flows would have been had we operated as an independent, publicly traded company during the historical periods ~~presented, particularly because of changes we will experience in~~presented. For the ~~future as a result of~~three months ended July 31, 2020, the ~~Separation, including changes in the financing, cash management, operations, cost structure, and personnel needs of our business.~~

~~Prior to the Separation, the~~unaudited combined financial statements ~~included certain assets and liabilities held at the SWBI corporate level, but~~ were specifically identifiable to or otherwise attributable to us. Our combined statements of operations and comprehensive income/(loss) also include costs for certain pre-Separation centralized functions and programs provided and administered by SWBI that are charged directly to SWBI businesses, including us. These centralized functions and programs include legal, benefit programs, and insurance. We were directly charged for these costs that were included in general and administrative expenses in the combined statements of operations and comprehensive income/(loss).prepared on a “carve-out” basis.

In addition, for purposes of preparing the combined financial statements, prior to the Separation, on a “carve-out” basis, a portion of ~~SWBI’s~~our former parent’s total corporate expenses were allocated to ~~us.~~us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenue, employee headcount, delivery units, or square footage, as applicable. These expense allocations included the cost of corporate functions

and resources provided by ~~SWBI,~~our former parent, including executive management, finance, accounting, legal, human resources, internal audit, and the related benefit costs associated with such functions, such as stock-based compensation and the cost of ~~the SWBI~~our former parent’s Springfield, Massachusetts corporate headquarters. In fiscal 2020, SWBI began operating a new distribution facility in Columbia, Missouri, which included shared distribution expenses between SWBI and us. In addition to the portion of SWBI corporate expenses allocated to us prior to the Separation, a portion of SWBI total distribution expenses was allocated to us. These expense allocations included selling, distribution, inventory management, warehouse, and fulfillment services provided by SWBI and the related benefit costs associated with such functions, such as stock-based compensation and the cost of the SWBI Columbia, Missouri distribution facility. For the period prior to the Separation in fiscal 2021, weWe were allocated ~~$637,000 and $2.7 million during our second fiscal quarter 2021 and our fiscal year 2020, respectively, and $2.4 million and $4.8~~$2.1 million for the three ~~and six~~ months ended ~~October~~July 31, ~~2019, respectively,~~2020 for such corporate expenses, which were included within general and administrative expenses in the consolidated and combined statements of operations and comprehensive ~~income/(loss).~~income. For the ~~period prior to the Separation in fiscal 2021,~~three months ended July 31, 2020, we were also allocated ~~$290,000 and $1.9~~$1.6 million ~~during our second fiscal quarter 2021 and our fiscal year 2021, respectively,~~ of such distribution expenses, which were included within cost of sales; selling, marketing, and distribution expenses; and general and administrative expenses in the consolidated and combined statements of operations and comprehensive ~~income/(loss). For~~income.

Our unaudited financial statements for the three ~~and six~~ months ended ~~October~~July 31, ~~2019, we were allocated $2.5 million and $3.4 million of distribution expenses.~~

~~Prior to the Separation, costs were allocated to us~~2021 are consolidated financial statements based on ~~direct usage when identifiable or, when not directly identifiable, on~~ the ~~basis~~reported results of ~~proportional net sales, employee headcount, delivery units, or square footage,~~our company as applicable. We consider the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, us during the periods presented. However, the allocations may not reflect the expenses we would have incurred if we had been a standalone company for the periods presented prior to the Separation. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. Going forward, we may perform these functions using our own resources or outsourced services. For a period following the Separation, however, some of these functions will continue to be provided by SWBI under a Transition Services Agreement. Additionally, we will provide some services to SWBI under such Transition Services Agreement. We also entered into certain commercial arrangements with SWBI in connection with the Separation.company.

Subsequent to the completion of the Separation, we began to incur costs to establish certain standalone functions, information technology systems, and other one-time costs. Recurring standalone costs include accounting, financial reporting, tax, regulatory compliance, corporate governance, information technology, treasury, legal, and investor relations functions, as well as the annual expenses associated with running an independent, publicly traded company, including listing fees, board of director fees, and external audit costs. Recurring standalone costs, which are expected to continue in future periods, may differ materially from historical allocations, which may have an impact on profitability and operating cash flows.

Our operating results for the three months ended ~~October~~July 31, ~~2020~~2021 included the following:

~~Our operating results for the six months ended October 31, 2020 included the following:~~

The following table sets forth certain information regarding consolidated net sales and gross profit for the three months ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020 (dollars in thousands):

	2020			2019			$ Change		% Change			2021			2020			$ Change		% Change
Net sales	$	79,098		$	47,742		$	31,356		65.7	%	$	60,768		$	50,468		$	10,300		20.4	%
Cost of sales		42,025			28,651			13,374		46.7	%		31,785			26,737			5,048		18.9	%
Gross profit	$	37,073		$	19,091		$	17,982		94.2	%	$	28,983		$	23,731		$	5,252		22.1	%
% of net sales (gross margin)		46.9	%		40.0	%							47.7	%		47.0	%

The following table sets forth certain information regarding trade channel net sales for the three months ended ~~October~~July 31, ~~2020~~2021 and ~~2019~~2020 (dollars in thousands):

	2020		2019		$ Change		% Change			2021		2020		$ Change			% Change
e-commerce channels	$	26,243	$	8,373	$	17,870		213.4	%	$	16,608	$	24,548	$	(7,940	)		-32.3	%
Traditional channels		52,855		39,369		13,486		34.3	%		44,160		25,920		18,240			70.4	%
Total net sales	$	79,098	$	47,742	$	31,356		65.7	%	$	60,768	$	50,468	$	10,300			20.4	%

Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their revenue from consumer purchases ~~from~~at their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of their revenue from consumer purchases inat their brick-and-mortar locations.

	2020		2019		$ Change		% Change			2021		2020		$ Change		% Change
Domestic net sales	$	76,525	$	45,389	$	31,136		68.6	%	$	56,530	$	48,472	$	8,058		16.6	%
International net sales		2,573		2,353		220		9.3	%		4,238		1,996		2,242		112.3	%
Total net sales	$	79,098	$	47,742	$	31,356		65.7	%	$	60,768	$	50,468	$	10,300		20.4	%

For the three months ended ~~October~~July 31, ~~2020,~~2021, total net sales increased ~~$31.4~~$10.3 million, or ~~65.7%~~20.4%, over the comparable quarter last year, primarily because of higher demand for the majority of our products, which we believe was driven by increased participation in outdoor activities, such as shooting sports, hunting, camping, and fishing. We believe the increase in shooting sports was driven in part by increased consumer interest in self-protection, as indicated by total adjusted background checks as reported to the National Instant Check System, or NICS, that suggests approximately eight million new consumers ~~entering~~entered the ~~firearms~~firearm market in calendar ~~2020, as well as increased participation in outdoor activities,~~2020. There is typically a lag between when a consumer purchases his, her, or their first firearm and when that same consumer purchases firearm related accessory products, such as ~~hunting, camping, and fishing. This~~those we offer. In addition, a portion of the increased consumer interest and participation supplemented normal seasonal trends in our business which also occurred in our second fiscal quarter 2020. There were also several factors, which we believe were related to the COVID-19 pandemic, including increased participation in outdoor recreation activitiessales resulted from new product introductions that ~~had a favorable impact on our net sales. We believe our investments in our logistics and e-commerce structure~~ have ~~enabled us to respond effectively to increased demand for our products.~~higher average selling prices. Net sales in our e-commerce channel ~~increased $17.9~~decreased $7.9 million, or ~~213.4%~~32.3%, from the comparable quarter last year, a period which, we believe reflected heightened e-commerce net sales because of COVID-19 related restrictions. In addition, our prior year comparable quarter included replenishment of retailer inventory after non-essential product orders were halted in our fourth quarter of fiscal 2020, which had a positive impact on our net sales for the three months ended July 31, 2020. During that period, we noted numerous retail store closures and stay at home orders that we believe resulted in a shift in consumer preferences to online retailers. Although our net sales in our e-commerce channel decreased from the comparable quarter last year, direct-to-consumer sales from our own websites increased. Net sales in our traditional channels increased $18.2 million, or 70.4%, over the comparable quarter last year ~~which we believe resulted from a shift in consumer preference to online purchases~~primarily because of increased foot traffic at national retailers during the current period and increases in our own direct-to-consumer business. Net sales in our traditional channels increased $13.5 million, or 34.3%, over the comparable quarter last year. Increases in both our e-commerce and traditional channels were driven largely by increased consumer interest and the impact of COVID-19 on retail locations, as mentioned above. In addition, feedback from certain of our large retail customers seems to indicate significant growth over the comparable quarter last year, reflecting strong consumer demand for our products in the channel. The increase in net sales was partially offset by a decline in sales of our branded camping accessory products due to an acceleration of one large retail customer’s strategy towards its own private label brand that began in October 2019. Our second fiscal quarter represents the final quarter in which this comparison will occur.

~~New products, defined as any new SKU not shipped~~three months ended July 31, 2021, compared with reduced foot traffic in the comparable quarter last year, resulting from COVID-19 related store closures mentioned above. In addition, net sales in our international channel increased, primarily as a result of increased demand for products in our hunting and shooting sports categories and new customers.

New products, which we define as any SKU introduced over the prior two fiscal years, represented ~~14.6%~~22.3% of net sales for the three months ended ~~October~~July 31, ~~2020.~~2021.

Gross margin for the three months ended ~~October~~July 31, ~~2020~~2021 increased ~~690~~70 basis points over the comparable quarter last year primarily because of improved manufacturing efficiencies due to increased ~~product demand,~~ volume, favorable ~~product mix,~~excess and obsolete inventory adjustments, and lower ~~promotional expenses, which increased gross margins by 1,150 basis points,~~spending, partially offset by ~~writing down our inventory for discounted inventory~~customer mix and ~~tariff costs that reduced gross margins by 450 basis points.~~

~~The following table sets forth certain information regarding consolidated net sales and gross profit for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

~~The following table sets forth certain information regarding trade channel net sales for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

~~The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended October 31, 2020 and 2019 (dollars in thousands):~~

For the six months ended October 31, 2020, net sales increased $48.6 million, or 60.0%, over the prior year comparable period, primarily because of higher demand for the majority of our products for the same reasons mentioned above. In addition, our initiative to migrate certain retail customers away from “bulk buy” ordering, which is typically discounted, to a more balanced approach to order replenishment had a favorable impact on net sales and order cadence. There were also several factors, which we believe were related to the COVID-19 pandemic, such as increased participation in outdoor recreation activities driven by state-mandated travel restrictions, increased retail foot traffic after the reopening of retail locations that were previously ordered to be closed, and our ability to replenish retailer inventory after non-essential product orders were halted in our fourth fiscal quarter last year that had a positive impact on our net sales for the six months ended October 31, 2020. We believe our investments in our logistics and e-commerce structure have enabled us to respond effectively to increased demand for our products. Net sales in our e-commerce channel increased $31.7 million, or 166.5%, over the prior year comparable period, which we believe resulted from a shift in consumer preference to online purchasers during the current period and increases in our own direct-to-consumer business. Net sales in our traditional channels increased $16.9 million, or 27.3%, over the prior year comparable period because of increased consumer interest and the impact of COVID-19 on retail locations after they have reopened, as mentioned above. In addition, feedback from certain of our large retail customers seems to indicate significant growth over the comparable quarter last year, reflecting strong consumer demand for our products in the channel. The increase in net sales was partially offset by lower related party sales and a decline in sales of our branded camping accessory products due to an acceleration of one large retail customer’s strategy towards its own private label brand that began in October 2019. Our second fiscal quarter represents the final quarter in which this comparison will occur.

~~New products represented 12.3% of net sales for the six months ended October 31, 2020.~~

Gross margin for the six months ended October 31, 2020 increased 640 basis points over the prior year comparable period, primarily because of increased product demand, favorable product mix, and lower promotional expenses, which increased gross margins by 1,270 basis points, partially offset by writing down our inventory for discounted inventory and tariff costs that reduced gross margins by 500 basis points.

The following table sets forth certain information regarding operating expenses for the three months ended ~~October~~July 31, 2021 and 2020 ~~and 2019 (dollars~~(dollars in thousands):

	2020			2019			$ Change		% Change			2021			2020			$ Change		% Change
Research and development	$	1,932		$	1,193		$	739		61.9	%	$	1,521		$	1,230		$	291		23.7	%
Selling and marketing		15,679			9,964			5,715		57.4	%
Selling, marketing, and distribution													13,200			10,543			2,657		25.2	%
General and administrative		9,898			9,406			492		5.2	%		10,039			9,494			545		5.7	%
Total operating expenses	$	27,509		$	20,563		$	6,946		33.8	%	$	24,760		$	21,267		$	3,493		16.4	%
% of net sales		34.8	%		43.1	%							40.7	%		42.1	%

Research and development expenses increased ~~$739,000,~~$291,000 over the comparable quarter last year, primarily as a result of increased ~~compensation-related expenses and consulting from the comparable quarter last year.~~headcount, to support new product introductions, that caused higher compensation related expenses. Selling, marketing, and distribution expenses increased ~~$5.7~~$2.7 million ~~partially~~over the comparable quarter last year, primarily as a result of ~~$2.7 million~~$751,000 of increased ~~co-op~~freight costs and increased unit shipments; $598,000 of higher digital, print, and commercial advertising expenses; and ~~commission~~$537,000 of higher compensation related expenses ~~related~~from new employees hired over the course of fiscal 2021 to ~~strategic customers that are generally calculated as a percentage of net sales; $624,000 of increased expenses for~~support the ~~launch of new brand websites and other brand initiatives; $370,000 of increased distribution labor costs to increase shipping capacity; and $344,000 of increased depreciation on warehouse equipment.~~growth in our business. General and administrative expenses increased ~~$492,000,~~$545,000 over the comparable quarter last year, primarily ~~due to $1.6 million~~as a result of $312,000 of increased ~~compensation-related~~stock compensation expense because of the Separation; $217,000 of increased standalone expenses, such as subscription and software costs, and higher professional fees, partially offset by ~~$651,000~~$584,000 of lower acquired intangible asset amortization.

~~The following table sets forth certain information regarding operating expenses for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

Research and development expenses increased $637,000, primarily as a result of increased compensation-related expenses, employee-related expenses, and consulting expenses from the prior year comparable period. Selling, marketing, and distribution expenses increased $8.6 million, partially as a result of $3.9 million of increased co-op advertising and commission expenses related to strategic customers that are generally calculated as a percentage of net sales, $1.6 million of increased costs related to the development of our e-commerce initiatives and brand website launches; $870,000 of increased distribution labor costs to increase shipping capacity; $444,000 of increased freight expense from increased shipments to customers during the six months ended October 31, 2020; and $735,000 of increased advertising for new brand introductions. General and administrative expenses decreased $1.9 million, primarily due to $1.3 million of lower acquired intangible asset amortization, and $1.1 million of facility consolidations, partially offset by higher compensation-related expenses.

The following table sets forth certain information regarding operating income for the three months ended ~~October~~July 31, 2021 and 2020 ~~and 2019 (dollars~~(dollars in thousands):

	2020			2019			$ Change		% Change			2021			2020			$ Change		% Change
Operating income/(loss)	$	9,564		$	(1,472	)	$	11,036		-749.7	%
Operating income												$	4,223		$	2,464		$	1,759		71.4	%
% of net sales (operating margin)		12.1	%		-3.1	%							6.9	%		4.9	%

Operating income for the three months ended ~~October~~July 31, ~~2020~~2021 was ~~$9.6~~$4.2 million, an increase of ~~$11.0~~$1.8 million ~~from a $1.5~~over $2.5 million operating ~~loss~~income for the three months ended ~~October~~July 31, ~~2019,~~2020, primarily because of increased sales ~~volumes~~ and increased gross margin, ~~as described above.~~

~~The following table sets forth certain information regarding~~partially offset by increased operating ~~income for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

Operating income for the six months ended October 31, 2020 was $12.0 million, an increase of $20.7 million from a $8.7 million operating loss for the six months ended October 31, 2019, primarily because of increased sales volumes and increased gross marginexpenses as described above.

The following table sets forth certain information regarding ~~related party~~ interest (expense)/income, net for the three months ended ~~October~~July 31, 2021 and 2020 ~~and 2019 (dollars~~(dollars in thousands):

~~During~~For the three months ended ~~October~~July 31, ~~2020,~~2021, interest (expense)/income decreased ~~$1.1 million~~$382,000 from the comparable quarter last year because of lower related party notes receivable balances. The related party notes were settled on the date of the ~~Distribution.~~

~~The following table sets forth certain information regarding related party interest income, net for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

During the six months ended October 31, 2020, interest income decreased $1.7 million from the prior year comparable period because of lower related party notes receivable balances. The related party notes were settled on the date of the Distribution.

The following table sets forth certain information regarding income tax expense for the three months ended ~~October~~July 31, 2021 and 2020 ~~and 2019 (dollars~~(dollars in thousands):

	2020			2019			$ Change		% Change			2021			2020			$ Change			% Change
Income tax expense	$	2,408		$	94		$	2,314		2461.7	%	$	849		$	1,095		$	(246	)		-22.5	%
% of income/(loss) from operations (effective tax rate)		24.7	%		-31.4	%				56.1	%
% of income from operations (effective tax rate)													19.7	%		38.0	%					-18.3	%

We recorded income tax expense of ~~$2.4 million~~$849,000 for the three months ended ~~October~~July 31, ~~2020, versus~~2021 compared with income tax expense of ~~$94,000~~$1.1 million for the prior year comparable ~~quarter, primarily because of increased operating profit.~~quarter. The effective tax ~~rates~~rate for ~~October~~July 31, 2021 included discrete items related to stock-based compensation. The effective tax rate for July 31, 2020 ~~and 2019 include~~included discrete items related to the corporate and distribution expense allocations presented in the combined financial statements on a “carve out” basis.

~~The following table sets forth certain information regarding income tax expense/(benefit) for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

We recorded income tax expense of $3.5 million for the six months ended October 31, 2020, versus income tax benefit of $1.2 million for the prior year comparable quarter, primarily because of increased operating profit. The effective tax rates for October 31, 2020 and 2019 include discrete items related to the corporate and distribution expense allocations presented in the combined financial statements on a “carve out” basis.

The following table sets forth certain information regarding net ~~income/(loss)~~income and the related per share data for the three months ended ~~October~~July 31, 2021 and 2020 ~~and 2019 (dollars~~(dollars in thousands, except per share data):

	2020		2019			$ Change		% Change			2021		2020		$ Change		% Change
Net income/(loss)	$	7,339	$	(393	)	$	7,732		-1967.4	%
Net income/(loss) per share
Net income											$	3,457	$	1,789	$	1,668		93.2	%
Net income per share
Basic	$	0.52	$	(0.03	)	$	0.55		-1833.3	%	$	0.25	$	0.13	$	0.12		92.3	%
Diluted	$	0.52	$	(0.03	)	$	0.55		-1833.3	%	$	0.24	$	0.13	$	0.11		84.6	%

Net income of ~~$7.3~~$3.5 million, or ~~$0.52~~$0.24 per diluted share, for the three months ended ~~October~~July 31, ~~2020~~2021 was ~~$7.7~~$1.7 million higher than ~~$393,000~~ net ~~loss,~~income of $1.8 million, or ~~($0.03)~~$0.13 per share, for the comparable quarter last year, primarily because of ~~a combination of~~ increased sales ~~volumes, favorable customer,~~volume from higher demand, new product ~~mix,and lower promotional expenses, favorable manufacturing fixed cost absorption,~~sales that have higher average selling prices, higher gross margins, and lower acquisition related amortization expense.

The following table sets forth certain information regarding net income/(loss) and the related per share data for the six months ended October 31, 2020 and 2019 (dollars in thousands, except per share data):

Net income of $9.1 million, or $0.65 per diluted share, for the six months ended October 31, 2020 was $14.5 million higher than a $5.4 million net loss, or ($0.38) per share, for the prior year comparable period, primarily because of a combination of increased sales volumes, favorable customer, product mix,~~and lower promotional expenses, favorable manufacturing fixed cost absorption, lower acquisition related amortization expense, and lower bad debt expenses.~~

We use GAAP net income as our primary financial measure. We use Adjusted EBITDAS, which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Adjusted EBITDAS is defined as GAAP net income/(loss) before interest, taxes, depreciation, amortization, and stock compensation expense. Our Adjusted EBITDAS calculation also excludes certain items we consider non-routine. We believe that Adjusted EBITDAS is useful to understanding our operating results and the ongoing performance of our underlying business, as Adjusted EBITDAS provides information on our ability to meet our capital expenditure and working capital requirements, and is also an indicator of profitability. We believe this reporting provides additional transparency and comparability to our operating results. We believe that the presentation of Adjusted EBITDAS is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to neutralize our capitalization structure to compare our performance against that of other peer companies using similar measures, especially companies that are private. We also use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. We believe it is useful to investors and analysts to evaluate this non-GAAP measure on the same basis as we use to evaluate our operating results.

Adjusted EBITDAS is a non-GAAP measure and may not be comparable to similar measures reported by other companies. In addition, non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of non-GAAP measures through the use of various GAAP measures. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDAS. Our presentation of Adjusted EBITDAS should not be construed as an inference that our future results will be unaffected by these items.

The following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the three ~~and six~~ months ended ~~October~~July 31, ~~2020~~2021 and ~~2019,~~2020, respectively (dollars in thousands):

	Three Months Ended October 31,						Six Months Ended October 31,						Three Months Ended July 31,
	2020			2019			2020			2019			2021		2020
	(Unaudited)
GAAP net income/(loss)	$	7,339		$	(393	)	$	9,128		$	(5,379	)

Income tax expense/(benefit)		2,408			94			3,503			(1,204	)
GAAP net income													$	3,457	$	1,789
Interest expense														46		—
Income tax expense														849		1,095
Depreciation and amortization		5,068			6,179			10,459			12,156			4,179		5,388
Related party interest income		(88	)		(1,178	)		(424	)		(2,116	)		—		(336	)
Stock compensation		899			352			1,196			666			752		298
Transition costs		13			521			264			1,607			—		251
Technology implementation														272		—
COVID-19 costs		—			—			223			—			—		223
Other		125			—			125			—
Non-GAAP Adjusted EBITDAS	$	15,764		$	5,575		$	24,474		$	5,730		$	9,555	$	8,708

We expect to continue to utilize our cash flows to invest in our business, including research and development for new product initiatives; the hiring of additional employees; growth strategies, including any potential acquisitions; to repay any indebtedness we ~~have generated strong annual~~may incur over time; and the development of our independent information technology infrastructure, including the implementation of our enterprise resource planning systems. We estimate that our information technology infrastructure will cost a total of approximately $8.0 million over a period that spans fiscal 2022 and fiscal 2023. In fiscal 2022, we expect capital expenditures of approximately $3.5 million and one-time operating expenses of approximately $1.6 million. In addition, we expect to record approximately $1.2 million of duplicative expenses, in fiscal 2022, as we operate both our existing and our new information technology and enterprise resource planning platforms in parallel during the system changeover period. In fiscal 2023, we expect capital expenditures of approximately $2.0 million and one-time operating expenses of approximately $1.0 million. The one-time operating expenses and duplicative expenses will be recorded in general and administrative expenses on our consolidated and combined statement of operations and comprehensive income.

The following table sets forth certain cash flow ~~from~~information for the three months ended July 31, 2021 and 2020 (dollars in thousands):

On an annual basis, operating ~~activities. However, prior to~~activities generally represent the Separation, we operated within our former parent company’s cash management structure, which used a centralized approach to cash management and financing of operations. Accordingly, a substantial portionprincipal source of our cash flow.

Cash used in operating activities was ~~regularly transferred~~$3.2 million for the three months ended July 31, 2021 compared with cash provided by operating activities of $564,000 for the three months ended July 31, 2020. Cash used in operating activities for the three months ended July 31, 2021 was primarily impacted by $17.3 million of increased inventory as a result of a planned inventory build in anticipation of new product introductions later in the year, preparations for seasonality in our business, and additional planned purchases to help mitigate price increases on materials and future supply chain disruptions. In addition, accrued payroll and incentives reduced by $3.5 million because of timing and the payout of management incentives during the three months ended July 31, 2021. The cash used in operations for the three months ended July 31, 2021 was offset by higher net income, $3.9 million of reduced accounts receivable from timing of customer shipments, $3.7 million of increased accounts payable from timing of inventory shipments, and $2.5 million of higher accrued expenses primarily related to freight and duty accruals as a result of higher inventory purchases.

Our inventory has increased during the three months ended July 31, 2021 for the same reasons described above. It is possible that worsening of conditions or increased fears of the COVID-19 pandemic could have a renewed and prolonged effect on manufacturing or employment in Asia, travel to and from Asia, or other restrictions on imports, all of which could have a longer-term

effect on our sales and profitability in future periods. In addition, increased demand for sourced products in various industries could cause delays at various U.S. ports, which could delay the timing of receipts of our products. Therefore, we expect our inventory to increase in our second fiscal quarter because of additional planned purchases to help mitigate potential future supply chain disruptions, expected finished product price increases at our suppliers, and logistic cost fluctuations; and a planned inventory build in anticipation of new product introductions later in the fiscal year combined with our focus on introducing higher priced new products that we expect will increase inventory values.

Cash used in investing activities was relatively flat for the three months ended July 31, 2021 as compared with the prior year comparable period. We expect to spend approximately $7.5 million to $8.5 million of capital expenditures in fiscal 2022, an increase of $3.9 million to $4.9 million over fiscal 2021, which includes the capital expenditures the development and implementation of our independent information technology infrastructure noted above. We recorded an immaterial amount of capital expenditures during the three months ended July 31, 2021 related to our ~~former parent company. This arrangement~~development and implementation of our independent information technology infrastructure.

Cash used in financing activities was ~~not reflective~~$307,000 for the three months ended July 31, 2021, primarily from payments of ~~the manner in which we would have been able~~employee withholding tax related to ~~finance our operations had we been an independent, publicly traded company during the periods presented.~~

~~The~~restricted stock issuances, compared with cash ~~and cash equivalents historically held~~provided by ~~our former parent company at the corporate level were not specifically identifiable to us and therefore have not been reflected~~financing activities of $186,000 in the ~~historical combined balance sheet. On August 24, 2020, our former parent company capitalized our business with $25.0 million~~prior year comparable period because of ~~cash as part of the Separation.~~

Our former parent company incurred debt and related debt issuance costs with respect to the acquisitions of the carved-out businesses. However, such debt was refinanced since the consummation of these acquisitions, with the proceeds of such refinancing utilized for the retirement of original debt obligations as well as the funding of other former parent company expenditures. As a result, the former parent company third-party long-term debt and the related interest expense was not allocated to us for any of the periods presented as we were not the legal obligor of such debt.

~~Following the Separation, our capital structure and sources of liquidity changed from the historical capital structure because we no longer participate~~changes in our former parent company’s centralized cash management program. Our ability to fund our operating needs depends on our future ability to continue to generate positive cash flow from operations and obtain financing on acceptable terms. Based upon our history of generating strong cash flows, we believe we will be able to meet our short-term liquidity needs. We also believe we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and available borrowings through our existing $50.0 million credit facility. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms in the future.

~~Our separation~~net transfers from our former parent ~~company may increase the overall cost of debt funding and decrease the overall debt capacity and commercial credit available to us.~~company.

Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company, including the establishment of our independent information technology infrastructure and enterprise resource planning systems, any acquisitions or strategic investments that we may determine to make, and our ability to navigate through the many negative business impacts from the COVID-19 pandemic. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.

We had ~~$33.9~~$56.3 million of cash equivalents on hand as of ~~October~~July 31, ~~2020,~~2021 and had ~~$234,000~~$60.8 million in cash and cash equivalents on hand as of April ~~30. 2020.~~

We expect to utilize our cash flows to continue to invest in our brands, including research and development of new product initiatives, talent and capabilities, and growth strategies, including any potential acquisitions, and to repay any indebtedness we may incur over time.

~~The following table sets forth certain cash flow information for the six months ended October 31, 2020 and 2019 (dollars in thousands):~~

~~On an annual basis, operating activities generally represent the principal source of our cash flow.~~

Cash generated by operating activities was $4.6 million for the six months ended October 31, 2020 compared with cash used of $1.9 million for the six months ended October 31, 2019. Cash generated by operating activities for the six months ended October 31, 2020 was favorably impacted by $11.7 million of higher accounts payable due to timing of payments and inventory shipments and $5.7 million of higher sales volume variable expense accruals, and $2.4 million of increased payroll and management incentive accruals, offset by $13.6 million of increased inventory ~~as a result of the preparation for the hunting and holiday shopping season and a planned inventory build~~ ~~for new product introductions later in the year, and $23.0 million increased accounts receivable due to higher net sales and timing of shipments.~~

~~Our inventory increased $4.0 million during the three months ended October 31, 2020. Items impacting our inventory included~~ ~~a planned inventory build to support anticipated, increased demand leading up to the hunting and holiday shopping seasons, the resolution of COVID-19 related supply chain issues~~ that resulted in increased order fulfillment of our inventory, additional planned purchases to help mitigate potential future supply chain disruptions, and the anticipation of new product introductions later in the fiscal year. These increases were partially offset by increased sales and improved order cadence, which improved inventory turns. It is possible that worsening of conditions or increased fears of a pandemic could have a renewed and prolonged effect on manufacturing or employment in China, travel to and from China, or other restrictions on imports, all of which could have a longer-term effect on our sales and profitability in future periods. We expect inventory to increase or remain flat in our third and fourth fiscal quarters due to a planned inventory build in anticipation of new product introductions later in the fiscal year combined with our focus on higher priced products that we expect will increase inventory values.

Cash used in investing activities increased $1.2 million for the six months ended October 31, 2020 from the prior year comparable period. This increase was mostly due to the fact that we recorded capital expenditures of $1.8 million for the six months ended October 31, 2020, which was $944,000 higher than the prior year comparable period.

Cash provided by financing activities was $31.3 million for the six months ended October 31, 2020 compared with $3.1 million of cash provided by financing activities in the prior year comparable period because of changes in net transfers from our former parent company and the $25.0 million cash capital contribution from our former parent company as part of the Separation.

On August 24, 2020, we entered into a new financing arrangement in anticipation of the Separation, consisting of a $50 million revolving line of credit secured by substantially all our assets, maturing five years from the closing date, with available borrowings determined by a borrowing base calculation. Based on this calculation, the entire $50.0 million was available to us as of October 31, 2020. The revolving line includes an option to increase the credit commitment for an additional $15.0 million. The revolving line bears interest at a fluctuating rate equal to the Base Rate or LIBOR, as applicable, plus the applicable margin. If ~~adequate means do not exist for ascertaining the LIBOR Rate, any borrowing under the credit facility may be converted into Base Rate Loans.~~ ~~The~~

applicable margin can range from a minimum of 0.75% to a maximum of 2.25% based on certain conditions as defined in the credit agreement. The financing arrangement contains covenants relating to minimum debt service coverage. As of October 31, 2020, the revolving line of credit had no borrowings. If we would have had borrowings at October 31, 2020, those borrowings would have borne interest at approximately 1.97%, which is equal to the LIBOR rate plus the applicable margin. We recorded $410,000 of debt issuance costs associated with entering into this financing arrangement.30, 2021.

The preparation of our consolidated and combined financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant accounting policies are summarized in Note 12 of the Notes to the ~~Consolidated~~consolidated and ~~Combined Financial Statements included~~combined financial statements in our Annual Report on Form 10-K for the ~~Form 10.~~fiscal year ended April 30, 2021. The most significant areas involving our judgments and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form ~~10,~~10-K for the fiscal year ended April 30, 2021, to which there have been no material changes. Actual results could differ from our estimates.

The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2—Recently Adopted and Issued Accounting Standards to our consolidated and combined financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

There were no material changes from the information provided in Quantitative and Qualitative Disclosures about Market Risk in the Form 10.

As of ~~October~~July 31, ~~2020,~~2021, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) and have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the ~~Securities~~ Exchange Act ~~of 1934, as amended,~~ is recorded, processed, summarized, and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended ~~October~~July 31, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The nature of legal proceedings against us is discussed in Note 11 — Commitments and Contingencies to our consolidated and combined financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

We have disclosed under the heading “Risk Factors” in our ~~Information Statement included as Exhibit 99.1 to our Current~~Annual Report on Form ~~8-K,~~10-K, filed with the SEC on ~~August 4, 2020,~~July 15, 2021, risk factors that materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.

As of ~~October~~July 31, ~~2020,~~2021, we had no authorized share repurchase programs.

The exhibits listed on the Index to Exhibits (immediately preceding the signatures section of this Quarterly Report on Form 10-Q) are included herewith or incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each Class	Trading Symbol	Name of exchange on which registered
Common Stock, par value $0.001 per share	AOUT	Nasdaq Global Select Market

PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements (Unaudited)	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2421
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	3327
	Item 4. Controls and Procedures	3327

PART II - OTHER INFORMATION
	Item 1. Legal Proceedings	3428
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3428
	Item 6. Exhibits	3428
Signatures		3629

	For the Three Months Ended July 31,
	2021
Grant date fair market value
American Outdoor Brands, Inc.	$	26.44
Russell 2000 Index	$	2,277.45
Volatility (a)
American Outdoor Brands, Inc.		47.78	%
Russell 2000 Index		30.69	%
Correlation coefficient (b)		0.46
Risk-free interest rate (c)		0.33	%
Dividend yield (d)		0	%

	For the three months ended July 31,
	2021
				Weighted
	Total # of			Average
	Restricted			Grant Date
	Stock Units			Fair Value
RSUs and PSUs outstanding, beginning of period		427,519		$	11.75
Awarded		97,885			27.44
Vested		(50,652	)		12.35
Forfeited		(360	)		16.23
RSUs and PSUs outstanding, end of period		474,392		$	14.92

	For the Six Months Ended October 31, 2020
Grant date fair market value
American Outdoor Brands, Inc.	$	13.30
Russell 2000 Index	$	1,504.59
Volatility (a)
American Outdoor Brands, Inc.		47.54	%
Russell 2000 Index		27.70	%
Correlation coefficient (b)		0.48
Risk-free interest rate (c)		0.17	%
Dividend yield (d)		0	%

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

Emerging growth company	☒

~~2.1~~		~~Separation and Distribution Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant~~ ~~(1)~~

~~3.1~~		~~Amended and Restated Certificate of Incorporation~~ ~~(1)~~

~~3.2~~		~~Amended and Restated Bylaws~~ ~~(1)~~

~~10.1~~		~~Transition Services Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant~~ ~~(1)~~

~~10.2~~		~~Tax Matters Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant~~ ~~(1)~~

~~10.3~~		~~Employee Matters Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant~~ ~~(1)~~

~~10.4~~		~~Trademark License Agreement, dated as of August 24, 2020, by and between Smith & Wesson Inc. and AOB Products Company, a wholly owned subsidiary of the Registrant~~ ~~(1)~~

~~10.5~~		~~Sublease, dated as of August 24, 2020, by and between Smith & Wesson Sales Company and the Registrant~~ ~~(1)~~

~~10.6~~		~~Supply Agreement, dated as of August 24, 2020, by and between Crimson Trace Corporation, a wholly owned subsidiary of the Registrant, as Supplier, and Smith & Wesson Inc. (1)~~

~~10.7~~		~~Supply Agreement, dated as of August 24, 2020, by and between AOB Products Company, a wholly owned subsidiary of the Registrant, as Supplier, and Smith & Wesson Inc. (1)~~

~~10.8+~~		~~2020 Incentive Compensation Plan~~ ~~(1)~~

~~10.9+~~		~~Form of Non-Qualified Stock Option Award Grant Notice and Agreement to the 2020 Incentive Compensation Plan~~ ~~(1)~~

~~10.10+~~		~~Form of Restricted Stock Unit Award Grant Notice and Agreement to the 2020 Incentive Compensation Plan~~ ~~(1)~~

~~10.11+~~		~~Form of Performance Stock Unit Award Grant Notice and Agreement to the 2020 Incentive Compensation Plan~~ ~~(1)~~

~~10.12+~~		~~2020 Employee Stock Purchase Plan~~ ~~(1)~~

~~10.13+~~		~~Employment Agreement by and between the Registrant and Brian D. Murphy~~ ~~(1)~~

~~10.14+~~		~~Executive Severance Pay Plan~~ ~~(1)~~

~~10.15~~		~~Form of Indemnification Agreement entered into between the Registrant and each of its directors and executive officers~~ ~~(1)~~


~~10.16~~		Loan and Security Agreement, dated as of August 24, 2020, by and among AOB Products Company, Crimson Trace Corporation, American Outdoor Brands, Inc., Battenfeld Acquisition Company Inc., BTI Tools, LLC, Ultimate Survival Technologies, LLC, AOBC Asia Consulting, LLC, TD Bank, N.A., and the other banks, financial institutions, and other entities from time to time parties thereto ~~(1)~~

31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1		Section 1350 Certification of Principal Executive Officer

32.2		Section 1350 Certification of Principal Financial Officer

101.INS		Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

	AMERICAN OUTDOOR BRANDS, INC., a Delaware corporation

Date: ~~December 15~~September 9, ~~2020~~2021	By:	/s/ Brian D. Murphy
		Brian D. Murphy
		President and Chief Executive Officer

Date: ~~December 15, 2020~~September 9, 2021	By:	/s/ H. Andrew Fulmer
		H. Andrew Fulmer
		Executive Vice President, Chief Financial Officer, and Treasurer