| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting
Basis The
accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form
10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for
these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the
rules and regulations of the Securities Exchange Commission (“SEC”). The
accompanying condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial
statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended
March 31, 2024. The results for the three months ended June 30, 2024, are not necessarily indicative of the results that may be expected
for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared
in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments
have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for
the three month periods ended June 30, 2024 and 2023, (b) the financial position at June 30, 2024, and (c) cash flows for the three month
periods ended June 30, 2024 and 2023. AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS We
use the accrual basis of accounting and U.S. GAAP, and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of
March 31 st Unless
the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company”
are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries. Principles
of Consolidation The
condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation. Use
of Estimates The
preparation of financial statements in conformity with U.S.
GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include
the valuation of allowances for credit losses, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible
assets, stock-based compensation, and warrant-based compensation. Critical
Accounting Estimates and Policies A
summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended March 31, 2024, under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the three months ended
June 30, 2024. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations,
please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31,
2024. Goodwill We
evaluate goodwill for impairment annually or more frequently when an event occurs, or circumstances change that would more likely
than not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to
utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step
impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets
to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors
indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment
as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting
units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating
expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Due to the
declines in the value of our stock price and market capitalization in the year ended March 31, 2023, we assessed qualitative factors to determine if it is more
likely than not that the fair value of the Marketplace segment is less than its carrying amount. Through our analysis we determined
our stock price and market capitalization decline is not indicative of a decrease in the fair value of our Marketplace segment and a
fair value calculation using the discounted cash flows was more appropriate due to the operational performance of the reporting
segment. Accordingly, the impairment of Goodwill was not warranted for the year ended March 31, 2024. As of June 30, 2024, the
Company has a goodwill carrying value of $ 90,870,094 AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Accounts
Receivable and Allowance for Credit Losses Our
accounts receivable represents amounts due from customers for products sold and include an allowance for estimated credit losses which
is estimated based on the collectability and age of the accounts receivable balances and categorization of customers with similar financial
condition. At June 30, 2024 and March 31, 2024, we reserved $ 3,782,553 3,666,078 Cash
and Cash Equivalents For
purposes of the condensed consolidated statements of cash flows, we consider highly liquid financial instruments purchased with a
maturity of three months or less to be cash equivalents. License
Agreements We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited
liability company. The license agreement grants us the exclusive worldwide rights through April 12, 2026 to Mr. James’ image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse
James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to
reimburse him for any out-of-pocket expenses and reasonable travel expenses. Patents On
September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam,
Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles
and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26,
2013, owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant
to an Assignment and First Amendment to Exclusive License Assumption Agreement dated to be effective as of August 22, 2017, the Merger
closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028. Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $ 0.01 1,864 5,060 AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In
August 2018, we applied for additional patent coverage for the manufacturing methods or application of the Hybrid Luminescence Ammunition
Technology on a variety of projectile and ammunition types. The costs of filing this patent were expensed. On
October 5, 2018, we completed the acquisition of SW Kenetics Inc. AMMO Technologies, Inc. succeeded all of the assets of SW Kenetics,
Inc. and assumed all of the liabilities. The
primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned
and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018. We
intend to continue building our patent portfolio to protect our proprietary technologies and processes and will file new applications
where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition. Other
Intangible Assets On
March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition
of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended
and Restated Asset Purchase Agreement (See Note 12). The intangible assets acquired include a tradename, customer relationships, and
intellectual property. On
April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight
Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments, LLC, a
Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight
Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments,
LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of GunBroker, an online auction marketplace dedicated
to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships, intellectual
property, software, and domain names. Impairment
of Long-Lived Assets We
continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable.
When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows
is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
No Revenue
Recognition We
generate revenue from the production and sale of ammunition, ammunition casings, and marketplace fee revenue, which includes auction
revenue, payment processing revenue, and shipping income. We recognize revenue according to Accounting Standard Codification –
Revenue from Contract with Customers (“ASC 606”). When the customer obtains control over the promised goods or services,
we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the
following five-step model to determine revenue recognition:
● Identification
of a contract with a customer
● Identification
of the performance obligations in the contact
● Determination
of the transaction price
● Allocation
of the transaction price to the separate performance allocation
● Recognition
of revenue when performance obligations are satisfied AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS We
only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods
or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606,
we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether
each promised good or service is distinct. For
Ammunition Sales and Casing Sales, our contracts contain a single performance obligation and the entire transaction price is allocated
to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective
performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when
the customer obtains control of our product, which typically occurs upon shipment of the product or the performance of the service. In
the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued
Liabilities. We will recognize revenue when the performance obligation is met. For
Marketplace revenue, the performance obligation is satisfied, and revenue is recognized as follows: Auction
revenue consists of optional listing fees with variable pricing components based on customer options selected from the GunBroker website
and final value fees based on a percentage of the final selling price of the listed item. The performance obligation is to process the
transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction is processed. Compliance
fee revenue consists of fees charged to customers based on a percentage of the final price of an item at the time of purchase. The performance
obligation is to process the transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction
is processed. Payment
processing revenue consists of fees charged to customers on a transactional basis. The performance obligation is to process the transactions
as initiated by the customer. The price is set by the GunBroker user agreement on the website based on stand-alone selling prices. Revenue
is recognized at a point in time when the transaction is processed. Shipping
income consists of fees charged to customers for shipping of sold items listed on the GunBroker website. The performance obligation is
to ship the item sold as initiated by the customer. The price is set based on the third-party service provider selected to be used by
the customer as well as the speed and location of shipment. Revenue is recognized at a point in time when the shipping label is printed. Banner
Advertising Campaign Revenue consists of fees charged to customers for advertisement placement and impressions generated through the
GunBroker website. The performance obligation is to generate the number of impressions specified by the customer on banner advertisements
on the GunBroker website using the placement selected by the customer. The price is set by the GunBroker user agreement on the website
based on standalone selling prices, or by advertising insertion order as negotiated by a media broker. If the number of impressions promised
is not generated, the customer receives a refund and the refund is applied to the transaction price. Banner advertising campaigns generally
run for one month, and revenue is recognized at a point in time at the end of the selected month. Product
Sales consists of fees charged for the liquidation of excess inventory for partner distributors. The performance obligation is to sell
and ship the inventory item as initiated by the customer. The price depends on whether the inventory is a fixed price item or an auction
item. For a fixed price item, the Company performs research to determine the current market rate for such an item, and the item is listed
at that price. For an auction item, the price is set by what the buyer is willing to pay. The Company acts as a principal in these transactions
due to the extent of control they have over the product prior to the sale. Due to the principal determination, gross revenue is recognized
at a point in time when the item has been shipped. Identity
Verification consists of fees charged to customers for identity verification in order to gain access to the GunBroker website. The performance
obligation is to process the identity verification as initiated by the customer. The price is set by the GunBroker user agreement on
the website based on a stand-alone selling price. Revenue is recognized at a point in time when the identity verification is completed. AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For
the three months ended June 30, 2024 and year end March 31, 2024, the Company’s customers that comprised more than ten percent
(10%) of total revenues and accounts receivable were as follows. SCHEDULE
OF CONCENTRATION RISK OF TOTAL REVENUES
AND ACCOUNTS RECEIVABLE
Revenues at June
30, 2024 Accounts Receivable
PERCENTAGES Ended June
30, 2024 March
31, 2024
Customers:
A - - 11.8 %
- - - Disaggregated
Revenue Information The
following table represents a disaggregation of revenue from customers by category. We attribute net sales to categories by product or
service types; ammunition, ammunition casings, and marketplace fees. We note that revenue recognition processes are consistent between
product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to
the customers of each product and service type. SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
June 30, 2024 June 30, 2023
For the Three Months Ended
June 30, 2024 June 30, 2023
Ammunition sales (1) $ 13,359,554 $ 14,106,029
Marketplace fee revenue 12,281,991 13,912,202
Ammunition casings sales 5,312,005 6,236,344
Total Sales $ 30,953,550 $ 34,254,575
(1) Included
in revenue for the three months ended June 30, 2024 and 2023 are excise taxes of $ 1,303,603 1,175,796 Ammunition
products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also
sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated
through our GunBroker online auction marketplace. Cost of Revenues Cost of Revenues for our ammunition segment consists of product cost and cost directly and indirectly associated
with getting those products to a sellable state and for our marketplace segment, consists of cost associated with facilitating transactions
on the platform. Advertising
Costs We
expense advertising costs under our Ammunition segment as they are incurred in selling and marketing expenses of operating expenses.
Marketplace Segment advertising costs are expensed as they are incurred in cost of revenues. We incurred advertising expenses under
our Ammunition segment of $ 108,802 119,638 110,542 138,657 Inventories We
state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists
of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other
costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence. AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Property
and Equipment We
state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor
replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated
useful lives, which are generally 5 10 40 Compensated
Absences We
accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General
(“ASC 710”) . Research
and Development To
date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through
our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become
necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop
new technologies and lines of ammunition. Excise
Tax As
a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect
an 11% 1.3 1.2 Fair
Value of Financial Instruments Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of June 30, 2024.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments
include cash, accounts receivable, accounts payable, amounts due to related parties, and the construction note payable. Fair values were
assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they
are payable on demand. Stock-Based
Compensation We
account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation –
Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-based
payment awards to employees and directors. Stock-based compensation is recognized on a straight-line basis over the vesting periods and
forfeitures are recognized in the periods they occur. We account for common stock purchase option awards by estimating the fair value
of each option award on the grant date using the Black-Scholes option pricing model that uses assumption and estimates that we believe
are reasonable. There were 155,129 390,111 Concentrations
of Credit Risk Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 Income
Taxes We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under
the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision
for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred tax assets
and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected
to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely
than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with
ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We measure
recognized income tax positions at the largest amount that is greater than 50% likely of being realized. AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Contingencies Certain
conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will
only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted
claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived
merits of the amount of relief sought or expected to be sought therein. If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would
be disclosed. The Company also received notice in October 2022 that an OSHA whistleblower complaint had been filed with the US
Department of Labor by an employee that had been terminated for cause. The regulatory filing was received after AMMO refused to capitulate
to the former employee’s demands. AMMO has produced documents and submitted its position statement to OSHA and the matters is currently
pending at the agency level. A
former employee was terminated for cause who is seeking contract wages and stock that was earned but clawed back upon their termination.
In that case, the Company received a favorable ruling on a partial motion for summary judgment wherein the arbitrator ruled the employee
had refused to return funds he received as reimbursement for invoices he never paid. The arbitrator, thus, granted the Company’s
partially dispositive motion. The remaining claims went to an arbitration hearing which was completed and the arbitrator ordered closing
briefs, which the parties exchanged. On June 11, 2024, the Arbitrator entered an Arbitration Award in which found in the former employee’s
favor of their contract claim, but against the former employee on their breach of the implied covenant of good faith and fair dealing.
The Arbitrator awarded the Company an offset for the invalid business expenses for which the former employee was reimbursed. The Arbitrator
also ordered return of the shares to which AMMO claimed entitlement. The Arbitrator awarded the former employee severance payments, attorneys
fees and costs, which the Company timely paid the arbitration award. On
April 30, 2023, Director and stockholder Steve Urvan filed suit in the Delaware Court of Chancery against the Company, and certain AMMO
directors, former directors, employees, former employees and consultants. Urvan’s claims include fraudulent inducement, unjust
enrichment and violations of the Arizona Securities Act. The suit seeks a Court order for partial recission of the Merger and compensatory
damages of not less than $ 140 AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On
December 6, 2023, Steve Urvan initiated a separate action against the Company in his capacity as director under 8 Del. C. On
January 18, 2024, Innovative Computer Professionals, Inc. d/b/a Digital Cash Processing (“DCP”) filed a civil action in Minnesota
state court against Outdoors Online, LLC d/b/a Gunbroker.com (“Gunbroker”) for breach of contract (the “MN Action”).
In the MN Action, DCP alleges that Gunbroker.com breached a May 2021 contract, pursuant to which DCP was to provide specified digital
payment processing services, and it alleges $ 100 On
June 24, 2024 the Company entered into a Confidential Settlement Agreement and Mutual General Release (the “Settlement
Agreement”) with Triton Value Partners, LLC, Donald Gasgarth, Paul Freischlag, Jr., Jeff Zwitter (the
“Plaintiffs,” and together with the Defendants and the Company, the “Parties” or, individually,
“Party”), and Steven Urvan and TVP Investments LLC (the “Urvan Defendants”) and Gunbroker.com, LLC, IA TECH,
LLC, and GB Investments, Inc. (the “Gunbroker Defendants,” and collectively with the Urvan Defendants, the
“Defendants”) to fully resolve and settle all disputes and claims related to the litigation between the Defendants and
Plaintiffs captioned Triton Value Partners, LLC et al. v. TVP Investments, LLC et al., Cobb County Superior Court, CAFN 18104869
(the “Action”). Pursuant to the Settlement Agreement, the GunBroker Defendants agreed to pay the Plaintiffs $ 8,000,000 2.8 2,857,143 We
have accrued for contingencies totaling approximately $ 8.0 4.8 3.2 no AMMO,
Inc. NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
