S-1/A 1 forms-1a.htm

As filed with the Securities and Exchange Commission on March 13, 2020

Registration Statement No. 333-236888

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1/A

(Amendment No. 1)

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

AMMO, INC.

(Exact name of registrant as specified in its charter)

Delaware |  | 3480 |  | 83-1950534
(State or other jurisdiction of incorporation or organization) |  | (Primary Standard Industrial Code Number) |  | (I.R.S. Employer Identification Number)

7681 East Gray Road Scottsdale, Arizona 85260 (480) 947-0001
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Fred W. Wagenhals President and Chief Executive Officer 7681 East Gray Road Scottsdale, Arizona 85260 (480) 947-0001
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copy to:

Joseph M. Lucosky, Esq.

Steven A. Lipstein, Esq.

Lucosky Brookman LLP

101 Wood Avenue South,

5th Floor

Woodbridge, NJ 08830

(732) 395-4400

Approximate date of commencement of proposed sale of the securities to the public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

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

Large accelerated filer | [ ] | Accelerated filer | [ ]
Non-accelerated filer | [X] | Smaller reporting company | [X]
|  | Emerging growth company | [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]

CALCULATION OF REGISTRATION FEE

Title of Securities to be Registered |  | Number of shares of common stock to be registered (1) |  |  | Proposed Maximum Offering Price Per Share |  |  | Proposed Maximum Aggregate Offering Price |  |  | Amount of Registration Fee(2) |
Common Stock |  |  | 5,919,550 |  |  |  | 1.235 | (3) |  | $ | 7,310,644.25 |  |  | $ | 948.92 |
Common Stock underlying Warrants to Purchase Common Stock |  |  | 2,896,133 |  |  |  | 2.40 | (4) |  | $ | 6,950,719.20 |  |  | $ | 902.20 |
Common Stock underlying Warrants to Purchase Common Stock |  |  | 553,346 |  |  |  | 2.00 | (4) |  | $ | 1,106,692.00 |  |  | $ | 143.65 |
Common Stock underlying Warrants to Purchase Common Stock |  |  | 2,156,033 |  |  |  | 1.235 | (3) |  | $ | 2,662,700.76 |  |  | $ | 345.62 |
Common Stock underlying Warrants to Purchase Common Stock |  |  | 323,405 |  |  |  | 1.54 | (5) |  | $ | 498,043.70 |  |  | $ | 64.65 |
Common Stock underlying Convertible Promissory Notes |  |  | 4,312,060 |  |  |  | 1.235 | (3) |  | $ | 5,325,394.10 |  |  | $ | 691.24 |
Total |  |  | 16,160,527 |  |  |  |  |  |  | $ | 23,854,194.01 |  |  | $ | 3,097.28 | (6)

(1) | Includes up to an aggregate of 16,160,527 shares of common stock, consisting of up to: (a) 5,919,550 shares of common stock; (b) 4,312,060 of shares of common stock issuable upon conversion of the Notes (as defined herein) (This share amount is based upon dividing the $2,500,000 principal amount of the Notes by the Maturity Date Conversion Price (as defined herein). For the purposes of this Registration Statement, the Maturity Date Conversion Price for the Notes was 50.0% of $1.1595 (the mean of the VWAP in the ten consecutive trading days ending on February 13, 2020)); and (c) 5,928,917 shares of common stock issuable upon exercise of warrants that may be sold from time to time pursuant to this registration statement by the Selling Security Holders identified herein. Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(2) | The fee is calculated by multiplying the aggregate offering amount by 0.0001298, pursuant to Section 6(b) of the Securities Act of 1933.
(3) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, based on the average of the high and low prices for our common stock reported on the OTCQB marketplace on March 10, 2020 of $1.25 and $1.22. The shares offered hereunder may be sold by the Selling Security Holder from time to time in the open market, through privately negotiated transactions, or a combination of these methods at market prices prevailing at the time of sale or at negotiated prices.
(4) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(g) under the Securities Act based on the exercise price of the warrants.
(5) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(g) based on the exercise price of the warrants with such exercise price being equal to 125% of the conversion price of the Notes.
(6) | $3,046.78 was previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 13, 2020

The information in this prospectus is not complete and may be changed. The Selling Security Holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

AMMO, INC.

5,919,550 Shares of Common Stock

4,312,060 Shares of Common Stock Underlying Convertible Promissory Notes

5,928,917 Shares of Common Stock Issuable upon Exercise of Warrants

This prospectus relates to the offering and resale by the Selling Security Holders identified herein of up to an aggregate of 16,160,527 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), consisting of up to: (a) 5,919,550 shares of Common Stock; (b) 4,312,060 of shares of Common Stock issuable upon conversion of Convertible Promissory Notes issued in January 2020 (the “Notes”) (This share amount is based upon dividing the $2,500,000 principal amount of the Notes by the Maturity Date Conversion Price (as defined herein). For the purposes of this Registration Statement, the Maturity Date Conversion Price for the Notes was 50.0% of $1.1595 (the mean of the VWAP in the ten consecutive trading days ending on February 13, 2020).); and (c) 5,928,917 shares of Common Stock issuable upon exercise of warrants that may be sold from time to time pursuant to this registration statement by the Selling Security Holders identified herein.

The Notes (as defined herein) and warrants were issued to the Selling Security Holders in private offerings completed prior to the filing of the Registration Statement of which this prospectus forms a part.

Our Common Stock is traded on the over-the-counter market (OTCQB) under the symbol “POWW”. However, the Common Stock offered by this prospectus may also be offered by the Selling Security Holders to or through underwriters, dealers, or other agents, directly to investors, or through any other manner permitted by law, on a continued or delayed basis. Please see “Plan of Distribution” beginning on page 40 of this prospectus.

We are not selling any shares of Common Stock in this offering, and we will not receive any proceeds from the sale of shares by the Selling Security Holders, however, we will receive the proceeds from any cash exercise of the Gunnar Investor Warrants, Gunnar Affiliate Warrants, Paulson Investor Warrants, and Paulson Affiliate Warrants (all as defined herein). The registration of the securities covered by this prospectus does not necessarily mean that any of the securities will be offered or sold by the Selling Security Holders. The timing and amount of any sale is within the respective Selling Security Holders’ sole discretion, subject to certain restrictions.

Our Common Stock is traded on the over-the-counter market under the symbol “POWW.” On March 12, 2020, the closing price of our Common Stock as reported by OTC Markets Group, Inc.’s OTCQB Market was $1.32.

Investing in our securities involves a high degree of risk. See “Risk Factors” in the section entitled “Risk Factors” on page 12 of this prospectus for a discussion of certain risk factors that should be considered by prospective purchasers of the Common Stock offered under this prospectus.

You should rely only on the information contained in this prospectus or any prospectus supplement or amendment hereto. We have not authorized anyone to provide you with different information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is __, 2020

TABLE OF CONTENTS

PROSPECTUS SUMMARY | 2
THE OFFERING | 5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION | 7
RISK FACTORS | 12
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 30
SELLING SECURITY HOLDERS | 31
USE OF PROCEEDS | 40
PLAN OF DISTRIBUTION | 40
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES | 42
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 43
BUSINESS | 57
DIRECTORS AND EXECUTIVE OFFICERS | 63
EXECUTIVE COMPENSATION | 70
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 72
DESCRIPTION OF COMMON STOCK | 73
INTERESTS OF NAMED EXPERTS AND COUNSEL | 74
WHERE YOU CAN FIND MORE INFORMATION | 74
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS | 75
INDEX TO FINANCIAL STATEMENTS | 78

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus is correct as of any time after its date.

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PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is March 31 and our fiscal year ended March 31, 2019 is sometimes referred to herein as fiscal year 2019. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our”, the “Company” or “our Company” or refer to AMMO, Inc., a Delaware corporation.

Our Business

We are a designer, producer, and marketer of performance-driven, high-quality ammunition and ammunition component products for sale to a variety of consumers, including sport and recreational shooters, hunters, individuals seeking home or personal protection, manufacturers, and law enforcement and military agencies. To enhance the strength of our brands and drive product demand, we emphasize product innovation and technology to improve the performance, quality, and affordability of our products while providing support to our distribution channel and consumers. We seek to sell products at competitive prices that compete with high-end, custom, hand-loaded ammunition. Additionally, through our acquisition of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations (“Jagemann Casings”) we are now able to sell ammunition casings products of various types. We emphasize an American heritage by using predominantly American-made components and raw materials in our products that are produced, inspected, and packaged at our facilities in Payson, Arizona and Manitowoc, Wisconsin.

Our production processes focus on safety, consistency, precision, and cleanliness. Each round is developed for a specific purpose with a focus on a proper mix of consistency, velocity, accuracy, and recoil. Each round is chamber gauged and inspected with redundant seven-step quality control processes.

Competition

The ammunition and ammunition casing industry is dominated by a small number of companies, a number of which are divisions of large public companies. We compete primarily on the quality, reliability, features, performance, brand awareness, and price of our products. Our primary competitors include Federal Premium Ammunition, Remington Arms, the Winchester Ammunition division of Olin Corporation, and various smaller manufacturers and suppliers, including Black-Hills Ammunition, CBC Group, Fiocchi Ammunition, Hornady Manufacturing Company, PMC, Rio Ammunition, and Wolf.

Our Growth Strategy

Our goal is to enhance our position as a designer, producer, and marketer of ammunition products. Key elements of our strategy to achieve this goal are as follows:

Design, Produce, and Market Innovative, Distinctive, Performance-Driven, High-Quality Ammunition and Ammunition Components

We are focused on designing, producing, and marketing innovative, distinctive, performance-driven, high-quality products that appeal to retailers, manufacturers, and consumers that will enhance our users’ shooting experiences. Our ongoing research and development activities; our safe, consistent, precision, and clean production processes; and our multi-faceted marketing programs are critical to our success.

Continue to Strengthen Relationships with Channel Partners and Retailers.

We continue to strive to strengthen our relationships with our current distributors, dealers, manufacturers and mass market and specialty retailers and to attract additional distributors, dealers, retailers. The success of our efforts depends on the innovation, distinctive features, quality, and performance of our products; the attractiveness of our packaging; the effectiveness of our marketing and merchandising programs; and the effectiveness of our customer support.

Emphasis on Customer Satisfaction and Loyalty

We plan to continue to emphasize customer satisfaction and loyalty by offering innovative, distinctive, high-quality products on a timely and cost-attractive basis and by offering effective customer service, training, and support. We regard the features, quality, and performance of our products as the most important components of our customer satisfaction and loyalty efforts, but we also rely on customer service and support.

Continuously Improving Operations

We plan to continue focusing on improving all aspects of our business, including research and development, component sourcing, production processes, marketing programs, and customer support. We are continuing our efforts to enhance our production by increasing daily production quantities through equipment acquisitions, expanded shifts and process improvements, increased operational availability of our equipment, reduced equipment down times, and increased overall efficiency.

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Enhance Market Share, Brand Recognition, and Customer Loyalty

We strive to enhance our market share, brand recognition, and customer loyalty. Industry sources estimate that 70 million to 80 million people in the United States own more than approximately 300 million firearms, creating a large installed base for our ammunition products. We are focusing on the premium segment of the market through the quality, distinctiveness, and performance of our products; the effectiveness of our marketing and merchandising efforts; and the attractiveness of our competitive pricing strategies.

Pursue Synergetic Strategic Acquisitions and Relationships

We intend to pursue strategic acquisitions and develop strategic relationships designed to enable us to expand our technology and knowhow, expand our product offerings, strengthen and expand our supply chain, enhance our production process, expand our marketing and distribution, and attract new customers.

Our Offices

We maintain our principal executive offices at 7681 East Gray Road, Scottsdale, Arizona 85260. Our telephone number is (480) 947-0001. Our website is www.ammo-inc.com. The information contained on our website as that can be assessed through our website does not constitute part of this prospectus.

Recent Developments

Paulson Transactions

6,208,912 shares of Common Stock were issued to investors through a private placement offering with Paulson Investment Company (“Paulson”) serving as placement agent. The shares were issued from December 19, 2017 to March 27, 2018 at a price per share of $1.65 for an aggregate value of $10,244,704. In addition, these investors received five (5) year warrants to purchase a total of 3,104,456 shares of Common Stock with their purchase. We paid Paulson a 12% cash commission of $1,254,961 based on the cash raised and a fee payable in seven (7) year warrants of 744,969 equaling 12% of the total units sold. The warrants were issued on June 9, 2018.

1,967,886 shares of Common Stock were issued to investors through a private placement offering with Paulson serving as placement agent. The shares were issued from April 3, 2018 to April 20, 2018 at a price per share of $1.65 for an aggregate value of $3,247,030. In addition, these investors received five (5) year warrants to purchase 983,943 shares of Common Stock with their purchase. We paid Paulson a 12% cash commission of $389,644 based on the cash raised and a fee payable in seven (7) year warrants of 236,244 equaling 12% of the total units sold. The warrants were issued on June 9, 2018.

5,061,220 shares of Common Stock were issued to investors through a private placement offering with Paulson serving as placement agent. The shares were issued from December 27, 2018 to August 30, 2019 at a price per share of $2.00 for an aggregate value of $10,122,440. In addition, these investors received five (5) year warrants to purchase 2,530,610 shares of Common Stock with their purchase (the “Paulson Investor Warrants”). Paulson collected a 12% cash commission of $1,228,809 based on the cash raised and a fee payable in five (5) year warrants of 553,346 equaling 12% of the total units sold (the “Paulson Affiliate Warrants”). The shares of Common Stock sold from December 27, 2018 to August 30, 2019, the shares underlying the Paulson Investor Warrants, and the shares underlying the Paulson Affiliate Warrants are being registered in the Registration Statement of which this prospectus forms a part.

On January 9, 2019, we completed the issuance of 10% Convertible Promissory Notes (the “Paulson Notes”) in the principal amount of $1,710,000 to accredited investors through a private placement in exchange for cash in an equal amount with Paulson serving as placement agent. The principal amounts were raised from the period of October 23, 2018 to December 28, 2018. As a result of the issuance of the Paulson Notes, $5,000 in escrow fees were paid and Paulson received an aggregate commission of $171,000 totaling $176,000 of issuance costs for the Paulson Notes. On February 28, 2019, the Company notified the holders of the Paulson Notes of an offer to convert their notes and the accrued interest on the notes into Common Stock at a conversion price of $2.00 per share and to also receive one-half warrant exercisable at $2.40 per share for five (5) years in conjunction with each converted share. As a result of this offer, on March 29, 2019, 731,039 shares of Common Stock and warrants to purchase 365,523 shares of Common Stock were issued to holders for the conversion of the Paulson Notes valued at $1,410,000 and accrued interest of $52,065. Additionally, on June 5, 2019, 127,291 shares of Common Stock were issued to the remaining holders for the conversion of their Paulson Notes of $300,000 and accrued interest of $18,226. The Company accrued $42,300 for a 3% cash conversion fee on the principal converted payable to Paulson.

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Gunnar Bridge Loan

On January 15, 2020, the Company consummated the initial closing (the “Initial Closing”) of a private placement offering (the “Gunnar Offering”) whereby pursuant to the Subscription Agreements (the “Subscription Agreements”) entered into by the Company with five (5) accredited investors (the “Investors”), the Company issued certain Convertible Promissory Notes for an aggregate purchase price of $1,650,000 (each a “Note,” collectively, the “Notes”) and five (5) year warrants (the “Gunnar Investor Warrants”) to purchase shares of the Common Stock.

On January 30, 2020, the Company consummated the second closing (the “Second Closing”) pursuant to the Gunnar Offering whereby the Company entered into those certain Subscription Agreements with five (5) accredited investors. Pursuant to the Purchase Agreements, the Company the Company issued Notes for an aggregate purchase price of $850,000 and five (5) year Gunnar Investor Warrants.

Joseph Gunnar & Co., LLC (“Gunnar”) acted as placement agent for the Gunnar Offering. Gunnar received cash compensation of $200,000 and is scheduled to be issued five (5) year warrants to purchase such number of shares of Common Stock equal to five percent (5%) of the shares underlying the Notes and the Gunnar Investor Warrants, at an exercise price equal to 125% of the conversion price of the Notes, which price shall not be known until the earlier of the Maturity Date or the closing of the Qualified Financing (the “Gunnar Affiliate Warrants”).

The Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 (for the Notes issued on January 15th) and October 30, 2020 (for the Notes issued on January 30th) (collectively, the “Maturity Date”). Additionally, the Notes contain a mandatory conversion mechanism whereby any principal and accrued interest on the Notes, upon the closing of a Qualified Financing (as defined in this paragraph), converts into shares of the Common Stock or other units at a conversion price of 66.7% of the per share purchase price of shares or other units in the Qualified Financing (the “Qualified Financing Conversion Price”). “Qualified Financing” means the closing of a firm commitment underwritten public offering of shares or units consisting of shares and warrants to purchase shares which results in gross proceeds of not less than $7.5 million and the shares being traded on a national securities exchange. If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Common Stock at a conversion price that is equal to 50.0% of the arithmetic mean of the VWAP in the ten consecutive Trading Days immediately preceding the Maturity Date (the “Maturity Date Conversion Price”). The Notes contain customary events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Notes will accrue at a rate of fifteen percent (15%) per annum and the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Notes will become, at the Note holder’s election, immediately due and payable in cash.

Pursuant to the Subscription Agreements, each Investor will receive the number of Gunnar Investor Warrants to purchase shares of Common Stock equal to the quotient obtained by dividing 50% of the principal amount of the Note by the Maturity Date Conversion Price or the Qualified Financing Conversion Price of the Note. The Gunnar Investor Warrants are exercisable at the per share purchase price of shares or other units in the Qualified Financing (the “Qualified Financing Exercise Price”). If a Qualified Financing has not occurred on or before the Maturity Date, the Gunnar Investor Warrants shall become exercisable at a price per share that is equal to the closing ten-day VWAP in the ten trading days immediately preceding the Maturity Date (the “Maturity Date Exercise Price”). The Gunnar Investor Warrants contain an anti-dilution protection feature, to adjust the exercise price if shares are sold or issued for a consideration per share less than the exercise price then in effect.

As a condition of the Gunnar Offering, each purchaser was required to execute a lock-up agreement. The applicable lock-up period is until the earlier of (i) the Maturity Date of the Notes and (ii) 120 days following the date of the closing of the Qualified Financing.

The Company agreed to use commercially reasonable best efforts to file a registration statement on Form S-1 within 30 days of the closing of the Gunnar Offering registering for resale the shares issuable upon conversion of the Notes and upon exercise of the Gunnar Investor Warrants. The Company also agreed to use commercially reasonable efforts to cause such registration to become effective within 90 days following the closing date (or 120 days in the event of a “full review” by the SEC) and to keep such registration statement effective at all times until no purchaser owns any Gunnar Investor Warrants or warrant shares issuable upon exercise thereof. The shares of Common Stock issuable upon conversion of the Notes and upon exercise of the Gunnar Investor Warrants and the Gunnar Affiliate Warrants are being registered in the Registration Statement of which this prospectus forms a part.

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THE OFFERING

This prospectus relates to the offer and sale from time to time of up to an aggregate of 16,160,527 shares of the Common Stock, consisting of up to: (a) 5,919,550 shares of Common Stock; (b) 4,312,060 of shares of Common Stock issuable upon conversion of the Notes (This share amount is based upon dividing the $2,500,000 principal amount of the Notes by the Conversion Price (as defined herein). For the purposes of this Registration Statement, the Maturity Date Conversion Price for the Notes was 50.0% of $1.1595 (the mean of the VWAP in the ten consecutive trading days ending on February 13, 2020).); and (c) 5,928,917 shares of Common Stock issuable upon exercise of the Gunnar Investor Warrants, Gunnar Affiliate Warrants, Paulson Investor Warrants, and Paulson Affiliate Warrants.

The number of shares of Common Stock ultimately offered for resale by the Selling Security Holders depends upon how much of the Notes the Selling Security Holders elect to convert and how much of the Gunnar Investor Warrants, Gunnar Affiliate Warrants, Paulson Investor Warrants, and Paulson Affiliate Warrants the Selling Security Holders elect to exercise and the liquidity and market price of our Common Stock.

Common stock offered by the Selling Security Holders |  | We are offering up to an aggregate of 16,160,527 shares of the Common Stock, consisting of up to: (1) 4,312,060 shares of Common Stock issuable upon conversion of the Notes. The Notes are convertible at either the Qualified Financing Conversion Price or the Maturity Date Conversion Price. For the purposes of this Registration Statement, the Maturity Date Conversion Price for the Notes was 50.0% of $1.1595 (the mean of the VWAP in the ten consecutive trading days ending on February 13, 2020). (2) 2,156,033 shares of Common Stock issuable upon exercise of the Gunnar Investor Warrants. The number of Shares issuable upon exercise of each Gunnar Investor Warrant shall be an amount equal to the quotient obtained by dividing 50% of the principal amount of each Note by the Conversion Price of the Notes. The Gunnar Investor Warrants are exercisable at the Qualified Financing Exercise Price or the Maturity Date Exercise Price.

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|  | (3) 5,061,220 shares of Common Stock issued to investors through private placement offerings with Paulson as the placement agent. The shares were issued from December 27, 2018 to August 30, 2019 at a price per share of $2.00 for an aggregate value of $10,122,440. (4) 2,530,610 shares of Common Stock issuable upon exercise of the Paulson Investor Warrants at an exercise price of $2.40 per share. (5) 731,039 shares of Common Stock issued to holders for the conversion of Convertible Promissory Notes of $1,410,000 and Accrued Interest of $52,065 on March 29, 2019. (6) 127,291 shares of Common Stock issued to the remaining holders for the conversion of their Convertible Promissory Notes of $300,000 and accrued interest of $18,226 on June 5, 2019. (7) 365,523 shares of Common Stock issuable upon exercise of the Paulson Investor Warrants at an exercise price of $2.40 per share received upon conversion of the Convertible Promissory Notes. (8) 553,346 shares of Common Stock issuable upon exercise of the Paulson Affiliate Warrants at an exercise price of $2.00 per share. (9) 323,405 shares of Common Stock issuable upon exercise of the Gunnar Affiliate Warrants at an exercise price equal to 125% of the conversion price of the Notes, which price shall not be known until the earlier of the Maturity Date or the closing of the Qualified Financing.
Common stock outstanding before and after this offering |  | 45,906,077 shares
Use of Proceeds |  | We will not receive any proceeds from the sale of common stock by the Selling Security Holders, however, we will receive the proceeds from any cash exercise of the Gunnar Investor Warrants, Gunnar Affiliate Warrants, Paulson Investor Warrants, and Paulson Affiliate Warrants. All of the net proceeds from the sale of our common stock will go to the Selling Security Holders as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution”. We have agreed to bear the expenses relating to the registration of the common stock for the Selling Security Holders. The Company shall use the proceeds from the sale of the Notes for working capital, to pay a portion of the outstanding Jagemann Note, and other general corporate purposes, and shall not, directly or indirectly, use such proceeds for any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with its currently existing direct or indirect Subsidiaries).
Risk factors |  | This investment involves a high degree of risk. See the information contained in “Risk Factors” beginning on page 12 of this prospectus.
Common stock symbol |  | Our Common Stock is listed in the over-the-counter market under the symbol “POWW”.

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated statements of operations and balance sheet data for the fiscal year ended March 31, 2019, the three months ended March 31, 2018, and the fiscal year ended December 31, 2017, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Additionally, the three and nine months ended December 31, 2019 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2019 are derived from our consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the quarter ended December 31, 2019 is not necessarily indicative of our operating results to be expected for the full fiscal year ending March 31, 2020 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.

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AMMO, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

|  | For the Year Ended March 31, 2019 |  |  | For the Three Months Ended March 31, 2018 |  |  | For the Year Ended December 31, 2017 |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |
Ammunition Sales |  | $ | 3,985,574 |  |  | $ | 1,960,688 |  |  | $ | 1,294,861 |
Casing Sales |  |  | 580,078 |  |  |  | - |  |  |  | - |
|  |  | 4,565,652 |  |  |  | 1,960,688 |  |  |  | 1,294,861 |
Cost of Goods Sold, includes depreciation and amortization of $506,159 $66,405 and $141,575, respectively, and federal excise taxes of $406,255, $194,003, and $132,294, respectively |  |  | 4,795,346 |  |  |  | 1,667,614 |  |  |  | 1,303,586 |
Gross Margin |  |  | (229,694 | ) |  |  | 293,074 |  |  |  | (8,725 | )
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 1,414,399 |  |  |  | 585,294 |  |  |  | 759,053 |
Corporate general and administrative |  |  | 3,385,096 |  |  |  | 589,983 |  |  |  | 2,154,498 |
Employee salaries and related expenses |  |  | 3,855,167 |  |  |  | 914,258 |  |  |  | 1,046,667 |
Depreciation and amortization expense |  |  | 96,302 |  |  |  | 5,853 |  |  |  | 7,285 |
Total operating expenses |  |  | 8,750,964 |  |  |  | 2,095,388 |  |  |  | 3,967,503 |
Loss from Operations |  |  | (8,980,658 | ) |  |  | (1,802,314 | ) |  |  | (3,976,228 | )
Other Income/(Expenses) |  |  |  |  |  |  |  |  |  |  |  |
Loss on purchase |  |  | (2,118,154 | ) |  |  | - |  |  |  | - |
Loss on vendor notes receivable foreclosure |  |  | - |  |  |  | - |  |  |  | (1,279,921 | )
Interest expense |  |  | (610,600 | ) |  |  | 5,086 |  |  |  | (532,752 | )
(Loss) before Income Taxes |  |  | (11,709,412 | ) |  |  | (1,797,228 | ) |  |  | (5,788,901 | )
Provision for Income Taxes |  |  | - |  |  |  | - |  |  |  | - |
Net (Loss) |  | $ | (11,709,412 | ) |  | $ | (1,797,228 | ) |  | $ | (5,788,901 | )
(Loss) per share |  |  |  |  |  |  |  |  |  |  |  |
Basic and fully diluted: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average number of shares outstanding |  |  | 33,601,569 |  |  |  | 26,045,890 |  |  |  | 19,279,601 |
(Loss) per share |  | $ | (0.35 | ) |  | $ | (0.07 | ) |  | $ | (0.30 | )

8

Ammo, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|  | For the Three Months Ended December 31, |  |  | For the Nine Months Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ammunition Sales |  | $ | 1,246,414 |  |  | $ | 489,080 |  |  | $ | 3,703,669 |  |  | $ | 3,201,967 |
Casing Sales |  |  | 1,525,595 |  |  |  | - |  |  |  | 6,321,475 |  |  |  | - |
|  |  | 2,772,009 |  |  |  | 489,080 |  |  |  | 10,025,144 |  |  |  | 3,201,967 |
Cost of Goods Sold, includes depreciation and amortization of $771,463, $97,219 $2,108,269 and $266,321, respectively, and federal excise taxes of $138,529, $44,663, $374,132, and $327,492, respectively |  |  | 3,662,196 |  |  |  | 580,166 |  |  |  | 12,286,591 |  |  |  | 2,960,262 |
Gross Margin |  |  | (890,187 | ) |  |  | (91,086 | ) |  |  | (2,261,447 | ) |  |  | 241,705 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 238,439 |  |  |  | 387,660 |  |  |  | 748,014 |  |  |  | 967,465 |
Corporate general and administrative |  |  | 730,991 |  |  |  | 813,723 |  |  |  | 2,784,984 |  |  |  | 2,214,560 |
Employee salaries and related expenses |  |  | 846,724 |  |  |  | 847,729 |  |  |  | 2,898,932 |  |  |  | 2,523,468 |
Depreciation and amortization expense |  |  | (56,247 | ) |  |  | 28,387 |  |  |  | 848,995 |  |  |  | 63,157 |
Total operating expenses |  |  | 1,759,907 |  |  |  | 2,077,499 |  |  |  | 7,280,925 |  |  |  | 5,768,650 |
Loss from Operations |  |  | (2,650,094 | ) |  |  | (2,168,585 | ) |  |  | (9,542,372 | ) |  |  | (5,526,945 | )
Other (Expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on bargain purchase |  |  | - |  |  |  | 1,599,161 |  |  |  | - |  |  |  | 1,599,161 |
Interest (income)/expense |  |  | (214,328 | ) |  |  | (43,118 | ) |  |  | (607,710 | ) |  |  | (46,022 | )
(Loss) before Income Taxes |  |  | (2,864,422 | ) |  |  | (612,542 | ) |  |  | (10,150,082 | ) |  |  | (3,973,806 | )
Provision for Income Taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net (Loss) |  | $ | (2,864,422 | ) |  | $ | (612,542 | ) |  | $ | (10,150,082 | ) |  | $ | (3,973,806 | )
(Loss) per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and fully diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average number of shares outstanding |  |  | 45,767,635 |  |  |  | 34,247,599 |  |  |  | 45,267,036 |  |  |  | 32,372,165 |
(Loss) per share |  | $ | (0.06 | ) |  | $ | (0.02 | ) |  | $ | (0.22 | ) |  | $ | (0.12 | )

9

AMMO, Inc.

CONSOLIDATED BALANCE SHEETS

|  | March 31, 2019 |  |  | March 31, 2018 |  |  | December 31, 2017 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 2,181,246 |  |  | $ | 4,381,643 |  |  | $ | 786,823 |
Accounts receivable, net of allowance for doubtful account of $129,365 at March 31, 2019, $23,046 at March 31, 2018, and $26,046 at December 31, 2017 |  |  | 1,225,911 |  |  |  | 1,201,117 |  |  |  | 166,731 |
Due from related parties |  |  | 19,565 |  |  |  | 14,204 |  |  |  | 18,461 |
Inventories, at lower of cost or market, principally average cost method |  |  | 4,772,597 |  |  |  | 2,405,007 |  |  |  | 1,792,314 |
Prepaid expenses |  |  | 427,551 |  |  |  | 321,074 |  |  |  | 254,732 |
Total Current Assets |  |  | 8,626,870 |  |  |  | 8,323,045 |  |  |  | 3,019,061 |
Equipment, net of accumulated depreciation of $516,144 at March 31, 2019 and $113,158 at March 31, 2018, and $77,861 at December 31, 2017 |  |  | 21,999,787 |  |  |  | 1,241,326 |  |  |  | 769,442 |
Other Assets: |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 29,034 |  |  |  | 16,300 |  |  |  | - |
Licensing agreements, net of accumulated amortization of $108,833 at March 31, 2019, $58,333 at March 31, 2018, and $45,833 at December 31, 2017 |  |  | 141,667 |  |  |  | 191,667 |  |  |  | 204,167 |
Patents, net of accumulated amortization of $134,701 at March 31, 2019, $49,627 at March 31, 2018 and $25,166 at December 31, 2017 |  |  | 6,939,304 |  |  |  | 900,373 |  |  |  | 924,834 |
Other intangible assets, net of accumulated amortization of $61,803 at March 31, 2019 |  |  | 5,850,502 |  |  |  | - |  |  |  | - |
TOTAL ASSETS |  | $ | 43,587,164 |  |  | $ | 10,672,711 |  |  | $ | 4,917,504 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,920,344 |  |  | $ | 479,465 |  |  | $ | 476,893 |
Accrued liabilities |  |  | 531,434 |  |  |  | 541,210 |  |  |  | 254,774 |
Convertible note payable |  |  | - |  |  |  | - |  |  |  | 1,575,000 |
Note payable related party |  |  | - |  |  |  | - |  |  |  | 100,000 |
Insurance premium note payable |  |  | 230,597 |  |  |  | 99,907 |  |  |  | 6,880 |
Current portion of note payable related party |  |  | 1,500,000 |  |  |  | - |  |  |  | - |
Contingent consideration payable |  |  | 300,000 |  |  |  | - |  |  |  | - |
Total Current Liabilities |  |  | 4,482,375 |  |  |  | 1,120,582 |  |  |  | 2,413,547 |
Long-term Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Convertible promissory notes, net of $24,144 of note issuance costs |  |  | 275,856 |  |  |  | - |  |  |  | - |
Contingent consideration payable |  |  | 900,000 |  |  |  | - |  |  |  | - |
Note payable related party |  |  | 8,400,000 |  |  |  | - |  |  |  | - |
Total Liabilities |  |  | 14,058,231 |  |  |  | 1,120,582 |  |  |  | 2,413,547 |
Shareholders’ Equity: |  |  |  |  |  |  |  |  |  |  |  |
Common stock, $0.001 par value, 200,000,000 shares authorized 44,013,075, 28,394,503, and 22,487,793 shares issued and outstanding at March 31, 2019 and March 31, 2018, and December 31, 2017 respectively |  |  | 44,013 |  |  |  | 28,394 |  |  |  | 22,488 |
Additional paid-in capital |  |  | 48,935,485 |  |  |  | 17,264,888 |  |  |  | 8,430,394 |
Stock subscription receivable |  |  | - |  |  |  | - |  |  |  | (5,000 | )
Accumulated (Deficit) |  |  | (19,450,565 | ) |  |  | (7,741,153 | ) |  |  | (5,943,925 | )
Total Shareholders’ Equity |  |  | 29,528,933 |  |  |  | 9,552,129 |  |  |  | 2,503,957 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 43,587,164 |  |  | $ | 10,672,711 |  |  | $ | 4,917,504 |

10

Ammo, Inc.

CONSOLIDATED BALANCE SHEETS

|  | December 31, 2019 |  |  | March 31, 2019 |
|  | (Unaudited) |  |  | (Audited) |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash |  | $ | 130,870 |  |  | $ | 2,181,246 |
Accounts receivable, net of allowance for doubtful account of $5,052 at December 31, 2019 and $129,365 at March 31, 2019 |  |  | 1,258,229 |  |  |  | 1,225,911 |
Due from related parties |  |  | 16,707 |  |  |  | 19,565 |
Inventories, at lower cost or market, principally average cost method |  |  | 5,022,980 |  |  |  | 4,772,597 |
Prepaid expenses |  |  | 291,430 |  |  |  | 427,551 |
Current portion of right of use assets |  |  | 496,095 |  |  |  | - |
Total Current Assets |  |  | 7,216,311 |  |  |  | 8,626,870 |
Equipment, net of accumulated depreciation of $2,403,717 at December 31, 2019 and $516,144 at March 31, 2019 |  |  | 20,075,395 |  |  |  | 21,999,787 |
Other Assets: |  |  |  |  |  |  |  |
Deposits |  |  | 232,114 |  |  |  | 29,034 |
Licensing agreements, net of accumulated amortization of $145,833 at December 31, 2019 and $108,833 at March 31, 2019 |  |  | 104,167 |  |  |  | 141,667 |
Patents, net of accumulated amortization of $437,760 at December 31, 2019 and $134,701 at March 31, 2019 |  |  | 6,636,245 |  |  |  | 6,939,304 |
Other Intangible Assets, net of accumulated amortization of $791,008 at December 31, 2019 and $61,803 at March 31, 2019 |  |  | 2,808,688 |  |  |  | 5,850,502 |
Right of Use Assets - Operating Leases |  |  | 3,672,676 |  |  |  | - |
TOTAL ASSETS |  | $ | 40,745,596 |  |  | $ | 43,587,164 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 4,278,052 |  |  | $ | 1,920,344 |
Factoring liability |  |  | 936,750 |  |  |  | - |
Accrued liabilities |  |  | 784,271 |  |  |  | 531,434 |
Note payable related party |  |  | 415,000 |  |  |  | - |
Current portion of operating lease liability |  |  | 496,095 |  |  |  | - |
Insurance premium note payable |  |  | 73,508 |  |  |  | 230,597 |
Current portion of note payable related party |  |  | 5,803,800 |  |  |  | 1,500,000 |
Contingent consideration payable |  |  | - |  |  |  | 300,000 |
Total Current Liabilities |  |  | 12,787,476 |  |  |  | 4,482,375 |
Long-term Liabilities: |  |  |  |  |  |  |  |
Convertible promissory notes, net of $24,144 of note issuance costs at March 31, 2019 |  |  | - |  |  |  | 275,856 |
Contingent consideration payable |  |  | 900,000 |  |  |  | 900,000 |
Note payable related party |  |  | - |  |  |  | 8,400,000 |
Operating Lease Liability, net of current portion |  |  | 3,672,676 |  |  |  | - |
Total Liabilities |  |  | 17,360,152 |  |  |  | 14,058,231 |
Shareholders’ Equity: |  |  |  |  |  |  |  |
Common stock, $0.001 par value, 200,000,000 shares authorized 45,906,077 at December 31, 2019 and 44,013,075 shares issued and outstanding at March 31, 2019, respectively |  |  | 45,906 |  |  |  | 44,013 |
Additional paid-in capital |  |  | 52,940,185 |  |  |  | 48,935,485 |
Accumulated (Deficit) |  |  | (29,600,647 | ) |  |  | (19,450,565 | )
Total Shareholders’ Equity |  |  | 23,385,444 |  |  |  | 29,528,933 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 40,745,596 |  |  | $ | 43,587,164 |

11

RISK FACTORS

Purchasing our Common Stock involves a high degree of risk. You should carefully consider the following risk factors, together with all of the information included in this prospectus, before you decide to purchase shares of our Common Stock. We believe the risks and uncertainties described below are the most significant we face. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, operating results, and financial condition could be materially and adversely affected. In that case, the trading price of our Common Stock could decline, and you may lose all or part of your investment.

We have a limited operating history on which you can evaluate our company.

We have a limited operating history on which you can evaluate our company. Although the corporate entity has existed since 1990, we have only operated as an ammunition manufacturer since March 2017. As a result, our business will be subject to many of the problems, expenses, delays, and risks inherent in the establishment of a new business enterprise.

Our performance is influenced by a variety of economic, social, and political factors.

Our performance is influenced by a variety of economic, social, and political factors. General economic conditions and consumer spending patterns can negatively impact our operating results. Economic uncertainty, unfavorable employment levels, declines in consumer confidence, increases in consumer debt levels, increased commodity prices, and other economic factors may affect consumer spending on discretionary items and adversely affect the demand for our products. In times of economic uncertainty, consumers tend to defer expenditures for discretionary items, which affects demand for our products. Any substantial deterioration in general economic conditions that diminish consumer confidence or discretionary income could reduce our sales and adversely affect our operating results. Economic conditions also affect governmental political and budgetary policies. As a result, economic conditions also can have an effect on the sale of our products to law enforcement, government, and military customers.

Political and other factors also can affect our performance. Concerns about presidential, congressional, and state elections and legislature and policy shifts resulting from those elections can affect the demand for our products. In addition, speculation surrounding control of firearms, firearm products, and ammunition at the federal, state, and local level and heightened fears of terrorism and crime can affect consumer demand for our products. Often, such concerns result in an increase in near-term consumer demand and subsequent softening of demand when such concerns subside. Inventory levels in excess of customer demand may negatively impact operating results and cash flow.

Federal and state legislatures frequently consider legislation relating to the regulation of firearms, including amendment or repeal of existing legislation. Existing laws may also be affected by future judicial rulings and interpretations firearm products, and ammunition. If such restrictive changes to legislation develop, we could find it difficult, expensive, or even impossible to comply with them, impeding new product development and distribution of existing products.

Our success depends upon our ability to introduce new products that match customer preferences.

Our success depends upon our ability to introduce new products that match consumer preferences. Our efforts to introduce new products into the market may not be successful, and any new products that we introduce may not result in customer or market acceptance. We develop new products that we believe will match consumer preferences. The development of a new product is a lengthy and costly process and may not result in the development of a successful product. Failure to develop new products that are attractive to consumers could decrease our sales, operating margins, and market share and could adversely affect our business, operating results, and financial condition.

If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights.

Our future success depends upon our proprietary technology. Our protective measures, including patent and trade secret protection, may prove inadequate to protect our proprietary rights. The right to stop others from misusing our trademarks, service marks, and patents in commerce depends to some extent on our ability to show evidence of enforcement of our rights against such misuse in commerce. Our efforts to stop improper use, if insufficient, may lead to loss of trademark and service mark rights, brand loyalty, and notoriety among our customers and prospective customers. The scope of any patent that we have or may obtain may not prevent others from developing and selling competing products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution of such claims may be highly uncertain, and expensive. In addition, our patents may be held invalid upon challenge, or others may claim rights in or ownership of our patents.

We may be subject to intellectual property infringement claims, which could cause us to incur litigation costs and divert management attention from our business.

Any intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend and divert our management’s attention from our business. If our products were found to infringe a third party’s proprietary rights, we could be required to enter into costly royalty or licensing agreements to be able to sell our products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all.

12

Our efforts to avoid the patent, trademark, and copyright rights of others may not provide notice to us of potential infringements in time to avoid investing in product development and promotion that must later be abandoned if suitable license terms cannot be reached.

There is no guarantee that our use of conventional technology searching and brand clearance searching will identify all potential rights holders. Rights holders may demand payment for past infringements and/or force us to accept costly license terms or discontinue use of protected technology and/or works of authorship that may include for example photos, videos, and software.

We depend on the sale of our ammunition products.

We manufacture ammunition and ammunition casings for sale to a wide variety of consumers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, manufacturers, law enforcement and security agencies and officers in the United States and throughout the world. The sale of ammunition and ammunition components is influenced by the sale and usage of firearms. As noted above, sales of firearms are influenced by a variety of economic, social, and political factors, which may result in volatile sales. Ammunition sales represented a substantial amount of our net sales for the year ended March 31, 2019, the three months ended March 31, 2018 and the year ended December 31, 2017.

Our manufacturing facilities are critical to our success.

Our Arizona and Wisconsin manufacturing facilities are critical to our success, as we currently produce all of our products at these facilities. The facilities also house our principal research, development, engineering, and design functions.

Any event that causes a disruption of the operation of these facilities for even a relatively short period of time would adversely affect our ability to produce and ship our products and to provide service to our customers. We make certain changes in our manufacturing operations from time to time to enhance the facilities and associated equipment and systems and to introduce certain efficiencies in manufacturing and other processes to produce our products in a more efficient and cost-effective manner. We anticipate that we will continue to incur significant capital and other expenditures with respect to these facilities, but we may not be successful in continuing to improve efficiencies.

To the extent demand for our products increase, our future success will depend upon our ability to enhance manufacturing production capacity.

We intend to continue marketing our ammunition products. To the extent demand for our products increase significantly in future periods, one of our key challenges will be to enhance production capacity to meet sales demand, while maintaining product quality. Our inability to meet any future increase in sales demand or access capital for inventory may hinder growth or increase dilution in connection with financing activities conducted to meet any such increase in sales demand.

Shortages of components and materials may delay or reduce our sales and increase our costs, thereby harming our results of operations.

The inability to obtain sufficient quantities of raw materials and components, including casings, primers, gun powder, projectiles, and brass necessary for the production of our products could result in reduced or delayed sales or lost orders. Any delay in or loss of sales or orders could adversely impact our operating results. Many of the materials used in the production of our products are available only from a limited number of suppliers. We do not have long-term supply contracts with any suppliers. As a result, we could be subject to increased costs, supply interruptions, and difficulties in obtaining raw materials and components.

Our reliance on third-party suppliers for various raw materials and components for our products exposes us to volatility in the availability, quality, and price of these raw materials and components. Our orders with certain of our suppliers may represent a very small portion of their total orders. As a result, they may not give priority to our business, leading to potential delays in or cancellation of our orders. A disruption in deliveries from our third-party suppliers, capacity constraints, production disruptions, price increases, or decreased availability of raw materials or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs. Quality issues experienced by third party suppliers can also adversely affect the quality and effectiveness of our products and result in liability and reputational harm.

13

We rely on third-party suppliers for most of our manufacturing equipment.

We also rely on third-party suppliers for most of the manufacturing equipment necessary to produce our products. The failure of suppliers to supply manufacturing equipment in a timely manner or on commercially reasonable terms could delay our plans to expand our business and otherwise disrupt our production schedules and increase our manufacturing costs. Our orders with certain of our suppliers may represent a very small portion of their total orders. As a result, they may not give priority to our business, leading to potential delays in or cancellation of our orders. If any single-source supplier were to fail to supply our needs on a timely basis or cease providing us manufacturing equipment or components, we would be required to locate and contract with substitute suppliers. We may have difficulty identifying a substitute supplier in a timely manner and on commercially reasonable terms. If this were to occur, our business would be harmed.

We do not have long-term purchase commitments from our customers, and their ability to cancel, reduce, or delay orders could reduce our revenue and increase our costs.

Our customers do not provide us with firm, long-term volume purchase commitments, but instead issue purchase orders for our products as needed. As a result, customers can cancel purchase orders or reduce or delay orders at any time. The cancellation, delay, or reduction of customer purchase orders could result in reduced sales, excess inventory, unabsorbed overhead, and reduced income from operations.

We often schedule internal production levels and place orders for raw materials and components with third party suppliers before receiving firm orders from our customers. Therefore, if we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products to deliver to our customers. Factors that could affect our ability to accurately forecast demand for our products include the following:

| ● | an increase or decrease in consumer demand for our products or for the products of our competitors;
| ● | our failure to accurately forecast consumer acceptance of new products;
| ● | new product introductions by us or our competitors;
| ● | changes in our relationships within our distribution channels;
| ● | changes in general market conditions or other factors, which may result in cancellations of orders or a reduction or increase in the rate of reorders placed by retailers;
| ● | changes in laws and regulations governing the activities for which we sell products, such as hunting and shooting sports;
| ● | weak economic conditions or consumer confidence, which could reduce demand for discretionary items, such as our products; and
| ● | the domestic political environment, including debate over the regulation of firearms, ammunition, and related products.

Inventory levels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have an adverse effect on our business, operating results, and financial condition. If we underestimate demand for our products, our manufacturing facilities or third-party suppliers may not be able to react quickly enough to meet consumer demand, resulting in delays in the shipment of products and lost revenue, and damage to our reputation and customer and consumer relationships. We may not be able to manage inventory levels successfully to meet future order and reorder requirements.

14

Our revenue depends primarily on sales by various retailers and distributors, some of which account for a significant portion of our sales.

Our revenue depends on our sales through various leading national and regional retailers, local specialty firearms stores, and online merchants. The U.S. retail industry serving the outdoor recreation market has become relatively concentrated. Our sales could become increasingly dependent on purchases by several large retail customers. Consolidation in the retail industry could also adversely affect our business. If our sales were to become increasingly dependent on business with several large retailers, we could be adversely affected by the loss or a significant decline in sales to one or more of these customers. In addition, our dependence on a smaller group of retailers could result in their increased bargaining position and pressures on the prices we charge.

The loss of any one or more of our retail customers or significant or numerous cancellations, reductions, delays in purchases or changes in business practices by our retail customers could have an adverse effect on our business, operating results, and financial condition.

These sales channels involve a number of special risks, including the following:

| ● | we may be unable to secure and maintain favorable relationships with retailers and distributors;
| ● | we may be unable to control the timing of delivery of our products to end-user consumers;
| ● | our retailers and distributors are not subject to minimum sales requirements or any obligation to market our products to their customers;
| ● | our retailers and distributors may terminate their relationships with us at any time; and
| ● | our retailers and distributors market and distribute competing products.

We have three customer that accounted for approximately 54% of our net sales for the year ended March 31, 2019 and three customers that accounted for 68% of our net sales for the three month period ended March 31, 2018. At December 31, 2017, 58% of our net sales resulted from one customer. Although we intend to expand our customer base, our revenue would likely decline if we lost any major customers or if one of these sizable customers were to significantly reduce its orders for any reason. Because our sales are made by means of standard purchase orders rather than long-term contracts, we cannot assure you that our customers will continue to purchase our products at current levels, or at all.

In addition, periods of sluggish economies and consumer uncertainty regarding future economic prospects in our key markets can have an adverse effect on the financial health of our customers, which may in turn have a material adverse effect on our business, operating results, and financial condition.

We extend credit to our customers for periods of varying duration based on an assessment of the customer’s financial condition, generally without requiring collateral, which increases our exposure to the risk of uncollectable receivables. In addition, we face increased risk of order reduction or cancellation when dealing with financially ailing retailers or retailers struggling with economic uncertainty. We may reduce our level of business with customers and distributors experiencing financial difficulties and may not be able to replace that business with other customers, which could have a material adverse effect on our business, operating results, and financial condition.

An inability to expand our E-commerce business could reduce our future growth.

Consumers are increasingly purchasing products online. We operate direct-to-consumer e-commerce stores to maintain an online presence with our end users. The future success of our online operations depends on our ability to use our marketing resources to communicate with existing and potential customers. We face competitive pressure to offer promotional discounts, which could impact our gross margin and increase our marketing expenses. We are limited, however, in our ability to fully respond to competitor price discounting because we cannot market our products at prices that may produce adverse relationships with our customers that operate brick and mortar locations as they may perceive themselves to be at a disadvantage based on lower e-commerce pricing to end consumers. There is no assurance that we will be able to successfully expand our e-commerce business to respond to shifting consumer traffic patterns and direct-to-consumer buying trends.

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In addition, e-commerce and direct-to-consumer operations are subject to numerous risks, including implementing and maintaining appropriate technology to support business strategies; reliance on third-party computer hardware/software and service providers; data breaches; violations of state, federal or international laws, including those relating to online privacy; credit card fraud; telecommunication failures; electronic break-ins and similar disruptions; and disruption of Internet service. Our inability to adequately respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business may have an adverse impact on our business and operating results.

Our gross margins depend upon our sales mix.

Our gross margin is higher when our sales mix is skewed toward our higher-margin proprietary product lines versus a lower contribution from mid-market ammunition that we also manufacture. If our actual sales mix results in a lower overall percentage from our proprietary lines, our gross margins will be reduced, affecting our results of operations.

We may have difficulty collecting amounts owed to us.

Certain of our customers may experience business challenges and credit-related issues. We perform ongoing credit evaluations of customers, but these evaluations may not be completely effective. We grant payment terms to most customers ranging from 30 to 90 days and do not generally require collateral. Should more customers than we anticipate experience liquidity issues, or if payments are not received on a timely basis, we may have difficulty collecting amounts owed to us by such customers and our business, operating results, and financial condition could be adversely impacted. Retail consolidation could result in more concentrated credit-related risks.

We face intense competition that could result in our losing or failing to gain market share and suffering reduced sales.

We operate in intensely competitive markets that are characterized by price erosion and competition from major domestic and international companies. Competition in the markets in which we operate is based on a number of factors, including price, quality, product innovation, performance, reliability, styling, product features, and warranties, and sales and marketing programs. This intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share.

Our competitors include Federal Premium Ammunition, Remington Arms, the Winchester Ammunition Division of Olin Corporation, and various smaller manufacturers and importers, including Black Hills Ammunition, CBC Group, Fiocchi Ammunition, Hornady, PMC, Rio Ammunition, and Wolf. Most of our competitors have greater market recognition, larger customer bases, long-term government contracts, and substantially greater financial, technical, marketing, distribution, and other resources than we possess and that afford them competitive advantages. As a result, they may be able to devote greater resources to the promotion and sale of products, to invest more funds in intellectual property and product development, to negotiate lower prices for raw materials and components, to deliver competitive products at lower prices, and to introduce new products and respond to consumer requirements more quickly than we can.

Our competitors could introduce products with superior features at lower prices than our products and could also bundle existing or new products with other more established products to compete with us. Certain of our competitors may be willing to reduce prices and accept lower profit margins to compete with us. Our competitors could also gain market share by acquiring or forming strategic alliances with other competitors.

Finally, we may face additional sources of competition in the future because new distribution methods offered by the Internet and electronic commerce have removed many of the barriers to entry historically faced by start-up companies. Retailers also demand that suppliers reduce their prices on products, which could lead to lower margins. Any of the foregoing effects could cause our sales to decline, which would harm our financial position and results of operations.

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Our ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:

| ● | our success in developing, producing, marketing, and successfully selling new products;
| ● | our ability to address the needs of our consumer customers;
| ● | the pricing, quality, performance, and reliability of our products;
| ● | the quality of our customer service;
| ● | the efficiency of our production; and
| ● | product or technology introductions by our competitors.

Because we believe technological and functional distinctions among competing products in our markets are perceived by many end-user consumers to be relatively modest, effectiveness in marketing and manufacturing are particularly important competitive factors in our business.

Seasonality and weather conditions may cause our operating results to vary from quarter to quarter.

Because many of our products are used for seasonal outdoor sporting activities, our operating results may be significantly impacted by unseasonable weather conditions. Accordingly, our operating results could suffer when weather patterns do not conform to seasonal norms.

Shipments of ammunition for hunting are highest during the months of June through September to meet consumer demand for the fall hunting season and holidays. The seasonality of our sales may change in the future. Seasonal variations in our operating results may reduce our cash on hand, increase our inventory levels, and extend our accounts receivable collection periods. This in turn may cause us to increase our debt levels and interest expense to fund our working capital requirements.

We manufacture and sell products that create exposure to potential product liability, warranty liability, or personal injury claims and litigation.

Our products are used in activities and situations that involve risk of personal injury and death. Our products expose us to potential product liability, warranty liability, and personal injury claims and litigation relating to the use or misuse of our products, including allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product or activities associated with the product, negligence, and strict liability. If successful, any such claims could have a material adverse effect on our business, operating results, and financial condition. Defects in our products may result in a loss of sales, recall expenses, delay in market acceptance, and damage to our reputation and increased warranty costs, which could have a material adverse effect on our business, operating results, and financial condition. Although we maintain product liability insurance in amounts that we believe are reasonable, we may not be able to maintain such insurance on acceptable terms, if at all, in the future and product liability claims may exceed the amount of insurance coverage. In addition, our reputation may be adversely affected by such claims, whether or not successful, including potential negative publicity about our products.

The failure to manage our growth could adversely affect our operations.

The failure to manage our growth could adversely affect our operations. To continue to expand our business and enhance our competitive position, we must make significant investments in equipment, facilities, systems, and personnel. In addition, we must commit significant funds to enhance our sales, marketing, information technology, and research and development efforts. As a result of the increase in fixed costs and operating expenses, our failure to increase our sales sufficiently to offset these increased costs could adversely affect our business, operating results, and financial condition.

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Managing our planned growth effectively will require us to take a number of steps, including the following:

| ● | enhance our operational, financial, and management systems;
| ● | enhance our facilities and purchase additional equipment; and
| ● | successfully hire, train, and retain additional employees, including additional personnel for our technological, sales, and marketing efforts.

The expansion of our products and customer base may result in increases in our overhead and selling expenses. We may be required to increase staffing and other expenses and our expenditures on capital equipment and leasehold improvements to meet the demand for our products. Any increase in expenditures in anticipation of future sales that do not materialize would adversely affect our profitability.

Our business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation would likely have a material adverse effect on our business.

Our brand recognition and reputation are critical aspects of our business. We believe that maintaining and further enhancing our brands, particularly our STREAK VISUAL AMMUNITION™ brands, and our reputation are critical to retaining existing customers and attracting new customers. We also believe that the importance of our brand recognition and reputation will continue to increase as competition in our markets continues to develop.

We anticipate that our advertising, marketing, and promotional efforts will increase in the foreseeable future as we continue to seek to enhance our brands and consumer demand for our products. Historically, we have relied on print and electronic media advertising to increase consumer awareness of our brands to increase purchasing intent and conversation. We anticipate that we will increasingly rely on other forms of media advertising, including social media and e-marketing. Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our advertising, promotion, public relations, and marketing programs. These brand promotion activities may not yield increased revenue and the efficacy of these activities will depend on a number of factors, including our ability to do the following:

| ● | determine the appropriate creative message and media mix for advertising, marketing, and promotional expenditures;
| ● | select the right markets, media, and specific media vehicles in which to advertise;
| ● | identify the most effective and efficient level of spending in each market, media, and specific media vehicle; and
| ● | effectively manage marketing costs, including creative and media expenses, to maintain acceptable customer acquisition costs.

In addition, certain of our current or future products may benefit from endorsements and support from particular sportsmen, athletes, or other celebrities, and those products and brands may become personally associated with those individuals. As a result, sales of the endorsed products could be materially and adversely affected if any of those individuals’ images, reputations, or popularity were to be negatively impacted.

Increases in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expenses or cause us to choose less expensive but possibly less effective marketing and advertising channels. If we implement new marketing and advertising strategies, we may incur significantly higher costs than our current channels, which in turn could adversely affect our operating results. Implementing new marketing and advertising strategies also could increase the risk of devoting significant capital and other resources to endeavors that do not prove to be cost effective. We also may incur marketing and advertising expenses significantly in advance of the time we anticipate recognizing revenue associated with such expenses and our marketing and advertising expenditures may not generate sufficient levels of brand awareness and conversation or result in increased revenue. Even if our marketing and advertising expenses result in increased sales, the increase might not offset our related expenditures. If we are unable to maintain our marketing and advertising channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels, our marketing and advertising expenses could increase substantially, our customer base could be adversely affected, and our business, operating results, financial condition, and reputation could suffer.

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Our operating results may experience significant fluctuations.

Many factors contribute to significant periodic and seasonal quarterly fluctuations in our results of operations. These factors include the following:

| ● | the cyclicality of the markets we serve;
| ● | the timing and size of new orders;
| ● | the cancellation of existing orders;
| ● | the volume of orders relative to our capacity;
| ● | product introductions and market acceptance of new products or new generations of products;
| ● | timing of expenses in anticipation of future orders;
| ● | changes in product mix;
| ● | availability of production capacity;
| ● | changes in cost and availability of labor and raw materials;
| ● | timely delivery of products to customers;
| ● | pricing and availability of competitive products;
| ● | new product introduction costs;
| ● | changes in the amount or timing of operating expenses;
| ● | introduction of new technologies into the markets we serve;
| ● | pressures on reducing selling prices;
| ● | our success in serving new markets;
| ● | adverse publicity regarding the safety, performance, and use of our products;
| ● | the institution and outcome of any litigation;
| ● | political, economic, or regulatory developments; and
| ● | changes in economic conditions.

As a result of these and other factors, we believe that period-to-period comparisons of our results of operations may not be meaningful in the short term, and our performance in a particular period may not be indicative of our performance in any future period.

The failure to attract and retain key personnel could have an adverse effect on our operating results.

Our success depends substantially on the efforts and abilities of our senior management and key personnel. The competition for qualified management and key personnel is intense. Although we maintain noncompetition and nondisclosure covenants with many of our key personnel, we do not have employment agreements with most of them. The loss of services of one or more of our key employees or the inability to hire, train, and retain additional key personnel could delay the development and sale of our products, disrupt our business, and interfere with our ability to execute our business plan.

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In addition, our ability to maintain our competitive position is dependent to a large degree on the efforts and skills of our senior management team, including Fred Wagenhals, our President and Chief Executive Officer. The loss of the services of one or more of our key personnel could materially and adversely affect our operations.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

In the future, we may require additional capital to fund the planned expansion of our business and to respond to business opportunities, challenges, potential acquisitions, or unforeseen circumstances. We could encounter unforeseen difficulties that may deplete our capital resources rapidly, which could require us to seek additional financing in the near future. The timing and amount of any additional financing that is required to continue the expansion of our business and the marketing of our products will depend on our ability to improve our operating results and other factors. We may not be able to secure additional debt or equity financing in a timely basis or on favorable terms, or at all. Such financing could result in substantial dilution of the equity interests of existing stockholders. We have no commitments for any additional financing should the need arise. If we are unable to secure any necessary additional financing, we may need to delay expansion plans, conserve cash, and reduce operating expenses. There is no assurance that any additional financing will be sufficient, that the financing will be available on terms favorable to us or to existing stockholders and at such times as required, or that we will be able to obtain the additional financing required for the continued operation and growth of our business. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we raise additional funds through further issuances of equity, convertible debt securities, or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our Common Stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

Potential strategic alliances may not achieve their objectives, which could impede our growth.

We anticipate that we will enter into strategic alliances in the future. We continue to explore strategic alliances designed to expand our product offerings, enter new markets, and improve our distribution channels. Strategic alliances may not achieve their intended objectives, and parties to our strategic alliances may not perform as contemplated. The failure of these alliances may impede our ability to introduce new products and enter new markets.

Any acquisitions that we undertake will involve significant risks, and any acquisitions that we undertake in the future could disrupt our business, dilute stockholder value, and harm our operating results.

We have a strategy to expand our operations through strategic acquisitions to enhance existing products and offer new products, enter new markets and businesses, strengthen and avoid interruption from our supply chain, and enhance our position in current markets and businesses. Acquisitions involve significant risks and uncertainties. We cannot accurately predict the timing, size, and success of any future acquisitions. We may be unable to identify suitable acquisition candidates or to complete the acquisitions of candidates that we identify. Increased competition for acquisition candidates or increased asking prices by acquisition candidates may increase purchase prices for acquisitions to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria. Unforeseen expenses, difficulties, and delays frequently encountered in connection with expansion through acquisitions could inhibit our growth and negatively impact our operating results.

Our ability to complete acquisitions that we desire to make will depend upon various factors, including the following:

| ● | the availability of suitable acquisition candidates at attractive purchase prices;

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| ● | the ability to compete effectively for available acquisition opportunities;
| ● | the availability of cash resources, borrowing capacity, or stock at favorable price levels to provide required purchase prices in acquisitions;
| ● | the ability of management to devote sufficient attention to acquisition efforts; and
| ● | the ability to obtain any requisite governmental or other approvals.

We may have little or no experience with certain acquired businesses, which could involve significantly different supply chains, production techniques, customers, and competitive factors than our current business. This lack of experience would require us to rely to a great extent on the management teams of these acquired businesses. These acquisitions also could require us to make significant investments in systems, equipment, facilities, and personnel in anticipation of growth. These costs could be essential to implement our growth strategy in supporting our expanded activities and resulting corporate structure changes. We may be unable to achieve some or all of the benefits that we expect to achieve as we expand into these new markets within the time frames we expect, if at all. If we fail to achieve some or all of the benefits that we expect to achieve as we expand into these new markets, or do not achieve them within the time frames we expect, our business, financial condition, and results of operations could be adversely affected.

As a part of any potential acquisition, we may engage in discussions with various acquisition candidates. In connection with these discussions, we and each potential acquisition candidate may exchange confidential operational and financial information, conduct due diligence inquiries, and consider the structure, terms, and conditions of the potential acquisition. In certain cases, the prospective acquisition candidate agrees not to discuss a potential acquisition with any other party for a specific period of time and agrees to take other actions designed to enhance the possibility of the acquisition, such as preparing audited financial information. Potential acquisition discussions frequently take place over a long period of time and involve difficult business integration and other issues. As a result of these and other factors, a number of potential acquisitions that from time-to-time appear likely to occur do not result in binding legal agreements and are not consummated, but may result in increased legal, consulting, and other costs.

Unforeseen expenses, difficulties, and delays frequently encountered in connection with future acquisitions could inhibit our growth and negatively impact our profitability. Any future acquisitions may not meet our strategic objectives or perform as anticipated. In addition, the size, timing, and success of any future acquisitions may cause substantial fluctuations in our operating results from quarter to quarter. These interim fluctuations could adversely affect the market price of our Common Stock.

If we finance any future acquisitions in whole or in part through the issuance of Common Stock or securities convertible into or exercisable for Common Stock, existing stockholders will experience dilution in the voting power of their Common Stock and earnings per share could be negatively impacted. The extent to which we will be able or willing to use our Common Stock for acquisitions will depend on the market price of our Common Stock from time-to-time and the willingness of potential acquisition candidates to accept our Common Stock as full or partial consideration for the sale of their businesses. Our inability to use our Common Stock as consideration, to generate cash from operations, or to obtain additional funding through debt or equity financings to pursue an acquisition could limit our growth.

Any acquisitions that we undertake could be difficult to integrate, disrupt our business, and harm our operations.

We may be unable to effectively complete an integration of the management, operations, facilities, and accounting and information systems of acquired businesses with our own; to implement effective controls to mitigate legal and business risks with which we have no prior experience; to manage efficiently the combined operations of the acquired businesses with our operations; to achieve our operating, growth, and performance goals for acquired businesses; to achieve additional sales as a result of our expanded operations; or to achieve operating efficiencies or otherwise realize cost savings as a result of anticipated acquisition synergies. The integration of acquired businesses involves numerous risks and uncertainties, including the following:

| ● | the potential disruption of our core businesses;

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| ● | risks associated with entering markets and businesses in which we have little or no prior experience;
| ● | diversion of management’s attention from our core businesses;
| ● | adverse effects on existing business relationships with suppliers and customers;
| ● | risks associated with increased regulatory or compliance matters;
| ● | failure to retain key customers, suppliers, or personnel of acquired businesses;
| ● | the potential strain on our financial and managerial controls and reporting systems and procedures;
| ● | greater than anticipated costs and expenses related to the integration of the acquired business with our business;
| ● | potential unknown liabilities associated with the acquired company;
| ● | risks associated with weak internal controls over information technology systems and associated cyber security risks;
| ● | meeting the challenges inherent in effectively managing an increased number of employees in diverse locations;
| ● | failure of acquired businesses to achieve expected results;
| ● | the risk of impairment charges related to potential write-downs of acquired assets in future acquisitions; and
| ● | the challenge of creating uniform standards, controls, procedures, policies, and information systems.

Breaches of our information systems could adversely affect our reputation, disrupt our operations, and result in increased costs and loss sales.

There have been an increasing number of cyber security incidents affecting companies around the world, which have caused operational failures or compromised sensitive corporate data. Although we do not believe our systems are at a greater risk of cyber security incidents than other similar organizations, such cyber security incidents may result in the loss or compromise of customer, financial, or operational data; disruption of billing, collections, or normal operating activities; disruption of electronic monitoring and control of operational systems; and delays in financial reporting and other management functions. Possible impacts associated with a cyber security incident may include among others, remediation costs related to lost, stolen, or compromised data; repairs to data processing systems; increased cyber security protection costs; reputational damage; and adverse effects on our compliance with applicable privacy and other laws and regulations.

A failure of our information technology systems, or an interruption in their operation due to internal or external factors including cyber-attacks, could have a material adverse effect on our business, financial condition or results of operations.

Our operations depend on our ability to protect our information systems, computer equipment, and information databases from systems failures. We rely on our information technology systems generally to manage the day-to-day operations of our business, operate elements of our manufacturing facility, manage relationships with our customers, fulfill customer orders, and maintain our financial and accounting records. Failure of our information technology systems could be caused by internal or external events, such as incursions by intruders or hackers, computer viruses, cyber-attacks, failures in hardware or software, or power or telecommunication fluctuations or failures. The failure of our information technology systems to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, increased costs, or loss of important information, any of which could have a material adverse effect on our business, operating results, and financial condition. Any technology and information security processes and disaster recovery plans we use to mitigate our risk to these vulnerabilities may not be adequate to ensure that our operations will not be disrupted should such an event occur.

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We are subject to extensive regulation and could incur fines, penalties and other costs and liabilities under such requirements.

Like many other manufacturers and distributors of consumer products, we are required to comply with a wide variety of laws, rules, and regulations, including those relating to labor, employment, the environment, the export and import of our products, and taxation. These laws, rules, and regulations currently impose significant compliance requirements on our business, and more restrictive laws, rules and regulations may be adopted in the future.

Our operations are subject to a variety of laws and regulations relating to environmental protection, including those governing the discharge, treatment, storage, transportation, remediation, and disposal of certain materials and wastes, and restoration of damages to the environment, and health and safety matters. We could incur substantial costs, including remediation costs, resource restoration costs, fines, penalties, and third-party property damage or personal injury claims as a result of liabilities under or violations of such laws and regulations or the permits required thereunder. While environmental laws and regulations have not had a material adverse effect on our business, operating results, financial condition, the ultimate cost of environmental liabilities is difficult to accurately predict and we could incur material additional costs as a result of requirements or obligations imposed or liabilities identified in the future.

As a manufacturer and distributor of consumer products, we are subject to the Consumer Products Safety Act, which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the Consumer Products Safety Commission could require us to repurchase or recall one or more of our products. In addition, laws regulating certain consumer products exist in some cities and states, and in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in the future. Any repurchase or recall of our products could be costly to us and could damage our reputation. If we were required to remove, or we voluntarily removed, our products from the market, our reputation could be tarnished, and we could have large quantities of finished products that we are unable to sell. We are also subject to the rules and regulations of the Bureau of Alcohol, Tobacco, Firearms and Explosives, or the ATF. If we fail to comply with ATF rules and regulations, the ATF may limit our growth or business activities, levy fines against or revoke our license to do business. Our business, and the business of all producers and marketers of ammunition and firearms, is also subject to numerous federal, state, local, and foreign laws, regulations, and protocols. Applicable laws have the following effects:

| ● | require the licensing of all persons manufacturing, exporting, importing, or selling firearms and ammunition as a business;
| ● | require background checks for purchasers of firearms;
| ● | impose waiting periods between the purchase of a firearm and the delivery of a firearm;
| ● | prohibit the sale of firearms to certain persons, such as those below a certain age and persons with criminal records;
| ● | regulate the use and storage of gun powder or other energetic materials;
| ● | regulate our employment of personnel with criminal convictions; and
| ● | restrict access to firearm manufacturing facilities for individuals from other countries or with criminal convictions.

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Also, the export of our products is controlled by International Traffic in Arms Regulations, or ITAR, and Export Administration Regulations, or EAR. The ITAR implements the provisions of the Arms Export Control Act and is enforced by the U.S. Department of State. The EAR implements the provisions of the Export Administration Act and is enforced by the U.S. Department of Commerce. Among their many provisions, the ITAR and the EAR require a license application for the export of many of our products. In addition, the ITAR requires congressional approval for any firearms export application with a total value of $1 million or higher. Further, because our manufacturing process includes certain toxic, flammable and explosive chemicals, we are subject to the Chemical Facility Anti-Terrorism Standards, as administered by the U.S. Department of Homeland Security, which require that we take additional reporting and security measures related to our manufacturing process.

Several states currently have laws in effect that are similar to, and, in certain cases, more restrictive than, these federal laws. Compliance with all of these regulations is costly and time-consuming. Inadvertent violation of any of these regulations could cause us to incur fines and penalties and may also lead to restrictions on our ability to manufacture and sell our products and services and to import or export the products we sell.

Changes in government policies and firearms legislation could adversely affect our financial results.

The sale, purchase, ownership, and use of firearms are subject to numerous and varied federal, state, and local governmental regulations. Federal laws governing firearms include the National Firearms Act, the Federal Firearms Act, the Arms Export Control Act, and the Gun Control Act of 1968. These laws generally govern the manufacture, import, export, sale, and possession of firearms and ammunition. We hold all necessary licenses to legally sell ammunition in the United States.

Currently, the federal legislature and several state legislatures are considering additional legislation relating to the regulation of firearms and ammunition. These proposed bills are extremely varied. If enacted, such legislation could effectively ban or severely limit the sale of affected firearms and ammunition. In addition, if such restrictions are enacted and are incongruent, we could find it difficult, expensive, or even practically impossible to comply with them, which could impede new product development and the distribution of existing products. We cannot assure you that the regulation of our business activities will not become more restrictive in the future and that any such restriction will not have a material adverse effect on our business.

Any change to the interpretations Second Amendment would dramatically impact our ability to conduct business.

Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation, and export controls and trade sanctions, could result in fines or criminal penalties if we expand our business abroad.

The expansion of our business internationally would expose us to trade sanctions and other restrictions imposed by the United States and other governments. The U.S. Departments of Justice, Commerce, Treasury and other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the Foreign Corrupt Practices Act, anti-boycott provisions and other federal statutes, sanctions and regulations and, increasingly, similar or more restrictive foreign laws, rules and regulations, which may also apply to us. By virtue of these laws and regulations, and under laws and regulations in other jurisdictions, we may be obliged to limit our business activities, we may incur costs for compliance programs and we may be subject to enforcement actions or penalties for noncompliance. In recent years, U.S. and foreign governments have increased their oversight and enforcement activities with respect to these laws and we expect the relevant agencies to continue to increase these activities. A violation of these laws, sanctions or regulations could result in restrictions on our exports, civil and criminal fines or penalties and could adversely impact our business, operating results, and financial condition.

Our charter documents and Delaware law could make it more difficult for a third party to acquire us and discourage a takeover.

Our Certificate of Incorporation, Bylaws, and Delaware law contain certain provisions that may have the effect of deterring or discouraging, among other things, a non-negotiated tender or exchange offer for shares of Common Stock, a proxy contest for control of our company, the assumption of control of our company by a holder of a large block of Common Stock, and the removal of the management of our company. Such provisions also may have the effect of deterring or discouraging a transaction which might otherwise be beneficial to stockholders. Our certificate of incorporation also may authorize our board of directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of Common Stock. Delaware law also imposes conditions on certain business combination transactions with “interested stockholders.” Our certificate of incorporation authorizes our Board of Directors to fill vacancies or newly created directorships. A majority of the directors then in office may elect a successor to fill any vacancies or newly created directorships. Such provisions cold limit the price that investors might be willing to pay in the future for shares of our Common Stock and impede the ability of the stockholders to replace management.

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The elimination of monetary liability against our directors, officers, and employees under Delaware law and the existence of indemnification rights to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees. We also may have entered into contractual indemnification obligations under employment agreements with our executive officers. The foregoing indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and our stockholders.

Our results of operations could be impacted by unanticipated changes in tax provisions or exposure to additional income tax liabilities.

Our business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, and higher excise taxes thereby affecting our income tax expense and profitability. In addition, audits by income tax authorities could result in unanticipated increases in our income tax expense.

Limited or No Public Market for our securities.

There has been a limited public market for our Common Stock and no public market for our outstanding stock options and warrants. Our Common Stock is currently quoted on the OTCQB Market. The daily trading volume of our Common Stock has been limited.

We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how liquid that market might become. The lack of an active market may reduce the value of shares of our Common Stock and impair the ability of our stockholders to sell their shares at the time or price at which they wish to sell them. An inactive market may also impair our ability to raise capital by selling our Common Stock and may impair our ability to acquire or invest in other companies, products, or technologies by using our Common Stock as consideration.

We may be unable to list our stock on a national exchange, such as NASDAQ.

There has been a limited public market for our Common Stock. Although it is our intention to qualify for the trading of our Common Stock on a national exchange, we may not meet or maintain certain qualifying requirements. If we are unable to meet these requirements, we may be limited to trading conducted on the OTCQB Market.

The market price of our Common Stock may be volatile and could decline.

The market price of our Common Stock has fluctuated substantially in the past and is likely to continue to be highly volatile and subject to wide fluctuations in the future. A number of factors could cause the market price of our Common Stock to decline, many of which we cannot control, including the following:

| ● | our ability to execute our business plan;
| ● | actual or anticipated changed in our operating results;
| ● | variations in our quarterly results;
| ● | changes in expectations relating to our products, plans, and strategic position or those of our competitors or customers;
| ● | announcements or introduction of technological innovations or new products by us or our competitors;
| ● | market conditions within our market;
| ● | the sale of even small blocks of Common Stock by stockholders;
| ● | price and volume fluctuations in the overall stock market from time to time;
| ● | significant volatility in the market price and trading volume of public companies in general and small emerging companies in particular;
| ● | changes in investor perceptions;
| ● | the level and quality of any research analyst coverage of our Common Stock, changes in earnings estimates or investment recommendations by securities analysis, or our failure to meet such estimates;
| ● | any financial guidance we may provide to the public, any changes in such guidance, or our failure to meet such guidance;
| ● | various market factors or perceived market factors, including rumors, whether or not correct, involving us, our customers, or our competitors;
| ● | future sales of our Common Stock;
| ● | Introductions of new products or new pricing policies by us or by our competitors;

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| ● | regulatory or environmental laws that restrict the sale of ammunition containing lead;
| ● | acquisitions or strategic alliances by us or by our competitors;
| ● | litigation involving us, our competitors, or our industry;
| ● | regulatory, legislative, political, and other developments that may affect us, our customers, and the purchasers of our products;
| ● | the gain or loss of significant customers;
| ● | the volume and timing of customers’ orders;
| ● | recruitment or departure of key personnel;
| ● | developments with respect to intellectual property rights;
| ● | our international acceptance;
| ● | market conditions in our industry, the business success of our customers, and economy as a whole; and
| ● | general global economic and political instability.

In addition, the market prices of small emerging companies have experienced significant price and volume fluctuations that often have been unrelated or disproportionate to their operating performance. In the past, companies that have experienced volatility in the market price of their securities have been the subject of securities class action litigation. If we were the object of a securities class action litigation, it could result in substantial losses and divert management’s attention and resources form other matters.

Sales of large numbers of shares could adversely affect the price of our Common Stock

Most of our Common Stock shares currently outstanding are restricted securities as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. All outstanding shares of Common Stock are or will be eligible for resale in the public markets at various times within the next six months with respect to affiliates, subject to compliance with the volume and manner of sale requirements of Rule 144 under the Securities Act of 1933, as amended, and with respect to all restricted securities held by affiliates.

In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated for purposes of Rule 144) who beneficially owns restricted securities with respect to which at least six months has elapsed since the later of the date the shares were acquired from us, or from an affiliate of ours, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of our Common Stock or the average weekly trading volume in our Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 also are subject to certain manner-of-sale provisions and notice requirements and to the availability of current public information about us. A person who is not an affiliate, who has not been an affiliate within three months prior to sale, and who beneficially owns restricted securities with respect to which at least six months has elapsed since the later of the date the shares were acquired from us, or from an affiliate of ours, is entitled to sell such shares under Rule 144 without regard to any of the volume limitations or other requirements described above. Sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices.

As a former shell company, resales of shares of our restricted common stock in reliance on Rule 144 of the Securities Act are subject to the requirements of Rule 144(i).

We previously were a “shell company” and, as such, sales of our securities pursuant to Rule 144 under the Securities Act, cannot be made unless, among other things, at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports. Because, as a former shell company, the reporting requirements of Rule 144(i) will apply regardless of holding period, restrictive legends on certificates for shares of our common stock cannot be removed except in connection with an actual sale that is subject to an effective registration statement under, or an applicable exemption from the registration requirements of, the Securities Act. Because our unregistered securities cannot be sold pursuant to Rule 144 unless we continue to meet such requirements, any unregistered securities we issue will have limited liquidity unless we continue to comply with such requirements.

Exercise of warrants, and issuance of incentive stock grants may have a dilutive effective on our stock, and negatively impact the price of our Common Stock.

As of December 31, 2019, we had 8,629,432 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase an aggregate of 125,060 shares of Common Stock at an average price of $2.50 per share until March 2020; (2) warrants to purchase 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (3) warrants to purchase 4,641,745 shares of our Common Stock at an exercise price of $2.00 per share over the next three to five years; and (4) warrants to purchase 2,896,133 shares of Common Stock at an exercise price of $2.40 over the next five years.

In November 2017, the Board of Directors approved the 2017 Equity Incentive Plan, or (“the Plan”). Under the Plan, 485,000 shares of common stock were reserved and authorized to be issued. As of December 31, 2017, 200,000 shares of common stock were approved and issued under the Plan, and we recognized approximately $250,000 of related consulting expense. On January 10, 2018, 200,000 shares were awarded, and we recognized $330,000 of compensation expense. There are 85,000 shares remaining to be issued under the Plan.

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We plan to adopt an Incentive Stock Plan designed to assist us in attracting, motivating, retaining, and rewarding high-quality executives, directors, officers, employees, and individual consultants by enabling such persons to acquire or increase a proprietary interest in our company to strengthen the mutuality of interests between such persons and our stockholders and providing such persons with performance incentives to expand their maximum efforts in the creation of stockholder value under the plan. We will be able to grant stock options, restricted stock, restricted stock units, stock appreciation rights, bonus stocks, and performance awards under the plan.

To the extent that any of the outstanding warrants and options described above are exercised, dilution, to the interests of our stockholders may occur. For the life of such warrants and options, the holders will have the opportunity to profit from a rise in the price of the Common Stock with a resulting dilution in the interest of the other holders of Common Stock. The existence of such warrants and options may adversely affect the market price of our Common Stock and the terms on which we can obtain additional financing, and the holders of such warrants and options can be expected to exercise them at a time when we would, in all likelihood, be able to obtain additional capital by an offering of our unissued capital stock on terms more favorable to us than those provided by such warrants and options.

Effect of Issuance of Preferred Stock

Our Certificate of Incorporation allows us to issue Preferred Stock with voting, liquidation, and dividend rights senior to those of the Common Stock without the approval of our stockholders. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding stock of our company and result in the dilution of the value of the then current stockholders’ Common Stock. We have no current plans to issue shares of Preferred Stock.

Resale of Common Stock

All of our outstanding shares of Common Stock and shares of our Common Stock that may be issued upon the exercise of our outstanding options and warrants may only be resold if they are registered pursuant to an effective registration statement under the Securities Act of 1933 or are resold pursuant to an applicable exemption and are qualified or exempt under the securities laws of the applicable states. We filed a registration statement under the Securities Act covering the resale of shares of Common Stock issued or underlying warrants sold by a private placement that closed in April 2018. This registration statement was declared effective by the Securities and Exchange Commission in September 2019. We agreed to file registration statements for our Convertible Promissory Note offering ending January 2019, our private placement offering ending in August 2019, and our Convertible Promissory Note offering ending January 2020. In the absence of this registration statement, such sale of such shares of our Common Stock could only be made under Rule 144.

We do not expect to pay any dividends for the foreseeable future

We do not anticipate paying any dividends to our stockholders for the foreseeable future. Accordingly, stockholders may have to sell some or all of their Common Stock to generate cash flow from their investment. Stockholders may not receive a gain on their investment when they sell our Common Stock and may lose some or all of the amount of their investment. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors our board of directors deems relevant.

If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent financial fraud. As a result, current and potential stockholders could lose confidence in our financial reporting.

We are subject to the risk that sometime in the future, our independent registered public accounting firm could communicate to the board of directors that we have deficiencies in our internal control structure that they consider to be “significant deficiencies.” A “significant deficiency” is defined as a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is more than a remote likelihood that a material misstatement of the entity’s financial statements will not be prevented or detected by the entity’s internal controls.

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Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed. We are required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” or “SOX”), which requires our management to annually assess the effectiveness of our internal control over financial reporting.

We currently are not an “accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. As of March 31, 2019, the management of the Company assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Management concluded, during the fiscal year ended March 31, 2019, that the Company’s internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Management realized there were deficiencies in the design or operation of the Company’s internal control that adversely affected the Company’s internal controls which management considers to be material weaknesses. A material weakness in the effectiveness of our internal controls over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition. For additional information, see Item 9A – Controls and Procedures.

Our intended business, operations and accounting are expected to be substantially more complex than they have been in the past. It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current.

If we are unable to maintain the adequacy of our internal controls, as those standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and cause investors to lose confidence in our reported financial information, either of which could adversely affect the value of our common stock.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.

Under SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting with our Form 10-K. The internal control report must contain (1) a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting, (2) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, and (3) management’s assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective.

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To achieve compliance with the applicable SEC regulations within the prescribed future period, we would be required to engage in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. Despite our efforts, we can provide no assurance as to our conclusions with respect to the effectiveness of our internal control over financial reporting. There is a risk that we will be able to conclude that our internal controls over financial reporting are effective, as has been the case with a significant number of companies attempting to comply with these regulations for the first time. This could result in an adverse reaction in the financial markets resulting from a loss of confidence in the reliability of our financial statements.

If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information, limit our ability to raise needed capital, and have a negative effect on the trading price of our Common Stock.

Although our Common Stock is not currently a penny stock, it has been a penny stock in the past and may be considered a penny stock in the future.

The SEC has adopted a number of rules to regulate “penny stocks” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share, other than securities: (i) registered on certain national securities exchanges if current price and volume information with respect to transactions in such securities is provided by the exchange; (ii) quoted on the Nasdaq Stock Market if current price and volume information with respect to transactions in such securities is provided by the system; (iii) issued by an issuer that has net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2,000,000, if the issuer has been in continuous operation for at least three years, or $5,000,000, if the issuer has been in continuous operation for less than three years; or (iv) issued by an issuer that has average revenue of at least $6,000,000 for the last three years. As of the date of our most recent audited financial statements reported on by an independent public accountant, we have net tangible assets in excess of $5,000,000. As such, our Common Stock is not a penny stock. Nonetheless, our Common Stock has in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Common Stock, which could severely limit the market liquidity of such shares and impede their sale in the secondary market.

A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.

Stockholders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

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Although our Common Stock is not currently a penny stock, no assurance can be given that our Common Stock will ever be listed on The Nasdaq Stock Market or any other exchange, or that our net tangible assets will continue to exceed $5,000,000 for the next year of operations or that our net tangible assets will exceed $2,000,000 thereafter such that our common stock will remain a non-penny stock.

Our certification of incorporation designates the Court of Chancery in the State of Delaware as the sole and exclusive forum for actions or proceedings that may be initiated by our stockholders, which could discourage claims or limit shareholders’ ability to make a claim against the Company, our directors, officers, and employees.

Our Amended and Restated Certificate of Incorporation states that unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) an action asserting a claim of break of fiduciary duty owed by any direction, officer, or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers, or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws, or (iv) any action asserting a claim against the Corporation, its directors, officers, or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.

These exclusive forum provisions do not apply to claims under the Securities Act or the Exchange Act. The exclusive forum provision may discourage claims or limit shareholders’ ability to submit claims in a judicial forum that they find favorable and may create additional costs as a result. If a court were to determine the exclusive forum provision to be inapplicable and unenforceable in an action, we may incur additional costs in conjunction with our efforts to resolve the dispute in an alternative jurisdiction, which could have a negative impact on our results of operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.

Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

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Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

| ● | changes in the market acceptance of our products;
| ● | increased levels of competition;
| ● | changes in political, economic or regulatory conditions generally and in the markets in which we operate;
| ● | our relationships with our key customers;
| ● | our ability to retain and attract senior management and other key employees;
| ● | our ability to quickly and effectively respond to new technological developments;
| ● | our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
| ● | other risks, including those described in the “Risk Factors” discussion of this prospectus.

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

SELLING SECURITY HOLDERS

The 16,160,527 shares of the Common Stock, consisting of up to 5,919,550 shares of Common Stock, 4,312,060 of shares of Common Stock issuable upon conversion of the Notes (this share amount is based upon dividing the $2,500,000 principal amount of the Notes by the conversion price that would be applicable as of the date of the filing of the Registration Statement), and 5,928,917 shares of Common Stock issuable upon the exercise of the Gunnar Investor Warrants, Gunnar Affiliate Warrants, Paulson Investor Warrants, and Paulson Affiliate Warrants that may be sold from time to time pursuant to this registration statement by the Selling Security Holders identified herein.

All expenses incurred with respect to the registration of the Common Stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or other expenses incurred by the Selling Security Holders in connection with the sale of such shares.

Except as indicated below, neither the Selling Security Holders nor any of their associates or affiliates has held any position, office, or other material relationship with us in the past three years.

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The following table sets forth the names of the Selling Security Holders, the number of shares of Common Stock beneficially owned by the Selling Security Holders as of the date hereof and the number of shares of Common Stock being offered by the Selling Security Holders. The shares being offered hereby are being registered to permit public secondary trading, and the Selling Security Holders may offer all or part of the shares for resale from time to time. However, the Selling Security Holders are under no obligation to sell all or any portion of such shares. All information with respect to share ownership has been furnished by the Selling Security Holders. The “Number of Shares Beneficially Owned After the Offering” column assumes the sale of all shares offered.

The common stock being offered by the Selling Security Holders are those issuable to the Selling Security Holders, upon exercise of the Warrants and conversion of the Notes. We are registering the shares of common stock in order to permit the Selling Security Holders to offer these shares for resale from time to time. Except for the investment in the shares of Common Stock and the Notes, the Gunnar Investor Warrants, and the Paulson Investor Warrants, the Selling Security Holders have not had any material relationship with us within the past three years. In the case of the Selling Security Holders who hold the Gunnar Affiliate Warrants and the Paulson Affiliate Warrants, such individuals are employees of Paulson or Gunnar which have served as placement agents for our private offerings during the last three years.

The table below lists the Selling Security Holders and other information regarding the beneficial ownership of the shares of common stock by each of the Selling Security Holders. The second column lists the number of shares of common stock beneficially owned by each Selling Security Holder, based on its ownership of the shares of common stock and warrants, as of the date hereof, assuming conversion of the Notes and exercise of the Gunnar Investor Warrants, the Gunnar Affiliate Warrants, the Paulson Investor Warrants, and the Paulson Affiliate Warrants held by the Selling Security Holders on such date, without regard to any limitations on conversions or exercises. The third column lists the shares of common stock being offered by this prospectus by the Selling Security Holders.

This prospectus generally covers the resale of the sum of (i) the number of shares of common stock underlying the Notes issued to the Selling Security Holders in the Gunnar Offering and (ii) the maximum number of shares of common stock issuable upon exercise of the Gunnar Investor Warrants, the Gunnar Affiliate Warrants, the Paulson Investor Warrants, and the Paulson Affiliate Warrants, determined as if the outstanding Warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination, without regard to any limitations on the exercise of the of the Gunnar Investor Warrants, the Gunnar Affiliate Warrants, the Paulson Investor Warrants, and the Paulson Affiliate Warrants or conversion of the Notes.

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Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Bigger Capital Fund LP (3) |  |  | 388,086 |  |  |  | * |  |  |  | - |  |  |  | 258,724 |  |  |  | 129,362 | (4) |  |  | - |  |  |  | * |
District 2 Capital Fund LP (5) |  |  | 646,809 |  |  |  | * |  |  |  | - |  |  |  | 431,206 |  |  |  | 215,603 | (4) |  |  | - |  |  |  | * |
Mitchell Kersch and Allison Kersch |  |  | 1,293,619 |  |  |  | * |  |  |  | - |  |  |  | 862,412 |  |  |  | 431,207 | (4) |  |  | - |  |  |  | * |
John H. Nash |  |  | 1,293,619 |  |  |  | * |  |  |  | - |  |  |  | 862,412 |  |  |  | 431,207 | (4) |  |  | - |  |  |  | * |
Richard W. Baskerville Living Trust |  |  | 646,809 |  |  |  | * |  |  |  | - |  |  |  | 431,206 |  |  |  | 215,603 | (4) |  |  | - |  |  |  | * |
The Yanowitz/Metzenbaum Family Trust |  |  | 129,362 |  |  |  | * |  |  |  | - |  |  |  | 86,241 |  |  |  | 43,121 | (4) |  |  | - |  |  |  | * |
Dean Britting |  |  | 129,362 |  |  |  | * |  |  |  | - |  |  |  | 86,241 |  |  |  | 43,121 | (4) |  |  | - |  |  |  | * |
Pinnacle Family Office Investments L.P. (6) |  |  | 1,293,618 |  |  |  | * |  |  |  | - |  |  |  | 862,412 |  |  |  | 431,206 | (4) |  |  | - |  |  |  | * |
Porter Partners, L.P. |  |  | 388,086 |  |  |  | * |  |  |  | - |  |  |  | 258,724 |  |  |  | 129,362 | (4) |  |  | - |  |  |  | * |
David S. Nagelberg 2003 Revocable Trust |  |  | 258,723 |  |  |  | * |  |  |  | - |  |  |  | 172,482 |  |  |  | 86,241 | (4) |  |  | - |  |  |  | * |
Wayne Newkumet |  |  | 187,500 |  |  |  | * |  |  |  | 125,000 |  |  |  | - |  |  |  | 62,500 | (7) |  |  | - |  |  |  | * |
Aaron Lehman |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Albert Landstrom |  |  | 16,380 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 16,380 | (8) |  |  | - |  |  |  | * |
Allen Gabriel |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Ardara Capital LP |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Basil Christakos |  |  | 4,918 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 4,918 | (8) |  |  | - |  |  |  | * |
Bloxom Family Rev Trust |  |  | 150,000 |  |  |  | * |  |  |  | 100,000 |  |  |  | - |  |  |  | 50,000 | (7) |  |  | - |  |  |  | * |
Brady Clark |  |  | 450 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 450 | (8) |  |  | - |  |  |  | * |
Brian Langham |  |  | 11,250 |  |  |  | * |  |  |  | 7,500 |  |  |  | - |  |  |  | 3,750 | (7) |  |  | - |  |  |  | * |
Brian Skillern |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Burt Stangarone |  |  | 22,500 |  |  |  | * |  |  |  | 15,000 |  |  |  | - |  |  |  | 7,500 | (7) |  |  | - |  |  |  | * |
C D Walker LLC |  |  | 112,500 |  |  |  |  |  |  |  | 75,000 |  |  |  |  |  |  |  | 37,500 | (7) |  |  |  |  |  |  |  |
C.J. Martin Management, LLC 401(k) Profit Sharing Plan |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Caisson Breakwater Global Opportunity Fund LLP |  |  | 450,000 |  |  |  | * |  |  |  | 300,000 |  |  |  | - |  |  |  | 150,000 | (7) |  |  | - |  |  |  | * |

33

Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Calm Waters Partnership |  |  | 375,000 |  |  |  | * |  |  |  | 250,000 |  |  |  | - |  |  |  | 125,000 | (7) |  |  | - |  |  |  | * |
Carl Rylander |  |  | 150 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 150 | (8) |  |  | - |  |  |  | * |
Catherine Rood |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Curtis Walker LLC |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Charles Jeffrey Trick |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Chitayat Holdings LLC |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Christopher Clark |  |  | 88,702 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 88,702 | (8) |  |  | - |  |  |  | * |
Clayton Struve |  |  | 266,313 |  |  |  | * |  |  |  | 177,542 |  |  |  | - |  |  |  | 88,771 | (7) |  |  | - |  |  |  | * |
Collegiate Tutoring, Inc. |  |  | 15,000 |  |  |  | * |  |  |  | 10,000 |  |  |  | - |  |  |  | 5,000 | (7) |  |  | - |  |  |  | * |
Currie Family Trust |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Dale Jones |  |  | 3,375 |  |  |  | * |  |  |  | 2,250 |  |  |  | - |  |  |  | 1,125 | (7) |  |  | - |  |  |  | * |
Dale Schmitt |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Dane Shea |  |  | 150,000 |  |  |  | * |  |  |  | 100,000 |  |  |  | - |  |  |  | 50,000 | (7) |  |  | - |  |  |  | * |
Dane Grouell |  |  | 1,967 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 1,967 | (8) |  |  | - |  |  |  | * |
David and Elizabeth Kocyba |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
DDJ & Associates LLC |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Dmitry Aksenov |  |  | 60 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 60 | (8) |  |  | - |  |  |  | * |
Douglas Harnar |  |  | 48,000 |  |  |  | * |  |  |  | 32,000 |  |  |  | - |  |  |  | 16,000 | (7) |  |  | - |  |  |  | * |
Douglas Harnar LLC |  |  | 45,000 |  |  |  | * |  |  |  | 30,000 |  |  |  | - |  |  |  | 15,000 | (7) |  |  | - |  |  |  | * |
Dr. Baron Lonner |  |  | 56,250 |  |  |  | * |  |  |  | 37,500 |  |  |  | - |  |  |  | 18,750 | (7) |  |  | - |  |  |  | * |
Dr. William Ryland and Carolyn Rylander |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Due Mondi Investments, LP |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Efrat Investments LLC |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |

34

Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Bill Simpson |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Eran Cohen |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Eugene Webb |  |  | 82,250 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 82,250 | (8) |  |  | - |  |  |  | * |
Evan Paliotta |  |  | 60 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 60 | (8) |  |  | - |  |  |  | * |
Flying S Ranch Trust |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Frank Tosco |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Francis Lymburner |  |  | 152,279 |  |  |  | * |  |  |  | 101,519 |  |  |  | - |  |  |  | 50,760 | (7) |  |  | - |  |  |  | * |
Frank Koza |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Gary Saccaro |  |  | 27,838 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 27,838 | (8) |  |  | - |  |  |  | * |
Gerald A Tomsic 1995 Trust |  |  | 56,250 |  |  |  | * |  |  |  | 37,500 |  |  |  | - |  |  |  | 18,750 | (7) |  |  | - |  |  |  | * |
Gerald Koppes |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Greg Buffington |  |  | 115,686 |  |  |  | * |  |  |  | 77,124 |  |  |  | - |  |  |  | 38,562 | (7) |  |  | - |  |  |  | * |
H.S. Martin Management, LLC 401(k) Profit Sharing Plan |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Harold Finelt |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Harry Gordon |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Hazem Algendi |  |  | 210 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 210 | (8) |  |  | - |  |  |  | * |
Jay Daniel Sessler |  |  | 56,250 |  |  |  | * |  |  |  | 37,500 |  |  |  | - |  |  |  | 18,750 | (7) |  |  | - |  |  |  | * |
James Nieder |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
James Sorg |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Jason Bryan |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Jay and Colleen Johnson Family Trust |  |  | 150,000 |  |  |  | * |  |  |  | 100,000 |  |  |  | - |  |  |  | 50,000 | (7) |  |  | - |  |  |  | * |
Jeffrey Weiner |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Jeffrey R Bump |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Jill Wickersham |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |

35

Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Joe Hekker |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Jon Sessler |  |  | 56,250 |  |  |  | * |  |  |  | 37,500 |  |  |  | - |  |  |  | 18,750 | (7) |  |  | - |  |  |  | * |
Joseph Michalczyk |  |  | 30,000 |  |  |  | * |  |  |  | 20,000 |  |  |  | - |  |  |  | 10,000 | (7) |  |  | - |  |  |  | * |
Judson and Barbara Longaker |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
KBB Asset Management LLC |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Keith Wright |  |  | 167,580 |  |  |  | * |  |  |  | 111,720 |  |  |  | - |  |  |  | 55,860 | (7) |  |  | - |  |  |  | * |
Kenneth E Chyten |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Kevin Neilson |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Kimbel Stuart |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Kraig Ardnt |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Kyle Fry |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Kyle Neilson |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Ladd Hill Development |  |  | 45,000 |  |  |  | * |  |  |  | 30,000 |  |  |  | - |  |  |  | 15,000 | (7) |  |  | - |  |  |  | * |
Larry C Bullock |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Lewis Kinder & Cheryl Kinder |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Lorraine Maxfield |  |  | 4,918 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 4,918 | (8) |  |  | - |  |  |  | * |
Malcolm Alexander Winks |  |  | 9,245 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 9,245 | (8) |  |  | - |  |  |  | * |
Marc David O’Rourke |  |  | 1,200 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 1,200 | (8) |  |  | - |  |  |  | * |
Mark Finckle |  |  | 8,300 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 8,300 | (8) |  |  | - |  |  |  | * |
Mark Gaibler |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Mark Spates |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Martha B Mehallis |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Matt Tomlinson & Diana Tomlinson |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Melanie and Jon Stagnitti |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |

36

Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Michael Browning |  |  | 150,000 |  |  |  | * |  |  |  | 100,000 |  |  |  | - |  |  |  | 50,000 | (7) |  |  | - |  |  |  | * |
Michael S Heathington |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Nancy L Cowgill Trust |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Nate Bergene |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Neil Bowles |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Nick Panayotou |  |  | 150,000 |  |  |  | * |  |  |  | 100,000 |  |  |  | - |  |  |  | 50,000 | (7) |  |  | - |  |  |  | * |
Nicholas Adams |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Nigel Timothy IRA |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Noah J Anderson |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Paul Hydok |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Paulson Investment Company, LLC |  |  | 105,360 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 105,360 | (8) |  |  | - |  |  |  | * |
Per Gustafsson |  |  | 154,095 |  |  |  | * |  |  |  | 102,730 |  |  |  | - |  |  |  | 51,365 | (7) |  |  | - |  |  |  | * |
Peter Fogarty |  |  | 6,525 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 6,525 | (8) |  |  | - |  |  |  | * |
Pinnacle Ventures LTD Partners |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Prudhomme Family Trust |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Randall Wolfe |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
RBC Capital Markets LLC Cust FBO William Winkenbach IRA |  |  | 47,625 |  |  |  | * |  |  |  | 31,750 |  |  |  | - |  |  |  | 15,875 | (7) |  |  | - |  |  |  | * |
RBC Capital Markets LLC Cust FBO Carling Seguso IRA |  |  | 262,500 |  |  |  | * |  |  |  | 175,000 |  |  |  | - |  |  |  | 87,500 | (7) |  |  | - |  |  |  | * |
RBC Capital Markets LLC Cust FBO Roger Langliers IRA |  |  | 150,000 |  |  |  | * |  |  |  | 100,000 |  |  |  | - |  |  |  | 50,000 | (7) |  |  | - |  |  |  | * |
RBC Capital Markets LLC Cust FBO Thomas Esteb IRA |  |  | 51,750 |  |  |  | * |  |  |  | 34,500 |  |  |  | - |  |  |  | 17,250 | (7) |  |  | - |  |  |  | * |

37

Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Richard Walterson |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Robert Lanphere, Jr. |  |  | 432,000 |  |  |  | * |  |  |  | 288,000 |  |  |  | - |  |  |  | 144,000 | (7) |  |  | - |  |  |  | * |
Robert Setteducati |  |  | 88,702 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 88,702 | (8) |  |  | - |  |  |  | * |
Runrig Holdings LLC |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Scott Carmony |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Sean Conner |  |  | 26,250 |  |  |  | * |  |  |  | 17,500 |  |  |  | - |  |  |  | 8,750 | (7) |  |  | - |  |  |  | * |
Stephen Shumpert |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Steve Collins |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Strata Trust Company CUST FBO Gene Webb IRA |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |
Tanner Nitcher |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Thomas and Patricia Hanish Revocable Living Trust November 6, 2009 |  |  | 56,250 |  |  |  | * |  |  |  | 37,500 |  |  |  | - |  |  |  | 18,750 | (7) |  |  | - |  |  |  | * |
Thomas Hamilton |  |  | 56,250 |  |  |  | * |  |  |  | 37,500 |  |  |  | - |  |  |  | 18,750 | (7) |  |  | - |  |  |  | * |
Thomas Parigian |  |  | 88,702 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 88,702 | (8) |  |  | - |  |  |  | * |
Thomas Maywalt |  |  | 18,750 |  |  |  | * |  |  |  | 12,500 |  |  |  | - |  |  |  | 6,250 | (7) |  |  | - |  |  |  | * |
Thomas W. Hale |  |  | 112,500 |  |  |  | * |  |  |  | 75,000 |  |  |  | - |  |  |  | 37,500 | (7) |  |  | - |  |  |  | * |
Timothy Dabulis |  |  | 525 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 525 | (8) |  |  | - |  |  |  | * |
Timothy Touloukian |  |  | 7,639 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 7,639 | (8) |  |  | - |  |  |  | * |
Tom Esteb |  |  | 15,000 |  |  |  | * |  |  |  | 10,000 |  |  |  | - |  |  |  | 5,000 | (7) |  |  | - |  |  |  | * |
Trent Davis |  |  | 9,245 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 9,245 | (8) |  |  | - |  |  |  | * |
Tyler Safratowich |  |  | 37,500 |  |  |  | * |  |  |  | 25,000 |  |  |  | - |  |  |  | 12,500 | (7) |  |  | - |  |  |  | * |
Veronica Marano and Thomas M Volckening |  |  | 75,000 |  |  |  | * |  |  |  | 50,000 |  |  |  | - |  |  |  | 25,000 | (7) |  |  | - |  |  |  | * |

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Name of Investor |  | Number of Shares of Common Stock Owned Prior to Offering (1) |  |  | % of Shares of Common Stock Owned Prior to Offering |  |  | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Notes to be Sold Pursuant to this Prospectus (1)(2) |  |  | Maximum Number of shares of Common Stock underlying Warrants to be Sold Pursuant to this Prospectus (1)(2) |  |  | Number of shares of Common Stock Owned After the Offering (1)(2) |  |  | % of shares of Common Stock Owned After the Offering (1)(2) |
Vision Financial Markets LLC |  |  | 12,825 |  |  |  | * |  |  |  | 8,550 |  |  |  | - |  |  |  | 4,275 | (7) |  |  | - |  |  |  | * |
Wallace K Fisk Jr. |  |  | 152,813 |  |  |  | * |  |  |  | 101,875 |  |  |  | - |  |  |  | 50,938 | (7) |  |  | - |  |  |  | * |
William M Stockler |  |  | 37,425 |  |  |  | * |  |  |  | 24,950 |  |  |  | - |  |  |  | 12,475 | (7) |  |  | - |  |  |  | * |
Cam Thomas |  |  | 19,382 |  |  |  | * |  |  |  | 12,921 |  |  |  | - |  |  |  | 6,461 | (7) |  |  | - |  |  |  | * |
Endeavour LP |  |  | 39,000 |  |  |  | * |  |  |  | 26,000 |  |  |  | - |  |  |  | 13,000 | (7) |  |  |  |  |  |  | * |
Jack Rust |  |  | 38,762 |  |  |  | * |  |  |  | 25,841 |  |  |  | - |  |  |  | 12,921 | (7) |  |  | - |  |  |  | * |
James Thomas Hayes |  |  | 77,522 |  |  |  | * |  |  |  | 51,681 |  |  |  | - |  |  |  | 25,841 | (7) |  |  | - |  |  |  | * |
John Vincent |  |  | 38,804 |  |  |  | * |  |  |  | 25,869 |  |  |  | - |  |  |  | 12,935 | (7) |  |  | - |  |  |  | * |
Kim M Timothy |  |  | 77,667 |  |  |  | * |  |  |  | 51,778 |  |  |  | - |  |  |  | 25,889 | (7) |  |  | - |  |  |  | * |
Pegasus Capital II LP |  |  | 127,291 |  |  |  | * |  |  |  | 127,291 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Thomas Volckening & Veronica Marano |  |  | 222,300 |  |  |  | * |  |  |  | 148,200 |  |  |  | - |  |  |  | 74,100 | (7) |  |  | - |  |  |  | * |
William F Fuehrer |  |  | 38,772 |  |  |  | * |  |  |  | 25,848 |  |  |  | - |  |  |  | 12,924 | (7) |  |  | - |  |  |  | * |
William Murphy |  |  | 78,167 |  |  |  | * |  |  |  | 52,111 |  |  |  | - |  |  |  | 26,056 | (7) |  |  | - |  |  |  | * |
Joseph Gunnar & Co., LLC |  |  | 323,405 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | 323,405 | (9) |  |  | - |  |  |  | * |
TOTAL |  |  | 16,160,527 |  |  |  |  |  |  |  | 5,919,550 |  |  |  | 4,312,060 |  |  |  | 5,928,917 |  |  |  | - |  |  |  |  |

* Less than 1%

(1) Assumes that the Selling Security Holders sells all of the common stock underlying the Notes and the Gunnar Investor Warrants, the Gunnar Affiliate Warrants, the Paulson Investor Warrants, and the Paulson Affiliate Warrants offered pursuant to this prospectus.

(2) Assumes Conversion Price of 50.0% of $1.1595 (the mean of the VWAP in the ten consecutive trading days ending on February 13, 2020).

(3) Michael Bigger has voting and investment power over the shares held by Bigger Capital Fund LP.

(4) Consists of the Common Stock underlying the Gunnar Investor Warrants.

(5) Michael Bigger and Eric Schlanger share voting and investment power over the shares held by District 2 Capital Fund LP.

(6) Barry M. Kitt is the manager of Pinnacle Family Office L.L.C., the general partner of Pinnacle Family Office Investments, L.P., and has voting and investment power over the shares held by Pinnacle Family Office Investments, L.P.

(7) Consists of the Common Stock underlying the Paulson Investor Warrants.

(8) Consists of the Common Stock underlying the Paulson Affiliate Warrants.

(9) Consists of the Common Stock underlying the Gunnar Affiliate Warrants.

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USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock by the Selling Security Holders, however, we will receive the proceeds from any cash exercise of the of the Gunnar Investor Warrants, the Gunnar Affiliate Warrants, the Paulson Investor Warrants, and the Paulson Affiliate Warrants. All of the net proceeds from the sale of our common stock will go to the Selling Security Holders as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution”. We have agreed to bear the expenses relating to the registration of the common stock for the Selling Security Holders.

PLAN OF DISTRIBUTION

The Selling Security Holders may, from time to time, sell, transfer, or otherwise dispose of any or all of their shares of common stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. The Seller Stockholders may use any one or more of the following methods when disposing of shares:

| ● | on any national securities exchange or quotation service on which the shares may be listed or quoted at the time of sale;
| ● | in the over-the-counter market;
| ● | in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
| ● | an exchange distribution in accordance with the rules of the applicable exchange;
| ● | privately negotiated transactions;
| ● | short sales;
| ● | through the listing or settlement of options or other hedging transactions, whether such options are listed on an options exchange or otherwise;
| ● | broker-dealers may agree with the Selling Security Holders to sell a specified number of such shares at a stipulated price per share;
| ● | a combination of any such methods of sale; and
| ● | any other method permitted pursuant to applicable law.

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The Selling Security Holders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

If the Selling Security Holders effect such transactions by selling shares of Common Stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions, or commissions from the Seller Stockholders or commissions from purchasers of the shares of Common Stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions, or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of Common Stock or otherwise, the Selling Security Holders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of Common Stock in the course of hedging in positions they assume. The Selling Security Holders may also sell shares of Common Stock short and deliver shares of Common Stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Security Holders may also loan or pledge shares of Common Stock to broker-dealers that in turn may sell such shares.

The Selling Security Holders may from time to time pledge or grant a security interest in some or all of the shares of Common Stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of Common Stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of Selling Security Holders to include the pledgee, transferee or other successors in interest as Selling Security Holders under this prospectus. The Selling Security Holders also may transfer or donate the shares of Common Stock in other circumstances, in which case the transferees, donees, pledgees, or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

Under the securities laws of some states, the shares of Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any Selling Stockholder will sell any or all of the shares of Common Stock registered pursuant to the registration statement of which this prospectus forms a part.

The Selling Security Holders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, the anti-manipulation rules of Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the Common Stock by the Selling Security Holders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of Common Stock to engage in market-making activities with respect to the shares of common stock.

In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Security Holders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Seller Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We are required to pay all expenses of the registration of the shares of Common Stock, including SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that the Selling Security Holders will pay all underwriting discounts and selling commissions, if any, and all fees and expenses of their respective legal counsel. We have agreed to indemnify the Selling Security Holders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus. We may be indemnified by the Selling Security Holders against liabilities, including liabilities under the Securities Act, and state security laws, that may arise from any written information furnished to us by the Selling Security Holders specifically for use in this prospectus.

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Once effective, our company has agreed to use its commercially reasonable efforts to keep such registration, and any qualifications, exemption or compliance under state securities laws which our company determines to obtain, continuously effective, and to keep the registration statement of which this prospectus forms a part free of any material misstatements or omissions, until the earlier of the following:(1) the date of which the Selling Security Holders cease to hold any shares of Common Stock registered hereunder, or (2) the date all shares of Common Stock held by the Selling Security Holders may be sold without restriction under Rule 144, including without limitation, any volume and manner of sale restrictions which may be applicable to affiliates under Rule 144.

Once sold under the registration statement of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND PURCHASES OF EQUITY SECURITIES

Market Information

(a) Common Stock

Prior to December 11, 2018, our Common Stock (“POWW”) was traded on the OTC Pink Sheets Open Market which is not considered to be an established trading market. After December 11, 2018, our common stock has traded on the OTCQB Market, under the symbol (“POWW”). There is currently no market for our warrants, and we cannot guarantee that a market for the warrants will develop.

The ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer’s securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state.

Shares sold pursuant to exemptions from registration are deemed to be “restricted” securities as defined by the Securities Act. As of March 10, 2020, out of a total of 200,000,000 shares authorized, 35,577,791 shares are issued as restricted securities and can only be sold or otherwise transferred pursuant to a registration statement under the Securities Act or pursuant to an available exemption from registration. Of such restricted shares, 13,309,200 (37.41%) shares are held by affiliates (directors, officers and 10% holders), with the balance of 22,268,591 (62.59%) shares being held by non-affiliates.

In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of a reporting company for at least six months, including any person who may be deemed to be an “affiliate” of the company (as the term “affiliate” is defined under the Securities Act), is entitled to sell, within any three-month period, an amount of shares that does not exceed the greater of (i) the average weekly trading volume in the company’s common stock, as reported through the automated quotation system of a registered securities association, during the four calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. In order for a stockholder to rely on Rule 144, adequate current public information with respect to the company must be available. A person who is not deemed to be an affiliate of the company and has not been an affiliate for the most recent three months, and who has held restricted shares for at least one year is entitled to sell such shares without regard to the various resale limitations under Rule 144. Under Rule 144, the requirements of paragraphs (c), (e), (f), and (h) of such Rule do not apply to restricted securities sold for the account of a person who is not an affiliate of an issuer at the time of the sale and has not been an affiliate during the preceding three months, provided the securities have been beneficially owned by the seller for a period of at least one year prior to their sale. For purposes of this registration statement, a controlling stockholder is considered to be a person who owns 10% or more of the company’s total outstanding shares, or is otherwise an affiliate of the Company. No individual person owning shares that are considered to be not restricted owns more than 10% of the Company’s total outstanding shares.

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(b) Holders of Common Equity

As of March 10, 2020, a total of 45,906,077 shares of our Common Stock were outstanding and there were approximately 515 holders of record.

(c) Dividend Information

We have never declared or paid dividends on our Common Stock. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for expansion. At the present time, we intend to retain any earnings in our business, and therefore do not anticipate paying dividends in the foreseeable future.

(d) Securities Authorized for Issuance under Equity Compensation Plans

Equity Incentive Plan

In November 2017, the Board of Directors approved the 2017 Equity Incentive Plan, or the Plan. Under the Plan, 485,000 shares of the Common stock was reserved and authorized to be issued. At December 31, 2017, 200,000 shares of Common Stock were approved and issued under the Plan, and we recognized approximately $250,000 of related compensation expenses. On January 10, 2018, 200,000 shares were awarded, and we recognized $330,000 of compensation expense. There are 85,000 remaining to be issued.

Transfer Agent

We have appointed Action Stock Transfer Corporation (“AST”) as the transfer agent for our Common Stock. The principal office of AST is located at 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, UT 84121, and its telephone number is (801) 274-1088.

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 should be read together with our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements, based upon our current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” “Forward-Looking Statements,” and elsewhere in this prospectus.

Overview

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

When we began our operations in early 2017, our focus was to sell the inventory of ammunition we acquired through an asset purchase of a private company located in northern Arizona. The inventory consisted primarily of standard pistol and rifle rounds and two proprietary lines that had not received much traction in the market. We sold the remaining inventory at a discount during 2017 to help fund the development of our manufacturing operations. This accounted for the majority of our sales through the end of the third quarter of the calendar year of 2017.

With the prior inventory successfully sold and new products being produced, our next objective for the calendar year ending December 31, 2017 was to identify ammunition technologies unique to the industry that could be quickly implemented by our manufacturing team. We met with several organizations and projectile manufacturers looking for innovative products that could be used to establish us as a niche or high-end manufacturer for the recreational shooter, the American hunter, law enforcement, and military forces. Among the first of these technologies to meet our requirements was STREAK VISUAL AMMUNITION™, a one-way luminescent or OWL Technology application. We believe our STREAK VISUAL AMMUNITION™ line is the only non-incendiary tracer round in the ammunition market today. We secured the exclusive license to manufacture and sell the STREAK VISUAL AMMUNITION™ line of ammunition in 2017. We have filed for and received Trademark Protection for the STREAK VISUAL AMMUNITION™ product name from the United States Patent and Trademark Office (USPTO) on July 17, 2018 Additionally, we filed for Trademark Protection for the O.W.L. TechnologyTM product name on June 6, 2018.

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We formally introduced the STREAK VISUAL AMMUNITION™ portfolio of calibers, along with our rebranded One Precise Shot (OPS) and Stelth subsonic line of suppression ammunition, to the general public at the SHOT Show in Las Vegas held in January 2018. This product introduction resulted in the opening of major retail outlets across the United States and attracted the attention of distributors in the international community. We believe this was a critical milestone in establishing us as a significant player in technology-based ammunition.

To help promote our new products, we hired new sales and marketing personnel in late 2017, and early 2018. We also augmented our Board of Directors to include professionals who could provide guidance for our teams through their prior experience in the industries we have targeted: commercial retail – focused on the gun or hunting enthusiast; US Law Enforcement; the US Military; and international markets for both military and law enforcement. Together this team has worked to open sales channels and distribution networks and capitalize on industry relationships to introduce our products to the influencers required to grow our sales.

During the summer of 2018, we also began conversations to acquire a small technology company named SW Kenetics Inc. SW Kenetics Inc. developed an innovative line of modular projectiles primarily geared toward tactical military operations. On July 6, 2018 we signed a letter of intent to purchase their company, as we believe their designs, coupled with our STREAK or O.W.L. Technology will position us to more aptly complete for military contracts. On September 27, 2018, we entered into a definitive agreement and plan of merger to acquire SW Kenetics Inc. for a total of up to $1,500,000 in cash and issue 1,700,002 restricted shares of the Common Stock. The agreement specifies that $1,250,000 of the cash is deferred pending completion of specific milestones and the 1,700,002 shares of common stock are subject to claw back provisions to ensure agreed upon objective are met. The acquisition was completed on October 5, 2018.

On March 15, 2019, Enlight Group II, LLC, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of selected assets of Jagemann Stamping Company’s ammunition casing, projectile manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement dated March 14, 2019. In accordance with the terms of the Amended APA, Enlight Group II, LLC paid Jagemann Stamping Company a combination of $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc. common stock.

This acquisition was a critical element in the Company’s long-term strategy as it secures its supply chain for these important components and creates a more competitive pricing structure that it can leverage across all its targeted markets. This also greatly enhances the Company’s plant capacity and technical expertise required for the further development of military grade projectiles.

The Company’s innovative line of match grade armor piercing (AP) hard armor piercing incendiary (HAPI) rounds, are the centerpiece of the Company’s strategy to address the unique needs the armed forces community demands are met by their equipment. Following AMMO’s acquisition of Jagemann Casings in March, the Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 12.7mm and .50 caliber BMG configurations.

The focus for our 2020 fiscal year is to continue to expand our brand presence into the markets identified above and continue to grow our sales within our targeted markets. We intend to do this through: establishing key strategic relationships, enrolling in government procurement programs, establishing relationships with leading law enforcement associations and programs, expanding distributor channels, and revitalized marketing campaigns.

We also intend to increase our product offerings through potential acquisitions that bring new technologies that provide solutions for United States Military requirements. Our first step in this process is the addition of equipment to support the manufacture of 50 caliber ammunition. Not only is there an increasing demand for quality ammunition in this category for military applications, it also has a growing demand from commercial markets, and gun enthusiasts.

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Our addressable market includes the 2.6 million law enforcement officers around the world (800,000 domestically and 1.8 million internationally) who annually recertify with their firearms; 1.3 million enlisted personnel in the U.S. Armed Forces, and more than 30 million handgun owning households in the United States with later expansion to international markets for civilian purchasers which, based on industry statistics, represents addressable revenue of billions of dollars annually. Each of these markets has unique challenges or barriers to entry. We believe with the strategies we are developing, we will be well positioned to grow our future market share based on our commitment to innovation and meeting the changing needs and demographics of ammunition buyers.

Results of Operations

Comparison for the three and nine months ended December 31, 2019 and 2018

Our financial results for the three and nine months ended December 31, 2019 reflect our newly positioned organization. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider. Although we continue to focus on growing our top line revenue, and streamlining our operations, we did experience a decline in our gross profit margin for the three and nine months ended December 31, 2019. This was the result of a significant increase in depreciation and amortization expenses related to the addition of assets from the acquisition of Jagemann Stamping Company’s ammunition casing, projectile manufacturing, and sales operations (“Jagemann Casings”), sales of products that carry lower margins, as well as increases to costs of raw materials and overhead.

The following table presents summarized financial information taken from our consolidated statements of operations for the three and nine months ended December 31, 2019 compared with the three and nine months ended December 31, 2018:

|  | For the Three Months Ending |  |  | For the Nine Months Ending |
|  | December 31, 2019 |  |  | December 31, 2018 |  |  | December 31, 2019 |  |  | December 31, 2018 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Net Sales |  | $ | 2,772,009 |  |  | $ | 489,080 |  |  | $ | 10,025,144 |  |  | $ | 3,201,967 |
Cost of Products Sold |  |  | 3,662,196 |  |  |  | 580,166 |  |  |  | 12,286,591 |  |  |  | 2,960,262 |
Gross Margin |  |  | (890,187 | ) |  |  | (91,086 | ) |  |  | (2,261,447 | ) |  |  | 241,705 |
Sales, General & Administrative Expenses |  |  | 1,759,907 |  |  |  | 2,077,499 |  |  |  | 7,280,925 |  |  |  | 5,768,650 |
Loss from Operations |  |  | (2,650,094 | ) |  |  | (2,168,585 | ) |  |  | (9,542,372 | ) |  |  | (5,526,945 | )
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (214,328 | ) |  |  | 1,556,043 |  |  |  | (607,710 | ) |  |  | 1,553,139 |
Loss before provision for income taxes |  | $ | (2,864,422 | ) |  | $ | (612,542 | ) |  | $ | (10,150,082 | ) |  | $ | (3,973,806 | )
Provision for income taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net Loss |  | $ | (2,864,422 | ) |  | $ | (612,542 | ) |  | $ | (10,150,082 | ) |  | $ | (3,973,806 | )

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Non-GAAP Financial Measures

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

Adjusted EBITDA

|  | For the Three |  |  | For the Nine |
|  | Months Ended |  |  | Months Ended |
|  | December 31, 2019 |  |  | December 31, 2019 |
Reconciliation of GAAP net income to Adjusted EBITDA |  |  |  |  |  |  |  |
Net (Loss) |  | $ | (2,864,422 | ) |  | $ | (10,150,082 | )
Employee stock awards |  |  | 182,250 |  |  |  | 688,750 |
Stock grants |  |  | 168,363 |  |  |  | 548,057 |
Stock for services |  |  | 72,000 |  |  |  | 272,000 |
Depreciation and amortization |  |  | 883,692 |  |  |  | 2,957,337 |
Interest expense, net |  |  | 214,326 |  |  |  | 607,710 |
Adjusted EBITDA |  | $ | (1,343,791 | ) |  | $ | (5,076,228 | )

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

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

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

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

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

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

46

Net Sales

The following table shows our net sales by proprietary ammunition versus standard ammunition for the periods ended December 31, 2019 and December 31, 2018. “Proprietary Ammunition” include those lines of ammunition manufactured by our facilities that are sold under the brand names: STREAK VISUAL AMMUNITION™, One Precise Shot (OPS), Night Ops, Jeff Rann, and Stelth. We define “Standard Ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. Our “Standard Ammunition” is manufactured within our facility and may also include completed ammunition that has been acquired in the open market for sale to others. Also included in this category is low cost target pistol and rifle ammunition, as well as bulk packaged ammunition manufactured by us using reprocessed brass casings. Ammunition within this product line typically carries much lower gross margins.

|  | For the Three Months Ending |  |  | For the Nine Months Ending |
|  | December 31, 2019 |  |  | December 31, 2018 |  |  | December 31, 2019 |  |  | December 31, 2018 |
Proprietary Ammunition |  | $ | 536,595 |  |  | $ | 288,146 |  |  | $ | 1,410,444 |  |  | $ | 2,125,750 |
Standard Ammunition |  |  | 709,819 |  |  |  | 200,934 |  |  |  | 2,293,225 |  |  |  | 1,076,217 |
Ammunition Casings |  |  | 1,525,595 |  |  |  | - |  |  |  | 6,321,475 |  |  |  | - |
Total Sales |  | $ | 2,772,009 |  |  | $ | 489,080 |  |  | $ | 10,025,144 |  |  | $ | 3,201,967 |

Sales for the three and nine months ended December 31, 2019 increased 467% and 213% or $2,282,929 and $6,823,177, over the three and nine months ended December 31, 2018, respectively. This increase was the result of $1,525,595 and $6,321,475 of sales from our recently acquired casing operations, coupled with $508,885 and $1,217,008 of respective increased sales in bulk pistol and rifle ammunition, summarized in Standard Ammunition above and an increase of $248,449 and a decrease of $715,306 of respective sales of Proprietary Ammunition. Although Proprietary Ammunition sales decreased in the current period increased from the comparable periods, management expects the sales of Proprietary Ammunition to outpace the sales of our Standard Ammunition.

We are focused on continuing to grow top line revenue quarter-over-quarter as we continue to further expand distribution into commercial markets, introduce new product lines, and initiate sales to U.S. law enforcement, military, and international markets.

We added ammunition casings to our product offerings at March 15, 2019 and expect the ammunition casing sales to be a significant part of our sales moving forward.

Through our acquisition of SWK, the Company has developed and deployed a new line of tactical armor piercing (AP) and hard armor piercing incendiary (HAPI) precision ammunition to meet the lethality requirements of both the US and foreign military customers. This line was formally launched at SHOT Show in Las Vegas, where our team demonstrated or presented the capability to more than 15 countries around the world. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions.

It is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for our company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution channels, both in the United States and abroad, which are reasonably anticipated to drive sustained sales opportunity in the military, law enforcement, and commercial markets.

Sales outside of the United States require licenses and approval from the U.S. State Department, which typically takes approximately 30 days to receive. On April 16, 2019, we received renewal for our registration with the International Traffic in Arms Regulations (ITAR). This permits the Company to export and broker ammunition and other controlled items covered under ITAR.

47

Cost of Goods Sold

Cost of goods sold increased by approximately $3.0 million and $9.3 million, respectively for the three and nine months ended December 31, 2019 compared with the three and nine months ended December 31, 2018. This was the result of a significant increase to non-cash depreciation related to our newly acquired casing operations, expensing of increased labor, overhead, and raw materials used to produce finished product during 2019 as compared to 2018. Although sales increased, when comparing the three and nine months ended December 31, 2019 to the three and nine months ended December 31, 2018, they did not meet management’s expectations and did not allow us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense. As a percentage of sales, cost of goods sold increased by 11.4% and 32.6% from 118.6% and 92.5%, respectively for the three and nine months ended December 31, 2018 to 132.1% and 122.6%, respectively for the three and nine months ended December 31, 2019.

Gross Margin

Our gross margin percentage decreased to -32.1% and –22.6% from 18.6% and 7.5%, respectively during the three and nine months ended December 31, 2019 as compared to the same period in 2018. This was a result of the increased non-cash depreciation related to our recently acquired casing operations and a level of sales that did not allow us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense.

Our production facility was designed to manufacture approximately 200 million rounds of ammunition a year, when fully staffed. To date, we are operating at a fraction of that volume, while maintaining equivalent quality systems, regulatory compliance, equipment and facility costs, as well as plant management.

We believe as we continue to grow sales through new markets and expanded distribution that our gross margins will also increase, as evidenced by the improvement over this time last year. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:

| ● | Increased product sales, specifically of proprietary lines of ammunition, like the STREAK VISUAL AMMUNITION™, OPS, Stelth and now our tactical Armor Piercing (AP) and Hard Armor Piercing Incendiary (HAPI) precision ammunition, all of which carry higher margins as a percentage of their selling price;
| ● | Introduction of new lines of ammunition that historically carry higher margins in the consumer and government sectors;
| ● | Reduced component costs through acquisition our recent casing operation acquisition expansion of strategic relationships with component providers;
| ● | Expanded use of automation equipment that reduces the total labor required to assemble finished products
| ● | And, better leverage of our fixed costs through expanded production to support the sales objectives.

Sales, General, and Administrative Expenses

During the three and nine months ended December 31, 2019, our sales, general, and administrative expenses decreased by $317,592 and increased by approximately $1.5 million, respectively over the three and nine months ended December 31, 2018, but decrease as a percentage of sales from 424.8% and 180.2% for the respective three and nine months ended December 31, 2018 to 63.5% and 59.6% for the respective three and nine months ended December 31, 2019. This decrease in expenses was the result of an adjustment to non-cash amortization expense for the three month period ended December 31, 2019 and the increase was a result of non-cash amortization expenses of $729,131 for the nine months ended December 31, 2019 and increased payroll expense from our newly acquired casing operations and due to the expansion our sales and support team, stock compensation expense associated with issuance of our Common Stock in lieu of cash compensation for employees, board members, and key consultants for the organization during the period, and trade show and marketing costs associated with introducing our new lines of ammunition. Sales, general and administrative expenses for the three and nine month 2019 periods included noncash stock compensation of approximately $351,000 and $1,237,000. We also experienced increases as a result of new investor and public relations programs, and professional fees associated with our acquisition activity, our public filings, and our efforts to uplist the Company from the OTC to a national exchange. We expect to see administrative expenditures decrease as a percentage of sales in the 2020 fiscal year, as we leverage our work force and expand our sales opportunities.

48

Interest and other Expenses

For the three and nine months ended December 31, 2019, interest expenses increased by $171,210 and $561,688 compared with the comparable three and nine months in 2018. The increase was a result of $29,143 of non-cash interest expense and debt discount amortization related to the Convertible Promissory Notes, $53,103 and 163,761 of non-cash interest expense related to the recognition of Right of Use assets and Lease Liabilities, and $83,144 and $291,339 of accrued interest expense in connection with related party note payables for the three and nine months ended in 2019.

Net Loss

As a result of higher production, selling, and payroll expenses, we ended the three and nine month periods ended December 31, 2019 with respective net losses of approximately $2.9 million and $10.1 million compared with respective net losses of approximately $612,000 million and $3.9 million for the three and nine month periods ended December 31, 2018.

Our goal is to continue to improve our operating results as we focus on increasing sales and controlling our operating expenses.

Comparison for the year ended March 31, 2019 compared to the twelve months ended March 31, 2018

The Company changed its fiscal year end from December 31 to March 31, effective March 31, 2018. Accordingly, the following presentation and discussion of the audited result of operations for the year ended March 31, 2019, compares the unaudited results of operations for the year ended March 31, 2018 to allow comparable analysis and discussion of results of operations from year to year.

Our financial results for year ended March 31, 2019 reflect our newly positioned organization. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider. Although we continue to focus on growing our top line revenue, and streamlining our operations, we did experience a decline in our gross profit margin for the year ended March 31, 2019. This was the result of expenses related to new equipment installations, as well as increases to costs of raw materials and overhead.

The following table presents summarized financial information taken from our consolidated statements of operations for the year ended March 31, 2019 compared with the year ended March 31, 2018:

|  | For the Year Ended |  |  | Increase (Decrease) |
|  | March 31, 2019 |  |  | March 31, 2018 |  |  | Amount |
|  |  |  |  | (Unaudited) |  |  |  |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |
Ammunition Sales |  | $ | 3,985,574 |  |  | $ | 2,601,765 |  |  | $ | 1,383,809 |
Casing Sales |  |  | 580,078 |  |  |  | - |  |  |  | 580,078 |
Cost of Products Sold |  |  | 4,795,346 |  |  |  | 2,504,767 |  |  |  | 2,290,579 |
Gross Margin |  |  | (229,694 | ) |  |  | 96,998 |  |  |  | (326,692 | )
Sales, General & Administrative Expenses |  |  | 8,750,964 |  |  |  | 5,199,290 |  |  |  | 3,551,674 |
Loss from Operations |  |  | (8,980,658 | ) |  |  | (5,102,292 | ) |  |  | (3,878,366 | )
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | (2,728,754 | ) |  |  | (1,386,407 | ) |  |  | (1,342,347 | )
Loss before provision for income taxes |  | $ | (11,709,412 | ) |  | $ | (6,488,699 | ) |  | $ | (5,220,713 | )
Provision for income taxes |  |  | - |  |  |  | - |  |  |  |  |
Net Loss |  | $ | (11,709,412 | ) |  | $ | (6,488,699 | ) |  | $ | (5,220,713 | )

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Net Sales

The following table shows our net sales by proprietary ammunition versus standard ammunition for the years ended March 31, 3019 and March 31, 2018, respectively. “Proprietary Ammunition” include those lines of ammunition manufactured by our facilities that are sold under the brand names: STREAK VISUAL AMMUNITION™, One Precise Shot (OPS), Night Ops, Jeff Rann, and Stelth. We define “Standard Ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. The majority of our “Standard Ammunition” is manufactured within our facility and may also include completed ammunition that has been acquired in the open market for sale to others. Also included in this category is low cost target pistol and rifle ammunition, as well as bulk packaged ammunition manufactured by us using reprocessed brass casings. Ammunition within this product line typically carries much lower gross margins. “Ammunition Casings” includes our brass casings that are sold under our Jagemann Munition Components subsidiary. Our ammunition casings range from pistol ammunition casings to large rifle ammunition casings.

|  | For the Year Ended |
|  | March 31, 2019 |  |  | March 31, 2018 |
|  |  |  |  | (Unaudited) |
Proprietary Ammunition |  | $ | 2,585,768 |  |  | $ | 817,347 |
Standard Ammunition |  |  | 1,399,806 |  |  |  | 1,784,418 |
Ammunition Casings |  |  | 580,078 |  |  |  | - |
Total Sales |  | $ | 4,565,652 |  |  | $ | 2,601,765 |

Sales for the year ended March 31, 2019 increased 75% or $1,963,887 over the year ended March 31, 2018. This increase was the result of $1,768,421 in additional sales of our proprietary lines of ammunition through retail and online sales programs, coupled with the addition of our Ammunition Casing sales of $580,078, a decrease of $384,612 in sales in bulk pistol and rifle ammunition, summarized in Standard Ammunition above and a full year of operations. Management expects the sales of line of proprietary ammunition to continue to outpace the sales from the standard line of ammunition.

The increase in our proprietary line was primarily associated with sales of the STREAK VISUAL AMMUNITION™ suite of products, as well as our One Precise Shot (OPS) line of ammunition. Our standard ammunition decreased as a result of the increase in sale of our proprietary ammunition.

We are focused on continuing to grow top line revenue quarter-over-quarter as we continue to further expand distribution into commercial markets, introduce new product lines, and initiate sales to U.S. law enforcement, military, and international markets.

We added ammunition casings to our product offerings at March 15, 2019 year and expect the ammunition casing sales to be a significant part of our sales moving forward.

We also created through our acquisition of SWK, a new line of tactical precision ammunition, TAC-PTM, to meet the lethality requirements of both the US and foreign military customers. This line was formally launched at SHOT Show in Vegas, where our Global Tactical Defense Group demonstrated or presented the capability to more than 15 countries around the world.

It is important to note that, although U.S. Law Enforcement, military and international markets represent significant opportunities for our company, they also have a long sales cycle. Our Global Tactical Defense Division is currently working to establish distribution, both in the United States and abroad. To date, we have signed three U.S. distributors, covering 15 states, a sales representative to assist with U.S. Military sales, and are working to establish exclusive distribution in several countries approved by the U.S. State Department.

50

Sales outside of the United States require licenses and approval from the U.S. State Department, which could take six months to a year for processing. On April 16, 2019, we received renewal for our registration with the International Traffic in Arms Regulations (ITAR). This permits the Company to manufacture, broker, and export ammunition and other items covered under ITAR. Each transaction will be reviewed on a per order basis to comply with ITAR.

Cost of Goods Sold

Cost of goods sold increased by approximately $2.3 million for the year ended March 31, 2019 compared with the year ended March 31, 2018. This was the result of higher sales for the period and the expensing of increased labor, overhead, raw materials used to produce finished product during the period, and the addition of our ammunition casing operations through our recent acquisition. This increase is also the result of a full year of operation in 2019 compared with the year ended March 31, 2018 when our operations were beginning. Although sales increased, when comparing the year ended March 31, 2019 to the year ended March 31, 2018, they did not meet management’s expectations and did not allow us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense. As a percentage of sales, cost of goods sold increased by 9.1% from 96.3% for the three months ended March 31, 2018 to 105.0% for the year ended March 31, 2019.

Gross Margin

Our gross margin percentage was -5.0% during the year ended March 31, 2019 compared with 3.7% for the year ended March 31, 2018. Although sales increased, when comparing the years ended March 31, 2019 to 2018, they did not meet management’s expectations and did not allow us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense.

Our production facility was designed to manufacture approximately 200 million rounds of ammunition a year, when fully staffed. To date, we are operating at a fraction of that volume, while maintaining equivalent: quality systems, regulatory compliance, equipment and facility costs, as well as plant management.

We believe as we continue to grow sales through new markets and expanded distribution that our gross margins will also increase, as evidenced by the improvement over this time last year. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:

| ● | Increased product sales, specifically of proprietary lines of ammunition, like the STREAK VISUAL AMMUNITION™, OPS, Stelth and now our TAC-P line, all of which carry higher margins as a percentage of their selling price;
| ● | Introduction of new lines of ammunition that historically carry higher margins in the consumer and government sectors;
| ● | Reduced component costs through expansion of strategic relationships with component providers;
| ● | And, better leverage of our fixed costs through expanded production to support the sales objectives.

Sales, General, and Administrative Expenses

During the year ended March 31, 2019, our sales, general, and administrative expenses increased by approximately $3.5 million over the year ended March 31, 2018. This increase was the result of a full year of accelerated operations, increased payroll expense as we expanded our sales and support team, stock compensation expense associated with issuance of our Common Stock in lieu of cash compensation for employees, newly appointed board members, and key consultants for the organization during the period, and trade show and marketing costs associated with introducing our new lines of ammunition. Sales, general and administrative expenses for 2019 included noncash stock compensation of approximately $1.9 million. We also experienced increases as a result of new investor and public relations programs, and professional fees associated with our acquisition activity, our public filings, and our efforts to uplist the Company from the OTC to a national exchange. We expect to see administrative expenditures decrease as a percentage of sales in the 2020 fiscal year, as we leverage our work force and expand our sales opportunities.

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Interest and other Expenses

For the year ended period ended March 31, 2019, interest and other expenses increased by $1,342,347 compared with the year ended March 31, 2018. This increase was mostly due to a write down of the consideration in connection with the recent acquisition of Jagemann Casings of $2,118,154, debt discount amortization of $151,856, and noncash interest expense of $424,091 related to the Convertible Promissory Notes.

Net Loss

As a result of higher production, selling, and payroll expenses, we ended the year ended March 31, 2019 with a net loss of approximately $11.7 million compared with a net loss of $6.5 million for the year ended March 31, 2018.

Our goal is to continue to improve our operating results as we focus on increasing sales and controlling our operating expenses. We also expect to see reductions in our materials costs as we now control our supply of brass casings. Additionally, we expect to reduce our direct labor expense by reducing handling and manual inspection operations as continue to automate our manufacturing process.

Liquidity and Capital Resources

As of December 31, 2019, we had $130,870 of cash and cash equivalents, a decrease of $2,050,376 from March 31, 2019.

Working Capital is summarized and compared as follows:

|  | December 31, 2019 |  |  | March 31, 2019 |
Current assets |  | $ | 7,216,311 |  |  | $ | 8,626,870 |
Current liabilities |  |  | 12,787,476 |  |  |  | 4,482,375 |
|  | $ | (5,571,165 | ) |  | $ | 4,144,495 |

Changes in cash flows are summarized as follows:

Operating Activities

For the nine months ended December 31, 2019, net cash used in operations totaled $3,103,454. This was primarily the result of a net loss of $10,150,082, increases in our period end accounts payables and inventories of $2,357,708 and $250,383, respectively, and increases accrued liabilities of $271,063. The cash used in operations were partially offset by the benefit of non-cash expenses for depreciation and amortization of $2,957,337, employee stock compensation of $688,750, stock issued for services of $272,000, and stock grants totaling $548,058.

For the nine month period ended December 31, 2018, net cash used in operations totaled $5,204,386. This was primarily the result of a net loss of $3,973,806, a gain of bargain purchase of $1,599,161 increases in our period end inventory of $1,546,301, and cash used to reduce accrued liabilities and increase cash deposits. The cash used in operations were partially offset by the benefit of non-cash expenses for depreciation and amortization of $329,478, employee stock compensation of $644,724, a $611,740 decrease in accounts receivable, stock grants totaling $496,143.

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Investing Activities

During the three months ended December 31, 2019, we used $356,022 in net cash for investing activities compared with $1,879,833 for the comparable period in 2018. The $356,022 of cash used to purchase fixed assets such as new production equipment and to acquire end cap displays for the sale of our product at retailers.

During the nine month period ended December 31, 2018, we used $1,879,833 in net cash for investing activities compared with $368,171 for the comparable period in 2017. Of the total cash used for investing activities, $1,629,833 was used to purchase fixed assets such as new production equipment and leasehold improvements to expand production at our Payson, Arizona manufacturing facility, to acquire end cap displays for the sale of our product at retailers. The remaining $250,000 was used as consideration for acquiring SW Kenetics Inc.

Financing Activities

We financed our operations primarily from the issuance of equity instruments. During the nine months ended December 31, 2019, net cash provided by financing activities was $1,409,100. This was the net effect of $2,465,540 generated from the sale of Common Stock, net of cash payments of $285,981 in conjunction with the Unit offerings. Additionally, $936,750 was generated from accounts receivable factoring and $415,000 of cash was generated from the issuance of a related party note payable, These increases to our financing activities were offset by payment of $1,500,000 on the related party notes payable, $322,209 toward our insurance premium note payable and a $300,000 payment of our Contingent Consideration Payable.

We financed our operations primarily from the issuance of equity instruments. During the nine month period ended December 31, 2018, net cash provided by financing activities was $8,745,878. This was the net effect of $3,591,030 generated from the sale of Common Stock, $4,767,625 from the exercise of warrants,$1,534,000 from the issuance of Convertible Promissory notes, net of cash payments of $872,870 in conjunction with the Unit and Debt offerings. These sales of our securities were offset by payment of $99,907 toward our insurance premium note payable and a $50,000 payment of our Contingent Consideration Payable.

Liquidity and Capital Resources

Existing working capital, cash flow from operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next twelve months. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes.

We believe financing will be available, both through conventional financing relationships and through the continued sales of our Common Stock. However, there is no assurance that such funding will be available on terms acceptable to us or at all. We believe that our current cash on hand, coupled with alternative sources of funding, will be sufficient to satisfy intended capital expenditures, potential acquisitions and general liquidity requirements through at least the next twelve months.

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Contractual Obligations

As part of the acquisition of our business, we assumed a triple-net operating lease for our 20,000 square foot manufacturing facility located in Payson, Arizona. The terms of the lease provide for a monthly payment of approximately $10,000, which includes an estimate for utilities, taxes, and repairs. This lease expires in November 2021.

We believe this facility will be adequate to meet our needs in the near future. However, we are making plans to expand the building footprint to accommodate additional automation equipment. We intend to pay for these improvements from working capital and will amortize the costs over the remaining lease period.

The following table outlines our future contractual financial obligations associated with this lease by period in which payment is expected, as of December 31, 2019:

|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | Total |
Payson Lease |  | $ | 30,000 |  |  | $ | 120,000 |  |  | $ | 80,000 |  |  | $ | 230,000 |

On October 16, 2018, we entered into a triple-net operation lease for approximately 21,000 square feet of office and warehousing space located at 7681 East Gray Road, Scottsdale, Arizona. The initial term of the of the Lease expires on December 31, 2023. The terms of the lease provide for a monthly payment of approximately $17,702, which will increase by approximately 4.4% each year.

The following table outlines our future contractual financial obligations associated with this lease by fiscal period in which payment is expected, as of December 31, 2019:

|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | Total |
Scottsdale Lease |  | $ | 55,605 |  |  | $ | 226,587 |  |  | $ | 236,583 |  |  | $ | 246,580 |  |  | $ | 147,240 |  |  | $ | 912,595 |

On March 14, 2019, we entered into a lease for our 50,000 square foot ammunition casing manufacturing facility located in Manitowoc, Wisconsin. The terms of the lease provide for a monthly payment of approximately $32,844. The lease expires in March of 2026 and can be renewed every three years thereafter.

The following table outlines our future contractual financial obligations associated with this lease by fiscal period in which payment is expected, as of December 31, 2019:

|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | 2025 |  |  | 2026 |  |  | Total |
Manitowoc Lease |  | $ | 98,532 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 2,463,300 |

In connection with the acquisition of SW Kenectics, Inc. The agreement specifies that $1,250,000 of consideration is deferred pending the completion of specific milestones. Since the acquisition date, the Company has made $100,000 in payment to the shareholder of SW Kenetics, Inc. in connection with the completion of milestones. The $100,000 payment reduced the Contingent Consideration Payable. As a result of the deferral of consideration pending the completion of specific milestones, the Company has estimated the timing of the future obligations.

The following table outlines our future contractual financial obligations associated with this contingent consideration payable by fiscal period in which payments is expected as of December 31, 2019:

|  | 2020 |  |  | 2021 |
Contingent Consideration Payable |  | $ | - |  |  | $ | 900,000 |

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In connection with the acquisition of the casing division of Jagemann Stamping Company, a promissory note was executed. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly until October 1, 2019 when the interest rate increases to 9% per annum payable monthly until principal and accrued interest are paid in full. In May of 2019, the Company paid $1,500,000 on the balance of the Note. As of December 31, 2019, we accrued interest of $307,451 related to the note.

The following table outlines our future contractual financial obligations associated with this note by fiscal period in which payments is expected as of December 31, 2019:

|  | 2020 |  |  | 2021 |
Note Payable Related Party |  | $ | - |  |  | $ | 5,803,800 |

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operation are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounted of assets, liabilities, revenues, and expenses. We have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies require our most difficult subjective judgements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Inventory

We state inventories at the lower of cost and net realizable value. We determine cost by using the weighted-average cost of raw materials method, which approximates the first-in, first-out method and includes allocations of manufacturing labor and overhead. We make provisions when necessary, to reduce excess, potential damaged or obsolete inventories. These provisions are based on our best estimates. At December 31, 2019, and March 31, 2019, we conducted a full analysis of inventory on hand and expensed all inventory not currently in use, or for which there was no future demand.

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.

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Revenue Recognition

We generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. The Company applies 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

The Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. 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 the Company’s product, which typically occurs upon shipment of the product.

Excise Tax

As a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect an 11% excise tax for all products sold into these channels. During the three months ended December 31, 2019 and 2018, we recognized $138,529 and $44,663 respectively, in excise taxes. During the nine months ended December 31, 2019 and 2018, we recognized $374,132 and $327,497, respectively, in excise taxes. For ease in selling to commercial markets, excise tax is included in our unit price for the products sold. We record this through net sales and expense the offsetting tax expense to cost of goods sold.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of December 31, 2019. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts payable, and amounts due to related parties. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

Income Taxes

We follow ASC subtopic 740-10, “Accounting for Income Taxes”) for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggest that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Stock-Based Compensation

We grant stock-based compensation to key employees and directors as a means of attracting and retaining highly qualified personnel. We also grant stock in lieu of cash compensation for key consultants and service providers. We recognize expense related to stock-based payment transactions in which we receive employee or non-employee services in exchange for equity. We measure stock compensation based on the closing fair market value of our Common Stock on the date of grant.

In addition to our base of employees, we also use the services of several contract personnel and other professionals on an “as needed basis”. We plan to continue to use consultants, legal and patent attorneys, engineers and accountants as necessary. We may also expand our staff to support the market roll-out of our products to both the commercial and government related organizations. A portion of any key employee compensation likely would include direct stock grants, which would dilute the ownership interest of holders of existing shares of our Common Stock.

Expected purchase or sale of plant and significant equipment

We anticipate investing significant resources in the purchase equipment and ammunition technologies in the coming months as we scale production operations throughout the fiscal year of 2020. These purchases will be funded through working capital, the sale of our common stock, convertible debt, and bank financing. We believe these additions will significantly improve our plant capacity and reduce our cost per unit sold.

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BUSINESS

Products

We design, produce, and sell ammunition and ammunition components in a variety types, sizes, and calibers for use in handguns and long guns. We ship our ammunition in the form of cartridges (or rounds), and also ammunition casings. A cartridge consists of four components: a case made of brass, steel, or copper that holds together all the other components of the cartridge; the primer, which is an explosive chemical compound that ignites the gunpowder when struck by the firing pin; the gun powder, which is a chemical mixture that burns rapidly and creates an expanding gas when ignited and pushes the bullet out the barrel; and the bullet, or projectile, usually containing lead that is fired through the barrel to strike the target. Some of the bullets we produce for certain applications have a jacket, or outer shell, of brass or copper to improve performance and accuracy. We typically produce centerfire cartridges in which the primer is in the bottom, or center of the cartridge, rather than rimfire cartridges in which the primer is in the rim of the cartridge. Through our recent acquisition of Jagemann Casings we now offer ammunition casings for pistol ammunition through large rifle ammunition.

STREAK Visual Ammunition

STREAK VISUAL AMMUNITION™ enables shooters to see the path of the bullets fired by them. STREAK VISUAL AMMUNITION™ rounds utilize non-flammable phosphor material that produces a glow by the utilization of the light emitted during the round discharge to make STREAK VISUAL AMMUNITION™ glow. The luminescent material is applied only to the aft end of the projectile, making it visible only to the shooter and those within a 30-degree viewing window. As a result, the glow of STREAK VISUAL AMMUNITION™ is not visible to the target unlike conventional tracers, which we believe is important to the military and law enforcement. Unlike conventional tracer ammunition, STREAK VISUAL AMMUNITION™ rounds are not incendiary and do not utilize burning metals to generate light, thereby eliminating heat generation and making them safer for use in various environments and avoiding serious fire hazards. STREAK VISUAL AMMUNITION™ comes in 380 auto, 9 mm, 40 S&W, 44 magnum, 45 long colt, and 38 special among other calibers.

We hold the exclusive worldwide sales and distribution rights for the patented technology used by our STREAK VISUAL AMMUNITION™ and pay a royalty based on our product sales incorporating this technology.

OPS – One Precise Shot

OPS ammunition is designed to meet a wide variety of demanding engagement scenarios experienced by law enforcement personnel in the line of duty. The hollow point lead-free fragile bullet with hard outer casing and frangible copper core transfers 100% of its energy into the target. These bullets penetrate a variety of barriers, such as drywall, plywood, car doors, and auto glass. Upon entering soft tissue, the jacket and core separate with extensive force of impact, resulting in mass force trauma. The light weight projectile reduces recoil and enhances accuracy. OPS ammunition comes in 9 mm, 40 S&W, 45 auto calibers and a 223 rifle round.

Stelth Subsonic Ammunition

Stelth Subsonic ammunition is designed specifically for superior performance in suppressed firearms. Stelth ammunition finds applications in which silence is paramount, such as in tactical training, predator night hunts, and clandestine operations. The Stelth ammunition is produced to be a clean burning total metal jacket round to slow baffle corrosion and reduce lead emissions that collect in the suppressor body. Stelth pistol ammunition comes in 9mm, 40 S&W, and 45 AC3. It is also available in a 223 rifle round.

Jesse James Ammunition

Jesse James ammunition is jacketed hollow point projectiles designed for self-defense. The load specific development is designed to ensure accuracy, velocity, and consistency and a low recoil. Jesse James ammunition comes in 9mm, 40 S&W, 10mm, 357, 45 auto calibers.

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Jeff Rann’s American Hunter and Safari Services

Jeff Rann’s ammunition is intended for a complete range of game hunting. This high-end hunting ammunition has been designed by Jeff Rann, a well-known professional hunter and sports channel host and the owner of the well-known 777 Ranch in Texas and three ranches in Africa.

TAC-P Ammunition

Our Global Tactical Defense Division’s line of match grade hard armor piercing incendiary (HAPI) rounds, branded as TAC-P™ precision tactical munitions, are the centerpiece of the Company’s strategy to address the unique needs the armed forces community demands. This ammunition was designed around a match grade portfolio of projectiles, that include a solid copper boat tail and armor piercing configuration. The distinction between these rounds and other sold, is that the manufacturing process was engineered to ensure extremely tight tolerances between each projectile manufactured, ensuring for the end user that the ballistic trajectory remains consistent between rounds without regard to the actual configuration or round fired. Our TAC-P line is also available with our patented one-way luminescent or O.W.L. Technology™. Following AMMO’s acquisition of Jagemann Casings in March, the Company has aligned its manufacturing operations to support the large caliber demand from military personnel, such as the 12.7 mm and .50 caliber BMG configurations.

Ammunition Casings – Jagemann Munition Components

Through our recently acquired subsidiary, Jagemann Munition Components, we now offer ammunition casings for pistol ammunition through large rifle ammunition. Jagemann™ is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann™ Casings, has become one of the largest brass manufacturers in the country, with the capacity to produce more than 300 million pieces of brass each year. Proud of its American-made components and capabilities, the Company now has complete control over the manufacturing process. This results in a number of advantages when it comes to the brass that leaves our state-of-the-art facility.

Marketing

We market our products to consumers through distributors, dealers, mass market and specialty retailers, and direct to consumer through e-commerce. We maintain consumer-focused product marketing and promotional campaigns, which include print and digital advertising campaigns; social and electronic media; product demonstrations; point-of-sales materials; in-store training, and in-store retail merchandising. Our use of social media includes Instagram, Facebook, Twitter, and You Tube. We also utilize third-party endorsements, social influencers, and brand ambassadors, such as Jesse James, and Jeff Rann.

Manufacturing

We conduct our research and development, manufacturing, assembly, inspection, and packaging operations in a 20,000 square foot facility located in Payson, Arizona. The facility currently produces 36 million rounds of ammunition annually with the capacity to scale to 200 million rounds. Our in-house testing operation at the facility is intended to enhance the performance and reliability of our products.

Our ammunition casing research and development, manufacturing, and inspection operations take place in a 45,000 square foot facility located in Manitowoc, Wisconsin. The facility can currently produce 300 million cases annually with ability to scale. Our inspection process is intended to enhance the performance and reliability of our products.

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Research and Development

We conduct research and development activities to enhance existing products and develop new products at our facilities in Payson, Arizona, Scottsdale, Arizona and Manitowoc, Wisconsin, utilizing our personnel and strategic relationships. We have recently expanded our research and development activity at our Scottsdale facility. We expense all costs associated with our research and development efforts through either our cost of goods sold, as they are performed by the same employees who produce our finished product, or through or general and administrative expenses if the product has not been brought to market.

Suppliers

We purchase certain of the raw materials and components for our ammunition products, including brass, steel, or copper casings; ammunition primers to ignite gun powder; gun powder; and projectiles. We believe we have reliable sources of supply for all our raw material and component needs, but from time to time raw materials and components are subject to shortages and price increases. Most of our suppliers are U.S.-based and provide us the materials and components at competitive rates. We recently secured our supply of ammunition casings through our acquisition of Jagemann Casings. We plan to broaden our supplier base and secure multiple sources for all the raw materials and components we require.

Customers

We sell our products through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. Our consumers include sport and recreational shooters, hunters, competitive shooters, individuals desiring home and personal protection, manufacturers, and law enforcement and military agencies, and selected international markets. We distribute our products under five primary product lines: Jeff Rann, OPS, Stelth, STREAK VISUAL AMMUNITION™, and Jagemann Munition Components ammunition casings. Three customers accounted for approximately 54% of our sales for the year ended March 31, 2019, three customers account for 68% of our net sales for the three-month period ended March 31, 2018, and one customer accounted for approximately 58% of our net sales for the year ended December 31, 2017. Quarter to quarter comparisons are not uniform, for example for the three month ended March 31, 2019, three customers for that period accounted for 60% of our total sales, and, for the three months ended December 31, 2019, three customers for the period accounted for 50% of our respective total sales.

Competition

The ammunition and ammunition casing industry is dominated by a small number of companies, a number of which are divisions of large public companies. We compete primarily on the quality, reliability, features, performance, brand awareness, and price of our products. Our primary competitors include Federal Premium Ammunition, Remington Arms, the Winchester Ammunition division of Olin Corporation, and various smaller manufacturers and suppliers, including Black-Hills Ammunition, CBC Group, Fiocchi Ammunition, Hornady Manufacturing Company, PMC, Rio Ammunition, and Wolf.

Employees

As of March 10, 2020, we had a total of 79 employees, including three part-time employees. Of these employees, 57 were engaged in manufacturing, seven in sales and marketing, four in finance and accounting, two in research and development and nine in various executive and administrative functions. None of our employees are represented by a union in collective bargaining with us. We believe that our employee relations are good.

Seasonality

Our business has not exhibited a material degree of seasonality to date. Our net sales could be moderately higher in our third and fourth fiscal quarters because of the fall hunting and holiday seasons.

Intellectual Property

We believe our tradenames, trademarks, and service markets are important factors in distinguishing our products. In addition, we regard our trade secrets, technological resources, knowhow, licensing arrangements, and endorsements as important competitive factors.

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Included in an acquisition for 600,000 shares of our Common Stock and $200,000 paid in cash to the former license holder, we acquired the exclusive license to produce ammunition using the patented “hybrid luminescence technology” owned by the University of Louisiana at Lafayette through October 29, 2028. We use that technology in connection with our STREAK VISUAL AMMUNITION™.

We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company, or JJF. The licensing agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’ image rights and all trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. In addition, Mr. James agreed to make himself available for certain promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued 100,000 shares of our Common Stock upon the execution of the license agreement with the potential issuance of up to 75,000 additional shares of Common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.

We are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries. The license agreement grants for us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded Products. Mr. Rann agreed to make himself available for certain promotional activities and to promote the Branded Products through his own social media outlets. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued 100,000 shares of our Common Stock upon the execution of the license agreement with the potential issuance of 75,000 additional shares of Common Stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.

Through our acquisition of SW Kenectics, Inc., we acquired the rights to a patent for modular projectiles. This technology is used in connection with our TAC-P line of ammunition. The Company acquired SW Kenectics, Inc. for a total of up to $1,500,000 in cash and issued 1,700,002 restricted shares of the Common Stock. The agreement specifies that $1,250,000 of the cash is deferred pending completion of specific milestones and the 1,700,002 shares of common stock are subject to claw back provisions to ensure agreed upon objective are met. The patent will be amortized over 15 years.

Included in the acquisition of Jagemann Stamping Company’s casing division for $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of our Common Stock, we acquired customer relationships, intellectual property, and the use of a tradename, which will be amortized over 3 years, 3 years and 5 years, respectively. These intangible assets are used in the operation and production of our ammunition casing business through our wholly owned subsidiary, Jagemann Munition Components.

Backlog

We did not have a material amount of backlog of orders as of December 31, 2019, March 31, 2019, or March 31, 2018. Backlog consists of orders for which purchase orders have been received and which are generally scheduled for shipment within three months. We generally allow orders that have not yet been shipped to be cancelled. Our backlog may not be indicative of future sale.

Environmental Matters

Our operations are subject to a variety of federal, state, and local laws and regulations relating to environmental protection, including those governing the discharge, treatment, storage, transportation, remediation, and disposal of hazardous materials and wastes; the restoration of damages to the environment; and health and safety matters. We believe that our operations are in material compliance with these laws and regulations. We incur expenses in complying with environmental requirements and could incur higher costs in the future as a result of more stringent requirements that may be enacted in the future.

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Some environmental laws, such as the U.S. federal Superfund law and similar state laws, can impose liability, without regard to fault, for the entire cost of the cleanup of contaminated sites on current or former site owners and operators or parties who sent wastes to such sites. Based on currently available information, we do not believe that environmental matters will have a material adverse effect on our business, operating results, or financial condition.

Regulatory Matters

The manufacture, sale, and purchase of ammunition are subject to extensive federal, state, local, and foreign governmental laws. We are also subject to the rules and regulations of the ATF and various state and international agencies that control the manufacture, export, import, distribution and sale of firearms, explosives, and ammunition. Such regulations may adversely affect demand for our products by imposing limitations that increase the costs or limit the availability of our products.

Our failure to comply with applicable rules and regulations may result in the limitation of our growth or business activities and could result in the revocation of licenses necessary for our business. Applicable laws and regulations provide for the following:

| ● | require the licensing of all persons manufacturing, exporting, importing, or selling ammunition as a business;
| ● | require serialization, labeling, and tracking of the acquisition and disposition of certain types of ammunition;
| ● | regulate the interstate sale of certain ammunition;
| ● | restrict or prohibit the ownership, use, or sale of specified categories of ammunition;
| ● | require registries of so-called “ballistic images” of ammunition fired from new guns;
| ● | govern the sale, export, and distribution of ammunition;
| ● | regulate the use and storage of gun powder or other energetic materials;
| ● | regulate the employment of personnel with certain criminal convictions;
| ● | restrict access to ammunition manufacturing facilities for certain individuals from other countries or with criminal convictions; and
| ● | require compliance with ITAR.

The handling of our technical data and the international sale of our products may also be regulated by the U.S. Department of State and Department of Commerce. These agencies can impose civil and criminal penalties, including denying us from exporting our products, for failure to comply with applicable laws and regulations.

In addition, bills have been introduced in Congress to establish, and to consider the feasibility of establishing a nationwide database recording so-called “ballistic images” of ammunition fired from new guns. Should such a mandatory database be established, the cost to us, our distributors, and our customers could be significant, depending on the type of firearms and ballistic information included in the database. Bills have been introduced in Congress in the past several years that would affect the manufacture and sale of ammunition, including bills to regulate the manufacture, importation, and sale.

We believe that existing federal, state, and local legislation relating to the regulation of firearms and ammunition have not had a material adverse effect on our sales of these products. However, the regulation of firearms and ammunition may become more restrictive in the future, and any such developments might have a material adverse effect on our business, operating results, financial condition, and cash flows. In addition, regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions.

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Our History

We were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments and fabrics, but ceased operations in 2001. We were inactive from 2001 until following a series of events starting in December 2016. On December 15, 2016, our then principal stockholders sold their outstanding Common Stock to Fred W. Wagenhals, who is our Chairman of the Board, President, Chief Executive Officer, and largest stockholder. On the same date, Mr. Wagenhals became the sole officer and director of our company. As of December 30, 2016, we changed our trading symbol to POWW; we changed our state of incorporation from California to Delaware; we engaged in a 1-for-25 reverse stock split; and we commenced our current business as AMMO, Inc.

Our principal stockholder, Fred Wagenhals, had organized another company on October 13, 2016, which immediately began to take steps to commence the ammunition business. We combined with that company in March 2017, resulting in our acquisition of all the shares of its common stock for 17,285,800 shares of our Common Stock and our succession to its business.

We entered into licensing an endorsement agreement with Jesse James, a well-known motorcycle and gun designer, in October 2016, and a license and endorsement agreement with Jeff Rann, a well- known wild game hunter, guide, and spokesman for the firearm and ammunition industry, in February 2017; received a federal firearms license from the Bureau of Alcohol, Tobacco, and Explosives in February 2017; purchased an ammunition manufacturing facility in Payson, Arizona in March 2017; and built a management team and otherwise prepared ourself to participate in the ammunition industry.

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. Under the terms of the Merger, we, the sole shareholder of AMMO Technologies Inc., issued to Hallam, Inc.’s two shareholders, 600,000 shares of our common stock, subject to restrictions, and payment of $200,000. The first payment of $100,000 to the Hallam, Inc. shareholders was paid on September 13, 2017, and the second payment of $100,000 was paid on February 6, 2018.

During the summer of 2018, we also began conversations to acquire a small technology company named SW Kenetics Inc. SW Kenetics Inc. developed an innovative line of modular projectiles primarily geared toward tactical military operations. On July 6, 2018 we signed a letter of intent to purchase their company, as we believe their designs, coupled with our STREAK or O.W.L. Technology will position us to more aptly complete for military contracts. On September 27, 2018, we entered into a definitive agreement and plan of merger to acquire SW Kenetics Inc. for a total of up to $1,500,000 in cash and issue 1,700,002 restricted shares of the Common Stock. The agreement specifies that $1,250,000 of the cash is deferred pending completion of specific milestones and the 1,700,002 shares of common stock are subject to claw back provisions to ensure agreed upon objectives are met. The acquisition was completed on October 5, 2018.

On March 15, 2019, Enlight Group II, LLC, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of selected assets of Jagemann Stamping Company’s ammunition casing, projectile manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement dated March 14, 2019. In accordance with the terms of the Amended APA, Enlight Group II, LLC paid Jagemann Stamping Company a combination of $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc. Common Stock.

This acquisition was a critical element in the Company’s long-term strategy as it secures its supply chain for these important components and creates a more competitive pricing structure that it can leverage across all its targeted markets. This also greatly enhances the Company’s plant capacity and technical expertise required for the further development of military grade projectiles.

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Legal Proceedings

There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No current director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No current director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No current director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.

However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint alleges retaliation and constructive discharge. The matter is currently the subject of administrative investigation by the DOL via the Occupational Safety and Health Administration. The Company filed a timely Position Statement with the DOL in October of 2019 in response to the Complaint. The Company believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. There were no other known contingencies at December 31, 2019.

DIRECTORS AND EXECUTIVE OFFICERS

The table below lists the current executive officers and directors of our company. All executive officers serve at the discretion of the Board of Directors. The term of office of each of our directors expire at our next annual meeting of stockholders or until their successors are duly elected and qualified. There are no family relationships between any of our directors or executive officers.

Name |  | Age |  | Position
Fred W. Wagenhals 7681 E. Gray Road Scottsdale, AZ 85260 |  | 78 |  | Chairman of the Board, Chief Executive Officer and President
Robert D. Wiley |  | 28 |  | Chief Financial Officer
7681 E. Gray Road |  |  |  |
Scottsdale, AZ 85260 |  |  |  |
Steve Hilko |  | 64 |  | Chief Operating Officer
7681 E. Gray Road |  |  |  |
Scottsdale, AZ 85260 |  |  |  |
Randy Luth |  | 65 |  | Director
7681 E. Gray Road |  |  |  |
Scottsdale, AZ 85260 |  |  |  |
Harry S. Markley |  | 57 |  | Director
7681 E. Gray Road |  |  |  |
Scottsdale, AZ 85260 |  |  |  |
Russell William Wallace, Jr. |  | 63 |  | Director
7681 E. Gray Road |  |  |  |
Scottsdale, AZ 85260 |  |  |  |
Robert J. Goodmanson |  | 65 |  | Director
7681 E. Gray Road |  |  |  |
Scottsdale, AZ 85260 |  |  |  |

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Fred Wagenhals has been the Chairman of the Board, President, and Chief Executive Officer of our company since December 2016. Mr. Wagenhals was a private investor from August 2005 until December 2016. Mr. Wagenhals served as Chairman, President, and Chief Executive Officer of Action Performance Companies, Inc., a Nasdaq-listed marketer and distributor of licensed motorsports merchandise, from November 1993; Chairman of the Board and Chief Executive Officer from May 1992 until September 1993; and President from July 1993 until September 1993. Action-Performance Companies, Inc. was sold in August 2005 to International Speedway Corp. and Speedway Motorsports. Mr. Wagenhals is a member of the Die-Cast hall of Fame; was named an Entrepreneur of the Year for the Retail/Wholesale category by the Center for Entrepreneurial leadership Inc.; and received the Anheuser-Bush Entrepreneur in Residence Award at the University of Arizona College of Business and Public Administration.

Robert D. Wiley has been the Chief Financial Officer of our company since January 2019. Mr. Wiley has served as the Controller of the Company since May 2018 and was responsible for our accounting department, including external financing reporting, compliance, accounting policy, and tax accounting. Previously, Mr. Wiley was a Corporate Tax Accountant at Moss Adams, LLP from June 2015 through April 2018.

Steve Hilko has been the Chief Operating Officer of our company since March 2017. Mr. Hilko was Vice President of Development and Logistics for Action International Marketing, a sports and entertainment license product company from May, 2014 until December, 2016; a principal of the Concept Consortium, an international consulting firm from May, 2008 until May 2014, and Vice President of Design and Production of Lionel, a consumer goods company, from May of 2006 until May, 2008; and Vice President of Research, Development and Operations of Action Performance Companies, Inc. from August 1998 until May of 2006.

Robert J. Goodmanson has been a Director of our company since May 2019. Mr. Goodmanson has more than 30 years’ experience in the investment industry. He is currently employed at Tealwood Asset Management, a fully Registered Investment Advisor in Minneapolis. He founded and was CEO of Maxwell Simon, Inc. a FINRA registered full service Broker-Dealer and a licensed registered Investment Advisory firm. Maxwell Simon’s focus was on institutional fixed income, advisory, private and public equity transactions. Prior, Rob held senior positions at Tucker Anthony and Robert W Baird where he was a Divisional Director. For three years he served on the FINRA Board of Governors for District 4 in Kansas City.

Randy Luth has been a director of our company since November 2017. Mr. Luth founded and has served as the president of Luth-AR-LLC, a producer of products for the AR-15 Market, since 2013. Mr. Luth was the Chief Executive Officer of DPMS Panther Arms, a producer of AR-15 firearms and firearm components, from 1986 until its sale in December 2007 to the Freedom Group.

Harry S. Markley has been a director of our company since March 2018. Mr. Markley served with the Phoenix Police Department for more than 30 years, most recently as Assistant Chief of the Patrol Division from 2013 through 2017 and Commander of the Family Investigations Bureau from 2002 to 2013. Mr. Markley currently serves as the Law Enforcement Senior Advisor for the United States of America Department of Commerce.

Russell William “Rusty” Wallace, Jr. has been a director of our company since June 2017. Mr. Wallace is the principal shareholder of the Rusty Wallace Automotive Group, a group of eight automotive dealerships located in Eastern Tennessee, and owns Rusty Wallace Racing, which has fielded entrees in the NASCAR Cup Series. Mr. Wallace competed in NASCAR races for more than 16 years and had 55 victories prior to his retirement in 2005. Mr. Wallace serves as an analyst for ABC and ESPN. He is a member of the NASCAR Hall of Fame, the International Motorsports, Hall of Fame, the Motorsports Press Association Hall of Fame, and the Motorsports Hall of Fame of America.

Each director serves until the next annual meeting of the stockholders or their earlier resignation or removal. The Board of Directors elects officers whose terms of office are at the discretion of the Board of Directors. Each director serves until a successor is elected and qualified.

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Director Independence and Corporate Governance Matters

Our Board of Directors will periodically review relationships that directors have with the Company to determine whether the directors are independent. Directors are considered “independent” as long as they do not accept any consulting, advisory or other compensatory fee (other than director fees) from the Company, are not an affiliated person of the Company or its subsidiaries (e.g., an officer or a greater-than-ten-percent stockholder) and are independent within the meaning of applicable laws, regulations and the Nasdaq listing rules. In this latter regard, the Board of Directors will use the Nasdaq listing rules (specifically, Section 5605(a)(2) of such rules) as a benchmark for determining which, if any, of its directors are independent, solely in order to comply with applicable SEC disclosure rules. However, this is for disclosure purposes only. It should be understood that, as a corporation whose shares are not listed for trading on any securities exchange, our Company is not required to have any independent directors at all on its Board of Directors, or any independent directors serving on any particular committees of the Board of Directors.

Our Board of Directors has determined, after considering all the relevant facts and circumstances, that Robert J. Goodmanson, Randy Luth, Harry S. Markley, and Russell W. Wallace Jr. are independent directors, as “independence” is defined by the listing standards of the Nasdaq Stock Exchange, or Nasdaq, and by the Securities and Exchange Commission, or SEC, because they have no relationship with us that would interfere with their exercise of independent judgment in carrying out their responsibilities as a director. Fred Wagenhals is not “independent” as defined by the listing standards, as they are employed by us and serves as an employee director.

Board Committees

Our bylaws authorize our Board of Directors to appoint from among its members one or more committees consisting of one or more directors. On April 24, 2018, our Board of Directors established an Audit Committee, a Compensation Committee, and a Nominations and Corporate Governance Committee, each consisting entirely of independent directors as “independence” is defined by the SEC.

Committee Charters, Corporate Governance Guidelines, and Codes of Conduct and Ethics

Our Board of Directors has adopted charters for the Audit, Compensation, and Nominations and Corporate Governance Committees describing the authority and responsibilities delegated to each committee by our Board of Directors. Our Board of Directors has also adopted Corporate Governance Guidelines, a Code of Conduct, and a Code of Ethics for the CEO and Senior Financial Officers. We post on our website, at www.ammo-inc.com, the charters of our Audit, Compensation, and Nominations and Corporate Governance Committees; our Corporate Governance Guidelines, Code of Conduct, and Code of Ethics for the CEO and Senior Financial Officers, and any amendments or waivers thereto; and any other corporate governance materials specified by SEC regulations. These documents are also available in print to any stockholder requesting a copy in writing from our Secretary at the address of our executive offices.

The Audit Committee

The purpose of the Audit Committee includes overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company and providing assistance to our Board of Directors with respect to its oversight of the integrity of our company’s financial statements, our company’s compliance with legal and regulatory requirements, the independent registered public accountant’s qualifications and independence, and the performance of our company’s independent registered public accountant. The primary responsibilities of the Audit Committee are set forth in its charter and include various matters with respect to the oversight of our company’s accounting and financial reporting process and audits of the financial statements of our company on behalf of our Board of Directors. The Audit Committee also selects the independent registered public accountant to conduct the annual audit of the financial statements of our company; reviews the proposed scope of such audit; approves the fees for services provided by the independent registered public accountant, reviews accounting and financial controls of our company with the independent registered public accountant and our financial accounting staff; and reviews and approves any transactions between us and our directors, officers, and their affiliates.

The Audit Committee currently consists of Robert J. Goodmanson and Randy Luth. Robert J. Goodmanson, whose background is detailed in the director biographies on the prior page, qualifies as the “audit committee financial expert” in accordance with applicable rules and regulations of the SEC. Mr. Goodmanson serves as Chair of the Audit Committee.

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The Compensation Committee

The purpose of the Compensation Committee includes determining, or when appropriate, recommending to our Board of Directors for determination, the compensation of the Chief Executive Officer and other executive officers of our company and discharging the responsibilities of our Board of Directors relating to compensation programs of our company in light of the goals and objectives of our compensation program for that year. As part of its responsibilities, the Compensation Committee evaluates the performance of our Chief Executive Officer and, together with our Chief Executive Officer, assesses the performance of our other executive officers. The Compensation Committee is entitled to delegate its responsibilities to a subcommittee of the Compensation Committee, which complies with the applicable rules and regulations of the Nasdaq Stock Market, the SEC, and other regulatory bodies. From time to time, the Compensation Committee may retain the services of independent compensation consultants to review a wide variety of factors relevant to executive compensation, trends in executive compensation, and the identification of relevant peer companies. The Compensation Committee makes all determinations regarding the engagement, fees, and services of its compensation consultants, and its compensation consultants report directly to the Compensation Committee.

The Compensation Committee currently consists of Russell W. Wallace Jr. and Harry Marley.

The Nominations and Corporate Governance Committee

The purpose of the Nominations and Corporate Governance Committee includes the selection or recommendation to our Board of Directors of nominees to stand for election as directors at each election of directors, the oversight of the selection and composition of committees of our Board of Directors, the oversight of the evaluations of our Board of Directors and management, and the development and recommendation to our Board of Directors of a set of corporate governance principles applicable to our company.

The Nominations and Corporate Governance Committee will consider persons recommended by stockholders for inclusion as nominees for election to our Board of Directors if the information required by our bylaws is submitted in writing in. timely manner addressed and delivered to our Secretary at the address of our executive offices. The Nominations and Corporate Governance Committee identifies and evaluates nominees for our Board of Directors, including nominees recommended by stockholders, based on numerous factors it considers appropriate, some of which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity, and the extent to which the nominee would fill a present need on our Board of Directors.

The Nomination and Corporate Governance Committee currently consists of Randy Luth and Harry Markley.

Executive Sessions

We regularly schedule executive sessions in which independent directors meet without the presences or participation of management. The chairs of various committees of our Board of Directors serve as the presiding director of such executive sessions on a rotating basis.

Risk Assessment of Compensation Policies and Practices

We have assessed the compensation policies and practices with respect to our employees, including our executive officers, and have concluded that they do not create risks that are reasonably likely to have a material adverse effect on our company.

Board’s Role in Risk Oversight

Risk is inherent in every business. As is the case in virtually all businesses, we face a number of risks, including operational, economic, financial, legal, regulatory, and competitive risks. Our management is responsible for the day-to-day management of the risks we face. Our Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management.

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In its oversight role, our Board of Directors’ involvement in our business strategy and strategic plans plays a key role in its oversight of risk management, its assessment of management’s risk appetite, and its determination of the appropriate level of enterprise risk. Our Board of Directors receives updates at least quarterly from senior management and periodically from outside advisors regarding the various risks we face, including operational, economic, financial, legal, regulatory, and competitive risks. Our Board of Directors also reviews the various risks we identify in our filings with the SEC and risks relating to various specific developments, such as acquisitions, debt and equity placements, and new service offerings.

Our board committees assist our Board of Directors in fulfilling its oversight role in certain areas of risk. Pursuant to its charter, the Audit Committee oversees the financial and reporting processes of our company and the audit of the financial statements of our company and provides assistance to our Board of Directors with respect to the oversight and integrity of the financial statements of our company, our company’s compliance with legal and regulatory requirements, the independent registered public accountant’s qualification and independence, and the performance of our independent registered public accountant. The Compensation Committee considers the risk of our compensation policies and practices and endeavors to assure that it is not reasonably likely that our compensation plans and policies would have a material adverse effect on our company. Our Nominations and Corporate Governance Committee oversees governance related risk, such as board independence, conflicts of interests, and management and succession planning.

Board Diversity

We seek diversity in experience, viewpoint, education, skill, and other individual qualities and attributes to be represented on our Board of Directors. We believe directors should have various qualifications, including individual character and integrity; business experience; leadership ability; strategic planning skills, ability, and experience; requisite knowledge of our industry and finance, accounting, and legal matters; communications and interpersonal skills; and the ability and willingness to devote time to our company. We also believe the skill sets, backgrounds, and qualifications of our directors, taken as a whole, should provide a significant mix of diversity in personal and professional experience, background, viewpoints, perspectives, knowledge, and abilities. Nominees are not to be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis proscribed by law. The assessment of prospective directors is made in the context of the perceived needs of our Board of Directors from time to time.

All of our directors have held high-level positions in business or professional service firms and have experience in dealing with complex issues. We believe that all of our directors are individuals of high character and integrity, are able to work well with others, and have committed to devote sufficient time to the business and affairs of our company. In addition to these attributes, the description of each director’s background set forth above indicates the specific qualifications, skills, perspectives, and experience necessary to conclude that each individual should continue to serve as a director of our company.

Board Leadership Structure

We believe that effective board leadership structure can depend on the experience, skills, and personal interaction between persons in leadership roles and the needs of our company at any point in time. Our Corporate Governance Guidelines support flexibility in the structure the Board by not requiring the separation of the roles of Chairman of the Board and Chief Executive Officer.

Our Board of Directors currently believes that it is in the best interests of our company to have our Chief Executive Officer also serve as the Chairman of the Board. We believe that our Chairman and Chief Executive Officer provides strong, clear, and unified leadership that is critical in our relationships with our stockholders, employees, customers, suppliers, and other stakeholders. The extensive knowledge of the Chief Executive Officer regarding our operations and industries and the markets in which we compete uniquely positions him to identify strategies and prioritize matters for board review and deliberation. Additionally, we believe the combined role of Chairman and Chief Executive Officer facilitates centralized board leadership in one person, so there is no ambiguity about accountability. The Chief Executive Officer serves as a bridge between management and the Board, ensuring that both groups act with a common purpose. This structure also eliminates conflict between two leaders and minimizes the possibility of two spokespersons sending difference messages.

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The Board does not believe that combining the position creates significant risks, including any risk that the Chairman and Chief Executive Officer will have excessive or undue influence over the agenda or deliberations of the Board. We believe we have effective and active oversight by experienced independent directors and independent committee chairs, and the independent directors meet together in executive session at virtually every Board meeting.

The Chairman of the Board provides guidance to the Board; facilitates an appropriate schedule for Board meetings; sets the agenda for Board meetings; presides over meetings of the Board; and facilitates the quality, quantity, and timeliness of the flow of information from management that is necessary for the board to effectively and responsibly perform its duties.

The Chief Executive Officer is responsible for the day-to-day leadership of our company and setting our company’s strategic direction.

Director and Officer Hedging and Pledging

We have a policy prohibiting directors and officers from purchasing financial instruments (including prepaid forward contracts, equity swaps, collars, and exchange funds) designed to hedge or offset decreases in the market value of compensatory awards of our equity securities directly or indirectly held by them. Additionally, we have a policy prohibiting directors and officers from pledging of shares.

Stock Ownership Guidelines

Our Board of Directors believes that the alignment of directors’ interests with those of our stockholders is strengthened when board members are also stockholders. Therefore, our Board of Directors is adopting minimum stock ownership guidelines under which non-employee directors are expected to acquire shares of our Common Stock with a value, at least equal to the annual retainer paid for serving on the Board. Non-employee directors will be expected to satisfy at least the minimum guidelines beginning on the later of five years following (i) the date the guidelines were adopted or (ii) the date the individual becomes a non-employee director. This program is designed to ensure that directors acquire a meaningful ownership interest in our company during their tenure on the Board.

Clawback Policy

We have adopted a clawback policy. In the event we are required to prepare an accounting restatement of our financial results as a result of a material noncompliance by us with any financial reporting requirement under the federal securities laws, we will have the right to use reasonable efforts to recover from any current or former executive officers who received incentive compensation (whether cash or equity) from us during the three-year period preceding the date on which we were required to prepare the accounting restatement, any excess incentive compensation awarded as a result of the misstatement. This policy is administered by the Compensation Committee of our Board of Directors. The policy is effective for financial statements for periods beginning on or after April 1, 2018. Once final rules are adopted by the SEC regarding the clawback requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we will review this policy and make any amendments necessary to comply with the new rules.

Board and Committee Meetings

Our Board of Directors held six formal boarding meetings and three formal Audit Committee meetings during the nine months ended December 31, 2019. Our Board of Directors held four formal Board of Directors meetings and four formal Audit Committee meetings, and no other formal Committee Meetings during the year ended March 31, 2019. Our Board of Directors held no formal Committee or regular Board of Directors meetings during the three months ended March 31, 2018. Our Board of Directors held one meeting during the year ended December 31, 2017.

Annual Meeting Attendance

We encourage each of our directors to attend annual meetings of stockholders. To that end, and to the extent reasonably practicable, we will schedule a meeting of our Board of Directors on the same day as our annual meeting of stockholders.

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Communications with Directors

Stockholders and other interested parties may communicate with our Board of Directors or specific members of our Board of Directors, including our independent directors and the members of our various board committees, by submitting a letter addressed to the Board of Directors of our company in care of any specified individual director or directors at the address of our executive offices. Any such letters are sent to the indicated directors.

Compliance with Section 16(a) of Exchange Act

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a). To the Company’s knowledge, based solely on a review of reports furnished to it, none of the Company’s officers, directors and ten percent holders have made the required filings.

Legal Proceedings

During the past ten years, none of our current directors or executive officers has been:

| ● | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
| ● | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
| ● | subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
| ● | found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated;
| ● | subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of a federal or state securities or commodities law or regulation, law or regulation respecting financial institutions or insurance companies, law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
| ● | subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

None of our directors, officers or affiliates, or any beneficial owner of 5% or more of our common stock, or any associate of such persons, is an adverse party in any material proceeding to, or has a material interest adverse to, us or any of our subsidiaries.

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth for the year ended March 31, 2019, the three months ended March 31, 2018, and the year ended December 31, 2017, information with respect to compensation for services in all capacities to us and our subsidiaries earned by the Company’s Chief Executive Officer and all other executive officers of the Company and any employee of the Company whose cash compensation exceeded $100,000. We refer to these executive officers as our “named executive officers.”

Name and Principal Position |  | Period Ended |  | Salary (1) |  |  | Bonus (1) |  |  | Stock Awards (2) |  |  | Option Awards (2) |  |  | Nonequity incentive plan compensation |  |  | Nonqualified deferred compensation earnings |  |  | All other compensation (3) |  |  | Total |
Fred W. Wagenhals |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
President, Chief Executive Officer, |  | 3/31/2019 |  | $ | 120,000 |  |  | $ | 0 |  |  | $ | 156,375 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 276,375 |
and Director |  | 3/31/2018 |  | $ | 30,000 |  |  | $ | 0 |  |  | $ | 16,500 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 46,500 |
|  | 12/31/2017 |  | $ | 140,000 |  |  | $ | 0 |  |  | $ | 16,500 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 156,500 |
Steve Hilko |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Chief Operating Officer |  | 3/31/2019 |  | $ | 120,000 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 120,000 |
|  | 3/31/2018 |  | $ | 30,000 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 30,000 |
|  | 12/31/2017 |  | $ | 108,350 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 108,350 |
Robert D. Wiley |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Chief Financial Officer |  | 3/31/2019 |  | $ | 77,917 |  |  | $ | 0 |  |  | $ | 76,395 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 154,312 |
|  | 3/31/2018 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  | 12/31/2017 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

(1) The amounts in this column reflect the amounts earned during the fiscal year, whether or not actually paid during such year.

(2) The amounts in this column reflect the aggregate grant date fair value of options awards granted to our named executive officers during the transition period or fiscal year, as applicable, calculated in accordance with FASB ASC Topic 718. Stock Compensation. The valuation assumptions used in determining such amounts are described in the footnotes to our audited consolidated financial statements included in our Transition Report on Form 10-K for the transition period ended December 31, 2017. The amounts reported in this column reflect our accounting expense for these awards and do not correspond to the actual economic value that may be received by our named executive officers from their option awards.

(3) The named executive officers participate in certain group life, health, disability insurance, and medical reimbursement plans not disclosed in the Summary Compensation Table that are generally available to salaried employees and do not discriminate in scope, terms, and operation.

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Director Compensation

The following table sets forth, for the year ended March 31, 2019, information with respect to compensation for services in all capacities to us and our subsidiaries earned by our directors who served during the year ended March 31, 2019.

Name and Principal Position |  | Fees Earned or Paid In Cash (1) |  |  | Stock Awards (2) |  |  | Option Awards (2) |  |  | Nonequity incentive plan compensation |  |  | Nonqualified deferred compensation earnings |  |  | All other compensation (3) |  |  | Total |
Robert J. Goodmanson |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Russell William Wallace Jr. |  | $ | 0 |  |  | $ | 69,500 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 69,500 |
Randy Luth |  | $ | 0 |  |  | $ | 69,500 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 69,500 |
Harry Markley |  | $ | 0 |  |  | $ | 69,500 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 69,500 |
Dan O’Connor |  | $ | 0 |  |  | $ | 52,100 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 52,100 |
Tom Jagemann |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Kathy Hanrahan |  | $ | 0 |  |  | $ | 213,875 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 213,875 |
Chris Besing |  | $ | 0 |  |  | $ | 50,000 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 50,000 |

(1) The amounts in this column reflect the amounts earned during the fiscal year, whether or not actually paid during such year.

(2) The amounts in this column reflect the aggregate grant date fair value of options awards granted to our directors during the transition period or fiscal year, as applicable, calculated in accordance with FASB ASC Topic 718. Stock Compensation . The valuation assumptions used in determining such amounts are described in the footnotes to our audited consolidated financial statements included in our Transition Report on Form 10-K for the transition period ended December 31, 2017. The amounts reported in this column reflect our accounting expense for these awards and do not correspond to the actual economic value that may be received by our named executive officers from their option awards.

(3) The named executive officers participate in certain group life, health, disability insurance, and medical reimbursement plans not disclosed in the Summary Compensation Table that are generally available to salaried employees and do not discriminate in scope, terms, and operation.

We do not currently pay cash compensation for services of our directors. Instead we make an annual grant to each director of 40,000 shares of our Common Stock. We reimburse all officers and directors for reasonable and necessary expenses incurred in their capacities as such.

Outstanding Equity Awards at Fiscal Year-end

As of December 31, 2019, March 31, 2019, March 31, 2018 and December 31, 2017, there were no outstanding stock options or restricted stock units. During the year ended December 31, 2017 and the three months ended March 31, 2018, the year ended March 31, 2019, and the nine months ended December 31, 2019 we did not grant any restricted stock units or stock options but granted restricted stock to directors, officers, and others who provided services to our company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 10, 2020, the number of shares of common stock owned of record and beneficially by our executive officers, directors and persons who hold 5% or more of the outstanding shares of common stock of the Company.

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The amounts and percentages of our common stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise indicated, each of the shareholders named in the table below, or his or her family members, has sole voting and investment power with respect to such shares of our common stock. Except as otherwise indicated, the address of each of the shareholders listed below is: c/o AMMO, Inc., 7681 East Gray Road, Scottsdale, Arizona 85260.

Applicable percentage ownership is based on 45,906,077 shares of Common Stock outstanding as of March 10, 2020. In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of Common Stock as held by that person or entity that are currently exercisable or that will become exercisable within 60 days of March 10, 2020.

Name and Address of Beneficial Owner |  | Common Stock Owned Beneficially |  |  | Percent of Class (1) |
Named Executive Officers and Directors |  |  |  |  |  |  |  |
Fred W. Wagenhals, CEO and director |  |  | 7,414,200 |  |  |  | 16.15 | %
Robert D. Wiley |  |  | — |  |  |  | — |
Steve Hilko |  |  | 250,000 |  |  |  | * |
Randy Luth |  |  | 405,000 |  |  |  | * |
Harry S. Markley |  |  | 70,000 |  |  |  | * |
Russell William Wallace, Jr. |  |  | 390,000 |  |  |  | * |
Robert J. Goodmanson |  |  | 30,000 |  |  |  | * |
All directors and officers as a group (9 persons) |  |  |  |  |  |  |  |
5% or greater shareholders |  |  | 8,559,200 |  |  |  | 19.00 | %
Jagemann Stamping Company |  |  |  |  |  |  |  |
5757 W. Custer St., Manitowoc, WI 54220 |  |  | 4,750,000 |  |  |  | 10.35 | %
Total |  |  | 13,309,200 |  |  |  | 28.99 | %

* Less than 1%

(1) Based on 45,906,077 shares of Common Stock outstanding as of March 10, 2020.

Changes in Control

Our principal stockholder owns 7,414,200 shares, or 16.2% of our outstanding Common Stock. The principal stockholder serves as an officer and director. They exercise significance influence over the control of our Company and may be able to cause or prevent a change in control.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On December 16, 2016, we and Mansfield LLC, a company owned by our CEO, Fred Wagenhals, or Mansfield, as an affiliated party, entered into a note purchase and sale agreement to purchase a promissory note held by Mansfield, and payable by ATAC. We purchased the promissory note for $1,035,000. The Managing Member of Mansfield, Tod Wagenhals, is related to our CEO. The $1,035,000 was payable on or before the closing date of the note purchase and sale agreement. As of December 31, 2017, the note had been paid in full.

On March 17, 2017, we purchased for 17,285,800 shares of our Common Stock all of the outstanding shares of Common Stock of a private company, which was primarily owned by our Chairman of the Board, and Chief Executive Officer and which engaged in the ammunition business upon which our business is based.

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We have additional offices located in Scottsdale, Arizona where we lease approximately 5,000 square feet under a month-to-month triple net lease for $3,800 per month. Our Chief Executive Officer owns the building in which these offices are leased.

In connection with the acquisition of the casing division of Jagemann Stamping Company, a $10,400,000 promissory note was executed and is described in Note 10 to our audited financial statements included elsewhere on this prospectus. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly until October 1, 2019 when the interest rate increases to 9% per annum payable monthly until principal and accrued interest are paid in full. In May of 2019, the Company paid $1,500,000 on the balance of the note. As of December 31, 2019 and March 31, 2019, we recognized interest of $284,512 and $22,196, respectively, related to the note. The note is secured by all the equipment purchased from Jagemann Stamping Company and was valued at $18,869,541 in the accompanying financial statements. Tom Jagemann, CEO and significant owner of Jagemann Stamping Company was previously a member of the Board of Directors and resigned on September 19, 2019.

DESCRIPTION OF COMMON STOCK

This section describes the general terms of our Common Stock. Our Common Stock and the rights of the holders of our Common Stock are subject to the applicable provisions of the Delaware General Corporation Law, which we refer to as “Delaware Law,” our certificate of incorporation, our bylaws, the rights of the holders of our preferred stock, if any, as well as some of the terms of any outstanding indebtedness that we may incur.

As of March 10, 2020, under our certificate of incorporation, we had the authority to issue 200,000,000 shares of Common Stock, par value $0.001 per share, of which 45,906,077 shares of our Common Stock were outstanding as of that date. Additionally, we had the authority to issues 10,000,000 shares of preferred stock, par value $0.001 per share and no shares had been issued to date.

The following description of our Common Stock may not be complete and is subject to, and qualified in its entirety by reference to Delaware law and the actual terms and provisions contained in our certificate of incorporation and our bylaws, each as amended from time to time.

Voting Rights

Each outstanding share of our Common Stock is entitled to one vote per share of record on all matters submitted to a vote of stockholders and to vote together as a single class for the election of directors and in respect of other corporate matters. At a meeting of stockholders at which a quorum is present, for all matters other than the election of directors, a majority of the votes cast decides all questions, unless the matter is one upon which a different vote is required by express provision of law or our amended and restated articles of incorporation or our bylaws. Directors will be elected by a plurality of the votes of the shares present at a meeting. Holders of shares of Common Stock do not have cumulative voting rights with respect to the election of directors or any other matter.

Warrants

As of March 10, 2020, the following warrants to purchase our securities were outstanding: (1) warrants to purchase an aggregate of 125,060 shares of Common Stock at an average price of $2.50 per share until March 2020; (2) warrants to purchase 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (3) warrants to purchase 4,641,745 shares of our Common Stock at an exercise price of $2.00 per share over the next three to five years; and (4) warrants to purchase 2,896,133 shares of Common Stock at an exercise price of $2.40 over the next five years.

Options

As of March 10, 2020, there are no outstanding options to purchase our securities.

73

Dividends

Holders of our Common Stock are entitled to receive dividends or other distributions when, as, and if declared by our board of directors. The right of our board of directors to declare dividends, however, is subject to any rights of the holders of other classes of our capital stock, any indebtedness outstanding from time to time, and the availability of sufficient funds under Delaware law to pay dividends.

Preemptive Rights

The holders of our Common Stock generally do not have preemptive rights to purchase or subscribe for any of our capital stock or other Common Stock.

Redemption

The shares of our Common Stock are not subject to redemption by operation of a sinking fund or otherwise.

INTERESTS OF NAMED EXPERTS AND COUNSEL

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

The consolidated balance sheet as of March 31, 2019, March 31, 2018 and December 31, 2017 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended March 31, 2019, the three month period ended March 31, 2018 and, the year ended December 31, 2017, are incorporated by reference in this prospectus and in the registration statement have been so included in reliance on the reports of KWCO, PC, an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts in accounting and auditing.

The validity of the securities offered hereby has been passed upon for us by Lucosky Brookman LLP.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from 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.

This prospectus is part of a registration statement on Form S-1 that we filed with the SEC to register the securities offered hereby under the Securities Act. This prospectus does not contain all of the information included in the registration statement, including certain exhibits and schedules. For further information with respect to our company and the securities offered by this prospectus, as well as the exhibits and schedules to the registration statement, we refer you to the registration statement, those exhibits and schedules, and to the information incorporated by reference in this prospectus. You may obtain the registration statement and exhibits to the registration statement from the SEC at the address listed above or from the SEC’s website.

74

AMMO, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

INTRODUCTION

On October 5, 2018, Ammo, Inc. (the “Company”) completed its acquisition of SW Kenetics Inc. (“SWK”), pursuant to the terms of the Agreement and Plan of Merger, dated September 27 (the “Merger Agreement”), by and among the Company, Ammo Technologies, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and SWK. SWK merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation.

SWK is a research and development firm located in Arizona that has designed a new portfolio of modular projectiles that the Company believes will advance the force capability of the United States military, as well as NATO member countries. SWK filed a patent for their technology, which is now pending with the United States Patent and Trademark Office.

The fair value of the purchased patent was $6,124,005. The purchase consideration included 1,700,002 restricted shares of our common stock issued to the three shareholders of SWK, these restricted shares of common stock were issued with claw back provisions to ensure agreed upon objectives are met, payment of $250,000 and a payment obligation of $1,250,000 subject to completion of specific milestones.

On March 15, 2019, Enlight Group II, LLC DBA Jagemann Munition Components (hereinafter referred to as the “Buyer”), a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s (“Seller”) ammunition casing manufacturing and sales operations (“Jagemann Sporting Group’s Wisconsin Casing Division” or “Jagemann Casings”) pursuant to the terms of the Amended and Restated Asset Purchase Agreement (“Amended APA”) dated March 14, 2019.

Seller is engaged exclusively in the business of full-service stamping involving, among other things, the manufacture and sale of deep drawn stampings for use in the ammunition casing industry.

In accordance with the terms of the Amended APA, Buyer paid Seller a combination of $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc. Common Stock.

Pursuant to the Amended APA, Buyer acquired the Seller’s Jagemann Casings’ certain assets (equipment and intellectual property), and is transitioning the associated employees to its direct workforce to continue the operations at Seller’s Wisconsin facilities.

AMMO, Inc.’s statement of operations for the year ended March 31, 2019 have been adjusted to remove the activity of Jagemann Munition Components from March 15, 2019 to March 31, 2019, and have been combined with the operations of SWK for the period of August 3, 2018 to October 5, 2018, and the operations of Jagemann Casings for the year ended December 31, 2018. This pro forma combined statement of operations give effect to the acquisition as if it had occurred April 1, 2018. The unaudited pro forma condensed combined financial information should be read in conjunction with the audited 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, 2019, the audited financial statements of SW Kenetics, Inc., and the audited financial statements of Jagemann Stamping Company’s casing manufacturing and sales operations both of which are incorporate by reference to this filing.

The unaudited pro forma condensed combined financial information are presented for illustrative purposes only and are not necessarily indicative of the results of operations and financial position that would have been achieved had the acquisition been completed and taken place on the dates indicated or the future consolidated results of operations or financial position of the Company.

75

AMMO, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(Unaudited)

|  | AMMO, Inc. (Consolidated) |  |  | Jagemann Munition Components (a) |  |  | Net |  |  | Jagemann Casings |  |  | SW Kenetics, Inc. |  |  |  |  |  |  |  |  |  |
|  | Year Ended March 31, 2019 |  |  | Year Ended December 31, 2018 |  |  | August 3, 2018 to October 5, 2018 |  |  | Total |  |  | Pro Forma Adjustments |  |  | Pro Forma Condensed Combined |
Net Sales |  | $ | 4,565,652 |  |  | $ | 580,078 |  |  | $ | 3,985,574 |  |  | $ | 15,417,735 |  |  | $ | - |  |  | $ | 19,403,309 |  |  | $ | - |  |  | $ | 19,403,309 |
Cost of Goods Sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization expense |  |  | 506,159 |  |  |  | 141,708 |  |  |  | 364,451 |  |  |  | 1,390,117 |  |  |  |  |  |  |  | 1,754,568 |  |  |  | (1,390,117 | )(b) |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,917,120 | (d) |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 375,339 | (f) |  |  | 2,656,910 |
Federal excise tax |  |  | 406,255 |  |  |  | - |  |  |  | 406,255 |  |  |  |  |  |  |  |  |  |  |  | 406,255 |  |  |  |  |  |  |  | 406,255 |
Other costs |  |  | 3,882,932 |  |  |  | 539,222 |  |  |  | 3,343,710 |  |  |  | 15,852,334 |  |  |  | - |  |  |  | 19,196,044 |  |  |  | - |  |  |  | 19,196,044 |
Total costs of goods sold |  |  | 4,795,346 |  |  |  | 680,930 |  |  |  | 4,114,416 |  |  |  | 17,242,451 |  |  |  | - |  |  |  | 21,356,867 |  |  |  | 902,342 |  |  |  | 22,259,209 |
Gross Margin |  |  | (229,694 | ) |  |  | (100,852 | ) |  |  | (128,842 | ) |  |  | (1,824,716 | ) |  |  | - |  |  |  | (1,953,558 | ) |  |  | (902,342 | ) |  |  | (2,855,900 | )
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 1,414,399 |  |  |  |  |  |  |  | 1,414,399 |  |  |  | - |  |  |  | - |  |  |  | 1,414,399 |  |  |  | - |  |  |  | 1,414,399 |
Corporate general and administrative |  |  | 3,385,096 |  |  |  |  |  |  |  | 3,385,096 |  |  |  | 454,110 |  |  |  | 40 |  |  |  | 3,839,246 |  |  |  | - |  |  |  | 3,839,246 |
Employee salaries and related expenses |  |  | 3,855,167 |  |  |  |  |  |  |  | 3,855,167 |  |  |  | - |  |  |  | - |  |  |  | 3,855,167 |  |  |  | - |  |  |  | 3,855,167 |
Depreciation and amortization expense |  |  | 96,302 |  |  |  |  |  |  |  | 96,302 |  |  |  | - |  |  |  | - |  |  |  | 96,302 |  |  |  | 1,667,476 | (c) |  |  | 1,763,778 |
Total operating expenses |  |  | 8,750,964 |  |  |  |  |  |  |  | 8,750,964 |  |  |  | 454,110 |  |  |  | 40 |  |  |  | 9,205,114 |  |  |  | 1,667,476 |  |  |  | 10,872,590 |
Loss from Operations |  |  | (8,980,658 | ) |  |  | (100,852 | ) |  |  | (8,879,806 | ) |  |  | (2,278,826 | ) |  |  | (40 | ) |  |  | (11,158,672 | ) |  |  | (2,569,818 | ) |  |  | (13,728,490 | )
Other (Expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss on purchase of assets |  |  | (2,118,154 | ) |  |  | (2,118,154 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Interest expense |  |  | (610,600 | ) |  |  | (22,195 | ) |  |  | (588,405 | ) |  |  | (399,270 | ) |  |  | - |  |  |  | (987,675 | ) |  |  | 399,270 | (b) |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (537,124 | )(e) |  |  | (1,125,529 | )
(Loss) before Income Taxes |  |  | (11,709,412 | ) |  |  | (2,241,201 | ) |  |  | (9,468,211 | ) |  |  | (2,678,096 | ) |  |  | (40 | ) |  |  | (12,146,347 | ) |  |  | (2,707,672 | ) |  |  | (14,854,019 | )
Provision for Income Taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net (Loss) |  | $ | (11,709,412 | ) |  | $ | (2,241,201 | ) |  | $ | (9,468,211 | ) |  | $ | (2,678,096 | ) |  | $ | (40 | ) |  | $ | (12,146,347 | ) |  | $ | (2,707,672 | ) |  | $ | (14,854,019 | )
(Loss) per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and fully diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average number of shares outstanding |  |  | 33,601,569 |  |  |  | 4,750,000 |  |  |  | - |  |  |  |  |  |  |  | 1,700,002 |  |  |  |  |  |  |  |  |  |  |  | 33,604,569 |
(Loss) per share |  | $ | (0.35 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (0.44 | )

76

AMMO, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED STATEMENT OF OPERATIONS

NOTE 1 - BASIS OF PRESENTATION

The unaudited pro forma condensed combined statement of operations reflects the combined historical financial information of AMMO, Inc. (“AMMO”) for the year ended March 31, 2019, Jagemann Stamping Company’s ammunition casing manufacturing and sales operations (“Jagemann Sporting Group’s Wisconsin Casing Division” or “Jagemann Casings”) for the year ended December 31, 2018 and SW Kenetics, Inc. (“SWK”) for the period from August 3, 2018 to October 5, 2018. This condensed combined statement of operations reflect both significant acquisitions as if the occurred April 1, 2018.

NOTE 2 - DESCRIPTION OF THE TRANSACTIONS

On October 5, 2018, Ammo, Inc. (the “Company”) completed its acquisition of SW Kenetics Inc. (“SWK”), pursuant to the terms of the Agreement and Plan of Merger, dated September 27 (the “Merger Agreement”), by and among the Company, Ammo Technologies, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and SWK. SWK merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation.

The fair value of the purchased patent was $6,124,005. The purchase consideration included 1,700,002 restricted shares of our common stock issued to the three shareholders of SWK, these restricted shares of common stock were issued with claw back provisions to ensure agreed upon objectives are met, payment of $250,000 and a payment obligation of $1,250,000 subject to completion of specific milestones.

On March 15, 2019, Enlight Group II, LLC DBA Jagemann Munition Components (hereinafter referred to as the “Buyer”), a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations (“Jagemann Sporting Group’s Wisconsin Casing Division” or “Jagemann Casings”) pursuant to the terms of the Amended and Restated Asset Purchase Agreement (“Amended APA”) dated March 14, 2019.

The total estimated purchase consideration is $26,900,000 which includes $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc. Common Stock, valued at $2.00 per share.

NOTE 3 - ADJUSTMENTS TO FINANCIAL INFORMATION

Explanation of Pro Forma Adjustments

| (a) | To remove Jagemann Munition Components’ activity for the period from March 15, 2019 to March 31, 2019.
| (b) | To adjust Jagemann Casing’s historical depreciation and interest
| (c) | To record twelve months of amortization on Jagemann Casing’s $5,912,305 of intangible assets
| (d) | To record twelve months of depreciation on the equipment purchased from Jagemann Casings ($18,869,541)
| (e) | To record twelve months of interest on the $10,400,000 Jagemann Casing acquisition note

77

AMMO, INC.

Index to the Financial Statements

(Unaudited)

Description |  | Page
Consolidated Balance Sheets as of December 31, 2019 (Unaudited) and March 31, 2019 |  | F-1
Consolidated Statements of Operations (Unaudited) for the three and nine months ended December 31, 2019 and 2018 |  | F-2
Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended December 31, 2019 |  | F-3
Consolidated Statements of Cash flow (Unaudited) for the nine months ended December 31, 2019 and 2018 |  | F-4
Notes to Consolidated Financial Statements (Unaudited) |  | F-5

78

Ammo, Inc.

CONSOLIDATED BALANCE SHEETS

|  | December 31, 2019 |  |  | March 31, 2019 |
|  | (Unaudited) |  |  | (Audited) |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash |  | $ | 130,870 |  |  | $ | 2,181,246 |
Accounts receivable, net of allowance for doubtful account of $5,052 at December 31, 2019 and $129,365 at March 31, 2019 |  |  | 1,258,229 |  |  |  | 1,225,911 |
Due from related parties |  |  | 16,707 |  |  |  | 19,565 |
Inventories, at lower cost or market, principally average cost method |  |  | 5,022,980 |  |  |  | 4,772,597 |
Prepaid expenses |  |  | 291,430 |  |  |  | 427,551 |
Current portion of right of use assets |  |  | 496,095 |  |  |  | - |
Total Current Assets |  |  | 7,216,311 |  |  |  | 8,626,870 |
Equipment, net of accumulated depreciation of $2,403,717 at December 31, 2019 and $516,144 at March 31, 2019 |  |  | 20,075,395 |  |  |  | 21,999,787 |
Other Assets: |  |  |  |  |  |  |  |
Deposits |  |  | 232,114 |  |  |  | 29,034 |
Licensing agreements, net of accumulated amortization of $145,833 at December 31, 2019 and $108,833 at March 31, 2019 |  |  | 104,167 |  |  |  | 141,667 |
Patents, net of accumulated amortization of $437,760 at December 31, 2019 and $134,701 at March 31, 2019 |  |  | 6,636,245 |  |  |  | 6,939,304 |
Other Intangible Assets, net of accumulated amortization of $791,008 at December 31, 2019 and $61,803 at March 31, 2019 |  |  | 2,808,688 |  |  |  | 5,850,502 |
Right of Use Assets - Operating Leases |  |  | 3,672,676 |  |  |  | - |
TOTAL ASSETS |  | $ | 40,745,596 |  |  | $ | 43,587,164 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 4,278,052 |  |  | $ | 1,920,344 |
Factoring liability |  |  | 936,750 |  |  |  | - |
Accrued liabilities |  |  | 784,271 |  |  |  | 531,434 |
Note payable related party |  |  | 415,000 |  |  |  | - |
Current portion of operating lease liability |  |  | 496,095 |  |  |  | - |
Insurance premium note payable |  |  | 73,508 |  |  |  | 230,597 |
Current portion of note payable related party |  |  | 5,803,800 |  |  |  | 1,500,000 |
Contingent consideration payable |  |  | - |  |  |  | 300,000 |
Total Current Liabilities |  |  | 12,787,476 |  |  |  | 4,482,375 |
Long-term Liabilities: |  |  |  |  |  |  |  |
Convertible promissory notes, net of $24,144 of note issuance costs at March 31, 2019 |  |  | - |  |  |  | 275,856 |
Contingent consideration payable |  |  | 900,000 |  |  |  | 900,000 |
Note payable related party |  |  | - |  |  |  | 8,400,000 |
Operating Lease Liability, net of current portion |  |  | 3,672,676 |  |  |  | - |
Total Liabilities |  |  | 17,360,152 |  |  |  | 14,058,231 |
Shareholders’ Equity: |  |  |  |  |  |  |  |
Common stock, $0.001 par value, 200,000,000 shares authorized 45,906,077 at December 31, 2019 and 44,013,075 shares issued and outstanding at March 31, 2019, respectively |  |  | 45,906 |  |  |  | 44,013 |
Additional paid-in capital |  |  | 52,940,185 |  |  |  | 48,935,485 |
Accumulated (Deficit) |  |  | (29,600,647 | ) |  |  | (19,450,565 | )
Total Shareholders’ Equity |  |  | 23,385,444 |  |  |  | 29,528,933 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 40,745,596 |  |  | $ | 43,587,164 |

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

F-1

Ammo, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|  | For the Three Months Ended December 31, |  |  | For the Nine Months Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ammunition Sales |  | $ | 1,246,414 |  |  | $ | 489,080 |  |  | $ | 3,703,669 |  |  | $ | 3,201,967 |
Casing Sales |  |  | 1,525,595 |  |  |  | - |  |  |  | 6,321,475 |  |  |  | - |
|  |  | 2,772,009 |  |  |  | 489,080 |  |  |  | 10,025,144 |  |  |  | 3,201,967 |
Cost of Goods Sold, includes depreciation and amortization of $771,463, $97,219 $2,108,269 and $266,321, respectively, and federal excise taxes of $138,529, $44,663, $374,132, and $327,492, respectively |  |  | 3,662,196 |  |  |  | 580,166 |  |  |  | 12,286,591 |  |  |  | 2,960,262 |
Gross Margin |  |  | (890,187 | ) |  |  | (91,086 | ) |  |  | (2,261,447 | ) |  |  | 241,705 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 238,439 |  |  |  | 387,660 |  |  |  | 748,014 |  |  |  | 967,465 |
Corporate general and administrative |  |  | 730,991 |  |  |  | 813,723 |  |  |  | 2,784,984 |  |  |  | 2,214,560 |
Employee salaries and related expenses |  |  | 846,724 |  |  |  | 847,729 |  |  |  | 2,898,932 |  |  |  | 2,523,468 |
Depreciation and amortization expense |  |  | (56,247 | ) |  |  | 28,387 |  |  |  | 848,995 |  |  |  | 63,157 |
Total operating expenses |  |  | 1,759,907 |  |  |  | 2,077,499 |  |  |  | 7,280,925 |  |  |  | 5,768,650 |
Loss from Operations |  |  | (2,650,094 | ) |  |  | (2,168,585 | ) |  |  | (9,542,372 | ) |  |  | (5,526,945 | )
Other (Expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on bargain purchase |  |  | - |  |  |  | 1,599,161 |  |  |  | - |  |  |  | 1,599,161 |
Interest (income)/expense |  |  | (214,328 | ) |  |  | (43,118 | ) |  |  | (607,710 | ) |  |  | (46,022 | )
(Loss) before Income Taxes |  |  | (2,864,422 | ) |  |  | (612,542 | ) |  |  | (10,150,082 | ) |  |  | (3,973,806 | )
Provision for Income Taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net (Loss) |  | $ | (2,864,422 | ) |  | $ | (612,542 | ) |  | $ | (10,150,082 | ) |  | $ | (3,973,806 | )
(Loss) per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and fully diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average number of shares outstanding |  |  | 45,767,635 |  |  |  | 34,247,599 |  |  |  | 45,267,036 |  |  |  | 32,372,165 |
(Loss) per share |  | $ | (0.06 | ) |  | $ | (0.02 | ) |  | $ | (0.22 | ) |  | $ | (0.12 | )

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

F-2

Ammo, Inc.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended December 31, 2019

(Unaudited)

|  | Common Shares |  |  | Additional Paid-In |  |  | Accumulated |  |  |  |
|  | Number |  |  | Par Value |  |  | Capital |  |  | (Deficit) |  |  | Total |
Balance as of March 31, 2019 |  |  | 44,013,075 |  |  | $ | 44,013 |  |  | $ | 48,935,485 |  |  | $ | (19,450,565 | ) |  | $ | 29,528,933 |
Common stock issued for cash |  |  | 1,232,770 |  |  |  | 1,233 |  |  |  | 2,464,307 |  |  |  | - |  |  |  | 2,465,540 |
Common stock issued for convertible notes |  |  | 127,291 |  |  |  | 127 |  |  |  | 318,099 |  |  |  |  |  |  |  | 318,226 |
Fundraising cost |  |  | - |  |  |  | - |  |  |  | (285,981 | ) |  |  | - |  |  |  | (285,981 | )
Common stock issued for services |  |  | 125,941 |  |  |  | 126 |  |  |  | 271,874 |  |  |  | - |  |  |  | 272,000 |
Employee stock awards |  |  | 407,000 |  |  |  | 407 |  |  |  | 688,343 |  |  |  | - |  |  |  | 688,750 |
Stock grants |  |  | - |  |  |  | - |  |  |  | 548,058 |  |  |  | - |  |  |  | 548,058 |
Net loss for period ended December 31, 2019 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (10,150,082 | ) |  |  | (10,150,082 | )
Balance as of December 31, 2019 |  |  | 45,906,077 |  |  | $ | 45,906 |  |  | $ | 52,940,185 |  |  | $ | (29,600,647 | ) |  | $ | 23,385,444 |

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

F-3

Ammo, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

|  | For the Nine Months Ended December 31, |
|  | 2019 |  |  | 2018 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net (Loss) |  | $ | (10,150,082 | ) |  | $ | (3,973,806 | )
Adjustments to reconcile Net (Loss) to Net Cash provided by operations: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 2,957,337 |  |  |  | 329,478 |
Debt discount amortization |  |  | 24,144 |  |  |  | 11,505 |
Stock grants |  |  | 548,058 |  |  |  | 496,143 |
Stock for services |  |  | 272,000 |  |  |  | 22,350 |
Employee stock awards |  |  | 688,750 |  |  |  | 644,724 |
Gain on bargain purchase |  |  | - |  |  |  | (1,599,161 | )
Changes in Current Assets and Liabilities |  |  |  |  |  |  |  |
Accounts receivable |  |  | 91,995 |  |  |  | 611,740 |
Allowance for doubtful accounts |  |  | (124,313 | ) |  |  | (9,000 | )
Due to (from) related parties |  |  | 2,858 |  |  |  | (11,354 | )
Inventories |  |  | (250,383 | ) |  |  | (1,546,301 | )
Prepaid expenses |  |  | 301,241 |  |  |  | 38,213 |
Deposits |  |  | (93,830 | ) |  |  | (39,115 | )
Accounts payable |  |  | 2,357,708 |  |  |  | (113,389 | )
Accrued liabilities |  |  | 271,063 |  |  |  | (66,413 | )
Net cash used in operating activities |  |  | (3,103,454 | ) |  |  | (5,204,386 | )
Cash flows from investing activities |  |  |  |  |  |  |  |
Purchase of equipment |  |  | (356,022 | ) |  |  | (1,629,833 | )
Acquisition Deposit |  |  | - |  |  |  | (250,000 | )
Net cash used in investing activities |  |  | (356,022 | ) |  |  | (1,879,833 | )
Cash flow from financing activities |  |  |  |  |  |  |  |
Note payable related party |  |  | 415,000 |  |  |  | - |
Note payment - related party |  |  | (1,500,000 | ) |  |  | - |
Insurance premium note payment |  |  | (322,209 | ) |  |  | (99,907 | )
Contingent consideration payment |  |  | (300,000 | ) |  |  | (50,000 | )
Convertible promissory note |  |  | - |  |  |  | 1,534,000 |
Sale of common stock |  |  | 2,465,540 |  |  |  | 3,591,030 |

(Continued)

F-4

Ammo, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

|  | For the Nine Months Ended December 31, |
|  | 2019 |  |  | 2018 |
Purchase of common stock |  |  | - |  |  |  | (124,000 | )
Factoring liability |  |  | 936,750 |  |  |  | - |
Common stock issued for exercised warrants |  |  | - |  |  |  | 4,767,625 |
Organizational and fundraising costs |  |  | (285,981 | ) |  |  | (872,870 | )
Net cash provided by financing activities |  |  | 1,409,100 |  |  |  | 8,745,878 |
Net increase in cash |  |  | (2,050,376 | ) |  |  | 1,661,659 |
Cash, beginning of period |  |  | 2,181,246 |  |  |  | 4,381,643 |
Cash, end of period |  | $ | 130,870 |  |  | $ | 6,043,302 |
Supplemental cash flow disclosures |  |  |  |  |  |  |  |
Cash paid during the period for - |  |  |  |  |  |  |  |
Interest |  | $ | 346,800 |  |  | $ | 11,979 |
Income taxes |  | $ | - |  |  | $ | - |
Non-cash investing and financing activities: |  |  |  |  |  |  |  |
Additional paid-in-capital |  |  | - |  |  |  | (11 | )
Common stock |  |  | - |  |  |  | 11 |
Issuance of common stock |  |  | - |  |  |  | 4,624,005 |
Contingent consideration payable |  |  | - |  |  |  | 1,250,000 |
Patent acquisition |  |  | - |  |  |  | (5,874,005 | )
Convertible promissory note and accrued interest |  |  | (318,226 | ) |  |  | - |
Convertible promissory note conversion |  |  | 318,226 |  |  |  | - |
Insurance premium note payment |  |  | 165,120 |  |  |  | - |
Prepaid expenses |  |  | (165,120 | ) |  |  | - |
Right of use assets - operating leases |  |  | (4,168,771 | ) |  |  | - |
Operating lease liability |  |  | 4,168,771 |  |  |  | - |
Other Intangible Assets |  |  | 2,312,609 |  |  |  | - |
Note payable related party |  |  | (2,596,200 | ) |  |  | - |
Deposits |  |  | (109,250 | ) |  |  | - |
Equipment |  |  | 392,841 |  |  |  |  |
|  | $ | - |  |  | $ | - |

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

F-5

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY

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

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

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

The accompanying unaudited 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 consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).

The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2019. The results for the nine month period ended December 31, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and nine month periods ended December 31, 2019 and 2018, (b) the financial position at December 31, 2019, and (c) cash flows for the nine month periods ended December 31, 2019 and 2018.

We use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”) and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.

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

F-6

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

Principles of Consolidation

The consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, Enlight Group II, LLC (d/b/a Jagemann Munition Components), SNI, LLC, AMMO Munitions, Inc. and AMMO Technologies, Inc. (inactive). All significant intercompany accounts and transactions are eliminated in consolidation

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Cash and Cash Equivalents

For purposes of the statement of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At December 31, 2019 and March 31, 2019, we reserved $5,052 and $129,365, respectively, of allowance for doubtful accounts.

License Agreements

We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. In addition, Mr. James agreed to make himself available for certain promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of up to 75,000 additional shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.

We are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded Products. Mr. Rann agreed to make himself available for certain promotional activities and to promote the Branded Products through his own social media outlets. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of 75,000 additional shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.

Amortization expense for the license agreements for the three and nine months ended December 31, 2019 and 2018 were $12,500, $12,500, $37,500 and $37,500, respectively.

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. Under the terms of the Merger, we issued to Hallam, Inc.’s two shareholders, 600,000 shares of our common stock, subject to restrictions, and payment of $200,000. The first payment of $100,000 to the Hallam, Inc. shareholders was paid on September 13, 2017, and the second payment of $100,000 was paid on February 6, 2018.

The shares were valued at $1.25 and the aggregate value of $950,000 was recorded as a patent asset. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028. Patent amortization expense for the three and nine months ended December 31, 2019 and 2018 were $21,268, $21,269, $63,806, and $63,806, respectively.

F-7

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

Under the terms of the Merger, ATI succeeded to all of the assets of Hallam, Inc. and assumed the liabilities of Hallam, Inc., which were none. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date. Under the terms of the Exclusive License Agreement, the Company is obligated to pay a royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the nine months ended December 31, 2019 and 2018, the Company accrued $20,261 and $22,495 respectively under this agreement.

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, but may be recapitalized pending the outcome of the USPTO’s review of the application.

On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities. Under the terms of the agreement, we issued to SW Kenetics Inc.’s three shareholders, 1,700,002 restricted shares of our common stock, payment of $250,000, and a payment obligation of $1,250,000 subject to completion of specific milestones that we have recorded as Contingent Consideration Payable. Additionally, the 1,700,002 shares of common stock were issued with claw back provisions to ensure agreed upon objectives are met. The Company has made four payments totaling $350,000 for the completion of specific milestones to the shareholders of SW Kenetics, Inc.

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. Patent amortization expense for the three and nine months ended December 31, 2019 was $102,067 and $239,253. There was no amortization expense for the patent in the three and nine months ended December 31, 2018 as the patent had not been placed in service.

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 10). The intangible assets acquired include a tradename, customer relationships, and intellectual property. For the three and nine months ended December 31, 2019, amortization of the other intangibles assets was $249,794 and $729,131.

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the three months ended December 31, 2019 and 2018.

Revenue Recognition

We generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. The Company applies 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

The Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’s product, which typically occurs upon shipment of the product.

F-8

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

For the three and nine months ended December 31, 2019, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

PERCENTAGES

|  | Revenues |  |  | Accounts Receivable |
For the Three Months Ended December 31, 2019 |  |  |  |  |  |  |  |
Customers: |  |  |  |  |  |  |  |
A |  |  | 27.8 | % |  |  | - | %
B |  |  | 11.2 | % |  |  | 11.9 | %
C |  |  | 10.8 | % |  |  | 10.7 | %
D |  |  | - | % |  |  | 10.2 | %
E |  |  | - | % |  |  | 16.7 | %
|  |  | 49.8 | % |  |  | 32.8 | %
For the Nine Months Ended December 31, 2019 |  |  |  |  |  |  |  |
Customers: |  |  |  |  |  |  |  |
A |  |  | 15.6 | % |  |  | - | %
B |  |  | - | % |  |  | 11.9 | %
C |  |  | 15.9 | % |  |  | 10.7 | %
D |  |  | 13.3 | % |  |  | 10.2 | %
E |  |  | - | % |  |  | 16.7 | %
|  |  | 44.8 | % |  |  | 32.8 | %

Advertising Costs

We expense advertising costs as they are incurred. We incurred advertising of $128,709 and $422,948 for the three and nine months ended December 31, 2019, respectively.

Inventories

We state inventories at the lower of cost or market. 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.

Property and Equipment

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

Compensated Absences

We accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General.

Stock-Based Compensation

We account for stock-based compensation at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). There were 407,000 shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during the nine months ended December 31, 2019.

On May 1, 2018, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other provisions, an equity grant of 100,000 shares of restricted common stock that vests at the rate of 33,333 shares annually for three years. The $250,000 compensation value is being recognized on a straight-line basis over the three-year period covered by the agreement.

From September 2018 through July 2019, we entered into seven separate employment agreements that included in total, among other provisions, equity grants of 522,500 shares of restricted common stock that vests annually over the next four years. The total compensation value of $1,351,000 is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.

Concentrations of Credit Risk

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2019, our bank account balances did not exceeded federally insured limits.

Income Taxes

We file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.

F-9

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

Contingencies

Certain conditions may exist as of the date the 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 consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint alleges retaliation and constructive discharge. The matter is currently the subject of administrative investigation by the DOL via the Occupational Safety and Health Administration. The Company filed a timely Position Statement with the DOL in October of 2019 in response to the Complaint. The Company believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. There were no other known contingencies at December 31, 2019.

Recent Accounting Pronouncements

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The revised effective date for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. We adopted ASU 2014-09 as of January 1, 2018, and it did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows for the period ended December 31, 2019.

Sales are initiated in three ways –

| ● | third party sales representative obtains signed purchase order from a customer
| ● | direct contact by in-house sales representatives who obtains signed purchase order
| ● | electronic purchase order from a customer (usually the very large customers)

Once a customer’s order is received a sales order is generated by authorized sales or management personnel. Once approved for shipping, the sales order is entered, the inventory control department will pull the purchased items from the inventory or if needed will request the manufacture of a specific product. When the items that were ordered are available for shipment, the merchandise is prepared for shipping and shipped by FedEx or common carrier.

All sales are recorded upon shipment and, depending on credit worthiness of customer, the payment terms will vary from thirty (30) to sixty (60) days. No refunds are allowed on any product shipped.

Each product manufactured by the Company has standard specifications and performance objectives. The Company has an extensive product testing program and, if the Company were given notice of a product defect by a customer, the Company would request the return of the product so that the manufacturing defect could be identified. From inception to December 31, 2019, the Company has had no returned products related to product warranty.

The revenue recognition procedures set forth above have been used by the Company since its inception and are consistent with requirements of ASC 606 “Revenue from Contracts with Customers”.

In February 2016, the FASB issued ASU 2016-02 – “Leases (Topic 842)” Under ASU 2016-02, entities will be required to recognize lease asset and lease liabilities by lessees for those leases classified as operating leases. Among other changes in accounting for leases, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. The amendments in ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018, including interim periods with those fiscal years for public business entities. We adopted Topic 842 as of April 1, 2019.

On June 20, 2018, the FASB expanded the scope of Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation, to include share-based payments to nonemployees for goods and services. The accounting board said the amendments in Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, align the guidance for stock compensation to employees and nonemployees. The amended guidance replaces ASC 505-50, Equity – Equity-Based Payments to Non-Employees. We anticipate that this ASC will not have a material effect on the Company’s financial statements.

The amendments in ASU No. 2018-07 apply “to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards,” the FASB said. But the amended guidance does not cover stock compensation that is used to provide financing to the company that issued the shares or stock awards tied to a sale of goods or services as part of a contract accounted for according to ASC 606, Revenue From Contracts With Customers.

The amendments are effective for public companies for fiscal years that begin after December 15, 2018, and the quarterly and other interim periods in those years, the FASB said the amended guidance can be applied before it becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before they have implemented ASC 606. We have evaluated the effect of the adoption of ASU 2018-07 will have on our consolidated results of operations, financial position or cash flows and determine the effects will not be material to the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

F-10

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

Loss Per Common Share

We calculate basic loss per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants, using various methods, such as the treasury stock or modified treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase 8,629,432 shares of common stock. All weighted average numbers were adjusted for the reverse stock split and merger transaction. Due to the loss from operations in the three and nine months ended December 31, 2019 and 2018, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive.

NOTE 3 – INVENTORIES

At December 31, 2019 and March 31, 2019, the inventory balances are composed of:

|  | December 31, 2019 |  |  | March 31, 2019 |
Finished product |  | $ | 2,767,106 |  |  | $ | 2,628,241 |
Raw materials |  |  | 1,661,208 |  |  |  | 1,635,130 |
Work in process |  |  | 594,666 |  |  |  | 509,226 |
|  | $ | 5,022,980 |  |  | $ | 4,772,597 |

NOTE 4 – PROPERTY AND EQUIPMENT

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

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

F-11

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

Property and equipment consisted of the following at December 31, 2019 and March 31, 2019:

|  | December 31, 2019 |  |  | March 31, 2019 |
Leasehold Improvements |  | $ | 113,608 |  |  | $ | 98,444 |
Furniture and Fixtures |  |  | 87,791 |  |  |  | 154,777 |
Vehicles |  |  | 103,511 |  |  |  | 103,511 |
Equipment |  |  | 19,473,184 |  |  |  | 18,689,140 |
Tooling |  |  | 126,190 |  |  |  | 117,390 |
Construction in Progress |  |  | 2,574,828 |  |  |  | 3,352,669 |
Total property and equipment |  | $ | 22,479,112 |  |  | $ | 22,515,931 |
Less accumulated depreciation |  |  | (2,403,717 | ) |  |  | (516,144 | )
Net property and equipment |  |  | 20,075,395 |  |  |  | 21,999,787 |

Depreciation Expense for the three and nine months ended December 31, 2019 and 2018 totaled $677,407, $64,361, $1,887,573 and $228,172, respectively.

NOTE 5 – FACTORING LIABILITY

On July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains a maximum advance amount of $5,000,000 on 85% of eligible accounts and has an annualized interest rate of the Prime Rate published from time to time by the Wall Street Journal plus 4.5%. The agreement contains fee of 3% ($150,000) of the Maximum Facility assessed to the Company. Our obligations under this agreement are secured by present and future accounts receivables and related assets, inventory, and equipment. The Company has the right to terminate the agreement, with 30 days written notice, upon obtaining a non-factoring credit facility. This agreement provides the Company with the ability to convert our account receivables into cash. As of December 31, 2019, the outstanding balance of the Factoring Liability was $936,750. Interest expense recognized on the Factoring Liability was $116,196, including $62,500 of amortization of the commitment fee.

NOTE 6 – LEASES

We lease office, manufacturing, and warehouse space in Scottsdale and Payson, AZ and Manitowoc, WI under contracts we classify as operating leases. None of our leases are financing leases. The Payson lease has an option to renew for five years, and the Manitowoc lease has an option to renew for the three years. As of December 31, 2019, we are fairly certain that we will exercise the renewal options on both leases, and we have included such renewal options in the lease liabilities and the disclosures herein. The Scottsdale lease does not include a renewal option.

As of December 31, 2019, the current portion of our operating lease liability was $496,095 and is reported as a current liability.

Consolidated lease expense for the nine months ended December 31, 2019 was $375,275 including $117,243 of operating lease expense and $258,482 of other lease associated expenses such as association dues, taxes, utilities, and other month to month rentals.

Futures minimum lease payments under non-cancellable leases as of December 31, 2019 are as follows:

Years Ended March 31, |  |  |
2020 |  | $ | 173,307 |
2021 |  |  | 693,229 |
2022 |  |  | 693,229 |
2023 |  |  | 693,229 |
2024 |  |  | 640,118 |
Thereafter |  |  | 2,168,932 |
|  |  | 5,062,044 |
Less: Interest |  |  | (893,273 | )
|  | $ | 4,168,771 |

Right of Use Assets and Operating Lease Liabilities on the Balance Sheet:

|  | December 31, 2019 |
Current portion |  | $ | 496,095 |
Long-term, net of current portion |  |  | 3,672,676 |
|  | $ | 4,168,771 |

NOTE 7 – CONVERTIBLE PROMISSORY NOTES

On January 9, 2019, we completed the issuance of 10% Convertible Promissory Notes in the principal amount of $1,710,000 to accredited investors through a private placement in exchange for cash in an equal amount. The principal amounts were raised from the period of October 23, 2018 to December 28, 2018. As a result of the issuance of the Convertible Promissory Notes, the placement agent received an aggregate commission of $171,000, and $5,000 in escrow fees were paid, totaling $176,000 of Note Issuance Costs. As of March 31, 2019, we recorded $151,856 of interest expense related to the Note Issuance Costs.

The Maturity Date of the notes is the two year anniversary from the date of issuance. The holders have the option to convert the entire principal of the Convertible Promissory Note into Common Stock at a conversion price equal to $2.50 per share at any time until the Maturity Date, subject to “Qualified Financing.” Qualified Financing means the next equity round of financing of the Company that raises not less than $10,000,000 gross proceeds from institutional(s) or commercial lender(s) in the aggregate with any combination of Common Stock (valued at the close of the Trading Day on the date of the closing for the financing) or debt. In the event of Qualified Financing, the Convertible Promissory Notes will automatically convert 100% of the principal amount into Common Stock at a conversion price equal to $2.50 per share. As of March 31, 2019, we accrued $65,291 of interest expense related to the Convertible Promissory Notes.

On February 28, 2019, the company notified the holders of an offer to convert Convertible Promissory Notes and Accrued Interest into Common Stock at a conversion price of $2.00 per share and receive one-half warrant exercisable at $2.40 per share for five years in conjunction with each converted share On March 29, 2019, the Company converted $1,410,000 of Convertible Promissory Notes and $52,065 of Accrued Interest into 731,039 shares of Common Stock and issued Warrants to purchase 365,523 shares of Common Stock. The offer ended on March 29, 2019 at 11:59 PM. As a result of the conversion of the Convertible Promissory Notes, the Company accrued $42,300 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company. Additionally, $118,351 of Unamortized Note Issuance Costs were amortized and $358,800 of Interest Expenses related to the reduction in conversion price were recognized as result of the conversions.

The holders that did not elect to convert their notes during this period have the option to convert their entire principal of the Convertible Promissory Note into Common Stock per the terms of the original agreement.

As of March 31, 2019, there was $300,000 in principal remaining and $24,144 of Unamortized Note Issuance Costs.

On June 5, 2019, the remaining $300,000 of Convertible Promissory Notes were mandatorily converted into shares of our common stock pursuant to the terms of the Note. The Company converted $300,000 of Convertible Promissory Notes and $18,226 of Accrued Interest were converted into 127,291 shares of Common Stock at a conversion price of $2.50. The Company accrued $9,000 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company.

F-12

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and March 31, 2019

(Unaudited)

NOTE 8 – NOTES PAYABLE – RELATED PARTY

In connection with the acquisition of the casing division of Jagemann Stamping Company, a $10,400,000 promissory note was executed. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly until October 1, 2019 when the interest rate increases to 9% per annum payable monthly until principal and accrued interest are paid in full. In May of 2019, the Company paid $1,500,000 on the balance of the note. As of December 31, 2019, we recognized interest of $284,512 related to the note. The note is secured by all the equipment purchased from Jagemann Stamping Company and was valued at $18,869,541 in the accompanying financial statements.

Post-closing of the transaction, it was made apparent that certain equipment that was agreed to be delivered free and clear by the Seller was not achievable as Seller was not able to purchase equipment that Seller had leased. Accordingly, the remaining value of the promissory note was reduced by $2,596,200. As a result of the change to the purchase price of the transaction, the Company reduced Other Intangible Assets by $2,312,609, decreased Equipment for a net value of $392,841, recorded an increase to Deposits for $109,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated amortization has decreased by $508,242. Additionally, the Company entered into a lease to gain possession of the assets that were originally to be transferred.

On May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The note bears interest at a per annum of 2.56%. The note’s original a maturity date of August 3, 2019 was extended to June 15, 2020. On November 15, 2019, the Company remitted $50,000 in principal payment. We have accrued interest on the note of $2,452.

In December of 2019, the Company entered into a Promissory Note of $90,000 with Fred Wagenhals, the Company’s Chief Executive Officer and Chairman of the Board of Directors. The Note matures on June 12, 2020 and bears interest at the applicable LIBOR Rate.

NOTE 9 – CAPITAL STOCK

During the nine month period ended December 31, 2019, we issued 1,893,502 shares of common stock as follows:

| ● | 1,232,770 shares were sold to investors for $2,465,540
| ● | 127,291 shares were issued for the conversion of Convertible Promissory Notes valued at $318,226
| ● | 125,941 shares were issued for services valued at $280,000
| ● | 407,000 shares valued at $688,750 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation

In December of 2018, we entered into a placement agreement to secure equity capital from qualified investors to provide funds to our operations. The offering consisted of Units priced at $2.00, which included one share of common stock and one five-year warrant to purchase an additional half-share of common stock for an exercise price of $2.40 per share. Effectively, every two units purchased provided the investor with a five-year warrant at an exercise price of $2.40 per share. Units sold under this agreement totaled 1,232,770 shares of common stock and 616,385 warrants for $2,465,540 for the nine month period ended December 31, 2019.

For services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of five years and an exercise price of $2.00 per share. The cash fee totaled $285,981 for the nine month period ended December 31, 2019, including reimbursed expenses.

At December 31, 2019, outstanding and exercisable stock purchase warrants consisted of the following:

|  | Number of Shares |  |  | Weighted Averaged Exercise Price |  |  | Weighted Average Life Remaining (Years) |
Outstanding at March 31, 2019 |  | $ | 8,143,115 |  |  | $ | 2.09 |  |  |  | 4.35 |
Granted |  |  | 710,317 |  |  |  | 2.35 |  |  |  | 4.43 |
Exercised |  |  | - |  |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | 224,000 |  |  |  | 2.50 |  |  |  | - |
Outstanding at December 31, 2019 |  |  | 8,629,432 |  |  | $ | 2.10 |  |  |  | 3.78 |
Exercisable at December 31, 2019 |  |  | 8,629,432 |  |  | $ | 2.10 |  |  |  | 3.78 |

As of December 31, 2019, we had 8,629,432 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase an aggregate of 125,060 shares of Common Stock at an average price of $2.50 per share until March 2020; (2) warrants to purchase 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (3) warrants to purchase 4,641,745 shares of our Common Stock at an exercise price of $2.00 per share over the next three to five years; and (4) warrants to purchase 2,896,133 shares of Common Stock at an exercise price of $2.40 over the next five years.

NOTE 10 - SUBSEQUENT EVENTS

Subsequent to December 31, 2019, the Company issued $2,500,000 of certain Convertible Promissory Notes and five year warrants to purchase shares of the Company’s common stock to accredited investors. The Notes accrue interest at a rate of 8% per annum and mature nine months following the issue date Joseph Gunnar & Co., LLC acted as the placement agent and received an 8% cash commission totaling $200,000 and five year warrants to be issued. These events were previously reported by the Company on the Form 8-K’s filed January 22, 2020, and February 4, 2020. The Subscription Agreements, Notes and Warrants are attached as exhibits to this filing.

F-13

AMMO, INC.

Index to the Financial Statements

(Audited)

Description |  | Page
Report of Independent Registered Public Accounting Firm |  | F-15
Consolidated Balance Sheets as of March 31, 2019, March 31, 2018, and December 31, 2017 |  | F-16
Consolidated Statements of Operations for the year ended March 31, 2019, the three months ended March 31, 2018, and the year ended December 31, 2017 |  | F-17
Consolidated Statements of Stockholders’ Equity for the year ended March 31, 2019, the three months ended March 31, 2018, and the year ended December 31, 2017 |  | F-18
Consolidated Statements of Cash Flows for the year ended March 31, 2019, the three months ended March 31, 2018 and the year ended December 31, 2017 |  | F-19
Notes to Consolidated Financial Statements (Audited) |  | F-21

F-14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Ammo, Inc. Scottsdale, Arizona 85260

Opinion on the consolidated financial statements

We have audited the accompanying consolidated balance sheets of Ammo, Inc. (the Company) as of March 31, 2019 and 2018 and December 31, 2017, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended March 31, 2019, the three month period ended March 31, 2018, the year ended December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2019 and 2018 and December 31, 2017, and the consolidated results of its operations and its cash flows for the year ended March 31, 2019, the three month period ended March 31, 2018, and the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, and audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KWCO , PC |
KWCO, PC |

We have served as the Company’s auditor since 2016.

Odessa, Texas

June 28, 2019

F-15

AMMO, Inc.

CONSOLIDATED BALANCE SHEETS

|  | March 31, 2019 |  |  | March 31, 2018 |  |  | December 31, 2017 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 2,181,246 |  |  | $ | 4,381,643 |  |  | $ | 786,823 |
Accounts receivable, net of allowance for doubtful account of $129,365 at March 31, 2019, $23,046 at March 31, 2018, and $26,046 at December 31, 2017 |  |  | 1,225,911 |  |  |  | 1,201,117 |  |  |  | 166,731 |
Due from related parties |  |  | 19,565 |  |  |  | 14,204 |  |  |  | 18,461 |
Inventories, at lower of cost or market, principally average cost method |  |  | 4,772,597 |  |  |  | 2,405,007 |  |  |  | 1,792,314 |
Prepaid expenses |  |  | 427,551 |  |  |  | 321,074 |  |  |  | 254,732 |
Total Current Assets |  |  | 8,626,870 |  |  |  | 8,323,045 |  |  |  | 3,019,061 |
Equipment, net of accumulated depreciation of $516,144 at March 31, 2019 and $113,158 at March 31, 2018, and $77,861 at December 31, 2017 |  |  | 21,999,787 |  |  |  | 1,241,326 |  |  |  | 769,442 |
Other Assets: |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 29,034 |  |  |  | 16,300 |  |  |  | - |
Licensing agreements, net of accumulated amortization of $108,833 at March 31, 2019, $58,333 at March 31, 2018, and $45,833 at December 31, 2017 |  |  | 141,667 |  |  |  | 191,667 |  |  |  | 204,167 |
Patents, net of accumulated amortization of $134,701 at March 31, 2019, $49,627 at March 31, 2018 and $25,166 at December 31, 2017 |  |  | 6,939,304 |  |  |  | 900,373 |  |  |  | 924,834 |
Other intangible assets, net of accumulated amortization of $61,803 at March 31, 2019 |  |  | 5,850,502 |  |  |  | - |  |  |  | - |
TOTAL ASSETS |  | $ | 43,587,164 |  |  | $ | 10,672,711 |  |  | $ | 4,917,504 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,920,344 |  |  | $ | 479,465 |  |  | $ | 476,893 |
Accrued liabilities |  |  | 531,434 |  |  |  | 541,210 |  |  |  | 254,774 |
Convertible note payable |  |  | - |  |  |  | - |  |  |  | 1,575,000 |
Note payable related party |  |  | - |  |  |  | - |  |  |  | 100,000 |
Insurance premium note payable |  |  | 230,597 |  |  |  | 99,907 |  |  |  | 6,880 |
Current portion of note payable related party |  |  | 1,500,000 |  |  |  | - |  |  |  | - |
Contingent consideration payable |  |  | 300,000 |  |  |  | - |  |  |  | - |
Total Current Liabilities |  |  | 4,482,375 |  |  |  | 1,120,582 |  |  |  | 2,413,547 |
Long-term Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Convertible promissory notes, net of $24,144 of note issuance costs |  |  | 275,856 |  |  |  | - |  |  |  | - |
Contingent consideration payable |  |  | 900,000 |  |  |  | - |  |  |  | - |
Note payable related party |  |  | 8,400,000 |  |  |  | - |  |  |  | - |
Total Liabilities |  |  | 14,058,231 |  |  |  | 1,120,582 |  |  |  | 2,413,547 |
Shareholders’ Equity: |  |  |  |  |  |  |  |  |  |  |  |
Common stock, $0.001 par value, 200,000,000 shares authorized 44,013,075, 28,394,503, and 22,487,793 shares issued and outstanding at March 31, 2019 and March 31, 2018, and December 31, 2017 respectively |  |  | 44,013 |  |  |  | 28,394 |  |  |  | 22,488 |
Additional paid-in capital |  |  | 48,935,485 |  |  |  | 17,264,888 |  |  |  | 8,430,394 |
Stock subscription receivable |  |  | - |  |  |  | - |  |  |  | (5,000 | )
Accumulated (Deficit) |  |  | (19,450,565 | ) |  |  | (7,741,153 | ) |  |  | (5,943,925 | )
Total Shareholders’ Equity |  |  | 29,528,933 |  |  |  | 9,552,129 |  |  |  | 2,503,957 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 43,587,164 |  |  | $ | 10,672,711 |  |  | $ | 4,917,504 |

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

F-16

AMMO, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

|  | For the Year Ended March 31, 2019 |  |  | For the Three Months Ended March 31, 2018 |  |  | For the Year Ended December 31, 2017 |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |
Ammunition Sales |  | $ | 3,985,574 |  |  | $ | 1,960,688 |  |  | $ | 1,294,861 |
Casing Sales |  |  | 580,078 |  |  |  | - |  |  |  | - |
|  |  | 4,565,652 |  |  |  | 1,960,688 |  |  |  | 1,294,861 |
Cost of Goods Sold, includes depreciation and amortization of $506,159 $66,405 and $141,575, respectively, and federal excise taxes of $406,255, $194,003, and $132,294, respectively |  |  | 4,795,346 |  |  |  | 1,667,614 |  |  |  | 1,303,586 |
Gross Margin |  |  | (229,694 | ) |  |  | 293,074 |  |  |  | (8,725 | )
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing |  |  | 1,414,399 |  |  |  | 585,294 |  |  |  | 759,053 |
Corporate general and administrative |  |  | 3,385,096 |  |  |  | 589,983 |  |  |  | 2,154,498 |
Employee salaries and related expenses |  |  | 3,855,167 |  |  |  | 914,258 |  |  |  | 1,046,667 |
Depreciation and amortization expense |  |  | 96,302 |  |  |  | 5,853 |  |  |  | 7,285 |
Total operating expenses |  |  | 8,750,964 |  |  |  | 2,095,388 |  |  |  | 3,967,503 |
Loss from Operations |  |  | (8,980,658 | ) |  |  | (1,802,314 | ) |  |  | (3,976,228 | )
Other Income/(Expenses) |  |  |  |  |  |  |  |  |  |  |  |
Loss on purchase |  |  | (2,118,154 | ) |  |  | - |  |  |  | - |
Loss on vendor notes receivable foreclosure |  |  | - |  |  |  | - |  |  |  | (1,279,921 | )
Interest expense |  |  | (610,600 | ) |  |  | 5,086 |  |  |  | (532,752 | )
(Loss) before Income Taxes |  |  | (11,709,412 | ) |  |  | (1,797,228 | ) |  |  | (5,788,901 | )
Provision for Income Taxes |  |  | - |  |  |  | - |  |  |  | - |
Net (Loss) |  | $ | (11,709,412 | ) |  | $ | (1,797,228 | ) |  | $ | (5,788,901 | )
(Loss) per share |  |  |  |  |  |  |  |  |  |  |  |
Basic and fully diluted: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average number of shares outstanding |  |  | 33,601,569 |  |  |  | 26,045,890 |  |  |  | 19,279,601 |
(Loss) per share |  | $ | (0.35 | ) |  | $ | (0.07 | ) |  | $ | (0.30 | )

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

F-17

AMMO, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Year ended March 31, 2019, For the Three Months Ended March 31, 2018, and
For the Year Ended December 31, 2017

|  | Common Shares |  |  | Additional Paid-In |  |  | Subscription |  |  | Accumulated |  |  |  |
|  | Number |  |  | Par Value |  |  | Capital |  |  | Receivable |  |  | (Deficit) |  |  | Total |
Balance as of December 31, 2016 |  |  | 15,754,000 |  |  | $ | 15,754 |  |  | $ | 799,180 |  |  | $ | (167,500 | ) |  | $ | (155,024 | ) |  | $ | 492,410 |
Reverse merger and recapitalization |  |  | 604,371 |  |  |  | 604 |  |  |  | (604 | ) |  |  | - |  |  |  | - |  |  |  | - |
Subscriptions collected |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 167,500 |  |  |  | - |  |  |  | 167,500 |
Common stock issued to founders |  |  | 500,000 |  |  |  | 500 |  |  |  | 145 |  |  |  | - |  |  |  | - |  |  |  | 645 |
Founder shares repurchased |  |  | (400,000 | ) |  |  | (400 | ) |  |  | (99,600 | ) |  |  | - |  |  |  | - |  |  |  | (100,000 | )
Common stock issued for cash |  |  | 4,640,822 |  |  |  | 4,641 |  |  |  | 6,034,259 |  |  |  | - |  |  |  | - |  |  |  | 6,038,900 |
Common stock issued for payment of legal fees |  |  | 49,600 |  |  |  | 50 |  |  |  | 123,950 |  |  |  | - |  |  |  | - |  |  |  | 124,000 |
Subscription receivable |  |  | 4,000 |  |  |  | 4 |  |  |  | 4,996 |  |  |  | (5,000 | ) |  |  | - |  |  |  | - |
Organizational and fundraising cost |  |  | 20,000 |  |  |  | 20 |  |  |  | (179,770 | ) |  |  | - |  |  |  | - |  |  |  | (179,750 | )
Common stock issued for licensing agreement |  |  | 100,000 |  |  |  | 100 |  |  |  | 124,900 |  |  |  | - |  |  |  | - |  |  |  | 125,000 |
Legal, advisory and consulting fees |  |  | 495,000 |  |  |  | 495 |  |  |  | 554,130 |  |  |  | - |  |  |  | - |  |  |  | 554,625 |
Employee stock awards |  |  | 120,000 |  |  |  | 120 |  |  |  | 159,880 |  |  |  | - |  |  |  | - |  |  |  | 160,000 |
Shares issued for patents |  |  | 600,000 |  |  |  | 600 |  |  |  | 749,400 |  |  |  | - |  |  |  | - |  |  |  | 750,000 |
Imputed interest on related party note |  |  | - |  |  |  | - |  |  |  | 46,340 |  |  |  | - |  |  |  | - |  |  |  | 46,340 |
Issuance of warrants for interest |  |  | - |  |  |  | - |  |  |  | 46,188 |  |  |  | - |  |  |  | - |  |  |  | 46,188 |
Issuance of warrants for services |  |  | - |  |  |  | - |  |  |  | 67,000 |  |  |  | - |  |  |  | - |  |  |  | 67,000 |
Net loss for year ended December 31, 2017 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,788,901 | ) |  |  | (5,788,901 | )
Balance as of December 31, 2017 |  |  | 22,487,793 |  |  |  | 22,488 |  |  |  | 8,430,394 |  |  |  | (5,000 | ) |  |  | (5,943,925 | ) |  |  | 2,503,957 |
Subscription collected |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,000 |  |  |  | - |  |  |  | 5,000 |
Common stock issued for cash |  |  | 5,614,210 |  |  |  | 5,614 |  |  |  | 9,257,810 |  |  |  | - |  |  |  | - |  |  |  | 9,263,424 |
Organizational and fundraising cost |  |  | - |  |  |  | - |  |  |  | (1,137,211 | ) |  |  | - |  |  |  | - |  |  |  | (1,137,211 | )
Employee stock awards |  |  | 292,500 |  |  |  | 292 |  |  |  | 482,332 |  |  |  | - |  |  |  | - |  |  |  | 482,624 |
Stock grant expense |  |  |  |  |  |  |  |  |  |  | 106,563 |  |  |  |  |  |  |  | - |  |  |  | 106,563 |
Issuance of warrants for services |  |  | - |  |  |  | - |  |  |  | 125,000 |  |  |  | - |  |  |  | - |  |  |  | 125,000 |
Net loss for period ended March 31, 2018 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,797,228 | ) |  |  | (1,797,228 | )
Balance as of March 31, 2018 |  |  | 28,394,503 |  |  |  | 28,394 |  |  |  | 17,264,888 |  |  |  | - |  |  |  | (7,741,153 | ) |  |  | 9,552,129 |
Common stock issued for cash |  |  | 5,796,336 |  |  |  | 5,797 |  |  |  | 10,898,133 |  |  |  | - |  |  |  | - |  |  |  | 10,903,930 |
Common stock issued for exercised warrants |  |  | 1,972,800 |  |  |  | 1,973 |  |  |  | 4,765,652 |  |  |  | - |  |  |  | - |  |  |  | 4,767,625 |
Common stock issued for cashless warrant exercise |  |  | 10,495 |  |  |  | 11 |  |  |  | (11 | ) |  |  | - |  |  |  | - |  |  |  | - |
Organizational and fundraising cost |  |  | - |  |  |  | - |  |  |  | (1,704,563 | ) |  |  | - |  |  |  | - |  |  |  | (1,704,563 | )
Common stock issued for services |  |  | 5,000 |  |  |  | 5 |  |  |  | 22,345 |  |  |  | - |  |  |  | - |  |  |  | 22,350 |
Employee stock awards |  |  | 702,500 |  |  |  | 702 |  |  |  | 1,172,272 |  |  |  | - |  |  |  | - |  |  |  | 1,172,974 |
Stock grants |  |  | - |  |  |  | - |  |  |  | 703,030 |  |  |  | - |  |  |  | - |  |  |  | 703,030 |
Acquisition stock issuances |  |  | 6,450,002 |  |  |  | 6,450 |  |  |  | 14,117,555 |  |  |  | - |  |  |  | - |  |  |  | 14,124,005 |
Legal, advisory and consulting fees |  |  | (49,600 | ) |  |  | (50 | ) |  |  | (123,950 | ) |  |  | - |  |  |  | - |  |  |  | (124,000 | )
Common stock issued for convertible notes |  |  | 731,039 |  |  |  | 731 |  |  |  | 1,820,134 |  |  |  | - |  |  |  | - |  |  |  | 1,820,865 |
Net loss for year ended March 31, 2019 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (11,709,412 | ) |  |  | (11,709,412 | )
Balance as of March 31, 2019 |  |  | 44,013,075 |  |  | $ | 44,013 |  |  | $ | 48,935,485 |  |  | $ | - |  |  | $ | (19,450,565 | ) |  | $ | 29,528,933 |

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

F-18

AMMO, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW

|  | For the Year Ended March 31, 2019 |  |  | For the Three Months Ended March 31, 2018 |  |  | For the Year Ended December 31, 2017 |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net (Loss) |  | $ | (11,709,412 | ) |  | $ | (1,797,228 | ) |  | $ | (5,788,901 | )
Adjustments to reconcile Net (Loss) to Net Cash provided by operations: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 599,863 |  |  |  | 72,258 |  |  |  | 148,860 |
Loss on vendor notes receivable foreclosure |  |  | - |  |  |  | - |  |  |  | 1,279,921 |
Imputed interest |  |  | - |  |  |  | - |  |  |  | 46,340 |
Debt discount amortization |  |  | 151,856 |  |  |  | - |  |  |  | 356,250 |
Stock grants |  |  | 703,030 |  |  |  | 106,563 |  |  |  | - |
Stock for services |  |  | 22,350 |  |  |  | - |  |  |  | 454,625 |
Employee stock awards |  |  | 1,172,974 |  |  |  | 482,624 |  |  |  | 160,000 |
Warrants for services and interest |  |  | - |  |  |  | 125,000 |  |  |  | 113,188 |
Stock and warrants for promissory note conversion |  |  | 358,800 |  |  |  | - |  |  |  | - |
Loss on purchase |  |  | 2,118,154 |  |  |  | - |  |  |  | - |
Changes in Current Assets and Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Vendor advances receivable |  |  | - |  |  |  | - |  |  |  | 186,486 |
Accounts receivable |  |  | (131,113 | ) |  |  | (1,031,385 | ) |  |  | (171,812 | )
Allowance for doubtful accounts |  |  | 106,320 |  |  |  | (3,000 | ) |  |  | 26,046 |
Due to (from) related parties |  |  | (5,361 | ) |  |  | 4,257 |  |  |  | (18,461 | )
Inventories |  |  | (2,367,591 | ) |  |  | (612,693 | ) |  |  | (928,762 | )
Prepaid expenses |  |  | 215,489 |  |  |  | 101,114 |  |  |  | 183,181 |
Deposits |  |  | (12,734 | ) |  |  | (16,300 | ) |  |  | - |
Accounts payable |  |  | 1,440,879 |  |  |  | 2,572 |  |  |  | 418,898 |
Accrued liabilities |  |  | 42,289 |  |  |  | 286,435 |  |  |  | 254,774 |
Net cash used in operating activities |  |  | (7,294,207 | ) |  |  | (2,279,783 | ) |  |  | (3,279,367 | )
Cash flows from investing activities |  |  |  |  |  |  |  |  |  |  |  |
Purchase of equipment |  |  | (2,291,907 | ) |  |  | (507,181 | ) |  |  | (304,188 | )
Jagemann Acquisition |  |  | (7,000,000 | ) |  |  | - |  |  |  | - |
Purchase of patent |  |  | (250,000 | ) |  |  | (100,000 | ) |  |  | (100,000 | )
Net cash used in investing activities |  |  | (9,541,907 | ) |  |  | (607,181 | ) |  |  | (404,188 | )
Cash flow from financing activities |  |  |  |  |  |  |  |  |  |  |  |
Convertible note payment |  |  | - |  |  |  | - |  |  |  | (300,000 | )
Note payment - related party |  |  | (500,000 | ) |  |  | - |  |  |  | (960,000 | )
Insurance premium note payment |  |  | (191,275 | ) |  |  | (74,429 | ) |  |  | (207,033 | )
Contingent consideration payment |  |  | (50,000 | ) |  |  | - |  |  |  | - |
Convertible promissory note |  |  | 1,534,000 |  |  |  | (1,575,000 | ) |  |  | - |
Sale of common stock |  |  | 10,903,930 |  |  |  | 9,263,424 |  |  |  | 6,038,900 |

(Continued)

F-19

AMMO, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW

|  | For the Year Ended March 31, 2019 |  |  | For the Three Months Ended March 31, 2018 |  |  | For the Year Ended December 31, 2017 |
Purchase of common stock |  |  | (124,000 | ) |  |  | - |  |  |  | - |
Common stock issued for exercised warrants |  |  | 4,767,625 |  |  |  | - |  |  |  | - |
Collection of stock subscription |  |  | - |  |  |  | 5,000 |  |  |  | 167,500 |
Common stock activity - founders shares |  |  | - |  |  |  | - |  |  |  | (99,355 | )
Organizational and fundraising costs |  |  | (1,704,563 | ) |  |  | (1,137,211 | ) |  |  | (179,750 | )
Net cash provided by financing activities |  |  | 14,635,717 |  |  |  | 6,481,784 |  |  |  | 4,460,262 |
Net increase/(decrease) in cash |  |  | (2,200,397 | ) |  |  | 3,594,820 |  |  |  | 776,707 |
Cash, beginning of period |  |  | 4,381,643 |  |  |  | 786,823 |  |  |  | 10,116 |
Cash, end of period |  | $ | 2,181,246 |  |  | $ | 4,381,643 |  |  | $ | 786,823 |
Supplemental cash flow disclosures |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the period for - |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 240,523 |  |  | $ | - |  |  | $ | 9,105 |
Income taxes |  | $ | - |  |  | $ | - |  |  | $ | - |
Non-cash investing and financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Additional paid-in-capital |  | $ | (11 | ) |  | $ | - |  |  | $ | - |
Common stock |  |  | 11 |  |  |  | - |  |  |  | - |
Issuance of common stock |  |  | 4,624,005 |  |  |  | - |  |  |  | - |
Contingent consideration payable |  |  | 1,250,000 |  |  |  | - |  |  |  | - |
Patent acquisition |  |  | (5,874,005 | ) |  |  | - |  |  |  | - |
Issuance of common stock |  |  | 7,381,846 |  |  |  | - |  |  |  | - |
Note payable - related party |  |  | 10,400,000 |  |  |  | - |  |  |  | - |
Acquired Intangible Assets |  |  | (5,912,305 | ) |  |  | - |  |  |  | - |
Acquired Equipment |  |  | (11,869,541 | ) |  |  | - |  |  |  | - |
Convertible promissory note |  |  | (1,410,000 | ) |  |  | - |  |  |  | - |
Accrued Liabilities |  |  | (52,065 | ) |  |  | - |  |  |  | - |
Convertible promissory note conversion |  |  | 1,462,065 |  |  |  | - |  |  |  | - |
Vendor note receivable foreclosure |  |  |  |  |  |  |  |  |  |  |  |
Vendor notes receivable |  |  | - |  |  |  | - |  |  |  | 1,305,079 |
Vendor advances receivable |  |  | - |  |  |  | - |  |  |  | (96,552 | )
Accounts receivable |  |  | - |  |  |  | - |  |  |  | (20,965 | )
Inventories |  |  | - |  |  |  | - |  |  |  | (644,447 | )
Equipment |  |  | - |  |  |  | - |  |  |  | (543,115 | )
Licensing agreement |  |  | - |  |  |  | - |  |  |  | (125,000 | )
Issuance of common stock |  |  | - |  |  |  | - |  |  |  | 125,000 |
Insurance premium note payment |  |  | 321,966 |  |  |  | 167,456 |  |  |  | 213,913 |
Prepaid expense |  |  | (321,966 | ) |  |  | (167,456 | ) |  |  | (213,913 | )
Common Stock |  |  | - |  |  |  |  |  |  |  | 604 |
Additional paid-in-capital |  |  | - |  |  |  | - |  |  |  | (604 | )
Prepaid legal services |  |  | - |  |  |  | - |  |  |  | (224,000 | )
Issuance of common stock |  |  | - |  |  |  | - |  |  |  | 224,000 |
Issuance of common stock |  |  | - |  |  |  | - |  |  |  | 750,000 |
Patent acquisition |  |  | - |  |  |  | - |  |  |  | (750,000 | )
Stock subscription receivable |  |  | - |  |  |  | - |  |  |  | (5,000 | )
Additional paid-in-capital |  |  | - |  |  |  | - |  |  |  | 5,000 |
|  | $ | - |  |  | $ | - |  |  | $ | - |

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

F-20

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY

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

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

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

We use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”) and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.

The financial statements and related disclosures as of March 31, 2019, March 31, 2018, and December 31, 2017 are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Unless the context otherwise requires, all references to “AMMO”, “we”, “us”, “our,” or the “Company” are to AMMO, Inc., a Delaware corporation

Principles of Consolidation

The consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries, Enlight Group II, LLC (d/b/a Jagemann Munition Components), SNI, LLC, AMMO Munitions, Inc. and AMMO Technologies, Inc. (inactive). All significant intercompany accounts and transactions are eliminated in consolidation

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Cash and Cash Equivalents

For purposes of the statement of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

F-21

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable represent amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At March 31, 2019, March 31, 2018 and December 31, 2017, we reserved $129,365, $23,046, and $26,046, respectively, of allowance for doubtful accounts.

License Agreements

We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company, or JJF. The license agreement grants us the exclusive worldwide rights through October 15, 2021 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. In addition, Mr. James agreed to make himself available for certain promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of up to 75,000 additional shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.

We are a party to a license agreement with Jeff Rann, a well-known wild game hunter and spokesman for the firearm and ammunition industries. The license agreement grants us through February 2022 the exclusive worldwide rights to Mr. Rann’s image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of all Jeff Rann Branded Products. Mr. Rann agreed to make himself available for certain promotional activities and to promote the Branded Products through his own social media outlets. We agreed to pay Mr. Rann royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses. We also issued 100,000 shares of our common stock upon the execution of the license agreement with the potential issuance of 75,000 additional shares of common stock upon achieving certain gross sales with $15 million in gross sales required to earn the entire 75,000 shares.

Amortization expense for the license agreements for the year ended March 31, 2019, the three months ended March 31, 2018, and the year ended December 31, 2017 were $50,000, $12,500, and $45,833, respectively.

Patent

In 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. Under the terms of the Merger, we issued to Hallam, Inc.’s two shareholders, 600,000 shares of our common stock, subject to restrictions, and payment of $200,000. The first payment of $100,000 to the Hallam, Inc. shareholders was paid on September 13, 2017, and the second payment of $100,000 was paid on February 6, 2018.

The shares were valued at $1.25 and the aggregate value of $950,000 was recorded as a patent asset. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028. Patent amortization expense for the year ended March 31, 2019, the three months ended March 31, 2018, and the year ended December 31, 2017 were $85,074, $24,461, and $25,166.

Under the terms of the Merger, ATI succeeded to all of the assets of Hallam, Inc. and assumed the liabilities of Hallam, Inc., which were none. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date. Under the terms of the Exclusive License Agreement, the Company is obligated to pay a royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For year ended March 31, 2019, the three months ended March 31, 2018 and the year ended December 31, 2019, the Company accrued $33,920, $10,783, and $6,000 respectively under this agreement.

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, but may be recapitalized pending the outcome of the USPTO’s review of the application.

On October 5, 2018, we completed the acquisition of SW Kenetics Inc. on (See Note 7). Under the terms of the Merger, ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities. The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.

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

Other Intangible Assets

On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement (See Note 10). The intangible assets acquired include a tradename, customer relationships, and intellectual property. For the year ended March 31, 2019, amortization of the other intangibles assets was $61,803.

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the year ended March 31, 2019, the three month period ended March 31, 2018 or the year ended December 31, 2017.

F-22

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

Revenue Recognition

We generate revenue from the production and sale of ammunition. We recognize revenue according to ASC 606. When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. The Company applies 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

The Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. Our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of the Company’s product, which typically occurs upon shipment of the product.

For the year ended March 31, 2019, and the three months ended March 31, 2018 the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

|  | For the Year Ended March 31, 2019 |  |  | For the Three Months Ended March 31, 2018 |  |  | For the Year Ended December 31, 2017 |
PERCENTAGES |  | Revenues |  |  | Accounts Receivable |  |  | Revenues |  |  | Accounts Receivable |  |  | Revenues |  |  | Accounts Receivable |
Customers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
A |  |  | 24.6 | % |  |  | 29.4 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
B |  |  | 19.1 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
C |  |  | 10.0 | % |  |  | - |  |  |  | 35.5 | % |  |  | 54.6 | % |  |  | 57.8 | % |  |  | 27.4 | %
D |  |  | - |  |  |  | 19.0 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
E |  |  | - |  |  |  | - |  |  |  | 17.1 | % |  |  | 12.6 | % |  |  | - |  |  |  | - |
F |  |  | - |  |  |  | - |  |  |  | 15.1 | % |  |  | - |  |  |  | - |  |  |  | - |
G |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20.4 | %
H |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 12.7 | %
|  |  | 53.7 | % |  |  | 48.4 | % |  |  | 67.7 | % |  |  | 67.2 | % |  |  | 57.8 | % |  |  | 60.5 | %

Advertising Costs

We expense advertising costs as they are incurred. We incurred advertising and marketing costs of $554,266 $245,472 and $220,154 for the year ended March 31, 2019, for the three months ended March 31, 2018 and for the year ended December 31, 2017, respectively.

Fair Value of Financial Instruments

We measure options and warrants at fair value in accordance with Accounting Standards Codification 820 – Fair Value Measurement (“ASC 820”). The objective of ASC 820 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 specifies a valuation hierarchy based on whether the inputs to those valuation techniques are observable or unobservable.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets;

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value.

We value all common stock issued for services on the date of the agreements, using the price at which shares were being sold to private investors or at the value of the services performed.

We valued warrants issued for the reduction in conversion price for the conversion of Convertible Promissory Notes at the grant date of March 31, 2019 using valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk free interest rate, volatility, and expected life.

|  | March 31, 2019 |  |  | March 31, 2018 |  |  | December 31, 2017 |
Risk free interest rate |  |  | 2.39 | % |  |  | 2.05 | % |  |  | 1.31 - 1.5 | %
Expected volatility |  |  | 45 | % |  |  | 195 | % |  |  | 250 | %
Expected term |  |  | 2.5 years |  |  |  | 1 year |  |  |  | 1 - 1.5 years |
Expected dividend yield |  |  | 0 | % |  |  | 0 | % |  |  | 0 | %

F-23

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

Equipment acquired in the March 15, 2019 acquisition of the Jagemann Casings was valued at fair value on the acquisition date by a third party valuation firm.

We valued warrants issued for services at the grant date of March 12, 2018 using valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk free interest rate, volatility, and expected life.

In the year ended December 31, 2017, Equipment acquired in the foreclosure transaction and the patent were valued on their respective acquisition dates using fair values.

|  | Quoted Active Markets for Identified Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Total |
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  |  |
March 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Employee stock awards |  | $ | - |  |  | $ | 1,172,974 |  |  | $ | - |  |  | $ | 1,172,974 |
Executive stock grant expense |  |  | - |  |  |  | 703,030 |  |  |  | - |  |  |  | 703,030 |
SWK patent acquisition |  |  | - |  |  |  | - |  |  |  | 4,624,005 |  |  |  | 4,624,005 |
Jagemann Munition Components acquired intangible assets |  |  | - |  |  |  | - |  |  |  | 5,912,305 |  |  |  | 5,912,305 |
Stock and warrants issued for convertible promissory notes |  |  | - |  |  |  | 358,800 |  |  |  | - |  |  |  | 358,800 |
March 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Employee stock awards |  | $ | - |  |  | $ | 482,432 |  |  | $ | - |  |  | $ | 482,432 |
Executive stock grant expense |  |  | - |  |  |  | 106,563 |  |  |  | - |  |  |  | 106,563 |
Warrants issued for services |  |  | - |  |  |  | - |  |  |  | 125,000 |  |  |  | 125,000 |
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock issued for legal, advisory and consulting fees |  | $ | - |  |  | $ | 454,625 |  |  | $ | - |  |  | $ | 454,625 |
Employee stock awards |  |  | - |  |  |  | 160,000 |  |  |  | - |  |  |  | 160,000 |
Common stock for licensing agreement |  |  | - |  |  |  | 125,000 |  |  |  | - |  |  |  | 125,000 |
Patent acquisition, noncash element |  |  | - |  |  |  | - |  |  |  | 750,000 |  |  |  | 750,000 |
Warrants issued for interest |  |  | - |  |  |  | - |  |  |  | 46,188 |  |  |  | 46,188 |
Warrants issued for services |  |  | - |  |  |  | - |  |  |  | 67,000 |  |  |  | 67,000 |
Assets acquired in foreclosure |  |  | - |  |  |  | - |  |  |  | 543,115 |  |  |  | 543,115 |
Common Stock issued for prepaid legal fees |  |  | - |  |  |  | 224,000 |  |  |  | - |  |  |  | 224,000 |

Inventories

We state inventories at the lower of cost or market. 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 inventories for obsolescence.

Property and Equipment

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

Compensated Absences

We accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General.

F-24

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

Stock-Based Compensation

We account for stock-based compensation at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). There were 702,500 shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during the year ended March 31, 2019.

On March 12, 2018, we entered into an employment agreement with an executive that included, among other provisions, an equity grant of 400,000 shares of restricted common stock that vests at the rate of 100,000 shares annually for four years. The $660,000 compensation value is being recognized ratably on a straight-line basis over the four-year period covered by the agreement.

On May 1, 2018, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other provisions, an equity grant of 100,000 shares of restricted common stock that vests at the rate of 33,333 shares annually for three years. The $250,000 compensation value is being recognized on a straight-line basis over the three-year period covered by the agreement.

From September 2018 through March 2019, we entered into seven separate employment agreements that included in total, among other provisions, equity grants of 535,000 shares of restricted common stock that vests annually over the next four years. The total compensation value of $1,376,000 is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.

Concentrations of Credit Risk

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at various times. As of March 31, 2019, our bank account balances exceeded federally insured limits.

Income Taxes

We file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We measure recognized income tax positions at the largest amount that is greater than 50% likely of being realized. We reflect changes in recognition or measurement in the period in which the change in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.

Contingencies

Certain conditions may exist as of the date the 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 possible that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in our 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. There were no known contingencies at March 31, 2019, March 31, 2018 or December 31, 2017.

Recent Accounting Pronouncements

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The revised effective date for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. We adopted ASU 2014-09 as of January 1, 2018, and it did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows for the year ended March 31, 2019 and the three months ended March 31, 3018.

F-25

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

Sales are initiated in three ways –

| ● | third party sales representative obtains signed purchase order from a customer
| ● | direct contact by in-house sales representatives who obtains signed purchase order
| ● | electronic purchase order from a customer (usually the very large customers)

Once a customer’s order is received a sales order is generated by authorized sales or management personnel. Once approved for shipping, the sales order is entered, the inventory control department will pull the purchased items from the inventory or if needed will request the manufacture of a specific product. When the items that were ordered are available for shipment, the merchandise is prepared for shipping and shipped by FedEx or common carrier.

All sales are recorded upon shipment and, depending on credit worthiness of customer, the payment terms will vary from thirty (30) to sixty (60) days. No refunds are allowed on any product shipped.

Each product manufactured by the Company has standard specifications and performance objectives. The Company has an extensive product testing program and, if the Company were given notice of a product defect by a customer, the Company would request the return of the product so that the manufacturing defect could be identified. From inception to March 31, 2019, the Company has had no returned products related to product warranty.

The revenue recognition procedures set forth above have been used by the Company since its inception and are consistent with requirements of ASC 606 “Revenue from Contracts with Customers”.

In February 2016, the FASB issued ASU 2016-02 – “Leases (Topic 842)” Under ASU 2016-02, entities will be required to recognize lease asset and lease liabilities by lessees for those leases classified as operating leases. Among other changes in accounting for leases, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. The amendments in ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018, including interim periods with those fiscal years for public business entities. We are currently evaluating the effect of the adoption of ASU 2016-02 will have on our consolidated results of operations, financial position or cash flows.

On June 20, 2018, the FASB expanded the scope of Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation, to include share-based payments to nonemployees for goods and services. The accounting board said the amendments in Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, align the guidance for stock compensation to employees and nonemployees. The amended guidance replaces ASC 505-50, Equity – Equity-Based Payments to Non-Employees. We anticipate that this ASC will not have a material effect on the Company’s financial statements.

The amendments in ASU No. 2018-07 apply “to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards,” the FASB said. But the amended guidance does not cover stock compensation that is used to provide financing to the company that issued the shares or stock awards tied to a sale of goods or services as part of a contract accounted for according to ASC 606, Revenue From Contracts With Customers.

The amendments are effective for public companies for fiscal years that begin after December 15, 2018, and the quarterly and other interim periods in those years, the FASB said the amended guidance can be applied before it becomes effective, but businesses are not permitted to use the guidance in ASU No. 2018-07 before they have implemented ASC 606. We have evaluated the effect of the adoption of ASU 2018-07 will have on our consolidated results of operations, financial position or cash flows and determine the effects will not be material to the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

Loss Per Common Share

We calculate basic loss per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants, using various methods, such as the treasury stock or modified treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase 8,143,115 shares of common stock that are potentially dilutive. All weighted average numbers were adjusted for the reverse stock split and merger transaction. Due to the loss from operations in the year ended March 31, 2019, the three month period ended March 31, 2018, and the year ended December 31, 2017, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive.

F-26

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 3 – VENDOR NOTES RECEIVABLE

While living in Payson, AZ, a small city 90 minutes north of Phoenix, AMMO’s CEO, Fred Wagenhals, was approached by Payson’s mayor to discuss Advanced Tactical Armament Concepts, LLC (ATAC), an ammunition manufacturing company located in Payson. ATAC was experiencing financial difficulties and the mayor was concerned about the economic effect it would have on his city if ATAC’s manufacturing plant closed down. The mayor asked Mr. Wagenhals if he could develop a plan to salvage the ATAC plant and restore operations.

Before Mr. Wagenhals could assist, ATAC’s financial situation worsened and the business ceased operations. ATAC’s bank, WESTERN ALLIANCE BANK, petitioned the bankruptcy court to appoint a receiver to protect the bank’s collateral. Wagenhals approached the bank about resolving the receivership issue and re-opening the business. The bank agreed to delay its action in exchange for an immediate payment of $235,000 by ATAC and an increase of $665,000 in ATAC’s working capital. ATAC borrowed $900,000 plus $135,000 in stipulated interest from a related party of Wagenhals (Mansfield L.L.C.). On October 24, 2016, AMMO, Inc. completed negotiations with Western Alliance Bank to purchase the bank’s position ($1,910,993) as the note holder for $1,550,000.

Vendor note receivable consisted of the following at December 31, 2016:

Advanced Tactical Armament Concepts, L.L.C. Notes Payable Purchased by Ammo |  | Amount |
Western Alliance Bank – Balance outstanding as of October 24, 2016 |  | $ | 1,910,993 |
Negotiated Discount with Western Alliance Bank to assume the Note Receivable |  |  | (360,993 | )
AMMO, Inc. Net Purchase Price for Western Alliance Note Payable |  |  | 1,550,000 |
Mansfield, LLC Note Outstanding, inclusive of $135,000 fee outstanding |  |  | 1,035,000 |
AMMO, Inc. Net Purchase Price to Acquire Notes Receivable of Western Alliance Bank & Mansfield LLC |  | $ | 2,585,000 |

On November 21, 2016 AMMO applied for its’ Federal Firearms License which it received on February 1, 2017. Between November 21, 2016 and February 1, 2017, Wagenhals made an agreement with the owners of ATAC to start production of AMMO, Inc. branded ammunitions. This was accomplished by providing ATAC $219,000 in raw materials and ATAC was advanced $89,000 to pay selected ATAC vendors whose materials were required in the manufacturing process and to re-hire production employees. AMMO negotiated an agreement with the management of ATAC to liquidate the vendor notes advances balance by manufacturing AMMO branded products in the future.

ATAC’s operations continued to worsen and on February 20, 2017, a sale was held for the disposition of collateral for Advanced Tactical Armament Concepts, LLC, a Nevada Limited Liability Company. As a secured party, we submitted a creditor bid. Our bid for the sale for the disposition of collateral was the highest and was accepted and we assumed operation of the manufacturing facility. We reflected this transaction in the following manner:

Notes Receivable |  | $ | (2,585,000 | )
Vendor advances receivable |  |  | 96,552 |
Accounts receivable |  |  | 20,965 |
Inventories |  |  | 644,447 |
Equipment |  |  | 543,115 |
Loss on notes receivable |  |  | 1,279,921 |
|  | $ | - |

The management of AMMO reviewed their options for accounting for the foreclosure on ATAC’s collateral and determined that they had not purchased a business, therefore the assets acquired in foreclosure would have to be assessed for their fair values. The receivables and inventories were valued at their collectible amounts or replacement costs. AMMO had the equipment appraised by a professional appraisal firm.

NOTE 4 – INVENTORIES

At March 31, 2019, March 31, 2018, December 31, 2017, the inventory balances consisted of the following:

|  | March 31, 2019 |  |  | March 31, 2018 |  |  | December 31, 2017 |
Finished product |  | $ | 2,628,241 |  |  | $ | 809,680 |  |  | $ | 1,007,291 |
Raw materials |  |  | 1,635,130 |  |  |  | 1,471,666 |  |  |  | 764,810 |
Work in process |  |  | 509,226 |  |  |  | 123,661 |  |  |  | 20,213 |
|  | $ | 4,772,597 |  |  | $ | 2,405,007 |  |  | $ | 1,792,314 |

F-27

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 5 – EQUIPMENT

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

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

Property and equipment consisted of the following at March 31, 2019, March 31, 2018 and December 31, 2017:

|  | March 31, 2019 |  |  | March 31, 2018 |  |  | December 31, 2017 |
Leasehold Improvements |  | $ | 98,444 |  |  | $ | 17,772 |  |  | $ | 15,475 |
Furniture and Fixtures |  |  | 154,777 |  |  |  | 8,102 |  |  |  | 33,751 |
Vehicles |  |  | 103,511 |  |  |  | 89,388 |  |  |  | 36,500 |
Equipment |  |  | 18,689,140 |  |  |  | 879,871 |  |  |  | 184,626 |
Tooling |  |  | 117,390 |  |  |  | 359,351 |  |  |  | 579,951 |
Construction in Progress |  |  | 3,352,669 |  |  |  | - |  |  |  | - |
Total property and equipment |  | $ | 22,515,931 |  |  | $ | 1,354,484 |  |  | $ | 847,303 |
Less accumulated depreciation |  |  | (516,144 | ) |  |  | (113,158 | ) |  |  | (77,861 | )
Net equipment |  |  | 21,999,787 |  |  |  | 1,241,326 |  |  |  | 769,442 |

Depreciation expense for the year ended March 31, 2019, for the three months ended March 31, 2018, and for the year ended December 31, 2017 totaled $402,986, $35,297, and $77,861, respectively.

NOTE 6 – CONVERTIBLE NOTE PAYABLE

We entered into an agreement for a short-term convertible note payable to an unrelated party on December 22, 2016 with a 60-day maturity and a $1,875,000 principal balance. The note had a one-time fee of $375,000, which was amortized as interest ratably over the 60-day period. The note is convertible into shares of our common stock and one stock purchase warrant at a conversion price of $1.25 per unit and an exercise price of $2.50.

During the year ended December 31, 2017, we recognized $356,250 of interest as amortization of a portion of the one-time interest fee and accrued an additional $74,896 in interest expense. As of December 31, 2017, the balance of the note payable was $1,575,000.

During the three months ended March 31, 2018, we recorded no additional interest expense and the note was paid in full.

F-28

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 7 – NOTES PAYABLE – RELATED PARTY

On December 16, 2016, we and Mansfield, an entity controlled by our Chief Executive Officer, entered into a note purchase and sale agreement to purchase a promissory note held by Mansfield and payable by ATAC. We purchased the promissory note for $1,035,000. The note was repaid on December 31, 2017. Interest on the note was imputed in the amount of $46,340, as there was no stated interest rate in the note document.

In connection with the acquisition of the patent on August 22, 2017, we were obligated to pay $200,000 to Hallam, Inc.’s shareholders. The first $100,000 was paid on August 22, 2017, and a note was executed in the amount of $100,000 which was paid in full on February 2, 2018.

On August 29, 2017, we borrowed $100,000 from a paid legal consultant to whom we issued warrants to purchase 40,000 shares of common stock with an exercise price of $0.50 per share, expiring two years from date of issuance. The warrants were valued at $46,188 and recognized as interest expense in 2017. The note was paid in full on October 31, 2017.

In connection with the acquisition of the casing division of Jagemann Stamping Company, a $10,400,000 promissory note was executed and is described in Note 10. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly until October 1, 2019 when the interest rate increases to 9% per annum payable monthly until principal and accrued interest are paid in full. In May of 2019, the Company paid $1,500,000 on the balance of the note. As of March 31, 2019, we accrued interest of $22,196 related to the note. The note is secured by all the equipment purchased from Jagemann Stamping Company and was valued at $18,869,541 in the accompanying financial statements.

NOTE 8 – CONVERTIBLE PROMISSORY NOTES

On January 9, 2019, we completed the issuance of 10% Convertible Promissory Notes in the principal amount of $1,710,000 to accredited investors through a private placement in exchange for cash in an equal amount. The principal amounts were raised from the period of October 23, 2018 to December 28, 2018. As a result of the issuance of the Convertible Promissory Notes, the placement agent received an aggregate commission of $171,000, and $5,000 in escrow fees were paid, totaling $176,000 of Note Issuance Costs. As of March 31, 2019, we recorded $151,856 of interest expense related to the Note Issuance Costs.

The Maturity Date of the notes is the two year anniversary from the date of issuance. The holders have the option to convert the entire principal of the Convertible Promissory Note into Common Stock at a conversion price equal to $2.50 per share at any time until the Maturity Date, subject to “Qualified Financing.” Qualified Financing means the next equity round of financing of the Company that raises not less than $10,000,000 gross proceeds from institutional(s) or commercial lender(s) in the aggregate with any combination of Common Stock (valued at the close of the Trading Day on the date of the closing for the financing) or debt. In the event of Qualified Financing, the Convertible Promissory Notes will automatically convert 100% of the principal amount into Common Stock at a conversion price equal to $2.50 per share. As of March 31, 2019, we accrued $65,291 of interest expense related to the Convertible Promissory Notes.

On February 28, 2019, the company notified the holders of an offer to convert Convertible Promissory Notes and Accrued Interest into Common Stock at a conversion price of $2.00 per share and receive one-half warrant exercisable at $2.40 per share for five years in conjunction with each converted share On March 29, 2019, the Company converted $1,410,000 of Convertible Promissory Notes and $52,065 of Accrued Interest into 731,039 shares of Common Stock and issued Warrants to purchase 365,523 shares of Common Stock. The offer ended on March 29, 2019 at 11:59 PM. As a result of the conversion of the Convertible Promissory Notes, the Company accrued $42,300 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company. Additionally, $118,351 of Unamortized Note Issuance Costs were amortized and $358,800 of Interest Expenses related to the reduction in conversion price were recognized as result of the conversions.

The holders that did not elect to convert their notes during this period have the option to convert their entire principal of the Convertible Promissory Note into Common Stock per the terms of the original agreement.

As of March 31, 2019, there was $300,000 in principal remaining and $23,145 of Unamortized Note Issuance Costs.

On June 5, 2019, the remaining $300,000 of Convertible Promissory Notes were mandatorily converted into shares of our common stock pursuant to the terms of the Note. The Company converted $300,000 of Convertible Promissory Notes and $18,228 of Accrued Interest were converted into 127,291 shares of Common Stock at a conversion price of $2.50. The Company accrued $9,000 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company.

NOTE 9 – CAPITAL STOCK

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

During the 12-month period ended December 31, 2017, we issued 6,733,793 shares of common stock as follows:

| ● | 604,371 were issued in connection with the acquisition of our business assets
| ● | 100,000 net shares were issued to founding shareholders
| ● | 4,640,822 shares were sold to investors for $6,038,900
| ● | 544,600 shares valued at $678,625 were issued for legal, advisory, and consulting fees
| ● | 600,000 shares valued at $750,000 were issued to acquire the use of a patent
| ● | 120,000 shares valued at $160,000 were issued to employees as compensation
| ● | 100,000 shares were issued to Jeff Rann for a licensing agreement
| ● | 24,000 shares were issued for other purposes

F-29

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

During the three-month period ended March 31, 2018, we issued 5,906,710 shares of common stock as follows:

| ● | 5,614,210 shares were sold to investors for $9,263,424
| ● | 292,500 shares valued at $482,624 were issued to employees and directors as compensation

During the year ended March 31, 2019, we issued 15,618,572 shares of common stock as follows:

| ● | 5,796,336 shares were sold to investors for $10,903,930
| ● | 1,972,800 shares were issued through exercised warrants of $4,767,625
| ● | 10,495 shares were issued through a cashless exercise of 14,719 warrants
| ● | 702,500 shares valued at $1,172,974 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation
| ● | 5,000 shares were issued for services valued at $22,350
| ● | 1,700,002 shares were issued to the shareholders of SW Kenetics, Inc. (subject to claw back provisions) valued $4,624,005 in connection with the acquisition
| ● | 4,750,000 shares were issued to Jagemann Stamping Company valued at $9,500,000 in connection with the acquisition of Jagemann Casings
| ● | 731,039 shares were issued for the conversion of Convertible Promissory Notes valued at $1,820,865
| ● | 49,600 shares were purchased by the Company for a price of $124,000

In November of 2017, the Board of Directors approved the 2017 Equity Incentive Plan (“the Plan”). Under the Plan, 485,000 shares of the common stock were reserved and authorized to be issued. As of December 31, 2017, 200,000 shares of common stock were approved and issued under the Plan, and we recognized approximately $250,000 of related consulting expense. On January 10, 2018, 200,000 shares were awarded, and we recognized $330,000 of compensation expense. There are 85,000 shares remaining to be issued under the Plan.

In October of 2017. we entered into a placement agent agreement to secure equity capital from qualified investors to provide funds to expand our operations. The offering consisted of Units priced at $1.65, which included one share of common stock and one five-year warrant to purchase an additional half-share of common stock for an exercise price of $2.00 per share. Effectively, every two units purchased provided the investor with a five-year warrant at an exercise price of $2.00 per share. Units sold under this arrangement totaled 594,702 shares of common stock and 297,351 warrants for $981,250 during the year ended December 31, 2017, and 5,614,210 shares of common stock and 2,807,105 warrants for a total of $9,263,424 for the three months ended March 31, 2018. The total number of Units covered by this offering was 6,060,606, and the amount was $10,000,000. In March 2018, we entered into a second placement agent agreement with the same terms for up to an additional $3,500,000.

For services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of seven years and an exercise price of $1.65 per share. The cash fee totaled $117,750 for the year ended December 31, 2017 and $1,137,211 for the three months ended March 31, 2018, including reimbursed expenses. Under this agreement, we recognized 71,364 and 673,705 warrants as authorized, but unissued as of December 31, 2017 and March 31, 2018, respectively.

In April of 2018, our second placement agreement to secure equity capital from qualified investors to provide funds to our operations ended. Units sold under this agreement during the year ended March 31, 2019 totaled 1,967,886 shares of common stock and 983,943 warrants for $3,247,030. The cash fee totaled $389,644 for the year ended March 31, 2019, including reimbursed expenses. We authorized an additional 236,145 warrants to the placement agent under the terms of the agreement and issued a total of 981,213 warrants to the placement agent for the two placement agent agreements.

In December of 2018, we entered into a placement agreement to secure equity capital from qualified investors to provide up to $13,000,000 in funds to our operation. The offering consisted of Units priced at $2.00, which included one share of common stock and one five-year warrant to purchase an additional half-share of common stock for an exercise price of $2.40 per share. Effectively, every two units purchased provided the investor with a five-year warrant at an exercise price of $2.40 per share. Units sold under this agreement totaled 3,828,450 shares of common stock and warrants to purchase 1,914,225 shares of our Common Stock for $7,656,900 for the year ended March 31, 2019. As of June 28, 2019, there is up to $3,546,000 in funds to be provided under this placement agreement.

For services provided under the placement agreements, the placement agent collected a 12% cash fee on the sale of every Unit and a fee payable in warrants equaling 12% of the total Units sold. These warrants have a term of five years and an exercise price of $2.00 per share. The cash fee totaled $942,828 for the year ended March 31, 2019, including reimbursed expenses and the fee payable in warrants totaled 459,414 warrants.

On March 29, 2019, the Company converted $1,410,000 of Convertible Promissory Notes and $52,065 of Accrued Interest into 731,039 shares of Common Stock and Warrants to purchase 365,523 shares of Common Stock. We accrued $42,300 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company.

F-30

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

At March 31, 2019, March 31, 2018, and December 31, 2017, outstanding and exercisable stock purchase warrants consisted of the following:

|  | December 31, 2017 |
|  | Number of Shares |  |  | Weighted Averaged Exercise Price |  |  | Weighted Average Life Remaining (Years) |
Outstanding at December 31, 2016 |  |  | 720,000 |  |  | $ | 2.22 |  |  |  | 1.95 |
Granted |  |  | 4,542,338 |  |  |  | 2.23 |  |  |  | 1.9 |
Exercised |  |  | - |  |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at December 31, 2017 |  |  | 5,262,338 |  |  | $ | 2.43 |  |  |  | 1.77 |
Exercisable at December 31, 2017 |  |  | 5,262,338 |  |  | $ | 2.43 |  |  |  | 1.77 |

|  | March 31, 2018 |
|  | Number of Shares |  |  | Weighted Averaged Exercise Price |  |  | Weighted Average Life Remaining (Years) |
Outstanding at December 31, 2017 |  |  | 5,262,338 |  |  | $ | 2.50 |  |  |  | 1.77 |
Granted |  |  | 3,609,822 |  |  |  | 2.42 |  |  |  | 5.13 |
Exercised |  |  | - |  |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at March 31, 2018 |  |  | 8,872,160 |  |  | $ | 2.23 |  |  |  | 2.97 |
Exercisable at March 31, 2018 |  |  | 8,872,160 |  |  | $ | 2.23 |  |  |  | 2.97 |

|  | March 31, 2019 |
|  | Number of Shares |  |  | Weighted Averaged Exercise Price |  |  | Weighted Average Life Remaining (Years) |
Outstanding at March 31, 2018 |  |  | 8,872,160 |  |  | $ | 2.23 |  |  |  | 2.97 |
Granted |  |  | 4,233,274 |  |  |  | 2.23 |  |  |  | 4.62 |
Exercised |  |  | (1,987,519 | ) |  |  | 2.41 |  |  |  | - |
Forfeited or cancelled |  |  | (2,974,800 | ) |  |  | 2.47 |  |  |  | - |
Outstanding at March 31, 2019 |  |  | 8,143,115 |  |  | $ | 2.09 |  |  |  | 4.35 |
Exercisable at March 31, 2019 |  |  | 8,143,115 |  |  | $ | 2.09 |  |  |  | 4.35 |

F-31

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

As of March 31, 2019, we had 8,143,115 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase an aggregate of 349,060 shares of Common Stock at an average price of $2.50 per share until March 2020; (2) warrants to purchase 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (3) warrants to purchase 4,547,813 shares of our Common Stock of an exercise price of $2.00 per share until over the next five years, and (4) warrants to purchase 2,279,748 shares of Common Stock at an exercise price of $2.40 until March 2024.

On May 31, 2018, per the terms of the private offering dated January 25, 2017, we called for the exercise of warrants to purchase a total of 4,947,600 shares of our Common Stock. According to the terms of the Warrant Purchase Agreement, the warrants could be called when the average price of our common stock traded at $5.00 per share or higher, for a consecutive 30 day period. This call provision was met on May 21, 2018. As a result, we issued formal notice to all warrant holders on May 31, 2019, advising them that they had until July 6, 2018, to exercise their warrants, or they would become null and void. The total number of warrants included in the January 25, 2017 offering were 4,947,600 and were priced as follows: 4,790,100 warrants at an exercise price of $2.50, 67,500 warrants at an exercise price of $1.25 and 90,000 warrants at an exercise price of $0.50.

As of July 6, 2018, a total of 1,972,800 warrants were exercised to purchase an equivalent 1,972,800 shares of common stock at an average price of $2.42 and 2,974,800 warrants to purchase shares of Common Stock were cancelled. On July 12, 2018, the company filed a Form 8-K to report the activity of this event.

Additionally, there was a cashless exercise of 14,719 warrants resulting in the issuance of 10,495 shares of Common Stock unrelated to the call for the exercise of warrants.

NOTE 10 – ACQUISITIONS

SW Kenetics, Inc.

On September 27, 2018, AMMO Technologies, Inc. (“ATI”) entered into a definitive Agreement and Plan of Merger with SW Kenetics Inc. (“SWK”), an Arizona corporation and completed the merger on October 5, 2018. Pursuant to the agreement SWK merged with and into AMMO Technologies, Inc., with ATI being the survivor. Under the terms of the agreement, we issued to SW Kenetics Inc.’s three shareholders, 1,700,002 restricted shares of our common stock, payment of $250,000, and a payment obligation of $1,250,000 subject to completion of specific milestones that we have recorded as Contingent Consideration Payable. Additionally, the 1,700,002 shares of common stock were issued with claw back provisions to ensure agreed upon objectives are met. Included among the list of milestones or events that must be completed are significant revenue goals incorporating the product technology of SWK. The initial payment of $250,000 was made on August 20, 2018. The shares were each valued at $2.72, the weighted average share price of our Common Stock that was publicly traded and sold through private placement. We recorded the total purchase consideration to patents as follows:

Cash |  | $ | 250,000 |
Contingent Consideration Payable |  |  | 1,250,000 |
Common Stock |  |  | 1,700 |
Additional Paid-in Capital |  |  | 4,622,305 |
Fair Value of Patent |  | $ | 6,124,005 |

The fair value originally recorded was determined by a third party valuation firm. SWK’s significant assets only include the patent asset and the third party valuation firm allocated determined the fair value measurement based on the patent.

SWK is a research and development firm located in Arizona that has designed a new portfolio of modular projectiles that the Company believes will advance the force capability of the United States military, as well as NATO member countries. SWK filed a patent for their technology, which is now pending with the United States Patent and Trademark Office.

On December 13, 2018, the Company made a $50,000 payment to SW Kenetics, Inc. in connection with the completion of a milestone. The $50,000 payment reduced the Contingent Consideration Payable.

Jagemann Stamping Company’s Ammunition Casing Division

On March 15, 2019, Enlight Group II, LLC (hereinafter referred to as the “Buyer”), a wholly owned subsidiary of AMMO, Inc., completed its acquisition of selected assets of Jagemann Stamping Company’s (“Seller”) ammunition casing, projectile manufacturing, and sales operations (“Jagemann Casings”) pursuant to the terms of the Amended and Restated Asset Purchase Agreement (“Amended APA”) dated March 14, 2019.

In accordance with the terms of the Amended APA, Buyer paid Seller a combination of $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of AMMO, Inc., common stock valued at $2.00 per share.

F-32

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

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

Cash |  | $ | 7,000,000 |
Note Payable |  |  | 10,400,000 |
Common Stock |  |  | 4,750 |
Additional Paid-in Capital |  |  | 9,495,250 |
Total Consideration |  | $ | 26,900,000 |

Total allocation for the consideration recorded for the acquisition is as follows:

Equipment |  | $ | 18,869,541 |
Intellectual property |  |  | 1,773,436 |
Customer relationships |  |  | 1,666,774 |
Tradename |  |  | 2,472,095 |
Loss on Purchase |  |  | 2,118,154 |
Total Consideration |  | $ | 26,900,000 |

The fair value of the tangible and intangible assets recorded was determined by third party valuation firms. The acquired intangible assets, have remaining useful lives ranging from three to five years.

Seller is engaged exclusively in the business of full-service stamping involving, among other things, the manufacture and sale of deep drawn stampings for use in the ammunition casing and projectile industries. Pursuant to the Amended APA, Buyer acquired the Seller’s munition and casing division assets (including equipment and intellectual property), and is transitioning the associated employees to its direct workforce to continue the operations at Seller’s Wisconsin facilities.

NOTE 11 – ACCRUED LIABILITIES

At March 31, 2019, March 31, 2018, and December 31, 2017, accrued liabilities were as follows:

|  | March 31, 2019 |  |  | March 31, 2018 |  |  | December 31, 2017 |
Accrued payroll |  | $ | 248,027 |  |  | $ | 172,419 |  |  | $ | 145,779 |
Accrued interest |  |  | 35,422 |  |  |  | - |  |  |  | 74,896 |
Accrued FAET |  |  | 145,460 |  |  |  | 133,104 |  |  |  | 26,075 |
Accrued professional fees |  |  | 74,300 |  |  |  | 99,255 |  |  |  | - |
Other accruals |  |  | 28,225 |  |  |  | 136,432 |  |  |  | 8,024 |
|  | $ | 531,434 |  |  | $ | 541,210 |  |  | $ | 254,774 |

NOTE 12 – RELATED PARTY TRANSACATIONS

On December 16, 2016, we purchased a promissory note in the amount of $1,035,000 from Mansfield L.L.C. (“Mansfield”), a company owned by our CEO, Fred Wagenhals. We paid $75,000 on the note in the year ended December 31, 2016 and $960,000 in the year ended December 31, 2017 and recorded imputed interest of $46,340.

From October 2016 through December 2018, our executive offices were located in Scottsdale, Arizona where we lease approximately 5,000 square feet under a month-to-month triple net lease for $3,800 per month. This space housed our principal executive, administration, and marketing functions. Our Chairman, President, and Chief Executive Officer owns the building in which these offices are currently leased.

During the year ended March 31, 2019, we paid approximately $168,000 in consulting fees, and $53,013 of rent to related parties. During the period ended March 31, 2018, we paid approximately $69,800 in consulting fees, and $12,434 of rent to related parties. During the year ended December 31, 2017, we paid approximately $212,700 in consulting fees, $143,000 in rents and corporate overhead and reimbursed general corporate expenses of $121,500 to related parties.

In connection with the acquisition of the casing division of Jagemann Stamping Company, a promissory note was executed. The promissory note, under which $500,000 was paid on March 25, 2019 using funds raised for the acquisition, had a remaining balance at March 31, 2019 of $9,900,000. On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly until October 1, 2019 when the interest rate increases to 9% per annum payable monthly until principal and accrued interest are paid in full. In May of 2019, the Company paid $1,500,000 on the balance of the Note. As of March 31, 2019, we accrued interest of $22,196 related to the note.

F-33

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 13 – OPERATING LEASES

We are obligated under a triple-net operating lease for our 20,000 square foot manufacturing facility located in Payson, Arizona. The terms of the lease require a payment of approximately $10,000 per month, which includes an estimate for utilities, taxes, and repairs. This lease expires in November of 2021.

We believe this facility will be adequate to meet our needs in the near future. However, we are making plans to expand our building footprint to accommodate additional automation equipment. We intend to pay for these improvements using working capital and will amortize the costs over the remaining lease period.

The following table outlines our future contractual financial obligations associated with this lease by fiscal year in which payment is expected, as of March 31, 2019:

|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | Total |
Payson Lease |  | $ | 120,000 |  |  | $ | 120,000 |  |  | $ | 80,000 |  |  | $ | 320,000 |

Our executive offices are located in Scottsdale, Arizona where we lease 21,000 square feet of office and warehouse space for $17,702, which will increase by approximately 4.4% each year. This space houses our principal executive, administration, marketing, and research and development functions. The lease expires in December of 2023.

The following table outlines our future contractual financial obligations associated with this lease by fiscal period in which payment is expected, as of March 31, 2019:

|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | Total |
Scottsdale Lease |  | $ | 216,591 |  |  | $ | 226,587 |  |  | $ | 236,583 |  |  | $ | 246,580 |  |  | $ | 147,240 |  |  | $ | 1,073,581 |

Our ammunition casing operations are located in Manitowoc, Wisconsin where we lease approximately 50,000 square feet. The terms of the lease provide for a monthly payment of approximately $32,844. The lease expires in March of 2026 and can be renewed every three years thereafter.

The following table outlines our future contractual financial obligations associated with this lease by fiscal period in which payment is expected, as of March 31, 2019:

|  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | 2025 |  |  | 2026 |  |  | Total |
Manitowoc Lease |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 394,128 |  |  | $ | 2,758,896 |

Additional offices are located in Scottsdale, Arizona where we lease approximately 5,000 square feet under a month-to-month triple net lease for $3,800 per month. This office building is owned by a related party.

Total lease and rent expense for the year ended March 31, 2019, for the three months ended March 31, 2018 and the year ended December 31, 2017 were $272,700, $47,400 and $199,950, respectively.

F-34

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 14 – INCOME TAXES

As of March 31, 2019, we had net operating loss carryforwards of approximately $13,229,231, which will expire beginning at the end of 2036. A valuation allowance has been provided for the deferred tax asset as it is uncertain whether the Company will have future taxable income.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduces the corporate tax rate to 21% effective January 1, 2018. Consequently, we have recorded an adjustment to the deferred tax provision for the year ended December 31, 2017.

Reconciliation of the benefit (expense) for income taxes with amounts determined by applying the statutory federal income rate of 21% in 2019 and 2018 and 34% in 2017:

|  | 2019 |  |  | 2018 |  |  | 2017 |
Net (Loss) |  | $ | (11,709,412 | ) |  | $ | (1,797,228 | ) |  | $ | (5,788,901 | )
Benefit (expense) for income taxes computed using the statutory rate of 21% in 2019 and 2018 and 34% in 2017 |  |  | 2,458,977 |  |  |  | 377,418 |  |  |  | 1,968,226 |
Non-deductible expense |  |  | (918,417 | ) |  |  | (161,864 | ) |  |  | (360,952 | )
Re-measurement of deferred income taxes due to tax reform |  |  | - |  |  |  | - |  |  |  | (632,683 | )
Change in valuation allowance |  |  | (1,540,560 | ) |  |  | (215,554 | ) |  |  | (974,591 | )
Provision for income taxes |  | $ | - |  |  | $ | - |  |  | $ | - |

Significant components of the Company’s deferred tax liabilities and assets at March 31, 2019, March 31, 2018, and December 31, 2017 are as follows:

|  | 2019 |  |  | 2018 |  |  | 2017 |
Total deferred tax assets – net operating losses |  | $ | 2,778,139 |  |  | $ | 1,237,579 |  |  | $ | 1,022,025 |
Deferred tax liabilities |  |  | - |  |  |  | - |  |  |  | - |
Net deferred tax assets |  |  | 2,778,139 |  |  |  | 1,237,579 |  |  | $ | 1,022,025 |
Valuation allowance |  |  | (2,778,139 | ) |  | $ | (1,237,579 | ) |  | $ | (1,022,025 | )
|  | $ | - |  |  | $ | - |  |  | $ | - |

At March 31, 2019, net operating loss (“NOL”) carry forwards summary follows:

Expiring December 31, |  |  |
2036 |  | $ | 139,512 |
2037 |  |  | 4,727,276 |
|  |  | 4,866,788 |
Non-Expiring NOL |  |  |  |
2018 |  |  | 1,026,447 |
2019 |  |  | 7,335,996 |
Total NOL Carryforward |  | $ | 13,229,231 |

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

F-35

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 15 – INTANGIBLE ASSETS

Intangible assets consisted of the following:

|  |  |  |  | March 31, 2019 |
|  | Life |  |  | Licenses |  |  | Patent |  |  | Other Intangible Assets |
Licensing Agreement – Jesse James |  |  | 5 |  |  | $ | 125,000 |  |  | $ | - |  |  | $ | - |
Licensing Agreement – Jeff Rann |  |  | 5 |  |  |  | 125,000 |  |  |  | - |  |  |  | - |
Streak Visual Ammunition patent |  |  | 11.2 |  |  |  | - |  |  |  | 950,000 |  |  |  | - |
SWK patent acquisition |  |  | 15 |  |  |  |  |  |  |  | 6,124,005 |  |  |  |  |
Jagemann Munition Components: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer Relationships |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | 1,666,774 |
Intellectual Property |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | 1,773,436 |
Tradename |  |  | 5 |  |  |  | - |  |  |  | - |  |  |  | 2,472,095 |
|  |  |  |  |  |  | 250,000 |  |  |  | 7,074,005 |  |  |  | 5,912,305 |
Accumulated amortization – Licensing Agreements |  |  |  |  |  |  | (108,333 | ) |  |  | - |  |  |  | - |
Accumulated amortization – Patents |  |  |  |  |  |  | - |  |  |  | (134,701 | ) |  |  | - |
Accumulated amortization – Intangible Assets |  |  |  |  |  |  | - |  |  |  | - |  |  |  | (61,803 | )
|  |  |  |  |  | $ | 141,667 |  |  | $ | 6,939,304 |  |  | $ | 5,850,502 |

|  |  |  |  | March 31, 2018 |
|  | Life |  |  | Licenses |  |  | Patent |  |  | Other Intangible Assets |
Licensing Agreement – Jesse James |  |  | 5 |  |  | $ | 125,000 |  |  | $ | - |  |  | $ | - |
Licensing Agreement – Jeff Rann |  |  | 5 |  |  |  | 125,000 |  |  |  | - |  |  |  | - |
Streak Visual Ammunition Patent |  |  | 11.2 |  |  |  | - |  |  |  | 950,000 |  |  |  | - |
|  |  |  |  |  |  | 250,000 |  |  |  | 950,000 |  |  |  | - |
Accumulated amortization – Licensing Agreements |  |  |  |  |  |  | (58,333 | ) |  |  | - |  |  |  | - |
Accumulated amortization – Patents |  |  |  |  |  |  | - |  |  |  | (49,627 | ) |  |  | - |
|  |  |  |  |  | $ | 191,667 |  |  | $ | 900,373 |  |  | $ | - |

|  |  |  |  | December 31, 2017 |
|  | Life |  |  | Licenses |  |  | Patent |  |  | Other Intangible Assets |
Licensing Agreement – Jesse James |  |  | 5 |  |  | $ | 125,000 |  |  | $ | - |  |  | $ | - |
Licensing Agreement – Jeff Rann |  |  | 5 |  |  |  | 125,000 |  |  |  | - |  |  |  | - |
Streak Visual Ammunition Patent |  |  | 11.2 |  |  |  | - |  |  |  | 950,000 |  |  |  | - |
|  |  |  |  |  |  | 250,000 |  |  |  | 950,000 |  |  |  | - |
Accumulated amortization – Licensing Agreements |  |  |  |  |  |  | (45,833 | ) |  |  | - |  |  |  | - |
Accumulated amortization – Patents |  |  |  |  |  |  | - |  |  |  | (25,166 | ) |  |  | - |
|  |  |  |  |  | $ | 204,167 |  |  | $ | 924,834 |  |  | $ | - |

Amortization expense for the year ended March 31, 2019, for the three-month period ended March 31, 2018, and for the year ended December 31, 2017 was $196,877, $36,961, and $70,999, respectively.

F-36

AMMO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019, March 31, 2018, and December 31, 2017

NOTE 16 - SUBSEQUENT EVENTS

On April 30, 2019, the original due date of the Promissory Note in connection with the acquisition of the casing operations of Jagemann Stamping Company was subsequently extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly until October 1, 2019 when the interest rate increases to 9% per annum payable monthly until principal and accrued interest are paid in full. In May of 2019, the Company paid $1,500,000 on the balance of the Note.

On May 2, 2019, the Company sold its online store “www.ammodeal.com” to AZ Virtual CFO, LLC. The assets sold include, but are not limited to, the website, all permits and registrations, and the books and records of the website. The purchase price was $50,000 and is to be paid in monthly installments of three percent of the gross revenue arising out of operation of the asset and shall be paid in full by December 1, 2021. AZ Virtual CFO, LLC is owned by Ron Shostack, former Officer and current independent contractor of the Company.

On May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The note bears interest at a per annum of 2.56%. The note has a maturity date of August 3, 2019.

On June 5, 2019, the Company entered into an agreement with FSW Funding for an Accounts Receivable Credit Facility. The twenty-four month facility is up to a maximum of $5,000,000 on 85% of eligible accounts and has an annualized interest rate of the Prime Rate published from time to time by the Wall Street Journal plus 4.5%. A fee of 3% of the Maximum Facility will be assessed to the Company.

On June 5, 2019, the remaining $300,000 of Convertible Promissory Notes were mandatorily converted into shares of our common stock pursuant to the terms of the Note. The Company converted $300,000 of Convertible Promissory Notes and $18,228 of accrued interest into 127,291 shares of Common Stock at a conversion price of $2.50. The Company accrued $9,000 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company.

As of June 28, 2019, we sold an additional 898,550 shares of common stock for $1,797,100 and issued 449,275 common stock purchase warrants exercisable at $2.40. We accrued commissions of $215,652 and 107,826 warrants payable in connection with the sale of these shares to the placement agent. We issued 63,492 shares of Common Stock for services provided to the Company valued at $209,346. Additionally, 45,000 shares of Common Stock were issued to employees for stock bonuses.

We evaluated subsequent events through the date the financial statements were issued, and determined that there are not any other items to disclose.

F-37

AMMO, INC.

5,919,550 Shares of Common Stock

4,312,060 Shares of Common Stock Underlying Convertible Promissory Notes

5,928,917 Shares of Common Stock Issuable upon Exercise of Warrants

_______, 2020

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the fees and expenses payable by us in connection with the offering described in the registration statement. All of the amounts shown are estimates, except for the SEC registration fee:

|  | Amount to be Paid |
SEC Registration Fee |  | $ | 3,097.28 |
Legal Fees and Expenses |  |  | 35,000.00 |
Accounting Fees and Expenses |  |  | 3,000.00 |
Total |  | $ | 41,097.28 |

Item 14. Indemnification of Directors and Officers.

Our certificate of incorporation and bylaws provide that we will indemnify and advance expenses, to the fullest extent permitted by the Delaware General Corporation Law, to each person who is or was a director or officer of our company, or who serves or served any other enterprise or organization at the request of our company (an “indemnitee”).

Under Delaware law, to the extent that an indemnitee is successful on the merits in defense of a suit or proceeding brought against him or her by reason of the fact that he or she is or was a director, officer, or agent of our company, or serves or served any other enterprise or organization at the request of our company, we shall indemnify him or her against expenses (including attorneys’ fees) actually and reasonably incurred in connection with such action.

If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, an indemnitee may be indemnified under Delaware law against both (1) expenses, including attorney’s fees, and (2) judgments, fines, and amounts paid in settlement if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of our company, and, with respect to any criminal action, had no reasonable cause to believe his or her conduct was unlawful.

If unsuccessful in defense of a suit brought by or in the right of our company, where the suit is settled, an indemnitee may be indemnified under Delaware law only against expenses (including attorneys’ fees) actually and reasonably incurred in the defense or settlement of the suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of our company except that if the indemnitee is adjudged to be liable for negligence or misconduct in the performance of his or her duty to our company, he or she cannot be made whole even for expenses unless a court determines that he or she is fully and reasonably entitled to indemnification for such expenses.

Also under Delaware law, expenses incurred by an officer or director in defending a civil or criminal action, suit, or proceeding may be paid by the registrant in advance of the final disposition of the suit, action, or proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified by our company. We may also advance expenses incurred by other employees and agents of our company upon such terms and conditions, if any, that the Board of Directors of the registrant deems appropriate.

Our articles of incorporation and bylaws provide that we may indemnify to the full extent of our power to do so, all directors, officers, employees, and/or agents.

Item 15. Recent Sales of Unregistered Securities

The following securities were issued in reliance on the exemptions from registration under the Securities Act in Section 4(a)(2) of the Securities Act and Regulation D thereunder. The sale of these securities; did not involve any solicitation or advertisement, were for investment purposes only and not for resale, and did not include more than 35 non-accredited investors. The securities were issued with restrictions on the resale of the securities. From October 13, 2016 (Inception) through January 30, 2020, we issued and sold the following unregistered securities:

| ● | 15,034,000 shares of common stock were issued to the company’s founders from October 13, 2016 through February 1, 2017.
| ● | 4,770,120 shares of common stock were issued to investors through our private friends and family offering at a price per share of $1.25, for an aggregate purchase price of $5,962,650 and these investors were also issued warrants to purchase an additional 4,770,120 shares of common stock. There shares were issued from October 14, 2016 to December 19, 2017. Additionally, 1,865,300 warrants to purchase 1,865,300 shares of common stock were exercised at a price per share of $2.50, for an aggregate purchase price of approximately $4,663,250 from May 25, 2018 through July 6, 2018.
| ● | 6,208,912 shares of common stock were issued to investors through a private placement offering with Paulson serving as placement agent. The shares were issued from December 19, 2017 to March 27, 2018 at a price per share of $1.65 for an aggregate value of $10,244,704. In addition, these investors received warrants to purchase a total of 3,104,456 shares of common stock with their purchase. We paid the placement agent a 12% cash commission of $1,254,961 based on the cash raised and a fee payable in warrants of 744,969 equaling 12% of the total units sold. The warrants were issued on June 9, 2018.
| ● | 1,967,886 shares of common stock were issued to investors through a private placement offering with Paulson serving as placement agent. The shares were issued from April 3, 2018 to April 20, 2018 at a price per share of $1.65 for an aggregate value of $3,247,030. In addition, these investors were received warrants to purchase 983,943 shares of common stock with their purchase. We paid the placement agent a 12% cash commission of $389,644 based on the cash raised and a fee payable in warrants of 236,244 equaling 12% of the total units sold. The warrants were issued on June 9, 2018.
| ● | 100,000 shares of common stock valued at $125,000 were issued for licensing agreements with Jesse James on October 13, 2016.

| II-1 |

| ● | 2,920 shares of common stock were issued to existing shareholders in connection with a reverse stock split effective December 30, 2016.
| ● | 100,000 shares of common stock valued at $125,000 were issued for licensing agreements with Jeff Rann on February 15, 2017.
| ● | 20,000 shares were issued on June 30, 2017 to an individual who furnished organization fees and this individual was also issued warrants to purchase 20,000 shares of common stock for their compensation.
| ● | 600,000 shares were issued to acquire use of a patent at a price per share of $1.25 totaling $750,000 on September 28, 2017.
| ● | 10,495 shares were issued on June 20, 2018 through a cashless exercise of 14,719 warrants previously issued to Paulson Investment Company, LLC.
| ● | 1,527,000 shares of common stock were issued to employees as compensation with values per share ranging from $1.00 to $3.28 for an aggregate compensation expense of approximately $2,909,486 from July 1, 2017 through December 31, 2019. Additionally, employees received warrants to purchase 125,000 shares of common stock on March 31, 2018.

| ● | 670,541 shares of common stock were issued for professional services at a price per share ranging from $1.00 to $3.15 totaling $750,625 from January 31, 2017 through December 31, 2019. In addition, the service providers received warrants to purchase 381,500 shares of common stock from September 30, 2017 to November 11, 2017. There were 107,500 warrants to purchase 107,500 shares of common stock were exercised from June 6, 2018 through June 15, 2018 at a price per share ranging from $0.50 to $2.50, for an aggregate purchase price of $104,375.
| ● | 1,700,002 shares were issued to the shareholders of SW Kenetics, Inc. on October 5, 2018 at a price per share of $2.72 for the acquisition of SW Kenetics Inc. for a valuation of $4,624,005. These shares are subject to clawback provisions.
| ● | 49,600 shares valued at $2.50 per share totaling $124,000 were repurchased by the Company and subsequently retired on December 20, 2018. The shares were originally issued as compensation for legal fees.
| ● | 5,061,220 shares of common stock were issued to investors through a private placement offering with Paulson serving as placement agent. The shares were issued from December 27, 2018 to August 30, 2019 at a price per share of $2.00 for an aggregate value of $10,122,440. In addition, these investors received five-year warrants to purchase 2,530,610 shares of common stock at an exercise price of $2.40 per share (the “Paulson Investor Warrants”). Paulson agent collected a 12% cash commission of $1,1,63,608 based on the cash raised and a fee payable in warrants of 553,346 (the “Placement Agent Warrants”) equaling 12% of the total units sold. The Placement Agent Warrants are five-year warrants to purchase 553,610 shares of common stock at an exercise price of $2.00 per share and were issued from December 27, 2018 to August 30, 2019.
| ● | 4,750,000 shares of the Common Stock was issued to Jagemann Stamping Company through our subsidiary Enlight Group II, LLC (d/b/a Jagemann Munition Components) in connection with the acquisition of the casing division of Jagemann Stamping Company on March 14, 2019. The shares were valued at a price per share of $2.00 each.
| ● | 731,039 shares of Common Stock and Warrants to purchase 365,523 shares of Common Stock were issued to holders for the conversion of Convertible Promissory Notes of $1,410,000 and Accrued interest of $52,065 on March 29, 2019. Previously, on February 28, 2019, the Company notified the holders of Convertible Promissory Notes of an offer to convert their Notes and Accrued Interest into Common Stock at a conversion price of $2.00 per share and receive one-half warrant exercisable at $2.40 per share for five years in conjunction with each converted share. Additionally, on June 5, 2019, 127,291 shares of Common Stock were issued to the remaining holders for the conversion of their Convertible Promissory Notes of $300,000 and accrued interest of $18,226. The Company accrued $42,300 for a 3% cash conversion fee on the principal converted payable to the placement agent, Paulson Investment Company.
| ● | On January 15, 2020, the Company consummated the Initial Closing of a private offering whereby pursuant to the Subscription Agreements entered into by the Company with five (5) accredited investors, the Company issued certain Convertible Promissory Notes for an aggregate purchase price of $1,650,000 and five (5) year warrants to purchase shares of the Common Stock.
| ● | On January 30, 2020, the Company consummated the Second Closing of a offering whereby pursuant to the Subscription Agreements with five (5) accredited investors the Company the Company issued Notes for an aggregate purchase price of $850,000 and five (5) year Warrants to purchase shares of the Common Stock.

| II-2 |

Item 16. Exhibits.

|  |  |  | Incorporated by |  |
Exhibit |  |  |  | Reference |  | Filed or Furnished
Number |  | Exhibit Description |  | Form |  | Exhibit |  | Filing Date |  | Herewith
2.1 |  | Agreement and Plan of Merger to Redomicile dated December 30, 2016 (Corrected Version) changing our status to Delaware |  | S-1/A |  | 2.1 |  | 12/14/2018 |  |
2.2 |  | Articles of Merger dated December 30, 2016 filed with the California Secretary of State |  | 8-K |  | 3.01 |  | 02/09/2017 |  |
2.3 |  | Certificate of Merger dated December 21, 2016 filed with the California Secretary of State |  | 8-K |  | 3.02 |  | 02/09/2017 |  |
2.4 |  | Share Exchange Agreement dated March 17, 2017 |  | 8-K |  | 10.1 |  | 03/23/2017 |  |
2.5 |  | Agreement and Plan of Merger with SW KENETICS INC. |  | 8-K |  | 2.1 |  | 10/04/2018 |  |
2.6 |  | Amended and Restated Asset Purchase Agreement dated March 14, 2019 |  | 8-K |  | 2.1 |  | 03/18/2019 |  |
3.1 |  | Certificate of Incorporation (Amended and Restated) filed with the Delaware Secretary of State on October 24, 2018 |  | 8-K |  | 3.1 |  | 10/26/2018 |  |
3.2 |  | Bylaws |  | 8-K |  | 3.03 |  | 02/09/2017 |  |
4.1 |  | Form of Warrant dated January 25, 2017 |  | S-1 |  | 4.1 |  | 07/06/2018 |  |
4.2 |  | Form of Warrant dated January 3, 2018 |  | S-1 |  | 4.2 |  | 07/06/2018 |  |
4.3 |  | Form of Purchase Warrant with Paulson Investment Company, LLC dated April 20, 2018 |  | S-1 |  | 4.3 |  | 07/06/2018 |  |
4.4 |  | Form of Warrant dated December 28, 2018 |  | 10-K |  | 4.4 |  | 07/01/2019 |  |
4.5 |  | Form of Certificate of Common Stock |  | S-1/A |  | 4.4 |  | 10/16/2018 |  |
4.6 |  | Form of Gunnar Convertible Promissory Note, issued January 2020 |  | 10-Q |  | 10.2 |  | 02/13/2020 |  |
4.7 |  | Form of Gunnar Investor Warrant, issued January 2020 |  | 10-Q |  | 10.3 |  | 02/13/2020 |  |
5.1* |  | Opinion of Lucosky Brookman LLP |  |  |  |  |  |  |  | X
10.1 |  | License Agreement with Jesse James |  | S-1 |  | 10.1 |  | 07/06/2018 |  |
10.2 |  | License Agreement with Jeff Rann |  | S-1 |  | 10.2 |  | 07/06/2018 |  |
10.3 |  | License Agreement with University of Louisiana at Lafayette |  | S-1/A |  | 10.3 |  | 10/16/2018 |  |
10.4 |  | Note Purchase and Sale Agreement with Western Alliance Bank |  | S-1/A |  | 10.4 |  | 10/16/2018 |  |
10.5 |  | Note Purchase and Sale Agreement with Mansfield, LLC |  | S-1/A |  | 10.5 |  | 10/16/2018 |  |
10.6 |  | Form of Subscription Agreement for Gunnar Offering |  | 10-Q |  | 10.1 |  | 02/13/2020 |  |
14.1 |  | Code of Business Ethics |  | S-1/A |  | 14.0 |  | 10/16/2018 |  |
14.2 |  | Code of Conduct |  | S-1/A |  | 14.1 |  | 10/16/2018 |  |
23.1 |  | Consent of Lucosky Brookman LLP (reference is made to Exhibit 5.1) |  |  |  |  |  |  |  | X
23.2 |  | Consent of KWCO, PC, independent registered public accounting firm |  |  |  |  |  |  |  | X
23.3 |  | Consent of KWCO, PC, independent registered public accounting firm – Jagemann Sporting Group’s Wisconsin Casing Division |  |  |  |  |  |  |  | X
23.4 |  | Consent of KWCO, PC, independent registered public accounting firm – SW Kenetics, Inc. |  |  |  |  |  |  |  | X
23.5 |  | Consent of Van Amburgh Valuation Associates, Inc. (VAVA Inc.), independent appraisal firm |  |  |  |  |  |  |  | X
24.1 |  | Power of Attorney |  | S-1 |  | 24.1 |  | 03/04/2020 |  |
99.1 |  | The audited financial statements of SW Kenetics Inc. as of October 5, 2018 |  | 8-K/A |  | 99.1 |  | 02/25/2019 |  |
99.2 |  | The audited financial statements of Jagemann Sporting Group’s Wisconsin Casing Division as of December 31, 2018 and 2017 |  | 8-K/A |  | 99.1 |  | 06/24/2019 |  |

| II-3 |

Item 17. Undertakings.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however , that paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference into the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act to any purchaser:

(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus related, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

| II-4 |

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Scottsdale, state of Arizona, on March 13, 2020.

| AMMO, INC.
| By: | /s/ Fred W. Wagenhals
|  | Fred W. Wagenhals President and Chief Executive Officer

Signature |  | Title |  | Date
/s/ Fred W. Wagenhals |  | Chief Executive Officer, Director |  | March 13, 2020
Fred W. Wagenhals |  | (Principal Executive Officer) |  |
* |  | Chief Financial Officer, |  | March 13, 2020
Robert D. Wiley |  | (Principal Financial and Principal Accounting Officer) |  |
* |  | Director |  | March 13, 2020
Robert J. Goodmanson |  |  |  |
* |  | Director |  | March 13, 2020
Randy E. Luth |  |  |  |
* |  | Director |  | March 13, 2020
Harry S. Markley |  |  |  |
*. |  | Director |  | March 13, 2020
Russell W. Wallace, Jr. |  |  |  |

By: | /s/ Fred W. Wagenhals |
| Fred W. Wagenhals |
| Attorney-in-Fact |

| II-5 |