10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

AMMO, Inc.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE	001-13101	83-1950534
(State of incorporation)	(Commission File No.)	(I.R.S. Identification Number)

7681 E Gray Road, Scottsdale, AZ 85260

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number including area code: (480) 947-0001

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

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

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	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 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

As of November 14, 2020, there were 50,592,311 shares of $0.001 par value Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

TABLE OF CONTENTS

PART I
ITEM 1:	FINANCIAL STATEMENTS	3
	Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and March 31, 2020	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended September 30, 2020 and 2019	4
	Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three and six months ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash flow (Unaudited) for the six months ended September 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	22
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	31
ITEM 4:	CONTROLS AND PROCEDURES	31
PART II
ITEM 1:	LEGAL PROCEEDINGS	32
ITEM 1A:	RISK FACTORS	32
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	32
ITEM 4:	MINE SAFETY DISCLOSURE	32
ITEM 5:	OTHER INFORMATION	33
ITEM 6:	EXHIBITS	33
SIGNATURES		34

2

PART I

ITEM 1. FINANCIAL STATEMENTS

AMMO, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2020			March 31, 2020
	(Unaudited)
ASSETS
Current Assets:
Cash	$	3,413,710		$	884,274
Accounts receivable, net of allowance for doubtful account of $85,419 at September 30, 2020 and $62,248 at March 31, 2020		5,331,298			3,004,839
Due from related parties		15,657			15,807
Inventories, at lower cost or net realizable value, principally average cost method		7,603,031			4,408,073
Prepaid expenses		1,035,322			844,117
Total Current Assets		17,399,018			9,157,110
Equipment, net of accumulated depreciation of $4,369,737 at September 30, 2020 and $3,060,681 at March 31, 2020		17,917,453			18,046,329
Other Assets:
Deposits		277,801			216,571
Licensing agreements, net of accumulated amortization of $183,333 at September 30, 2020 and $158,833 at March 31, 2020		66,667			91,667
Patents, net of accumulated amortization of $807,766 at September 30, 2020 and $561,096 at March 31, 2019		6,266,239			6,512,909
Other Intangible Assets, net of accumulated amortization of $2,211,057 at September 30, 2020 and $1,496,833 at March 31, 2020		2,935,180			3,649,404
Right of Use Assets - Operating Leases		2,488,861			3,431,746
TOTAL ASSETS	$	47,351,219		$	41,105,736
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,477,570		$	5,197,354
Factoring liability		2,074,621			2,005,979
Accrued liabilities		2,765,070			1,619,619
Inventory credit facility		2,250,000			-
Current portion of operating lease liability		495,102			375,813
Insurance premium note payable		286,030			329,724
Convertible promissory notes, net of note issuance cost of $18,278 at September 30, 2020 and $237,611 at March 31, 2020		2,481,722			2,262,389
Note payable related party		-			434,731
Total Current Liabilities		14,830,115			12,225,609
Long-term Liabilities:
Contingent consideration payable		652,265			709,623
Notes payable related party		11,275,298			5,803,800
Paycheck protection program notes		1,051,985			-
Operating Lease Liability, net of current portion		2,047,470			3,107,911
Total Liabilities		29,857,133			21,846,943
Shareholders’ Equity:
Common stock, $0.001 par value, 200,000,000 shares authorized 48,324,347 and 46,204,139 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively		48,323			46,204
Additional paid-in capital		56,895,422			53,219,834
Accumulated deficit		(39,449,659	)		(34,007,245	)
Total Shareholders’ Equity		17,494,086			19,258,793
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	47,351,219		$	41,105,736

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

3

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended September 30,						For the Six Months Ended September 30,
	2020			2019			2020			2019
Net Sales
Ammunition sales	$	8,741,280		$	1,315,756		$	15,152,948		$	2,457,255
Casing sales		3,271,592			1,638,799			6,519,894			4,795,880
		12,012,872			2,954,555			21,672,842			7,253,135
Cost of Goods Sold, for the three and six months ended September 30, 2020 and 2019 includes depreciation and amortization of $780,150, $723,237, $1,538,652, and $1,336,806 respectively, and federal excise taxes of $864,570, $121,318, $1,505,693, and $235,603, respectively		10,723,246			3,672,599			19,311,811			8,624,395
Gross Margin		1,289,626			(718,044	)		2,361,031			(1,371,260	)
Operating Expenses
Selling and marketing		332,430			287,647			702,052			509,575
Corporate general and administrative		1,077,194			954,350			2,166,178			2,053,993
Employee salaries and related expenses		1,174,257			834,516			2,156,746			2,052,208
Depreciation and amortization expense		415,685			450,380			826,184			905,242
Loss on purchase		-			-			1,000,000			-
Total operating expenses		2,999,566			2,526,893			6,851,160			5,521,018
Loss from Operations		(1,709,940	)		(3,244,937	)		(4,490,129	)		(6,892,278	)
Other Expenses
Other income/(expense)		(186,600	)		-			(186,600	)		-
Interest income/(expense)		(442,085	)		(199,323	)		(765,685	)		(393,384	)
Total other expenses		(628,685	)		(199,323	)		(952,285	)		(393,384	)
Loss before Income Taxes		(2,338,625	)		(3,444,260	)		(5,442,414	)		(7,285,662	)
Provision for Income Taxes		-						-			-
Net Loss	$	(2,338,625	)	$	(3,444,260	)	$	(5,442,414	)	$	(7,285,662	)
Loss per share
Basic and fully diluted:
Weighted average number of shares outstanding		47,790,105			45,416,153			47,023,094			44,999,342
Loss per share	$	(0.05	)	$	(0.08	)	$	(0.12	)	$	(0.16	)

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

4

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three Months Ended September 30, 2020 and 2019

(Unaudited)

	Common Shares				Additional Paid-In			Accumulated
	Number		Par Value		Capital			(Deficit)			Total
Balance as of March 31, 2020		46,204,139	$	46,204	$	53,219,834		$	(34,007,245	)	$	19,258,793
Common stock issued for cash		1,663,215		1,664		2,880,207			-			2,881,871
Common stock issued for exercised warrants		121,213		120		242,305			-			242,425
Common stock issued for cashless warrant exercise		279		-		-			-			-
Common stock issuance costs		-		-		(70,000	)		-			(70,000	)
Common stock issued for services		8,336		8		(8	)		-			-
Employee stock awards		327,165		327		475,409			-			475,736
Stock grants		-		-		147,675			-			147,675
Net loss		-		-		-			(5,442,414	)		(5,281,214	)
Balance as of September 30, 2020		48,324,347	$	48,323	$	56,895,422		$	(39,449,659	)	$	17,494,086

	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
Common stock issuance costs		-		-		(285,981	)		-			(285,981	)
Common stock issued for services		63,492		63		199,937			-			200,000
Employee stock awards		315,000		315		506,185			-			506,500
Stock grants		-		-		379,694			-			379,694
Net loss		-		-		-			(7,285,662	)		(7,285,662	)
Balance as of September 30, 2019		45,751,628	$	45,751	$	52,517,726		$	(26,736,227	)	$	25,827,250

For the Six Months Ended September 30, 2020 and 2019

(Unaudited)

	Common Shares				Additional Paid-In			Accumulated
	Number		Par Value		Capital			(Deficit)			Total
Balance as of June 30, 2020		47,454,277	$	47,453	$	55,421,865		$	(37,111,034	)	$	18,358,284
Common stock issued for cash		663,215		664		1,131,207			-			1,131,871
Common stock issued for exercised warrants		60,606		60		121,151			-			121,211
Common stock issued for cashless warrant exercise		-		-		-			-			-
Common stock issuance costs		-		-		(70,000	)		-			(70,000	)
Common stock issued for services		-		-		-			-			-
Employee stock awards		146,249		146		220,290			-			220,436
Stock grants		-		-		70,909			-			70,909
Net loss		-		-		-			(2,338,625	)		(2,177,425	)
Balance as of September 30, 2020		48,324,347	$	48,323	$	56,895,422		$	(39,449,659	)	$	17,494,086

	Common Shares				Additional Paid-In			Accumulated
	Number		Par Value		Capital			(Deficit)			Total
Balance as of June 30, 2019		45,269,908	$	45,270	$	51,594,749		$	(23,291,967	)	$	28,348,052
Common stock issued for cash		334,220		334		668,106			-			668,440
Common stock issued for convertible notes		-		-		-			-			-
Common stock issuance costs		-		-		(96,414	)		-			(96,414	)
Common stock issued for services		-		-		-			-			-
Employee stock awards		147,500		147		173,103			-			173,250
Stock grants		-		-		178,182			-			178,182
Net loss		-		-		-			(3,444,260	)		(3,444,260	)
Balance as of September 30, 2019		45,751,628	$	45,751	$	52,517,726		$	(26,736,227	)	$	25,827,250

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

5

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	For the Six Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net Loss	$	(5,442,414	)	$	(7,285,662	)
Adjustments to reconcile Net Loss to Net Cash used by operations:
Depreciation and amortization		2,364,836			2,242,048
Debt discount amortization		219,333			24,144
Employee stock awards		475,736			506,500
Stock grants		147,675			379,694
Stock for services		-			200,000
Contingent consideration payable fair value		(57,358	)		-
Interest on convertible promissory notes		-			18,226
Allowance for doubtful accounts		23,171			(103,644	)
Reduction in right of use asset		205,205			-
Other (Income)/expense		25,400			-
Loss on Jagemann Munition Components		1,000,000			-
Changes in Current Assets and Liabilities
Accounts receivable		(2,349,630	)		(1,189,573	)
Due to (from) related parties		150			(32,376	)
Inventories		(3,194,958	)		(256,614	)
Prepaid expenses		35,334			122,349
Deposits		(61,230	)		(3,960	)
Accounts payable		1,916,013			2,337,445
Accrued liabilities		1,145,451			60,788
Operating lease liability		(203,472	)		-
Net cash used in operating activities		(3,750,758	)		(2,980,635	)
Cash flows from investing activities:
Purchase of equipment		(2,275,466	)		(426,467	)
Net cash used in investing activities		(2,275,466	)		(426,467	)
Cash flow from financing activities:
Proceeds from inventory facility		2,250,000			-
Proceeds from factoring liability		15,289,000			-
Payments on factoring liability		(15,220,358	)		1,036,273
Proceeds from paycheck protection program notes		1,051,985			-
Proceeds from note payable related party issued		3,500,000			375,000
Payments on note payable - related party		(1,099,030	)		(1,500,000	)
Payments on insurance premium note payment		(270,233	)		(201,238	)

(Continued)

6

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	For the Six Months Ended September 30,
	2020			2019
Sale of common stock		2,881,871			2,465,540
Common stock issued for exercised warrants		242,425			-
Common stock issuance costs		(70,000	)		(285,981	)
Contingent consideration payment		-			(150,000	)
Net cash provided by financing activities		8,555,660			1,739,594
Net increase/(decrease) in cash		2,529,436			(1,667,508	)
Cash, beginning of period		884,274			2,181,246
Cash, end of period	$	3,413,710		$	513,738
		-
Supplemental cash flow disclosures
Cash paid during the period for -
Interest	$	447,105		$	346,800
Income taxes	$	-		$	-
Non-cash investing and financing activities:
Accounts payable		(2,635,797	)		-
Note payable related party		2,635,797			-
Right of use assets – operating leases		(737,680	)		(4,288,208	)
Operating lease liability		737,680			4,288,208
Insurance premium note payment		226,539			165,120
Prepaid expenses		(226,539	)		(165,120	)
Convertible promissory note		-			(300,000	)
Convertible promissory note conversion		-			300,000
	$	-		$	-

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

7

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and March 31, 2020

(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 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $5,281,214 and $7,285,662 for the six months ended September 30, 2020 and 2019, respectively. Net cash used in operating activities was $3,750,758 and $2,980,635 for the six months ended September 30, 2020 and 2019, respectively.

The Company anticipates that it will record losses from operations for the foreseeable future. As of September 30, 2020, the Company’s accumulated deficit was $39,449,659. The Company has limited capital resources, and operations to date have been funded with the proceeds from equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern for the period ended a year from the date the financial statements are issued.

The Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of equity offerings, and debt financings. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities or file for bankruptcy and our operations and financial condition may be materially adversely affected. See Note 14 for additional equity and debt proceeds received subsequent to September 30, 2020.

8

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2020. The results for the six month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and six month periods ended September 30, 2020 and 2019, (b) the financial position at September 30, 2020, and (c) cash flows for the six month period ended September 30, 2020 and 2019.

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 31^st.

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 condensed 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. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.

9

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At September 30, 2020 and March 31, 2020, we reserved $85,419 and $62,248, 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. 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 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. 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.

Amortization expense for the license agreements for the three and six months ended September 30, 2020 and 2019 was $12,500 and $25,000, 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. 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. 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 months ended September 30, 2020 and 2019 was $21,268 and $21,269, respectively, and $42,537 and $42,538, respectively for the six months ended September 30, 2020 and 2019, respectively.

Under the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the six months ended September 30, 2020 and 2019, the Company accrued $50,803 and $11,317, respectively under this agreement.

10

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.

The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018. Patent amortization expense for the three months ended September 30, 2020 and 2019 was $102,067 and $35,119, respectively, and $204,133 and $137,186, respectively for the six months ended September 30, 2020 and 2019.

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

Other Intangible Assets

On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property. For the three months ended September 30, 2020 and 2019, amortization of the other intangibles assets was $357,111 and $410,289, respectively, and $714,224 and $820,578, respectively for the six months ended September 30, 2020 and 2019 and recognized in depreciation and amortization expense.

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the three and six months ended September 30, 2020 and 2019.

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

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AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. In the current period, the Company began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The Company will recognize revenue when the performance obligation is met.

For the three and six months ended September 30, 2020, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

	Revenues at September 30, 2020						Accounts Receivable
PERCENTAGES	Three Months Ended			Six Months Ended			September 30, 2020			March 31, 2020
Customers:
A		14.7	%		14.8	%		17.2	%		26.5	%
B		-			-			18.1	%		-
		14.7	%		14.8	%		35.3	%		26.5	%

Disaggregated Revenue Information

The following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product type.

	For the Three Months Ended				For the Six Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Ammunition Sales	$	8,741,280	$	1,315,756	$	15,152,948	$	2,457,255
Ammunition Casings Sales		3,271,592		1,638,799		6,519,894		4,795,880
Total Sales	$	12,012,872	$	2,954,555	$	21,672,842	$	7,253,135

Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers.

Advertising Costs

We expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. We incurred advertising of $51,410 and $138,576 for the three and six months ended September 30, 2020, respectively and we incurred advertising expenses of $200,805 and $295,422 for the three and six months ended September 30, 2019, respectively.

Inventories

We state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.

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AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

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

Compensated Absences

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

Stock-Based Compensation

We account for stock-based compensation at fair value in accordance with ASC 718. There were 146,249 shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during the quarter ended September 30, 2020.

Effective April 1, 2020, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.

Effective June 18, 2020, we entered into an employment agreement with Steve Hilko, Chief Operating Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.

From September 2018 through September 2020, we entered into eight separate employment agreements that included in total, among other provisions, equity grants of 540,382 shares of restricted common stock that vests annually over the next three years. The total compensation value 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 September 30, 2020, 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.

Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer payroll taxes and evaluating potential employee retention credits.

13

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contingencies

Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a result of such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient controls internal controls, and that the individual was the victim of retaliation and constructive discharge after being removed as a director by majority vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made of up independent directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found the material claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain corporate governance charter documents and processes which the Company promptly implemented. The 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 disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans to aggressively pursue its offensive claims in order to recover economic damages as a result of its claims while seeking dismissal of the counterclaim. There were no other known contingencies at September 30, 2020.

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AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 8,381,192 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 six months ended September 30, 2020 and 2019, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive. The Company excluded warrants of 8,381,192 and 8,853,432 for the six months ended September 30, 2020 and 2019, respectively, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.

NOTE 4 – INVENTORIES

At September 30, 2020 and March 31, 2020, the inventory balances are composed of:

	September 30, 2020		March 31, 2020
Finished product	$	372,747	$	1,916,417
Raw materials		5,089,516		1,771,006
Work in process		2,140,768		720,650
	$	7,603,031	$	4,408,073

NOTE 5 – 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 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.

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AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment consisted of the following at September 30, 2020 and March 31, 2020:

	September 30, 2020			March 31, 2020
Leasehold Improvements	$	126,558		$	118,222
Furniture and Fixtures		87,790			87,790
Vehicles		103,511			103,511
Equipment		21,749,879			19,578,035
Tooling		126,190			126,190
Construction in Progress		93,262			1,093,262
Total property and equipment	$	22,287,190		$	21,107,010
Less accumulated depreciation		(4,369,737	)		(3,060,681	)
Net property and equipment		17,917,453			18,046,329

Depreciation Expense for the three and six months ended September 30, 2020 and 2019 totaled $702,889, $627,492, $1,378,942, and $1,210,166, respectively.

NOTE 6 – 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 September 30, 2020, the outstanding balance of the Factoring Liability was $2,074,621. Interest expense recognized on the Factoring Liability was $227,741, including $50,000 of amortization of the commitment fee. Interest expense for the comparable period ending September 30, 2019 was $40,846, including $25,000 of amortization of the commitment fee.

On June 17, 2020, this agreement was amended which extended the maturity date to June 17, 2022.

NOTE 7 – INVENTORY CREDIT FACILITY

On June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line, and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our inventory, among other assets, contains a maximum loan amount of $1,750,000 on eligible inventory and has an annualized interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%. The agreement contains a fee of 2% of the maximum loan amount ($35,000) assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory loan amount to $2,250,000. As of September 30, 2020, the outstanding balance of the Inventory Credit Facility was $2,250,000. Interest expense recognized on the Inventory Credit Facility was $60,725, including $13,485 of amortization of the annual fee. There was no interest expense for the comparable period ending September 30, 2019 as this transaction was not yet consummated.

NOTE 8 – 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. As of September 30, 2020, we are fairly certain that we will exercise the renewal option, and we have included such renewal option in the lease liabilities and the disclosures herein. The Scottsdale lease does not include a renewal option. As of June 26, 2020, the Company entered into an amended agreement that modified the Manitowoc lease to monthly payments of $34,071 and decrease the term to March 2025. The agreement does not contain a renewal option. Accordingly, we modified our Right of Use Assets and Operating Lease Liabilities by $737,680 at June 30, 2020.

As of September 30, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $2,488,861 and $2,047,470, respectively. As of March 31, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $3,431,746 and $3,107,911, respectively. The Operating Lease Liabilities were net of current portions of $495,102 at September 30, 2020 and $375,813 at March 31, 2020.

Consolidated lease expense for the three and six months ended September 2020 was $207,340 and $392,109, respectively, including $178,621 and $355,294 of respective operating lease expense and $28,720 and 36,816 of respective other lease associated expenses such as association dues, taxes, utilities, and other month to month rentals.

16

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The weighted average remaining lease term and weighted average discount rate for operating leases were 4.5 years and 10.0%, respectively.

Futures minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

Years Ended March 31,
2021 (1)	$	363,140
2022		732,111
2023		742,108
2024		684,836
Thereafter		639,988
		3,162,183
Less: Amount Representing Interest		(619,611	)
	$	2,542,572

(1) This amount represents future lease payments for the remaining six months of fiscal year 2021. It does not include any lease payments for the six months ended September 30, 2020.

NOTE 9 – CONVERTIBLE PROMISSORY NOTES

On January 15, 2020, the Company consummated the initial closing of a private placement 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 Company’s common stock, par value $0.001 per share (“Common Stock”).

On January 30, 2020, the Company consummated the final closing of a private placement 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 $850,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value $0.001 per share.

The Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 and October 30, 2020. 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 the Notes), converts into shares of the Company’s Common Stock at a conversion price of 66.7% of the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Company’s 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 Notes contain customary events 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.

17

The Company analyzed embedded conversion options of the convertible notes at issuance to determine whether the embedded conversion options should be bifurcated and accounted for as derivative liabilities or if the embedded conversion options contain a beneficial conversion feature. The Company notes that this determination must be performed at each balance sheet date and makes it possible for certain instruments to be reclassified between debt and equity at different points in their life. The Company determined that it will defer recognition of its accounting until such notes become convertible. Additionally, the Company determined that the embedded conversion options do not require bifurcation and treatment as derivative liabilities, but they included contingent beneficial conversion features that are indeterminable on the commitment date. The Company notes the embedded conversion options will be accounted for and recognized, if necessary, when the contingencies are resolved (the date of a Qualified Financing or during the 10 days prior to the Maturity Date). Through September 30, 2020, a Qualified Financing had not occurred and the Note is not yet convertible under the Voluntary Conversion Option and, as a result, the contingencies have not been resolved, such that the Company concluded that no measurement or recognition of the beneficial conversion feature was required as of September 30, 2020.

Pursuant to the Subscription Agreements, each Investor will receive the number of Warrants to purchase shares of Common Stock equal to the quotient obtained by dividing 50% of the principal amount of the Note by the Conversion Price of the Note. The Warrants are exercisable at the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before the Maturity Date, the 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 “Exercise Price”). The 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.

Joseph Gunnar & Co., LLC acted as placement agent for the Offering. The Placement Agent 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 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.

As of September 30, 2020, the key terms of the investor and placement agent warrants are still unknown such that there is still no grant of the warrants for accounting purposes. The Company will determine the fair value of the warrants at the time the key terms of the Warrants become known and the Warrants are issued.

From October 8, 2020 to October 26, 2020, the Company received notices for voluntary conversion for the total outstanding principal ($2,500,000) and interest ($146,104) of the Convertible Promissory Notes and issued 2,157,358 shares of our Common Stock as a result of the conversion. The principal and interest related to the Initial Closing and Final Closing were converted at a conversion prices of $1.21 and $1.26, respectively. Additionally, the Company issued a total of 1,019,121 warrants to purchase shares of our Common Stock at exercise prices ranging from $2.19 to $2.67.

Additionally, pursuant to the Subscription Agreements, the Company issued 152,868 warrants to purchase shares of our Common Stock to Joseph Gunnar & Co. LLC with exercise prices ranging from $1.51 to $1.58. The Company has no further obligation with respect to the Convertible Promissory Notes.

18

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – 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. In May of 2019, the Company paid $1,500,000 on the balance of the note. As of September 30, 2020, we recognized interest of $178,830 related to the note. The note is secured by all the equipment purchased from Jagemann Stamping Company.

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 Equipment for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were originally to be transferred.

On June 26, 2020, the Company, Enlight Group II, LLC (“Enlight”), the Company’s wholly owned subsidiary and Jagemann Stamping Company’s (“JSC”) entered into a Settlement Agreement pursuant to which the parties mutually agreed to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26, 2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, which was reclassed from accounts payable, both with a maturity date of August 15, 2021, (ii) general business security agreements granting JSC a security interest in all personal property of the Company. Pursuant to the Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the Notes have a mandatory prepayment provision that comes into effect if the Company conducts a publicly registered offering. Pursuant to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and (b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as there are no defaults under the Settlement Agreement. The total balance of the two Notes due to JSC as of September 30, 2020 is $7,775,298.

As a result of the Settlement Agreement, the Company agreed to not receive $1,000,000 in Construction in Progress that the parties had previously agreed to exchange. As a result, the Company recognized a loss in operating expenses for the six months ended September 30, 2020.

On November 5, 2020, the Company paid $6,000,000 to JSC allocated as follows: (i) payment in full of Note A, representing the balance due from the Company to JSC relating to the acquisition of Jagemann Munition Components in March 2019 and (ii) $592,982 remitted in partial payment of Note B, resulting in the parties’ execution of Amended Note B which has a starting principal balance of $1,687,664 (“Amended Note B”). The Amended Note B principal balance carries a 9% per annum interest rate and is amortized equally over the thirty six (36) month term. As a result of the payment in full of Note A JSC shall release the accompanying security interest in Company assets which secured Note A. Concurrently, upon entry into Amended Note B, JSC and the Company entered into the First Amendment to General Business Security Agreement to reflect a revised list of collateral in which JSC has a security interest.

On May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate was the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $260,000. The note’s original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at 1.25% per month. The Company made $18,195 in principal payments during the six months ended September 30, 2020 and the Note was paid in full in July of 2020. We recognized $10,327 of interest expenses related to the note during the six months ended September 30, 2020.

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 originally matured on June 12, 2020 and had an interest rate at the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $131,536 and the amended maturity date is September 18, 2020. The Company made $25,000 in principal payments during the six months ended September 30, 2020 and the Note was paid in full in July of 2020. The amended note bears interest at 1.25% per month. We recognized $5,350 of interest expense on the note for the six months ended September 30, 2020.

On September 23, 2020, the Company and Enlight entered into a promissory note (the “Forest Street Note”) with Forest Street, LLC (“Lender”), an Arizona limited liability company wholly owned by our current Chief Executive Officer, Fred Wagenhals, for the principal sum of Three Million Five Hundred Thousand & 00/100 Dollars ($3,500,000.00), which accrues interest at 12% per annum. The Note has a maturity date of September 23, 2022.

Pursuant to the terms of the Forest Street Note, the Company and Enlight (collectively, the borrower pursuant to the note) shall pay Lender; (i) on a monthly basis, beginning October 23, 2020, all accrued interest (only), (ii) on a quarterly basis, a monitoring fee of 1% of the principal amount and then accrued interest; and (iii) on the maturity date, the remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon.

The note is an unsecured obligation of the Company and is not convertible into equity securities of the Company.

19

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – PAYCHECK PROTECTION NOTES PAYABLE

In April of 2020, the Company determined it was necessary to obtain additional funds as a result of the foregoing uncertainty cause by COVID-19. The Company received approximately $1.0 million in funds through itself and its wholly owned subsidiary Jagemann Munition Components, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered by the U.S. Small Business Administration. The Company received approximately $600,000 from Western State Bank and its wholly owned subsidiary, Jagemann Munition Components, received approximately $400,000 from BMO Harris. The Paycheck Protection Notes provide for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the Paycheck Protection Notes are forgiven. To be available for loan forgiveness, the Paycheck Protection Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020.

On November 11, 2020 the Company applied for forgiveness of the $1.0 million Paycheck Protection Program Notes as these funds were used for qualified expenses. No assurance can be given that the Company will be granted forgiveness of these Paycheck Protection Program Notes.

NOTE 12 – CAPITAL STOCK

During the six month period ended September 30, 2020, we issued 2,120,208 shares of common stock as follows:

● 1,663,215 shares were sold to investors for $2,881,871

● 121,213 shares were issued to investors for exercised warrants valued for $242,245

● 279 shares were issued for cashless exercise of 1,967 warrants

● 8,336 shares were issued for services provided to the Company value at $13,188

● 327,165 shares valued at $475,736 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation

Pursuant to subscription agreements with certain investors, the Company agreed to file a registration statement for shares purchased by investors on or before the 75^th day following closing. The Company was unable to meet this obligation and is required to pay a liquidated damage fee to investors on a monthly basis to avoid default until such registration statement is filed. Accordingly, the Company paid $35,000 in the current period and accrued $126,200 for fees payable subsequent to September 30, 2020. The Company recorded these fees as issuance costs in Other Expenses.

At September 30, 2020, 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, 2020		8,504,372		$	2.10		3.60
Granted		-			-		-
Exercised		(123,180	)		2.00		-
Forfeited or cancelled		-			-		-
Outstanding at September 30, 2020		8,381,192		$	2.10		3.08
Exercisable at September 30, 2020		8,381,192		$	2.10		3.08

As of September 30, 2020, we had 8,381,192 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 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 4,518,565 shares of our Common Stock at an exercise price of $2.00 per share from December 2022 through August of 2024; and (3) warrants to purchase 2,896,133 shares of Common Stock at an exercise price of $2.40 from December 2023 through August of 2024.

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NOTE 13 – INCOME TAXES

As of September 30, 2020, we had net operating loss carryforwards of approximately $33 million 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.

The Company’s effective tax rates were 0% and 0% for the six months ended September 30, 2020 and 2019, respectively. During the six months ended September 30, 2020 and 2019, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance.

The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March 31, 2018, 2019, and 2020 are subject to audit.

NOTE 14 – SUBSEQUENT EVENTS

From October 7, 2020 to October 21, 2020, the Company issued shares of its Common Stock for the exercise of warrants. There were 60,606 shares of Common Stock issued for warrants exercised at $2.00 per share or an aggregate value of $121,212 and 50,000 shares of Common Stock issued for warrants exercised at $2.40 per share or an aggregate value of $120,000.

On October 22, 2020, the stockholders of the Company approved the granting to the Board of Directors of the Company (the “Board”) the discretion to amend the Company’s Certificate of Incorporation to effect a reverse stock split of our common stock, by a ratio of not less than 1-for-2 and not more than 1-for-4, such ratio and the implementation and timing of such reverse stock split to be determined in the sole discretion of the Board.

From November 5, 2020 to November 10, 2020, the Company entered into Convertible Promissory Notes with three (3) accredited investors (the “Investors”), for an aggregate purchase price of $1,684,000 (each a “8% Note,” collectively, the “8% Notes”). The 8% Notes accrue interest at a rate of 8% per annum and mature on November 5, 2022 (the “Maturity Date”). Additionally, the 8% Notes contain a voluntary conversion mechanism whereby any principal and accrued interest on the 8% Notes, may be converted in holder’s discretion into shares of the Company’s Common Stock at a conversion price of $2.00 per share (“Conversion Price”). If not previously paid in full or converted, on the 180^th day following the Maturity Date, the principal and interest due under the 8% Notes shall automatically be converted to common stock shares at the Conversion Price The 8% Notes contain customary events of default (each an “Event of Default”). If an Event of Default occurs, the outstanding principal amount of the 8% Notes, plus accrued but unpaid interest, and other amounts owing with respect to the 8% Notes will become, at the 8% Note holder’s election, due and payable in cash.

On November 5, 2020, the Company and Enlight (together, “Borrower”), entered into a promissory note (the “12% Note”) with Lisa Kay, an individual, for the principal sum of Four Million & 00/100 Dollars ($4,000,000.00) (“Principal”), which accrues interest at 12% per annum (“Interest”). The 12% Note has a maturity date of November 5, 2023 (“Maturity Date”).

Pursuant to the terms of the 12% Note, the Borrower shall pay Ms. Kay: (i) on a monthly basis, beginning December 10, 2020, all accrued interest (only), and (ii) on the Maturity Date, the remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon.

The 12% Note is unsecured and is not convertible into equity securities of the Company. However, Borrower has agreed that it shall provide commercially reasonable collateral promptly upon the payment of that certain JSC Promissory Note and JSC’s contemporaneous release of security supporting that financial accommodation. The 12% Note contain terms and events of default customary for similar transactions. The Company is using the net proceeds from the transaction to pay a portion of the outstanding balance owed to JSC.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, Selected Financial Statements and Supplementary Data.

FORWARD-LOOKING STATEMENTS

This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.

In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc. and its wholly owned operating subsidiaries AMMO Munitions, Inc., Enlight Group II, LLC d/b/a Jagemann Munition Components (“Jagemann Munition Components”), SNI, LLC and AMMO Technologies, Inc. (inactive).

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. Technology^TM 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 Company’s 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. As of September 30, 2020, the Company has made $350,000 in payments to SW Kenetics, Inc. in connection with the completion of a milestone. As of September 30, 2020, 1,550,134 shares remain subject to clawback provisions.

On March 15, 2019, Enlight Group II, LLC, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of 100% of the 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) and hard armor piercing incendiary (HAPI) tactical 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 to 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.

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.

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Our History

Our ammunition manufacturing business has been fully operational for just over two years. Although our corporate entity commenced in 1990 as a textile manufacturer and importer, then called Retrospettiva, our manufacturing operations formally began in March of 2017 when we acquired our ammunition business.

Results of Operations

Our financial results for the three and six months ended September 30, 2020 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 an increase in our gross profit margin for the three and six months ended September 30, 2020. This was the result of a significant increase in sales allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense.

The following table presents summarized financial information taken from our condensed consolidated statements of operations for the three and six months ended September 30, 2020 compared with the three and six months ended September 30, 2019:

	For the Three Months Ending						For the Six Months Ending
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net Sales	$	12,012,872		$	2,954,555		$	21,672,842		$	7,235,135
Cost of Products Sold		10,723,246			3,672,599			19,311,811			8,624,395
Gross Margin		1,289,626			(718,044	)		2,361,031			(1,371,260	)
Sales, General & Administrative Expenses		2,999,566			2,526,893			6,851,160			5,521,018
Loss from Operations		(1,709,940	)		(3,244,937	)		(4,490,129	)		(6,892,278	)
Other income (expense)
Other income (expense)		(628,685	)		(199,323	)		(952,285	)		(393,384	)
Loss before provision for income taxes	$	(2,338,625	)	$	(3,444,260	)	$	(5,442,414	)	$	(7,285,662	)
Provision for income taxes		-			-			-			-
Net Loss	$	(2,338,625	)	$	(3,444,260	)	$	(5,442,414	)	$	(7,285,662	)

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 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 Months Ended						For the Six Months Ended
	30-Sep-20			30-Sep-19			30-Sep-20			30-Sep-19
Reconciliation of GAAP net income to Adjusted EBITDA
Net Loss	$	(2,338,625	)	$	(3,444,260	)	$	(5,442,414	)	$	(7,285,662	)
Depreciation and amortization		1,195,835			1,173,617			2,364,836			2,242,048
Loss on Jagemann Munition Components		-			-			1,000,000			-
Excise Taxes		864,570			121,318			1,505,693			253,603
Interest expense, net		442,085			199,323			765,685			393,384
Employee stock awards		220,436			173,250			475,736			506,500
Stock grants		70,909			178,182			147,675			379,694
Stock for services		-			-			-			200,000
Contingent consideration fair value		(29,390	)		-			(57,358	)		-
Adjusted EBITDA	$	425,820		$	(1,598,570	)	$	758,853		$	(3,564,036	)

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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, loss on purchase, share-based compensation expenses, and changes to the contingent consideration fair value. 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 and we have included adjustment for excise taxes.

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.

Net Sales

The following table shows our net sales by proprietary ammunition versus standard ammunition for the three months and six ended September 30, 2020 and 2019. “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.

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	For the Three Months Ending				For the Six Months Ending
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Proprietary Ammunition	$	1,582,542	$	675,328	$	3,477,683	$	873,624
Standard Ammunition		7,158,738		640,428		11,675,265		1,583,631
Ammunition Casings		3,271,592		1,638,799		6,519,894		4,795,880
Total Sales	$	12,012,872	$	2,954,555	$	21,672,842	$	7,253,135

Sales for the three and six months ended September 30, 2020 increased 307% and 199% or approximately $9.1 million and $14.4 million, over the three and six months ended September 2019. This increase was the result of approximately $6.5 million and $10.1 million of respective increased sales in bulk pistol and rifle ammunition, an increase of approximately $900,000 and $2.6 million of respective sales of Proprietary Ammunition and an increase of approximately $1.6 million and $1.7 million of sales from our recently acquired casing operations. 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 continue 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 either the U.S. Department of Commerce or the U.S. State Department, which typically takes approximately 30 days to receive. On July 21, 2020, we renewed our registration with the International Traffic in Arms Regulations (ITAR), which remains valid through the report date. This permits the Company to export and broker ammunition and other controlled items covered under ITAR.

Cost of Goods Sold

Cost of goods sold increased by approximately $7.0 million and $10.7 million from $3.7 million and $8.6 million to $10.7 million and $19.3 million, respectively for the three and six months ended September 30, 2020 compared comparable periods ended in 2019. 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 2020 as compared to 2019. As a percentage of sales, cost of goods sold decreased by 28.2% and 25.1% when comparing the three and six months ended September 30, 2020 to the three and six months ended September 30, 2019.

Gross Margin

Our gross margin percentage increased to 10.7% and 10.9% from -24.3% and -18.9% during the three and six months ended September 30, 2020 as compared to the same period in 2019. This was a result of increased sales covering our covering allowing us to cover a greater percentage of our fixed manufacturing costs, which include our non-cash amortization and depreciation expense.

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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.

Operating Expenses

Overall, for the three and six months ended September 30, 2020, our operating expenses increased by approximately $473,000 and $1.3 million over the three and six months ended September 30, 2019, and decreased as a percentage of sales from 85.5% and 76.1% for the three and six months ended September 30, 2019 to 25.0% and 31.6% for the three and six months ended September 30, 2020. The increase was mainly related to a non-cash adjustment to recognize a loss on $1,000,000 of Construction in Progress that the Company had previously agreed to exchange with Jagemann Stamping Company. Our operating expenses included of non-cash depreciation and amortization expense of approximately $416,000 and $826,000 for the three and six months ended September 30, 2020. Our operating expenses consisted of cost for 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 lines of ammunition. Operating expenses for the six months ended September 30, 2020 and 2019 periods included noncash expenses of approximately $2.4 million and $2.0 million, respectively. 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 to continue to decrease as a percentage of sales in the 2021 fiscal year, as we leverage our work force and expand our sales opportunities.

During the three months and six months ended September 30, 2020, our selling and marketing expenses increased by approximately $45,000 and $192,000. The increase was related to reduction in our advertising expenses and increases to commission on the sale of our products.

Our corporate general & administrative expenses increased approximately $123,000 and $122,000 in the three and six months ended September 30, 2020 from the comparable prior period mainly due to increased professional and legal fees in comparison to the prior period and increased general corporate expenses.

Employee salaries and related expenses increased approximately $340,000and $105,000 for the three and six months ended September 30, 2020 compared to the comparable period ended in 2019.

Depreciation and amortization expenses for the three and six months ended September 30, 2020 decreased by approximately $35,000 and $79,000 from the comparable prior periods due to reduced amortization expenses in connection with the adjusted purchase price of our newly acquired subsidiary, Jagemann Munition Components.

Interest and Other Expenses

For the three and six months ended September 30, 2020, interest expense increased by approximately $243,000 and $372,000 compared with the comparable three and six months ended September 30, 2019. The change from the prior period was mainly due to approximately $160,000 and $320,000 of interest expense and debt discount amortization related to Convertible Promissory Notes. Additionally, for the six months ended September 30, 2020, we recognize a loss on the purchase of Jagemann Munition Components for construction in progress that will no longer be transferred to the Company. For the three and six months ended September 30, 2020, the Company recorded approximately $187,000 of other expenses primarily related to liquidation damage fees for being unable to meet agreed upon registration statement timing obligations. There were no other expenses in the comparable prior periods.

Net Loss

As a result of higher production, selling, and payroll expenses, and the loss on Jagemann Munition Components, we ended the three and six months ended September 30, 2020 with a net loss of approximately $2.3 million and $5.4 million compared with a net loss of approximately $3.4 million and $7.3 million for the three and six months ended September 30, 2019.

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

Liquidity and Capital Resources

As of September 30, 2020, we had $3,413,710 of cash and cash equivalents, an increase of $2,529,436 from March 31, 2020.

Working Capital is summarized and compared as follows:

	September 30, 2020		March 31, 2020
Current assets	$	17,399,018	$	9,157,110
Current liabilities		14,830,115		12,225,609
	$	2,568,903	$	(3,068,499	)

Changes in cash flows are summarized as follows:

Operating Activities

For the six months ended September 30, 2020, net cash used in operations totaled $3,750,758. This was primarily the result of a net loss of $5,442,414, increases in our period end inventories and accounts receivable of $3,194,958 and $2,349,630, respectively, increases in accounts payable and accrued liabilities of $1,916,013 and $1,145,451, respectively, and a loss on Jagemann Munition Components of $1,000,000. The cash used in operations were partially offset by the benefit of non-cash expenses for depreciation and amortization of $2,364,836, employee stock compensation of $475,736, and stock grants totaling $147,675.

For the six months ended September 30, 2019, net cash used in operations totaled $2,980,635. This was primarily the result of a net loss of $7,285,662, increases in our period end accounts receivable and inventories of $1,189,573 and $256,614, respectively, and increases to our accounts payable and accrued liabilities of $2,398,233. The cash used in operations were partially offset by the benefit of non-cash expenses for depreciation and amortization of $2,242,048, employee stock compensation of $506,500, stock issued for services of $200,000, and stock grants totaling $379,694.

Investing Activities

During the six months ended September 30, 2020, we used $2,275,466 in net cash for investing activities to purchase fixed assets such as new production equipment.

During the six months ended September 30, 2019, we used $426,467 in net cash for investing activities. The $426,467 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.

Financing Activities

During the six months ended September 30, 2020, net cash provided by financing activities was $8,555,660. This was the net effect of $2,881,871 of proceeds from the sale of common stock net of $70,000 of issuance costs, $3,500,000 of proceeds from a related party note, $2,250,000 generated from our Inventory Credit Facility, $1,051,985 proceeds from our paycheck protection program notes payable, and $242,425 was generated from common stock issued for exercised warrants. Additionally, $15,289,000 was generated from accounts receivable factoring, which was offset by payments of $15,220,358. $1,099,030 of cash was used for payments on related party notes payable, and $270,233 toward our insurance premium notes payable.

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We financed our operations primarily from the issuance of equity instruments. During the six months ended September 30, 2019, net cash provided by financing activities was $1,739,594. 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, $1,036,273 was generated from accounts receivable factoring and $375,000 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 note to Jagemann Stamping Company, $201,238 toward our insurance premium note payable and a $150,000 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 year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes.

We adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Accordingly, management has concluded that we do not have sufficient funds to support operations within one year after the date the financial statements are issued and, therefore, we concluded there was substantial doubt about the Company’s ability to continue as a going concern.

To fund further operations, we will need to raise additional capital. We may obtain additional financing in the future through conventional financing relationships and through the continued sales of our Common Stock. Our ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, we will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and our ability to achieve its strategic objective. There can be no assurance that financing will be available on acceptable terms, or at all.

Off-Balance Sheet Arrangements

As of September 30, 2020, 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.

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. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.

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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 September 30, 2020, and March 31, 2020, 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.

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. In the current period, the Company began accepting contract liabilities or deferred revenue. We included Unearned Revenue in our accrued liabilities. The Company will recognize revenue when the performance obligation is met.

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 September 30, 2020 and 2019, we recognized $864,570 and $121,318 respectively, in excise taxes. During the six months ended September 30, 2020 and 2019, we recognized $1,505,693 and $235,603, 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 September 30, 2020. 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.

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020. Based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures not effective. Our controls were ineffective due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in: (i) a lack of segregation of duties (ii) ineffective corporative governance controls (iii) controls that may not be adequately designed or operating effectively and (iv) ineffective or delayed communication of certain contracts entered into in the ordinary course of business, whether written or oral. Despite the existence of material weaknesses, The Company believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the three and six months ended September 30, 2020, in accordance with U.S. GAAP.

Changes in internal controls

There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the Quarterly period from April 1, 2020 to September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings, and investigations in the ordinary course of business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations or cash flows. We record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.

Please reference the Contingencies section of Note 3 of our Financial Statements for additional disclosure.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The authorized capital of the Company is 200,000,000 shares of Common Stock with a par value of $0.001 per share and 10,000,000 shares of Preferred Stock with a $0.001 par value per share. During the Quarterly period from April 1, 2020 to September 30, 2020, 605,715 shares of common stock valued at a total of $1,059,995 or approximately $1.75 per share were sold to investors. The Company issued 57,500 shares of Common Stock to employees for $71,875 or $1.25 per share. The Company issued 146,249 shares of Common Stock to employees for compensation for a total value of $220,436.

The previously mentioned 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

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ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit Number	Exhibit
2.1	Agreement and Plan of Merger to Redomicile dated December 30, 2016 (Corrected Version) changing our status to Delaware (1)
2.2	Articles of Merger dated December 30, 2016 filed with the California Secretary of State (2)
2.3	Certificate of Merger dated December 21, 2016 filed with the California Secretary of State (2)
2.4	Share Exchange Agreement dated March 17, 2017 (3)
2.5	Agreement and Plan of Merger with SW KENETICS INC. (4)
2.6	Amended and Restated Asset Purchase Agreement dated March 14, 2019 (5)
3.1(a)	Certificate of Incorporation (Amended and Restated) filed with the Delaware Secretary of State on October 24, 2018 (6)
3.2	Bylaws (2)
4.1	Promissory Note with Linda Kay dated November 5, 2020
4.2	Form of Convertible Promissory Note dated November 5, 2020
4.3	Compilation of JSC Agreements dated November 4, 2020
14.0	Code of Business Ethic (7)
14.1	Code of Conduct (7)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fred W. Wagenhals.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Rob Wiley.
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fred W. Wagenhals.
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Rob Wiley.

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

*Filed Herewith.

(1)	Incorporated by reference to Form S-1A filed with the Commission on December 14, 2018.
(2)	Filed as an exhibit to Form 8-K filed with the Commission on February 9, 2017.
(3)	Filed as an exhibit to Form 8-K filed with the Commission on March 23, 2017.
(4)	Filed as an exhibit to Form 8-K filed with the Commission on October 4, 2018.
(5)	Filed as an exhibit to Form 8-K filed with the Commission on March 18, 2019.
(6)	Filed as an exhibit to Form 8-K filed with the Commission on October 26, 2018.
(7)	Incorporated by reference to Form S-1 filed with the Commission on July 6, 2018.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMMO, INC.
		/s/ Fred W. Wagenhals
Dated: November 13, 2020	By:	Fred W. Wagenhals, Chief Executive Officer

		/s/ Rob Wiley
Dated: November 13, 2020	By:	Rob Wiley, Chief Financial Officer

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EX-4.1

Exhibit 4.1

THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS, OR AN EXEMPTION FROM REGISTRATION THEREUNDER.

PROMISSORY NOTE

$4,000,000.00	Scottsdale, Arizona
	November 5, 2020

FOR VALUE RECEIVED, the undersigned, ENLIGHT GROUP II, a Delaware limited liability company whose principal address is 7681 East Gray Road, Scottsdale, Arizona (“EGII”), and AMMO, INC., a Delaware corporation whose principal address is 7681 East Gray Road, Scottsdale, Arizona 85260 (“AMMO”) (EGII and AMMO are individually and together referred to herein as “Borrower”, as the context shall permit or allow), hereby promises to pay to the order of Lisa Kay, an unmarried woman, whose principal address is 7430 E. Vista Dr., Scottsdale, Arizona 85250 (“Lender”), the principal sum of Four Million & 00/100 Dollars ($4,000,000.00), plus interest thereon as set forth below, on or prior to the Maturity Date (as defined in Section 1), in accordance with the terms and definitions set forth below.

1. Definitions. As used in this Promissory Note (“Note”), the following terms shall have the following meanings:

“Bankruptcy Default” means any Event of Default described in Sections 6.1(d), 6.1(e) or 6.1(f).

“Business Day” means any day other than a Saturday, Sunday or other day on which banks in Scottsdale, Arizona are required to close.

“Closing Date” shall mean November 5, 2020.

“Default” means any act, event, condition or omission which, with the giving of notice or lapse of time, would constitute an Event of Default if uncured or unremedied.

“Dollars” means the lawful currency of the United States.

“Event of Default” means the occurrence of any of the events described in Section 6.1 of this Note.

“Governmental Authority” means any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof or any court or arbitrator.

“Loan” means the extension of credit made by Lender to Borrower evidenced by this Note.

“Maturity Date” means November 5, 2023, or such earlier date on which the obligations under this Note become due and payable pursuant to the terms hereof.

“Payment Date” means the 10th day of each month of each fiscal year of Borrower; provided that if the 10^th day of a month is not a Business Day, the payment due on such date shall be due on the immediately preceding Business Day.

“Person” means any natural person, corporation, limited liability company, joint venture, limited liability partnership, partnership, association, trust or other entity or any Governmental Authority.

“Prepayment Penalty” means the fee paid by Borrower to Lender for the payment in full of this Note prior to the Maturity Date which shall be equal to any documented fees, costs or expense incurred by Lender as a result of the satisfaction in full of the corresponding UBS credit facility Lender has utilized to fund the transaction described herein.

“Related Documents” means this Note, any General Business Security Agreement thereafter executed, all as amended, restated, replaced, supplemented or otherwise modified from time to time.

2. Interest Rate; Default Rate; Late Fee.

2.1 Interest Rate. The interest rate to be applied to the unpaid principal balance of the Loan will be a per annum rate equal to 12.0 percent per annum. Interest on this Note is computed on an Actual 360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

2.2 Default Rate. Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default, the unpaid principal balance of the Loan and any accrued and unpaid interest shall bear interest at an annual rate (the “Default Rate”) equal to the rate otherwise in effect under Section 2.1 plus 2.0 percentage points, payable upon demand. On and after the Maturity Date, the unpaid principal balance of the Loan and all accrued interest thereon shall bear interest at the Default Rate, payable upon demand.

2.3 Late Fee. If a payment is not made on or before the 15^th day after its due date, Borrower will be charged 5.00% of the unpaid portion of the regularly scheduled payment.

2.4 Maximum Rate of Interest. Nothing herein contained shall be deemed to require Borrower to pay or be liable for the payment of interest upon the Loan in excess of the maximum legal rate of interest (if there be any maximum) allowable under the laws of the State of Arizona. If for any reason interest in excess of the amount as limited in the foregoing sentence shall have been paid hereunder, whether by reason of acceleration of this Note, payment of any penalty or premium, or otherwise, then and in that event, any such excess interest shall constitute and be treated as a payment of principal hereunder and shall operate to reduce the principal balance of the Loan by the amount of such excess, or if in excess of the then outstanding principal balance of the Loan, such excess shall be refunded.

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3. Payments.

3.1 Interest Only. Borrower shall pay Lender all accrued interest (only) on a monthly basis, commencing on December 10, 2020 and each thirty (30) days thereafter (“Payment Date”), provided, that any remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon, shall be repaid in full on the Maturity Date.

3.2 Application of Payments. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

3.3 Early Payment. Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve the Borrower of its obligation to continue to make payments on this Note. Rather, early payments will reduce the principal balance due and may result in Borrower making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: 7430 E. Vista Dr., Scottsdale, Arizona 85250.

4. Prepayment. Borrower may prepay the Loan together with any accrued and unpaid interest thereon at any time in whole or in part, subject to payment of the Prepayment Penalty as defined above.

5. Representations and Warranties. To induce Lender to make the Loan, Borrower represents and warrants to Lender that:

5.1 Organization; Subsidiaries; Corporate Power. Borrower is a corporation or limited liability company, as applicable, duly organized and validly existing under the laws of the State of Delaware.

5.2 Authorization and Binding Effect. The execution and delivery by Borrower of the Related Documents, and the performance by Borrower of its obligations thereunder: (a) are within its power as a limited liability company and/or corporation, as applicable, (b) have been duly authorized by proper action on the part of the governing body of Borrower, (c) are not in violation of any Requirement of Law, the organizational or charter documents of Borrower or the terms of any agreement, restriction or undertaking to which Borrower is a party or by which Borrower is bound, and (d) do not require the approval or consent of the holders of the equity interests of Borrower, any Governmental Authority or any other Person, other than those obtained and in full force and effect. The Related Documents, when executed and delivered, will constitute the valid and binding obligations of Borrower enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or similar laws of general application affecting the enforcement of creditors’ rights and except to the extent that general principles of equity might affect the specific enforcement of such Related Documents.

5.3 Accuracy of Information. All information, certificates or statements given to Lender pursuant to this Note shall be true and complete when given.

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6. Events of Default, Acceleration and Remedies.

6.1 Events of Default. The occurrence of any of the following shall constitute an Event of Default under this Note:

(a) Borrower fails to pay all or any portion of any amount due hereunder when the same becomes due and payable, whether at a stated payment date or by acceleration, and such failure continues for ten days following Borrower’s receipt of Lender’s written notice of such failure; or

(b) any representation or warranty made herein is false in any material respect on the date as of which it is made or as of which the same is to be effective; or

(c) Borrower fails to comply with any term, covenant or agreement contained herein subject to any applicable grace period or cure period; or

(d) Borrower becomes insolvent or fails generally to pay debts as they become due; or

(e) the taking of action by Borrower to become the subject of proceedings under the United States Bankruptcy Code; or the execution by Borrower of a petition to become a debtor under the United States Bankruptcy Code; or the entry of an order for relief under the United States Bankruptcy Code against Borrower; or Borrower making an assignment for the benefit of creditors; or Borrower consenting to the appointment of a custodian, receiver, trustee or other officer with similar powers for it, or for any substantial part of its property; or adjudicating of Borrower as insolvent; or

(f) if any Governmental Authority of competent jurisdiction shall enter an order appointing, without consent of Borrower, as applicable, a custodian, receiver, trustee or other officer with similar powers with respect to Borrower, or with respect to any substantial part of Borrower’s property, or if an order for relief relating to Borrower shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Borrower, or if any petition for any such relief shall be filed against Borrower and such petition shall not be dismissed or stayed within 60 days; or

(g) Any breach, violation, or default shall occur under any of the other Related Documents and shall continue beyond any applicable notice and cure period set forth therein.

6.2 Acceleration. Upon the occurrence of:

(a) any Bankruptcy Default, the unpaid principal balance of the Loan and all accrued and unpaid interest thereon at that time outstanding automatically shall mature and become due, and

(b) any other Event of Default, Lender, at any time, at its option, and without notice or demand, may declare the outstanding principal amount of the Loan and all accrued and unpaid interest thereon, due and payable, whereupon such amounts immediately shall mature and become due and payable, all without presentment, protest or notice, all of which hereby are waived.

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6.3 Remedies. Upon the occurrence of any Event of Default, Lender, at its option, may enforce or cause to be enforced any of the rights or remedies accorded to Lender at equity or law, by virtue of this Note, the other Related Documents, by statute or otherwise.

7. Miscellaneous.

7.1 Waivers. Borrower expressly hereby waives presentment for payment, protest and demand and notice of protest, demand, dishonor, nonpayment, intent to accelerate and acceleration of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time before, at or after maturity, without in any way affecting the liability of Borrower.

7.2 Modifications. This Note may only be amended by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought.

7.3 Successors and Assigns. This Note shall be binding upon Borrower and upon Borrower’s successors and assigns, and shall inure to the benefit of Lender and its successors and assigns; provided that Borrower’s rights under this Note are not assignable without the prior written consent of Lender.

7.4 Severability. In the event that any provision of this Note is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any Governmental Authority, the validity, legality and enforceability of the remaining terms and provisions of this Note shall not in any way be affected or impaired thereby, all of which shall remain in full force and effect, and the affected term or provision shall be modified to the minimum extent permitted by law so as to achieve most fully the intention of this Note.

7.5 Time of the Essence. Time for the performance of the obligations under this Note is of the essence.

7.6 Expenses. Borrower agrees to pay on demand (i) all out-of-pocket expenses incurred by Lender in connection with the administration, amendment or enforcement of this Note and the other Related Documents including the reasonable fees and expenses of Lender’s counsel, (ii) any taxes (including any interest and penalties relating thereto) payable by Lender on or with respect to the transactions contemplated by this Note (Borrower hereby agreeing to indemnify Lender with respect thereto) and (iii) all out-of-pocket expenses, including the reasonable fees and expenses of Lender’s counsel, incurred by Lender in connection with any litigation, proceeding or dispute in any way related to Lender’s relationship with Borrower, whether arising hereunder or otherwise. The obligations of Borrower under this paragraph will survive payment of this Note.

7.7 Governing Law. This Note shall be construed in accordance with and governed by the laws and decisions of the State of Arizona.

7.8 Setoff. No security is provided for this Note upon execution. However, Borrower represents, warrants and agrees that it shall provide commercially reasonable collateral promptly upon the payment of that certain JSC Promissory Note A and JSC’s contemporaneous release of security supporting that financial accommodation. In addition, Borrower agrees that Lender may, at any time after the occurrence of an Event of Default, without prior notice, set off against any such credit balance or other money all or any part of this Note, irrespective of whether Lender shall have made demand under this Note and although such obligations may be contingent or unmatured.

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7.9 Notices. All notices provided for herein shall be in writing and shall be (a) personally delivered or (b) sent by express or first class mail; and, if to Lender, addressed to it at 7681 E. Gray Road, Scottsdale, Arizona 85260, attention: Fred Wagenhals, Manager and, if to Borrower, addressed to it at 7681 East Gray Road, Scottsdale, Arizona 85260, attention: Rob Wiley (CFO) and John Flynn, or to such other address with respect to any party as such party shall notify the others in writing; such notices shall be deemed given when delivered, mailed or so transmitted.

7.10 Joint and Several. If Borrower is comprised of more than one Person, the obligations of such Persons under this Note and the other Related Documents shall be joint and several.

7.11 Jury Waiver. BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE, ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN.

7.12 Submission to Jurisdiction; Service of Process. ALL JUDICIAL PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS NOTE OR ANY OBLIGATIONS HEREUNDER MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MARICOPA COUNTY OR THE FEDERAL COURT FOR THE DISTRICT OF ARIZONA (PHOENIX). BY EXECUTING AND DELIVERING THIS NOTE, BORROWER IRREVOCABLY:

(a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;

(b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

(c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO BORROWER AT ITS ADDRESS SET FORTH IN THE INTRODUCTORY PARAGRAPH OF THIS NOTE;

(d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND

(e) AGREES THAT LENDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

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AMMO et al.-Kay Promissory Note

IN WITNESS WHEREOF, this Note has been executed and delivered by Borrower as of the date first set forth above.

BORROWER:
ENLIGHT GROUP II, LLC
BY	/s/ Fred Wagenhals
Name:	Fred Wagenhals
Title:	CEO of AMMO, Inc., sole member/manager
BY	/s/ Rob Wiley
Name:	Rob Wiley
Title:	AMMO, Inc. Chief Financial Officer
AMMO, INC.
BY	/s/ Fred Wagenhals
Name:	Fred Wagenhals
Title:	CEO
BY	/s/ Rob Wiley
Name:	Rob Wiley
Title:	Chief Financial Officer

Page 7 of 7

AMMO et al.-Kay Promissory Note

EX-4.2

Exhibit 4.2

THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED PURSUANT TO AN EXEMPTION UNDER SUCH ACT AND SECURITIES LAWS.

AMMO, INC.

8% UNSECURED CONVERTIBLE PROMISSORY NOTE

Principal Amount:	$______
Original Issue Date:	November 5, 2020
Interest:	8% per annum
Payment Obligations:	Interest only payments for 24 months; any unpaid principal and interest due and payable on the Maturity Date.

THIS 8.0% UNSECURED CONVERTIBLE NOTE (this “Note “) is issued, dated, and effective as of the Original Issue Date set forth above by Ammo, Inc., a Delaware corporation (the “Company”), having its principal place of business at 7681 E. Gray Road, Scottsdale, Arizona 85260, to [___________] (together with its successors and permitted assigns, the “Holder”), pursuant to exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”). The Company promises to pay the aggregate unpaid Principal Amount under this Note set forth above (the “Principal Amount”) and any unpaid Interest to the Holder on the two (2) year anniversary of this Note (the “Maturity Date”), and to pay interest to the Holder on the aggregate then outstanding Principal Amount in accordance with the provisions of this Note.

1. Payment of Principal and Interest. Payment of principal and any accrued but unpaid interest are to be made on or before the Maturity Date at the address of Holder set forth on the signature page of this Note or at such other place as Holder designates to the Company in writing.

(a) Interest Rate. Interest shall accrue daily on the outstanding Principal Amount of this Note at a rate per annum equal to eight percent (8.0%) (“Interest”).

(b) Payment of Interest. The Company shall pay to the Holder any accrued interest on the aggregate unconverted and then outstanding Principal Amount of this Note on a monthly basis, beginning on November __, 2020 an continuing for a period of 24 months ending on the Maturity Date..

(c) Interest Calculations. Interest shall be calculated on the basis of a three hundred sixty five (365)-day year, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding Principal Amount, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made or until such Principal Amount and interest have been duly converted. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note.

(d) Prepayment. This Note may be prepaid by the Company at any time following the Original Issuance Date on seven (7) day’s prior written notice to the Holder. If the Company exercises its right to prepay the Note, the Company shall make payment to the Holder of an amount equal to the outstanding principal amount of the Note plus any Interest validly accrued and not paid by the Company as of the date of prepayment.

2. Maturity. This Note shall mature automatically and the entire outstanding principal amount, together with all interest accrued under this Note, shall become due and payable on the two year anniversary of the Original Issue Date (“Maturity Date”), unless this Note, before such date, is converted into shares of common stock of the Company pursuant to Section 3 hereof.

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3. Conversion of Note.

(a) Conversion into Stock.

(i) Voluntary Conversion. At the option of the Holder, at any time after the period beginning 30 days after the Issue Date of this Note, the entire principal amount of this Note plus any accrued interest may be converted, in whole or in part, into fully paid and nonassessable shares of restricted common stock of the Company (“Conversion Shares”) at the Conversion Price (as defined herein). The number of such shares of common stock that Holder shall be entitled to receive, and shall receive, upon such Conversion shall be determined by dividing the aggregate amount of principal and accrued interest by the Conversion Price (as defined herein). Holder agrees to execute and deliver the form of Notice of Conversion attached hereto. Upon receipt by the Company of any such Notice of Conversion, the election to convert shall be irrevocable and the date the Notice of Conversion executed by the Holder shall be the “Conversion Date.”

(ii) Automatic Conversion. On the 180^th day following the Maturity Date the entire unpaid Principal Amount under this Note shall be automatically converted into Conversion Shares at the Conversion Price (as defined herein).

(b) Conversion Price. The “Conversion Price” shall be $2.00 per share

(c) Mechanics of Conversion. No fractional shares of the Common Stock shall be issued upon Conversion of this Note. Upon the Note Maturity Date or Conversion hereof, Holder shall surrender the Note at the office of the Company or of any transfer agent for such Common Stock and shall give the Notice of Conversion to the Company. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Note.

(d) Stock Certificates. Upon Conversion into common stock, the Company shall issue and deliver to Holder, or to Holder’s nominee or nominees, a certificate or certificates representing the number of shares of restricted common stock to which Holder shall be entitled as a result of Conversion as provided herein.

(e) No Shareholder Rights. Nothing contained in this Note shall be construed as conferring upon the Holder or any other person: (a) the right to vote or to consent or to receive notice as a shareholder with respect to meetings of shareholders of the Company or for any other matters on which shareholders are entitled to vote or receive notice, or (b) any other rights as a shareholder of the Company, and (c) no dividends shall be payable or accrued with respect to the Common Stock into which this Note is convertible, in all cases until, and only to the extent that, this Note shall have been converted into the Common Stock as provided in this Note.

(f) Adjustments for Reorganizations, Mergers, Reclassifications or Similar Events. If the Common Stock shall be changed into the same or a different number of shares of any other class or classes of stock or other securities or property, whether by capital reorganization, merger, reclassification or otherwise, then the Note shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of common stock of the Company deliverable upon Conversion of the Note shall have been entitled upon such reorganization, merger, reclassification or other event.

4. Unsecured Obligation. This Note represents an unsecured obligation of the Company. Notwithstanding the foregoing, this Note will rank pari passu with all other unsecured obligations of the Company with respect to right of payment and priority.

5. Restrictions on Company’s Shares.

(a) Holder hereby acknowledges and agrees that any shares of the Company’s common stock received under this Note will not have been registered with the Securities Exchange Commission (“SEC”), and are being acquired by reason of a specific exemption under the Securities Act as well as under certain state securities laws for transactions by an issuer not involving any public offering. Further, any disposition of the shares of the Company’s common stock may, under certain circumstances, be inconsistent with this exemption and may make the holder who disposes of such stock an “underwriter” within the meaning of the Securities Act. It is understood that the definition of “underwriter” focuses upon the concept of “distribution” and that any subsequent disposition of the subject common stock can only be effected in transactions that are not considered distributions

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(b) Holder hereby acknowledges and agrees that the shares of the Company’s common stock must be held and may not be sold, transferred, or otherwise disposed of for value unless they are subsequently registered under the Securities Act of 1933, as amended (the “Act”), or an exemption from such registration is available. The Company is under no obligation to register its common stock under the Act. Further, if Rule 144 is available only routine sales of the Company’s common stock in limited amounts can be made in reliance upon Rule 144 in accordance with the terms and conditions of that rule.

(c) The certificate(s) representing the shares of the Company’s common stock will bear a legend in substantially the following form so restricting the sale of such securities:

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and are “restricted securities” within the meaning of Rule 144 promulgated under the Securities Act. The securities have been acquired for investment and may not be sold or transferred without complying with Rule 144 in the absence of an effective registration or other compliance under the Securities Act.

6. Events of Default, Acceleration and Remedies.

(a) Events of Default. The occurrence of any of the following shall constitute an Event of Default under this Note:

i. Company fails to pay all or any portion of any amount due hereunder when the same becomes due and payable, whether at a stated payment date or by acceleration, and such failure continues for ten days following Company’s receipt of Holder’s written notice of such failure; or

ii. any representation or warranty made herein is false in any material respect on the date as of which it is made or as of which the same is to be effective; or

iii. Company fails to comply with any term, covenant or agreement contained herein subject to any applicable grace period or cure period; or

iv. Company becomes insolvent or fails generally to pay debts as they become due; or

v. the taking of action by Company to become the subject of proceedings under the United States Bankruptcy Code; or the execution by Company of a petition to become a debtor under the United States Bankruptcy Code; or the entry of an order for relief under the United States Bankruptcy Code against Company; or Company making an assignment for the benefit of creditors; or Company consenting to the appointment of a custodian, receiver, trustee or other officer with similar powers for it, or for any substantial part of its property; or adjudicating of Company as insolvent; or

vi. if any Governmental Authority of competent jurisdiction shall enter an order appointing, without consent of Company, as applicable, a custodian, receiver, trustee or other officer with similar powers with respect to Company, or with respect to any substantial part of Company’s property, or if an order for relief relating to Company shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Company, or if any petition for any such relief shall be filed against Company and such petition shall not be dismissed or stayed within 60 days; or

vii. Any breach, violation, or default shall occur under any of the other Related Documents and shall continue beyond any applicable notice and cure period set forth therein.

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(b) Acceleration. Upon the occurrence of:

i. any Bankruptcy Default, the unpaid principal balance of the Loan and all accrued and unpaid interest thereon at that time outstanding automatically shall mature and become due, and

ii. any other Event of Default, Holder, at any time, at its option, and without notice or demand, may declare the outstanding principal amount of the Loan and all accrued and unpaid interest thereon, due and payable, whereupon such amounts immediately shall mature and become due and payable, all without presentment, protest or notice, all of which hereby are waived.

(c) Remedies. Upon the occurrence of any Event of Default, Holder, at its option, may enforce or cause to be enforced any of the rights or remedies accorded to Holder at equity or law, by virtue of this Note, by statute or otherwise.

7. Losses, Theft or Destruction of Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft or destruction of this Note and of indemnity or security reasonably satisfactory to the Company, the Company shall make and deliver a new Note that shall carry the same rights to interest (unpaid and to accrue) carried by this Note, stating that such Note is issued in replacement of this Note, making reference to the original Issue Date of this Note (and any successor hereto) and dated as of such cancellation, in lieu of this Note.

8. Miscellaneous.

(a) Waivers. Borrower expressly hereby waives presentment for payment, protest and demand and notice of protest, demand, dishonor, nonpayment, intent to accelerate and acceleration of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time before, at or after maturity, without in any way affecting the liability of Borrower.

(b) Modifications. This Note may only be amended by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought.

(c) Assignment. Subject to restrictions on resale imposed by state and federal securities laws, Holder may assign this Note or any of the rights, interests or obligations hereunder, by operation of law or otherwise, in whole or in part, to any person or entity so long as such assignee agrees to be bound by the terms and conditions of the Note. Effective upon any such assignment, the person or entity to whom such rights, interests and obligations are assigned shall have and exercise all of Holder’s rights, interests and obligations hereunder as if such person or entity were the original holder of this Note.

(d) Severability. Every provision of this Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which shall remain binding and enforceable to the Company and the Holder.

(e) No Fractional Units or Scrip. No fractional shares or scrip representing fractional units shall be issued upon the Conversion of this Note. In lieu of any fractional shares to which Holder otherwise would be entitled, the Company shall make a cash payment equal to the Conversion Price then in effect multiplied by such fraction.

(f) Issue Date. The provisions of this Note shall be construed and shall be given effect in all respects as if this Note had been issued and delivered by the Company on the earlier of the date hereof or the Issue Date of any Note for which this Note is issued in replacement. This Note shall be binding on any successor or assign of the Company.

(g) Compliance With Usury Laws. The Company and Holder intend to comply with all applicable usury laws. In fulfilling this intention, all agreements between the Company and Holder are expressly limited so that the amount of interest paid or agreed to be paid to the Holder for the use, forbearance, or detention of money under this Note shall not exceed the maximum amount permissible under applicable law.

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If for any reason the law shall prohibit a payment of any amount required under this Note, then the obligation shall be reduced to the maximum allowable by such law. If for any reason Holder receives as interest an amount that would exceed the highest lawful rate, then the amount that would constitute excessive interest shall be applied to the reduction of the principal of this Note and not to the payment of interest. If any conflict arises between this provision and any provision of any other agreement between the Company and Holder, then this provision shall control.

(h) Legal Representation. Holder agrees and represents that such party has been represented by such party’s own legal counsel with regard to all aspects of this Note, or if such party is acting without legal counsel, that such party has had adequate opportunity and has been encouraged to seek the advice of such party’s own legal counsel prior to the execution of this Agreement.

(i) Restrictions. Holder acknowledges that all shares of common stock acquired upon the Conversion of this Note shall be subject to restrictions on resale imposed by applicable state and federal securities laws.

(j) Governing Law; Jurisdiction. This Note shall be governed by and construed in accordance with the laws of Delaware. The courts of Arizona shall have exclusive jurisdiction to settle any dispute or claim that arises out of, or in connection with this Note. Accordingly, any action whatsoever brought upon or relating to this Note shall be instituted and prosecuted in the courts of Arizona.

(j) Jury Waiver. BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE, ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN.

(k) Submission to Jurisdiction; Service of Process. ALL JUDICIAL PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS NOTE OR ANY OBLIGATIONS HEREUNDER MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MARICOPA COUNTY OR THE FEDERAL COURT FOR THE DISTRICT OF ARIZONA (PHOENIX). BY EXECUTING AND DELIVERING THIS NOTE, BORROWER IRREVOCABLY:

(a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;

(b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

(c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO BORROWER AT ITS ADDRESS SET FORTH IN THE INTRODUCTORY PARAGRAPH OF THIS NOTE;

(d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND

(e) AGREES THAT LENDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, Ammo, Inc. has caused this Convertible Promissory Note to be executed by its officer thereunto duly authorized.

	The “Company”
	AMMO, INC.
	a Delaware corporation
	By:	Fred Wagenhals
	Its:	Chief Executive Officer
Accepted and Agreed to:
		“Holder”
		Signature
		Address:

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NOTICE OF CONVERSION

Ammo, Inc.

Attn: Fred Wagenhals

7681 E. Gray Road,

Scottsdale, Arizona 85260

This Notice is provided to inform you that the Ammo, Inc., a Delaware corporation (the “Company”) irrevocably elects to convert the 8% Unsecured Convertible Promissory Note (the “Note”), as provided in Section 3 of the Note, effective as of the date written below.

The Conversion Price of the Note shall be determined in accordance with Section 3(b). The number of shares to which the undersigned will be entitled shall be determined by dividing (i) the principal and accrued interest on this Note set forth below by (ii) the Conversion Price.

Effective as of the Conversion Date, the Note is cancelled and terminated as to the amount of the principal and interest set forth below. The undersigned will receive a stock certificate of Ammo, Inc. representing the number of shares of stock into which the Company’s common stock is converted.

Date:________________
	Signature
Print Name

Principal amount:___________________	Address:
Accrued interest:____________________
_________________________________
Total Conversion Shares to be issued: ______________

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EX-4.3

Exhibit 4.3

THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS, OR AN EXEMPTION FROM REGISTRATION THEREUNDER.

AMENDED PROMISSORY NOTE B

$1,687,664.00	Manitowoc, Wisconsin
	November 4, 2020

FOR VALUE RECEIVED, the undersigned, ENLIGHT GROUP II, a Delaware limited liability company whose principal address is 7681 East Gray Road, Scottsdale, Arizona (“EGII”), and AMMO, INC., a Delaware corporation whose principal address is 7681 East Gray Road, Scottsdale, Arizona (“AMMO”) (EGII and AMMO are individually and together referred to herein as “Borrower”, as the context shall permit or allow), hereby promises to pay to the order of JAGEMANN STAMPING COMPANY, a Wisconsin corporation, whose principal address is 5757 West Custer Street, Manitowoc, Wisconsin 54221-0217 (“Lender”), the principal sum of One Million Six Hundred Eighty Seven Thousand Six Hundred Sixty Four and 00/100 Dollars ($1,687,664.00), plus interest thereon as set forth below on or prior to the Maturity Date (as defined in Section 1) to the account of Lender, in accordance with the terms set forth below. Borrower and Lender (collectively, the “Parties”) have entered into this Amended Promissory Note B (the “Amended Note B”) in consideration of Borrower’s payment in full of the Promissory Note A and in order to modify the payment terms of Note B as set forth below.

1. Definitions. As used in this Promissory Note B (“Note”), the following terms shall have the following meanings:

“Bankruptcy Default” means any Event of Default described in Sections 6.1(d), 6.1(e) or 6.1(f).

“Business Day” means any day other than a Saturday, Sunday or other day on which banks in Manitowoc, Wisconsin are required to close.

“Collateral” means that equipment of Borrower described in Exhibit A attached hereto.

“Closing Date” shall mean the date upon which Note A is paid in full and the collateral provided thereto as security released by Lender.

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“Default” means any act, event, condition or omission which, with the giving of notice or lapse of time, would constitute an Event of Default if uncured or unremedied.

“Dollars” means the lawful currency of the United States.

“Event of Default” means the occurrence of any of the events described in Section 6.1 of this Note.

“Governmental Authority” means any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof or any court or arbitrator.

“Loan” means the extension of credit made by Lender to Borrower evidenced by this Amended Note B.

“Maturity Date” means June 26, 2023, or such earlier date on which the obligations under this Note become due and payable pursuant to the terms hereof.

“Payment Date” means the 10th day of each month of each fiscal year of Borrower; provided that if the 10^th day of a month is not a Business Day, the payment due on such date shall be due on the immediately preceding Business Day.

“Person” means any natural person, corporation, limited liability company, joint venture, limited liability partnership, partnership, association, trust or other entity or any Governmental Authority.

“Note A” means that certain promissory note entered into by and between the Parties dated June 26, 2020 in the original amount of $5,803,800.

“Note B” means that certain promissory note entered into by and between the Parties dated June 26, 2020 in the original amount of $2,635,797.00.

“Related Documents” means this Note, the Settlement Agreement, the Use Agreement and the General Business Security Agreements, all as amended, restated, replaced, supplemented or otherwise modified from time to time, including Exhibit “A” attached hereto and incorporated by reference.

“Settlement Agreement” means the Settlement Agreement dated as of June 26, 2020 among Lender, EGII and AMMO.

“Use Agreement” means the Use Agreement dated as of the date hereof between Lender and EGII.

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2. Interest Rate; Default Rate; Late Fee.

2.1 Interest Rate. The interest rate to be applied to the unpaid principal balance of the Loan will be a per annum rate equal to the 9.0%. Interest on this Note is computed on an Actual 360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

2.2 Default Rate. Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default, the unpaid principal balance of the Loan and any accrued and unpaid interest shall bear interest at an annual rate (the “Default Rate”) equal to the rate otherwise in effect under Section 2.1 plus 3.0 percentage points, payable upon demand. On and after the Maturity Date, the unpaid principal balance of the Loan and all accrued interest thereon shall bear interest at the Default Rate, payable upon demand.

2.3 Late Fee. If a payment is not made on or before the 15^th day after its due date, Borrower will be charged 5.00% of the unpaid portion of the regularly scheduled payment.

2.4 Maximum Rate of Interest. Nothing herein contained shall be deemed to require Borrower to pay or be liable for the payment of interest upon the Loan in excess of the maximum legal rate of interest (if there be any maximum) allowable under the laws of the State of Wisconsin. If for any reason interest in excess of the amount as limited in the foregoing sentence shall have been paid hereunder, whether by reason of acceleration of this Note, payment of any penalty or premium, or otherwise, then and in that event, any such excess interest shall constitute and be treated as a payment of principal hereunder and shall operate to reduce the principal balance of the Loan by the amount of such excess, or if in excess of the then outstanding principal balance of the Loan, such excess shall be refunded.

3. Payments.

3.1 Principal and Interest. The unpaid principal balance of the Loan outstanding from time to time, together with accrued interest thereon, shall be repayable in 31 equal monthly installments of principal and interest in the amount of $61,305.43.¹ Such payments shall be due on each Payment Date, commencing on the tenth (10^th) day of the month following the Closing Date starting on December 10, 2020, provided, that any remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon, shall be repaid in full on the Maturity Date.

3.2 Application of Payments. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

¹ Payment amounts will be calculated based on a 3-year amortization.

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3.3 Early Payment. Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve the Borrower of its obligation to continue to make payments on this Note. Rather, early payments will reduce the principal balance due and may result in Borrower making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: JAGEMANN STAMPING COMPANY, 5757 West Custer Street, Manitowoc, Wisconsin 54221-0217.

3.4 INTENTIONALLY OMITTED.

4. Prepayment. Borrower may prepay the Loan together with any accrued and unpaid interest thereon at any time in whole or in part without premium or penalty.

5. Representations and Warranties. To induce Lender to make the Loan, Borrower represents and warrants to Lender that:

5.1 Organization; Subsidiaries; Corporate Power. Borrower is a corporation or limited liability company, as applicable, duly organized and validly existing under the laws of the State of Delaware.

5.2 Authorization and Binding Effect. The execution and delivery by Borrower of the Related Documents, and the performance by Borrower of its obligations thereunder: (a) are within its power as a limited liability company and/or corporation, as applicable, (b) have been duly authorized by proper action on the part of the governing body of Borrower, (c) are not in violation of any Requirement of Law, the organizational or charter documents of Borrower or the terms of any agreement, restriction or undertaking to which Borrower is a party or by which Borrower is bound, and (d) do not require the approval or consent of the holders of the equity interests of Borrower, any Governmental Authority or any other Person, other than those obtained and in full force and effect. The Related Documents, when executed and delivered, will constitute the valid and binding obligations of Borrower enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or similar laws of general application affecting the enforcement of creditors’ rights and except to the extent that general principles of equity might affect the specific enforcement of such Related Documents.

5.3 Accuracy of Information. All information, certificates or statements given to Lender pursuant to this Note shall be true and complete when given.

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6. Events of Default, Acceleration and Remedies.

6.1 Events of Default. The occurrence of any of the following shall constitute an Event of Default under this Note:

(a) Borrower fails to pay all or any portion of any amount due hereunder when the same becomes due and payable, whether at a stated payment date or by acceleration, and such failure continues for ten days following Borrower’s receipt of Lender’s written notice of such failure; or

(b) any representation or warranty made herein is false in any material respect on the date as of which it is made or as of which the same is to be effective; or

(c) Borrower fails to comply with any term, covenant or agreement contained herein subject to any applicable grace period or cure period; or

(d) Borrower becomes insolvent or fails generally to pay debts as they become due; or

(e) the taking of action by Borrower to become the subject of proceedings under the United States Bankruptcy Code; or the execution by Borrower of a petition to become a debtor under the United States Bankruptcy Code; or the entry of an order for relief under the United States Bankruptcy Code against Borrower; or Borrower making an assignment for the benefit of creditors; or Borrower consenting to the appointment of a custodian, receiver, trustee or other officer with similar powers for it, or for any substantial part of its property; or adjudicating of Borrower as insolvent; or

(f) if any Governmental Authority of competent jurisdiction shall enter an order appointing, without consent of Borrower, as applicable, a custodian, receiver, trustee or other officer with similar powers with respect to Borrower, or with respect to any substantial part of Borrower’s property, or if an order for relief relating to Borrower shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Borrower, or if any petition for any such relief shall be filed against Borrower and such petition shall not be dismissed or stayed within 60 days; or

(g) Any breach, violation, or default shall occur under any of the other Related Documents and shall continue beyond any applicable notice and cure period set forth therein.

6.2 Acceleration. Upon the occurrence of:

(a) any Bankruptcy Default, the unpaid principal balance of the Loan and all accrued and unpaid interest thereon at that time outstanding automatically shall mature and become due, and

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(b) any other Event of Default, Lender, at any time, at its option, and without notice or demand, may declare the outstanding principal amount of the Loan and all accrued and unpaid interest thereon, due and payable, whereupon such amounts immediately shall mature and become due and payable, all without presentment, protest or notice, all of which hereby are waived.

6.3 Remedies. Upon the occurrence of any Event of Default, Lender, at its option, may enforce or cause to be enforced any of the rights or remedies accorded to Lender at equity or law, by virtue of this Note, the other Related Documents, by statute or otherwise.

7. Miscellaneous.

7.1 Waivers. Borrower expressly hereby waives presentment for payment, protest and demand and notice of protest, demand, dishonor, nonpayment, intent to accelerate and acceleration of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time before, at or after maturity, without in any way affecting the liability of Borrower.

7.2 Modifications. This Note may only be amended by an instrument in writing signed by the party against whom enforcement of the change or amendment is sought.

7.3 Successors and Assigns. This Note shall be binding upon Borrower and upon Borrower’s successors and assigns, and shall inure to the benefit of Lender and its successors and assigns; provided that Borrower’s rights under this Note are not assignable without the prior written consent of Lender.

7.4 Severability. In the event that any provision of this Note is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any Governmental Authority, the validity, legality and enforceability of the remaining terms and provisions of this Note shall not in any way be affected or impaired thereby, all of which shall remain in full force and effect, and the affected term or provision shall be modified to the minimum extent permitted by law so as to achieve most fully the intention of this Note.

7.5 Time of the Essence. Time for the performance of the obligations under this Note is of the essence.

7.6 Expenses. Borrower agrees to pay on demand (i) all out-of-pocket expenses incurred by Lender in connection with the administration, amendment or enforcement of this Note and the other Related Documents including the reasonable fees and expenses of Lender’s counsel, (ii) any taxes (including any interest and penalties relating thereto) payable by Lender on or with respect to the transactions contemplated by this Note (Borrower hereby agreeing to indemnify Lender with respect thereto) and (iii) all out-of-pocket expenses, including the reasonable fees and expenses of Lender’s counsel, incurred by Lender in connection with any litigation, proceeding or dispute in any way related to Lender’s relationship with Borrower, whether arising hereunder or otherwise. The obligations of Borrower under this paragraph will survive payment of this Note.

7

7.7 Governing Law. This Note shall be construed in accordance with and governed by the laws and decisions of the State of Wisconsin.

7.8 Setoff. As security for payment of this Note, Borrower grants to Lender a security interest in and lien on any credit balance or other money now or hereafter owed Borrower by Lender. In addition, Borrower agrees that Lender may, at any time after the occurrence of an Event of Default, without prior notice, set off against any such credit balance or other money all or any part of this Note, irrespective of whether Lender shall have made demand under this Note and although such obligations may be contingent or unmatured.

7.9 Notices. All notices provided for herein shall be in writing and shall be (a) personally delivered or (b) sent by express or first class mail; and, if to Lender, addressed to it at 5757 West Custer Street, Manitowoc, Wisconsin 54221-0217, attention: Ralph Hardt and, if to Borrower, addressed to it at 7681 East Gray Road, Scottsdale, Arizona 85260, attention: Fred Wagenhals and John Flynn, or to such other address with respect to any party as such party shall notify the others in writing; such notices shall be deemed given when delivered, mailed or so transmitted.

7.10 Joint and Several. If Borrower is comprised of more than one Person, the obligations of such Persons under this Note and the other Related Documents shall be joint and several.

7.11 No Novation. This Amended Note B amends, restates and supersedes in its entirety, and is given as a replacement for, and not in satisfaction of or as a novation with respect to that certain Promissory Note in the principal amount of $10,400,000, executed by Borrower in favor of Lender and dated March 14, 2019 (as amended), and Note A, the latter of which has been paid in full as of this even date and Note B.

7.12 Security. Borrower hereby grants Lender, to secure the payment and performance required hereunder, a first priority perfected security interest in the Collateral. Lender agrees to promptly take such actions as necessary to modify any all existing liens or UCC-1 filings, including those resulting from the execution of Note A and Note B, in order to limit its first priority security interest to the Collateral. The Parties hereby reaffirm the validity and enforceability of that certain Subordination Agreement entered into by and between Lender, Borrower and Factors Southwest, LLC dated June 18, 2020.

8

7.13 Jury Waiver. BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE, ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN.

7.14 Submission to Jurisdiction; Service of Process. ALL JUDICIAL PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS NOTE OR ANY OBLIGATIONS HEREUNDER MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MANITOWOC COUNTY OR THE FEDERAL COURT FOR THE EASTERN DISTRICT OF WISCONSIN. BY EXECUTING AND DELIVERING THIS NOTE, BORROWER IRREVOCABLY:

(a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;

(b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

(c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO BORROWER AT ITS ADDRESS SET FORTH IN THE INTRODUCTORY PARAGRAPH OF THIS NOTE;

(d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND

(e) AGREES THAT LENDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

9

IN WITNESS WHEREOF, this Note has been executed and delivered by Borrower as of the date first set forth above.

BORROWER:
ENLIGHT GROUP II, LLC
BY	/s/ Fred Wagenhals
Name:	Fred Wagenhals
Title:	AMMO, Inc. CEO- Managing Member
AMMO, INC.
BY	/s/ Fred Wagenhals
Name:	Fred Wagenhals
Title:	CEO
LENDER:
JAGEMANN STAMPING COMPANY
BY	/s/ Tom Jagemann
Name:	Tom Jagemann
Title:	CEO

10

Supplemental Information for

FIRST AMENDMENT TO GENERAL BUSINESS SECURITY AGREEMENT

AMENDED PROMISSORY NOTE B

The following is a list of Exhibits to the above referenced Agreement, not attached herewith. Any omitted information will be furnished to the Securities and Exchange Commission upon request.

1. Exhibit A

FIRST AMENDMENT TO GENERAL BUSINESS SECURITY AGREEMENT

THIS FIRST AMENDMENT TO GENERAL BUSINESS SECURITY AGREEMENT, dated as of November [__], 2020 (this “Amendment”), is by and between ENLIGHT GROUP II, LLC, a Delaware limited liability company whose principal address is 7681 East Gray Road, Scottsdale, Arizona (“EG”), and JAGEMANN STAMPING COMPANY, a Wisconsin corporation whose principal address is 5757 West Custer Street, Manitowoc, Wisconsin 54221-0217 (“JSC”), and amends and supplements that certain General Business Security Agreement dated June 26, 2020 (as may be amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”), by EG in favor of JSC.

RECITAL

The parties desire to amend and supplement the Security Agreement as provided below.

AGREEMENTS

In consideration of the recital, the promises and agreements set forth in the Security Agreement, as amended hereby, and that certain Amended and Restated Promissory Note B dated the date hereof made by EG and Ammo, Inc., a Delaware corporation, in favor of JSC (the “Note”), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Definitions and References. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Security Agreement. All references to the Security Agreement contained in any other contract or agreement, shall, upon fulfillment of the conditions specified in section 3 below, mean the Security Agreement as amended by this Amendment.

2. Amendments to the Security Agreement. The Security Agreement is hereby amended as follows:

(a) Clause (i) in the first paragraph of the Security Agreement is hereby amended and restated as follows: “(i) the property set forth on Schedule 1 attached hereto,”.

(b) A new Schedule 1 is hereby added to the Security Agreement, to read as set forth as Schedule 1 attached hereto.

3. Effectiveness of the Amendment. This Amendment shall be effective upon execution and delivery hereof by the parties hereto.

4. No Waiver. EG agrees that nothing contained herein shall be construed by EG as a waiver by JSC of EG’s compliance with each representation, warranty and covenant contained in the Security Agreement and that no waiver of any provision of the Security Agreement by JSC has occurred. EG further agrees that nothing contained herein shall impair the right of JSC to require strict performance by EG of the Security Agreement.

5. Representations and Warranties. EG represents and warrants to JSC that:

(a) The execution and delivery of this Amendment and the Note is within its limited liability company power and limited liability company authority, has been duly authorized by all proper limited liability company action on the part of EG, is not in violation of any existing law, rule or regulation of any governmental agency or authority, any order or decision of any court, the organizational documents of EG or the terms of any agreement, restriction or undertaking to which EG is a party or by which EG is bound, and does not require the approval or consent of the holders of equity interests of EG, any governmental body, agency or authority or any other person or entity other than those consents and approvals in full force and effect.

(b) Each of this Amendment and the Note has been duly executed and delivered by EG and constitutes the legal, valid and binding obligation of EG, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c) The representations and warranties contained in the Security Agreement and the Note are correct and complete as of the date of this Amendment, and no condition or event exists or act has occurred that, with or without the giving of notice or the passage of time, would constitute a default under the Security Agreement.

6. Miscellaneous.

(a) Expenses and Fees. EG agrees to pay on demand (i) all out-of-pocket expenses incurred by JSC in connection with the administration, amendment or enforcement of the Note and the other Related Documents, including the reasonable fees and expenses of JSC’s counsel, (ii) any taxes (including any interest and penalties relating thereto) payable by JSC on or with respect to the transactions contemplated by the Note (EG hereby agreeing to indemnify JSC with respect thereto) and (iii) all out-of-pocket expenses, including the reasonable fees and expenses of JSC’s counsel, incurred by JSC in connection with any litigation, proceeding or dispute in any way related to JSC’s relationship with EG, whether arising hereunder or otherwise.

(b) Headings. The headings in this Amendment are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Amendment.

(c) Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one and the same instrument. Delivery of an executed counterpart hereto by facsimile or by electronic transmission of a portable document file (PDF or similar file) shall be as effective as delivery of a manually executed counterpart signature page hereto.

(d) Governing Law. This Amendment shall be construed in accordance with and governed by the laws and decisions of the State of Wisconsin.

2

(e) Submission to Jurisdiction; Service of Process. ALL JUDICIAL PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AMENDMENT OR ANY OBLIGATIONS HEREUNDER MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MANITOWOC COUNTY OR THE FEDERAL COURT FOR THE EASTERN DISTRICT OF WISCONSIN. BY EXECUTING AND DELIVERING THIS AMENDMENT, EG IRREVOCABLY:

(i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;

(ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

(iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO EG AT ITS ADDRESS SET FORTH IN THE INTRODUCTORY PARAGRAPH OF THIS AMENDMENT;

(iv) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (iii) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER EG IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND

(v) AGREES THAT JSC RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST EG IN THE COURTS OF ANY OTHER JURISDICTION.

(f) Jury Waiver. EG AND JSC HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN EG AND JSC ARISING OUT OF OR IN ANY WAY RELATED TO THIS AMENDMENT, ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN JSC AND EG. THIS PROVISION IS A MATERIAL INDUCEMENT TO JSC TO ENTER INTO THIS AMENDMENT.

(g) Construction. This Amendment has been drafted with the assistance of counsel for each party hereto and shall not be construed in favor of, or against, any party hereto.

7. Affirmation. Each party hereto affirms and acknowledges that the Security Agreement, as amended by this Amendment, remains in full force and effect in accordance with its terms, as may be amended hereby.

[signature page follows]

3

IN WITNESS WHEREOF, the parties hereto have duly executed this First Amendment to General Business Security Agreement as of the date first written above.

ENLIGHT GROUP II, LLC
By:	/s/ Fred Wagenhals
Name:	Fred Wagenhals
Title:	CEO
JAGEMANN STAMPING COMPANY, LLC
By:	/s/ Tom Jagemann
Name:	Tom Jagemann
Title:	CEO

Signature Page to First Amendment

Supplemental Information for

FIRST AMENDMENT TO GENERAL BUSINESS SECURITY AGREEMENT

Dated November 4, 2020

The following is a list of Schedules to the above referenced Agreement, not attached herewith. Any omitted information will be furnished to the Securities and Exchange Commission upon request.

1. Schedule I Collateral Description

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Fred W. Wagenhals, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ammo, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2020	By:	/s/ Fred W. Wagenhals
	Name:	Fred W. Wagenhals
	Title:	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Rob Wiley, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ammo, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2020	By:	/s/ Rob Wiley
	Name:	Rob Wiley
	Title:	Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Quarterly Report of AMMO, Inc. (the “ Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Fred W. Wagenhals, Chief Executive Officer (Principal Executive Officer) of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Quarterly Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2020	By:	/s/ Fred W. Wagenhals
	Name:	Fred W. Wagenhals
	Title:	Chief Executive Officer (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Quarterly Report of AMMO, Inc. (the “ Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Rob Wiley, Chief Financial Officer (Principal Financial Officer) of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Quarterly Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2020	By:	/s/ Rob Wiley
	Name:	Rob Wiley
	Title:	Chief Financial Officer (Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Sep. 30, 2020	Nov. 14, 2020
Cover [Abstract]
Entity Registrant Name	AMMO, INC.
Entity Central Index Key	0001015383
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		50,592,311
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2021

XML

Condensed Consolidated Balance Sheets - USD ($)	Sep. 30, 2020	Mar. 31, 2020
Current Assets:
Cash	$ 3,413,710	$ 884,274
Accounts receivable, net of allowance for doubtful account of $85,419 at September 30, 2020 and $62,248 at March 31, 2020	5,331,298	3,004,839
Due from related parties	15,657	15,807
Inventories, at lower cost or net realizable value, principally average cost method	7,603,031	4,408,073
Prepaid expenses	1,035,322	844,117
Total Current Assets	17,399,018	9,157,110
Equipment, net of accumulated depreciation of $4,369,737 at September 30, 2020 and $3,060,681 at March 31, 2020	17,917,453	18,046,329
Other Assets:
Deposits	277,801	216,571
Licensing agreements, net of accumulated amortization of $183,333 at September 30, 2020 and $158,833 at March 31, 2020	66,667	91,667
Patents, net of accumulated amortization of $807,766 at September 30, 2020 and $561,096 at March 31, 2019	6,266,239	6,512,909
Other Intangible Assets, net of accumulated amortization of $2,211,057 at September 30, 2020 and $1,496,833 at March 31, 2020	2,935,180	3,649,404
Right of Use Assets - Operating Leases	2,488,861	3,431,746
TOTAL ASSETS	47,351,219	41,105,736
Current Liabilities:
Accounts payable	4,477,570	5,197,354
Factoring liability	2,074,621	2,005,979
Accrued liabilities	2,765,070	1,619,619
Inventory credit facility	2,250,000
Current portion of operating lease liability	495,102	375,813
Insurance premium note payable	286,030	329,724
Convertible promissory notes, net of note issuance cost of $18,278 at September 30, 2020 and $237,611 at March 31, 2020	2,481,722	2,262,389
Note payable related party		434,731
Total Current Liabilities	14,830,115	12,225,609
Long-term Liabilities:
Contingent consideration payable	652,265	709,623
Notes payable related party	11,275,298	5,803,800
Paycheck protection program notes	1,051,985
Operating Lease Liability, net of current portion	2,047,470	3,107,911
Total Liabilities	29,857,133	21,846,943
Shareholders' Equity:
Common stock, $0.001 par value, 200,000,000 shares authorized 48,324,347 and 46,204,139 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively	48,323	46,204
Additional paid-in capital	56,895,422	53,219,834
Accumulated deficit	(39,449,659)	(34,007,245)
Total Shareholders' Equity	17,494,086	19,258,793
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 47,351,219	$ 41,105,736

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2020	Mar. 31, 2020
Allowance for doubtful accounts	$ 85,419	$ 62,248
Accumulated depreciation	4,369,737	3,060,681
Convertible promissory notes, issuance costs current	$ 18,278	$ 237,611
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	48,324,347	46,204,139
Common stock, shares outstanding	48,324,347	46,204,139
Licensing Agreements [Member]
Accumulated amortization	$ 183,333	$ 158,833
Patents [Member]
Accumulated amortization	807,766	561,096
Other Intangible Assets [Member]
Accumulated amortization	$ 2,211,057	$ 1,496,833

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net Sales
Net Sales	$ 12,012,872	$ 2,954,555	$ 21,672,842	$ 7,253,135
Cost of Goods Sold, for the three and six months ended September 30, 2020 and 2019 includes depreciation and amortization of $780,150, $723,237, $1,538,652, and $1,336,806 respectively, and federal excise taxes of $864,570, $121,318, $1,505,693, and $235,603, respectively	10,723,246	3,672,599	19,311,811	8,624,395
Gross Margin	1,289,626	(718,044)	2,361,031	(1,371,260)
Operating Expenses
Selling and marketing	332,430	287,647	702,052	509,575
Corporate general and administrative	1,077,194	954,350	2,166,178	2,053,993
Employee salaries and related expenses	1,174,257	834,516	2,156,746	2,052,208
Depreciation and amortization expense	415,685	450,380	826,184	905,242
Loss on purchase			1,000,000
Total operating expenses	2,999,566	2,526,893	6,851,160	5,521,018
Loss from Operations	(1,709,940)	(3,244,937)	(4,490,129)	(6,892,278)
Other Expenses
Other income/(expense)	(186,600)		(186,600)
Interest income/(expense)	(442,085)	(199,323)	(765,685)	(393,384)
Total other expenses	(628,685)	(199,323)	(952,285)	(393,384)
Loss before Income Taxes	(2,338,625)	(3,444,260)	(5,442,414)	(7,285,662)
Provision for Income Taxes
Net Loss	$ (2,338,625)	$ (3,444,260)	$ (5,442,414)	$ (7,285,662)
Loss per share Basic and fully diluted:
Weighted average number of shares outstanding	47,790,105	45,416,153	47,023,094	44,999,342
Loss per share	$ (0.05)	$ (0.08)	$ (0.12)	$ (0.16)
Ammunition Sales [Member]
Net Sales
Net Sales	$ 8,741,280	$ 1,315,756	$ 15,152,948	$ 2,457,255
Casing Sales [Member]
Net Sales
Net Sales	$ 3,271,592	$ 1,638,799	$ 6,519,894	$ 4,795,880

XML

Condensed Consolidated Statements of Operations (Unaudited) (Parenthetical) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Depreciation and amortization	$ 780,150	$ 723,237	$ 1,538,652	$ 1,336,806
Federal excise taxes	$ 864,570	$ 121,318	$ 1,505,693	$ 235,603

XML

Condensed Consolidated Statement of Shareholders' Equity (Unaudited) - USD ($)	Common Shares [Member]	Additional Paid-In Capital [Member]	Accumulated (Deficit) [Member]	Total
Beginning Balance at Mar. 31, 2019	$ 44,013	$ 48,935,485	$ (19,450,565)	$ 29,528,933
Beginning Balance, shares at Mar. 31, 2019	44,013,075
Common stock issued for cash	$ 1,233	2,464,307		2,465,540
Common stock issued for cash , shares	1,232,770
Common stock issued for convertible notes	$ 127	318,099		318,226
Common stock issued for convertible notes, shares	127,291
Common stock issuance costs		(285,981)		(285,981)
Common stock issued for services	$ 63	199,937		200,000
Common stock issued for services, shares	63,492
Employee stock awards	$ 315	506,185		506,500
Employee stock awards, shares	315,000
Stock grants		379,694		379,694
Net loss			(7,285,662)	(7,285,662)
Ending Balance at Sep. 30, 2019	$ 45,751	52,517,726	(26,736,227)	25,827,250
Ending Balance, shares at Sep. 30, 2019	45,751,628
Beginning Balance at Jun. 30, 2019	$ 45,270	51,594,749	(23,291,967)	28,348,052
Beginning Balance, shares at Jun. 30, 2019	45,269,908
Common stock issued for cash	$ 334	668,106		668,440
Common stock issued for cash , shares	334,220
Common stock issued for convertible notes
Common stock issued for convertible notes, shares
Common stock issuance costs		(96,414)		(96,414)
Common stock issued for services
Common stock issued for services, shares
Employee stock awards	$ 147	173,103		173,250
Employee stock awards, shares	147,500
Stock grants		178,182		178,182
Net loss			(3,444,260)	(3,444,260)
Ending Balance at Sep. 30, 2019	$ 45,751	52,517,726	(26,736,227)	25,827,250
Ending Balance, shares at Sep. 30, 2019	45,751,628
Beginning Balance at Mar. 31, 2020	$ 46,204	53,219,834	(34,007,245)	19,258,793
Beginning Balance, shares at Mar. 31, 2020	46,204,139
Common stock issued for cash	$ 1,664	2,880,207		2,881,871
Common stock issued for cash , shares	1,663,215
Common stock issued for exercised warrants	$ 120	242,305		242,425
Common stock issued for exercised warrants, shares	121,213
Common stock issued for cashless warrant exercise
Common stock issued for cashless warrant exercise, shares	279
Common stock issuance costs		(70,000)		(70,000)
Common stock issued for services	$ 8	(8)
Common stock issued for services, shares	8,336
Employee stock awards	$ 327	475,409		475,736
Employee stock awards, shares	327,165
Stock grants		147,675		147,675
Net loss			(5,442,414)	(5,442,414)
Ending Balance at Sep. 30, 2020	$ 48,323	56,895,422	(39,449,659)	17,494,086
Ending Balance, shares at Sep. 30, 2020	48,324,347
Beginning Balance at Jun. 30, 2020	$ 47,453	55,421,865	(37,111,034)	18,358,284
Beginning Balance, shares at Jun. 30, 2020	47,454,277
Common stock issued for cash	$ 664	1,131,207		1,131,871
Common stock issued for cash , shares	663,215
Common stock issued for exercised warrants	$ 60	121,151		121,211
Common stock issued for exercised warrants, shares	60,606
Common stock issued for cashless warrant exercise
Common stock issued for cashless warrant exercise, shares
Common stock issuance costs		(70,000)		(70,000)
Common stock issued for services
Common stock issued for services, shares
Employee stock awards	$ 146	220,290		220,436
Employee stock awards, shares	146,249
Stock grants		70,909		70,909
Net loss			(2,338,625)	(2,338,625)
Ending Balance at Sep. 30, 2020	$ 48,323	$ 56,895,422	$ (39,449,659)	$ 17,494,086
Ending Balance, shares at Sep. 30, 2020	48,324,347

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Condensed Consolidated Statements of Cash Flow (Unaudited) - USD ($)	6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net Loss	$ (5,442,414)	$ (7,285,662)
Adjustments to reconcile Net Loss to Net Cash used by operations:
Depreciation and amortization	2,364,836	2,242,048
Debt discount amortization	219,333	24,144
Employee stock awards	475,736	506,500
Stock grants	147,675	379,694
Stock for services		200,000
Contingent consideration payable fair value	(57,358)
Interest on convertible promissory notes		18,226
Allowance for doubtful accounts	23,171	(103,644)
Reduction in right of use asset	205,205
Other (Income)/expense	186,600
Loss on Jagemann Munition Components	1,000,000
Changes in Current Assets and Liabilities
Accounts receivable	(2,349,630)	(1,189,573)
Due to (from) related parties	150	(32,376)
Inventories	(3,194,958)	(256,614)
Prepaid expenses	35,334	122,349
Deposits	(61,230)	(3,960)
Accounts payable	1,916,013	2,337,445
Accrued liabilities	1,145,451	60,788
Operating lease liability	(203,472)
Net cash used in operating activities	(3,750,758)	(2,980,635)
Cash flows from investing activities:
Purchase of equipment	(2,275,466)	(426,467)
Net cash used in investing activities	(2,275,466)	(426,467)
Cash flow from financing activities:
Proceeds from inventory facility	2,250,000
Proceeds from factoring liability	15,289,000
Payments on factoring liability	(15,220,358)	1,036,273
Proceeds from paycheck protection program notes	1,051,985
Proceeds from note payable related party issued	3,500,000	375,000
Payments on note payable - related party	(1,099,030)	(1,500,000)
Payments on insurance premium note payment	(270,233)	(201,238)
Sale of common stock	2,881,871	2,465,540
Common stock issued for exercised warrants	242,425
Common stock issuance costs	(70,000)	(285,981)
Contingent consideration payment		(150,000)
Net cash provided by financing activities	8,555,660	1,739,594
Net increase/(decrease) in cash	2,529,436	(1,667,508)
Cash, beginning of period	884,274	2,181,246
Cash, end of period	3,413,710	513,738
Supplemental cash flow disclosures
Cash paid during the period for - Interest	447,105	346,800
Cash paid during the period for - Income taxes
Non-cash investing and financing activities:
Accounts payable	(2,635,797)
Note payable related party	2,635,797
Right of use assets - operating leases	(737,680)	(4,288,208)
Operating lease liability	737,680	4,288,208
Insurance premium note payment	226,539	165,120
Prepaid expenses	(226,539)	(165,120)
Convertible promissory note		(300,000)
Convertible promissory note conversion		300,000
Total non-cash investing and financing activities

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Organization and Business Activity

6 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Business Activity

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.

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Going Concern

6 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Going Concern

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $5,281,214 and $7,285,662 for the six months ended September 30, 2020 and 2019, respectively. Net cash used in operating activities was $3,750,758 and $2,980,635 for the six months ended September 30, 2020 and 2019, respectively.

The Company anticipates that it will record losses from operations for the foreseeable future. As of September 30, 2020, the Company’s accumulated deficit was $39,449,659. The Company has limited capital resources, and operations to date have been funded with the proceeds from equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern for the period ended a year from the date the financial statements are issued.

The Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of equity offerings, and debt financings. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities or file for bankruptcy and our operations and financial condition may be materially adversely affected. See Note 14 for additional equity and debt proceeds received subsequent to September 30, 2020.

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Summary of Significant Accounting Policies

6 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2020. The results for the six month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and six month periods ended September 30, 2020 and 2019, (b) the financial position at September 30, 2020, and (c) cash flows for the six month period ended September 30, 2020 and 2019.

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 31^st.

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 condensed 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. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At September 30, 2020 and March 31, 2020, we reserved $85,419 and $62,248, 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. 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 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. 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.

Amortization expense for the license agreements for the three and six months ended September 30, 2020 and 2019 was $12,500 and $25,000, 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. 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. 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 months ended September 30, 2020 and 2019 was $21,268 and $21,269, respectively, and $42,537 and $42,538, respectively for the six months ended September 30, 2020 and 2019, respectively.

Under the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the six months ended September 30, 2020 and 2019, the Company accrued $50,803 and $11,317, respectively under this agreement.

On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.

The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018. Patent amortization expense for the three months ended September 30, 2020 and 2019 was $102,067 and $35,119, respectively, and $204,133 and $137,186, respectively for the six months ended September 30, 2020 and 2019.

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

Other Intangible Assets

On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property. For the three months ended September 30, 2020 and 2019, amortization of the other intangibles assets was $357,111 and $410,289, respectively, and $714,224 and $820,578, respectively for the six months ended September 30, 2020 and 2019 and recognized in depreciation and amortization expense.

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the three and six months ended September 30, 2020 and 2019.

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. In the current period, the Company began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The Company will recognize revenue when the performance obligation is met.

For the three and six months ended September 30, 2020, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

	Revenues at September 30, 2020						Accounts Receivable
PERCENTAGES	Three Months Ended			Six Months Ended			September 30, 2020			March 31, 2020
Customers:
A		14.7	%		14.8	%		17.2	%		26.5	%
B		-			-			18.1	%		-
		14.7	%		14.8	%		35.3	%		26.5	%

Disaggregated Revenue Information

The following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product type.

	For the Three Months Ended				For the Six Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Ammunition Sales	$	8,741,280	$	1,315,756	$	15,152,948	$	2,457,255
Ammunition Casings Sales		3,271,592		1,638,799		6,519,894		4,795,880
Total Sales	$	12,012,872	$	2,954,555	$	21,672,842	$	7,253,135

Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers.

Advertising Costs

We expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. We incurred advertising of $51,410 and $138,576 for the three and six months ended September 30, 2020, respectively and we incurred advertising expenses of $200,805 and $295,422 for the three and six months ended September 30, 2019, respectively.

Inventories

We state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.

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.

Stock-Based Compensation

We account for stock-based compensation at fair value in accordance with ASC 718. There were 146,249 shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during the quarter ended September 30, 2020.

Effective April 1, 2020, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.

Effective June 18, 2020, we entered into an employment agreement with Steve Hilko, Chief Operating Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.

From September 2018 through September 2020, we entered into eight separate employment agreements that included in total, among other provisions, equity grants of 540,382 shares of restricted common stock that vests annually over the next three years. The total compensation value 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 September 30, 2020, 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.

Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer payroll taxes and evaluating potential employee retention credits.

Contingencies

Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a result of such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient controls internal controls, and that the individual was the victim of retaliation and constructive discharge after being removed as a director by majority vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made of up independent directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found the material claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain corporate governance charter documents and processes which the Company promptly implemented. The 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 disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans to aggressively pursue its offensive claims in order to recover economic damages as a result of its claims while seeking dismissal of the counterclaim. There were no other known contingencies at September 30, 2020.

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 8,381,192 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 six months ended September 30, 2020 and 2019, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive. The Company excluded warrants of 8,381,192 and 8,853,432 for the six months ended September 30, 2020 and 2019, respectively, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.

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Inventories

6 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Inventories

NOTE 4 – INVENTORIES

At September 30, 2020 and March 31, 2020, the inventory balances are composed of:

	September 30, 2020		March 31, 2020
Finished product	$	372,747	$	1,916,417
Raw materials		5,089,516		1,771,006
Work in process		2,140,768		720,650
	$	7,603,031	$	4,408,073

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Property and Equipment

6 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment

NOTE 5 – 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 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 September 30, 2020 and March 31, 2020:

	September 30, 2020			March 31, 2020
Leasehold Improvements	$	126,558		$	118,222
Furniture and Fixtures		87,790			87,790
Vehicles		103,511			103,511
Equipment		21,749,879			19,578,035
Tooling		126,190			126,190
Construction in Progress		93,262			1,093,262
Total property and equipment	$	22,287,190		$	21,107,010
Less accumulated depreciation		(4,369,737	)		(3,060,681	)
Net property and equipment		17,917,453			18,046,329

Depreciation Expense for the three and six months ended September 30, 2020 and 2019 totaled $702,889, $627,492, $1,378,942, and $1,210,166, respectively.

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Factoring Liability

6 Months Ended

Sep. 30, 2020

Factoring Liability

Factoring Liability

NOTE 6 – 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 September 30, 2020, the outstanding balance of the Factoring Liability was $2,074,621. Interest expense recognized on the Factoring Liability was $227,741, including $50,000 of amortization of the commitment fee. Interest expense for the comparable period ending September 30, 2019 was $40,846, including $25,000 of amortization of the commitment fee.

On June 17, 2020, this agreement was amended which extended the maturity date to June 17, 2022.

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Inventory Credit Facility

6 Months Ended

Sep. 30, 2020

Inventory Credit Facility

Inventory Credit Facility

NOTE 7 – INVENTORY CREDIT FACILITY

On June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line, and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our inventory, among other assets, contains a maximum loan amount of $1,750,000 on eligible inventory and has an annualized interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%. The agreement contains a fee of 2% of the maximum loan amount ($35,000) assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory loan amount to $2,250,000. As of September 30, 2020, the outstanding balance of the Inventory Credit Facility was $2,250,000. Interest expense recognized on the Inventory Credit Facility was $60,725, including $13,485 of amortization of the annual fee. There was no interest expense for the comparable period ending September 30, 2019 as this transaction was not yet consummated.

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Leases

6 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

NOTE 8 – 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. As of September 30, 2020, we are fairly certain that we will exercise the renewal option, and we have included such renewal option in the lease liabilities and the disclosures herein. The Scottsdale lease does not include a renewal option. As of June 26, 2020, the Company entered into an amended agreement that modified the Manitowoc lease to monthly payments of $34,071 and decrease the term to March 2025. The agreement does not contain a renewal option. Accordingly, we modified our Right of Use Assets and Operating Lease Liabilities by $737,680 at June 30, 2020.

As of September 30, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $2,488,861 and $2,047,470, respectively. As of March 31, 2020, the total Right of Use Assets and Operating Lease Liabilities on the Balance Sheet were $3,431,746 and $3,107,911, respectively. The Operating Lease Liabilities were net of current portions of $495,102 at September 30, 2020 and $375,813 at March 31, 2020.

Consolidated lease expense for the three and six months ended September 2020 was $207,340 and $392,109, respectively, including $178,621 and $355,294 of respective operating lease expense and $28,720 and 36,816 of respective other lease associated expenses such as association dues, taxes, utilities, and other month to month rentals.

The weighted average remaining lease term and weighted average discount rate for operating leases were 4.5 years and 10.0%, respectively.

Futures minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

Years Ended March 31,
2021 (1)	$	363,140
2022		732,111
2023		742,108
2024		684,836
Thereafter		639,988
		3,162,183
Less: Amount Representing Interest		(619,611	)
	$	2,542,572

(1) This amount represents future lease payments for the remaining six months of fiscal year 2021. It does not include any lease payments for the six months ended September 30, 2020.

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Convertible Promissory Notes

6 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Convertible Promissory Notes

NOTE 9 – CONVERTIBLE PROMISSORY NOTES

On January 15, 2020, the Company consummated the initial closing of a private placement 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 Company’s common stock, par value $0.001 per share (“Common Stock”).

On January 30, 2020, the Company consummated the final closing of a private placement 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 $850,000 and five (5) year warrants to purchase shares of the Company’s common stock, par value $0.001 per share.

The Notes accrue interest at a rate of 8% per annum and mature on October 15, 2020 and October 30, 2020. 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 the Notes), converts into shares of the Company’s Common Stock at a conversion price of 66.7% of the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Company’s 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 Notes contain customary events 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.

The Company analyzed embedded conversion options of the convertible notes at issuance to determine whether the embedded conversion options should be bifurcated and accounted for as derivative liabilities or if the embedded conversion options contain a beneficial conversion feature. The Company notes that this determination must be performed at each balance sheet date and makes it possible for certain instruments to be reclassified between debt and equity at different points in their life. The Company determined that it will defer recognition of its accounting until such notes become convertible. Additionally, the Company determined that the embedded conversion options do not require bifurcation and treatment as derivative liabilities, but they included contingent beneficial conversion features that are indeterminable on the commitment date. The Company notes the embedded conversion options will be accounted for and recognized, if necessary, when the contingencies are resolved (the date of a Qualified Financing or during the 10 days prior to the Maturity Date). Through September 30, 2020, a Qualified Financing had not occurred and the Note is not yet convertible under the Voluntary Conversion Option and, as a result, the contingencies have not been resolved, such that the Company concluded that no measurement or recognition of the beneficial conversion feature was required as of September 30, 2020.

Pursuant to the Subscription Agreements, each Investor will receive the number of Warrants to purchase shares of Common Stock equal to the quotient obtained by dividing 50% of the principal amount of the Note by the Conversion Price of the Note. The Warrants are exercisable at the per share purchase price of shares or other units in the Qualified Financing. If a Qualified Financing has not occurred on or before the Maturity Date, the 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 “Exercise Price”). The 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.

Joseph Gunnar & Co., LLC acted as placement agent for the Offering. The Placement Agent 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 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.

As of September 30, 2020, the key terms of the investor and placement agent warrants are still unknown such that there is still no grant of the warrants for accounting purposes. The Company will determine the fair value of the warrants at the time the key terms of the Warrants become known and the Warrants are issued.

From October 8, 2020 to October 26, 2020, the Company received notices for voluntary conversion for the total outstanding principal ($2,500,000) and interest ($146,104) of the Convertible Promissory Notes and issued 2,157,358 shares of our Common Stock as a result of the conversion. The principal and interest related to the Initial Closing and Final Closing were converted at a conversion prices of $1.21 and $1.26, respectively. Additionally, the Company issued a total of 1,019,121 warrants to purchase shares of our Common Stock at exercise prices ranging from $2.19 to $2.67.

Additionally, pursuant to the Subscription Agreements, the Company issued 152,868 warrants to purchase shares of our Common Stock to Joseph Gunnar & Co. LLC with exercise prices ranging from $1.51 to $1.58. The Company has no further obligation with respect to the Convertible Promissory Notes.

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Notes Payable - Related Party

6 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Notes Payable - Related Party

NOTE 10 – 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. In May of 2019, the Company paid $1,500,000 on the balance of the note. As of September 30, 2020, we recognized interest of $178,830 related to the note. The note is secured by all the equipment purchased from Jagemann Stamping Company.

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 Equipment for a net value of $1,871,306, decreased Other Intangible Assets by $766,068, increased Accounts Receivable by $31,924, and recorded an increase to Deposits for $9,250 worth of equipment that the Company agreed to transfer back to Seller. Consequently, accumulated amortization has decreased by $159,530. Additionally, the Company entered into a lease to gain possession of the assets that were originally to be transferred.

On June 26, 2020, the Company, Enlight Group II, LLC (“Enlight”), the Company’s wholly owned subsidiary and Jagemann Stamping Company’s (“JSC”) entered into a Settlement Agreement pursuant to which the parties mutually agreed to settle all disputes and mutually release each other from liabilities related to the Amended APA occurring prior to June 26, 2020. Pursuant to the Settlement Agreement, the Company shall pay JSC $1,269,977 and shall provide JSC with: (i) two new promissory notes, a note of $5,803,800 related to the Seller Note and note of $2,635,797 for inventory and services, which was reclassed from accounts payable, both with a maturity date of August 15, 2021, (ii) general business security agreements granting JSC a security interest in all personal property of the Company. Pursuant to the Notes, the Company is obligated to make monthly payments totaling $204,295 to JSC. In addition, the Notes have a mandatory prepayment provision that comes into effect if the Company conducts a publicly registered offering. Pursuant to such provision, the Company: (a) upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and (b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then aggregate outstanding balance of the Notes. The Company was granted an option to repurchase up to 1,000,000 of the shares of the Company’s common stock issued to JSC under the Amended APA at a price of $1.50 per share through April 1, 2021 so long as there are no defaults under the Settlement Agreement. The total balance of the two Notes due to JSC as of September 30, 2020 is $7,775,298.

As a result of the Settlement Agreement, the Company agreed to not receive $1,000,000 in Construction in Progress that the parties had previously agreed to exchange. As a result, the Company recognized a loss in operating expenses for the six months ended September 30, 2020.

On November 5, 2020, the Company paid $6,000,000 to JSC allocated as follows: (i) payment in full of Note A, representing the balance due from the Company to JSC relating to the acquisition of Jagemann Munition Components in March 2019 and (ii) $592,982 remitted in partial payment of Note B, resulting in the parties’ execution of Amended Note B which has a starting principal balance of $1,687,664 (“Amended Note B”). The Amended Note B principal balance carries a 9% per annum interest rate and is amortized equally over the thirty six (36) month term. As a result of the payment in full of Note A JSC shall release the accompanying security interest in Company assets which secured Note A. Concurrently, upon entry into Amended Note B, JSC and the Company entered into the First Amendment to General Business Security Agreement to reflect a revised list of collateral in which JSC has a security interest.

On May 3, 2019, the Company entered into a promissory note of $375,000 with a shareholder of the Company. The original interest rate was the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $260,000. The note’s original a maturity date of August 3, 2019 was extended to September 18, 2020. The amended note bears interest at 1.25% per month. The Company made $18,195 in principal payments during the six months ended September 30, 2020 and the Note was paid in full in July of 2020. We recognized $10,327 of interest expenses related to the note during the six months ended September 30, 2020.

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 originally matured on June 12, 2020 and had an interest rate at the applicable LIBOR Rate. The promissory note has since been amended and the balance at June 30, 2020 was $131,536 and the amended maturity date is September 18, 2020. The Company made $25,000 in principal payments during the six months ended September 30, 2020 and the Note was paid in full in July of 2020. The amended note bears interest at 1.25% per month. We recognized $5,350 of interest expense on the note for the six months ended September 30, 2020.

On September 23, 2020, the Company and Enlight entered into a promissory note (the “Forest Street Note”) with Forest Street, LLC (“Lender”), an Arizona limited liability company wholly owned by our current Chief Executive Officer, Fred Wagenhals, for the principal sum of Three Million Five Hundred Thousand & 00/100 Dollars ($3,500,000.00), which accrues interest at 12% per annum. The Note has a maturity date of September 23, 2022.

Pursuant to the terms of the Forest Street Note, the Company and Enlight (collectively, the borrower pursuant to the note) shall pay Lender; (i) on a monthly basis, beginning October 23, 2020, all accrued interest (only), (ii) on a quarterly basis, a monitoring fee of 1% of the principal amount and then accrued interest; and (iii) on the maturity date, the remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon.

The note is an unsecured obligation of the Company and is not convertible into equity securities of the Company.

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Paycheck Protection Notes Payable

6 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Paycheck Protection Notes Payable

NOTE 11 – PAYCHECK PROTECTION NOTES PAYABLE

In April of 2020, the Company determined it was necessary to obtain additional funds as a result of the foregoing uncertainty cause by COVID-19. The Company received approximately $1.0 million in funds through itself and its wholly owned subsidiary Jagemann Munition Components, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered by the U.S. Small Business Administration. The Company received approximately $600,000 from Western State Bank and its wholly owned subsidiary, Jagemann Munition Components, received approximately $400,000 from BMO Harris. The Paycheck Protection Notes provide for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the Paycheck Protection Notes are forgiven. To be available for loan forgiveness, the Paycheck Protection Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020.

On November 11, 2020 the Company applied for forgiveness of the $1.0 million Paycheck Protection Program Notes as these funds were used for qualified expenses. No assurance can be given that the Company will be granted forgiveness of these Paycheck Protection Program Notes.

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Capital Stock

6 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Capital Stock

NOTE 12 – CAPITAL STOCK

During the six month period ended September 30, 2020, we issued 2,120,208 shares of common stock as follows:

● 1,663,215 shares were sold to investors for $2,881,871

● 121,213 shares were issued to investors for exercised warrants valued for $242,245

● 279 shares were issued for cashless exercise of 1,967 warrants

● 8,336 shares were issued for services provided to the Company value at $13,188

● 327,165 shares valued at $475,736 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation

Pursuant to subscription agreements with certain investors, the Company agreed to file a registration statement for shares purchased by investors on or before the 75^th day following closing. The Company was unable to meet this obligation and is required to pay a liquidated damage fee to investors on a monthly basis to avoid default until such registration statement is filed. Accordingly, the Company paid $35,000 in the current period and accrued $126,200 for fees payable subsequent to September 30, 2020. The Company recorded these fees as issuance costs in Other Expenses.

At September 30, 2020, 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, 2020		8,504,372		$	2.10		3.60
Granted		-			-		-
Exercised		(123,180	)		2.00		-
Forfeited or cancelled		-			-		-
Outstanding at September 30, 2020		8,381,192		$	2.10		3.08
Exercisable at September 30, 2020		8,381,192		$	2.10		3.08

As of September 30, 2020, we had 8,381,192 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 966,494 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 4,518,565 shares of our Common Stock at an exercise price of $2.00 per share from December 2022 through August of 2024; and (3) warrants to purchase 2,896,133 shares of Common Stock at an exercise price of $2.40 from December 2023 through August of 2024.

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Income Taxes

6 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 – INCOME TAXES

As of September 30, 2020, we had net operating loss carryforwards of approximately $33 million 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.

The Company’s effective tax rates were 0% and 0% for the six months ended September 30, 2020 and 2019, respectively. During the six months ended September 30, 2020 and 2019, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance.

The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended December 31, 2016, December 31, 2017, and March 31, 2018, 2019, and 2020 are subject to audit.

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Subsequent Events

6 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

NOTE 14 – SUBSEQUENT EVENTS

From October 7, 2020 to October 21, 2020, the Company issued shares of its Common Stock for the exercise of warrants. There were 60,606 shares of Common Stock issued for warrants exercised at $2.00 per share or an aggregate value of $121,212 and 50,000 shares of Common Stock issued for warrants exercised at $2.40 per share or an aggregate value of $120,000.

On October 22, 2020, the stockholders of the Company approved the granting to the Board of Directors of the Company (the “Board”) the discretion to amend the Company’s Certificate of Incorporation to effect a reverse stock split of our common stock, by a ratio of not less than 1-for-2 and not more than 1-for-4, such ratio and the implementation and timing of such reverse stock split to be determined in the sole discretion of the Board.

From November 5, 2020 to November 10, 2020, the Company entered into Convertible Promissory Notes with three (3) accredited investors (the “Investors”), for an aggregate purchase price of $1,684,000 (each a “8% Note,” collectively, the “8% Notes”). The 8% Notes accrue interest at a rate of 8% per annum and mature on November 5, 2022 (the “Maturity Date”). Additionally, the 8% Notes contain a voluntary conversion mechanism whereby any principal and accrued interest on the 8% Notes, may be converted in holder’s discretion into shares of the Company’s Common Stock at a conversion price of $2.00 per share (“Conversion Price”). If not previously paid in full or converted, on the 180^th day following the Maturity Date, the principal and interest due under the 8% Notes shall automatically be converted to common stock shares at the Conversion Price The 8% Notes contain customary events of default (each an “Event of Default”). If an Event of Default occurs, the outstanding principal amount of the 8% Notes, plus accrued but unpaid interest, and other amounts owing with respect to the 8% Notes will become, at the 8% Note holder’s election, due and payable in cash.

On November 5, 2020, the Company and Enlight (together, “Borrower”), entered into a promissory note (the “12% Note”) with Lisa Kay, an individual, for the principal sum of Four Million & 00/100 Dollars ($4,000,000.00) (“Principal”), which accrues interest at 12% per annum (“Interest”). The 12% Note has a maturity date of November 5, 2023 (“Maturity Date”).

Pursuant to the terms of the 12% Note, the Borrower shall pay Ms. Kay: (i) on a monthly basis, beginning December 10, 2020, all accrued interest (only), and (ii) on the Maturity Date, the remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon.

The 12% Note is unsecured and is not convertible into equity securities of the Company. However, Borrower has agreed that it shall provide commercially reasonable collateral promptly upon the payment of that certain JSC Promissory Note and JSC’s contemporaneous release of security supporting that financial accommodation. The 12% Note contain terms and events of default customary for similar transactions. The Company is using the net proceeds from the transaction to pay a portion of the outstanding balance owed to JSC.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Accounting Basis

Accounting Basis

The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2020. The results for the six month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and six month periods ended September 30, 2020 and 2019, (b) the financial position at September 30, 2020, and (c) cash flows for the six month period ended September 30, 2020 and 2019.

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 31^st.

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

Principles of Consolidation

The condensed 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

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. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, intangible assets, and stock-based compensation.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

Our accounts receivable represents amounts due from customers for products sold and include an allowance for uncollectible accounts which is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At September 30, 2020 and March 31, 2020, we reserved $85,419 and $62,248, respectively, of allowance for doubtful accounts.

License Agreements

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. 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 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. 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.

Amortization expense for the license agreements for the three and six months ended September 30, 2020 and 2019 was $12,500 and $25,000, respectively.

Patents

Patents

On September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Agreement. Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028. Patent amortization expense for the three months ended September 30, 2020 and 2019 was $21,268 and $21,269, respectively, and $42,537 and $42,538, respectively for the six months ended September 30, 2020 and 2019, respectively.

Under the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the six months ended September 30, 2020 and 2019, the Company accrued $50,803 and $11,317, respectively under this agreement.

On October 5, 2018, we completed the acquisition of SW Kenetics Inc. ATI succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.

The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018. Patent amortization expense for the three months ended September 30, 2020 and 2019 was $102,067 and $35,119, respectively, and $204,133 and $137,186, respectively for the six months ended September 30, 2020 and 2019.

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

Other Intangible Assets

On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property. For the three months ended September 30, 2020 and 2019, amortization of the other intangibles assets was $357,111 and $410,289, respectively, and $714,224 and $820,578, respectively for the six months ended September 30, 2020 and 2019 and recognized in depreciation and amortization expense.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the three and six months ended September 30, 2020 and 2019.

Revenue Recognition

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. In the current period, the Company began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. The Company will recognize revenue when the performance obligation is met.

For the three and six months ended September 30, 2020, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

	Revenues at September 30, 2020						Accounts Receivable
PERCENTAGES	Three Months Ended			Six Months Ended			September 30, 2020			March 31, 2020
Customers:
A		14.7	%		14.8	%		17.2	%		26.5	%
B		-			-			18.1	%		-
		14.7	%		14.8	%		35.3	%		26.5	%

Disaggregated Revenue Information

The following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product type.

	For the Three Months Ended				For the Six Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Ammunition Sales	$	8,741,280	$	1,315,756	$	15,152,948	$	2,457,255
Ammunition Casings Sales		3,271,592		1,638,799		6,519,894		4,795,880
Total Sales	$	12,012,872	$	2,954,555	$	21,672,842	$	7,253,135

Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers.

Advertising Costs

Advertising Costs

We expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. We incurred advertising of $51,410 and $138,576 for the three and six months ended September 30, 2020, respectively and we incurred advertising expenses of $200,805 and $295,422 for the three and six months ended September 30, 2019, respectively.

Inventories

Inventories

We state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.

Property and Equipment

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

Compensated Absences

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

Stock-Based Compensation

Stock-Based Compensation

We account for stock-based compensation at fair value in accordance with ASC 718. There were 146,249 shares of common stock issued to employees, members of the Board of Directors, and members of the Advisory Committee for services during the quarter ended September 30, 2020.

Effective April 1, 2020, we entered into an employment agreement with Robert D. Wiley, Chief Financial Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.

Effective June 18, 2020, we entered into an employment agreement with Steve Hilko, Chief Operating Officer, that included, among other provisions, an equity grant of 33,333 shares of restricted common stock each year for three years that vests at the rate of 8,333 shares per quarter. The compensation value is being recognized on a straight-line basis each year over the three-year period covered by the agreement.

From September 2018 through September 2020, we entered into eight separate employment agreements that included in total, among other provisions, equity grants of 540,382 shares of restricted common stock that vests annually over the next three years. The total compensation value is being recognized on a straight-line basis over the periods covered by each agreement, up to four years.

Concentrations of Credit Risk

Concentrations of Credit Risk

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of September 30, 2020, our bank account balances exceeded federally insured limits.

Income Taxes

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.

Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act was enacted in response to the COVID-19 pandemic and contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest, technical corrections to tax depreciation methods for qualified improvement property and net operating loss carryback periods. The Company is implementing applicable benefits of the CARES Act, such as deferring employer payroll taxes and evaluating potential employee retention credits.

Contingencies

Contingencies

Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. On September 24, 2019, the Company received notice that a former employee that had voluntarily terminated filed a complaint against the Company, and certain individuals, with the U.S. Department of Labor (“DOL”). The Complaint in alleges that the individual reported potential violations of SEC rules and regulations by management and that as a result of such disclosures, the individual experienced a hostile work environment; that the Company lacks sufficient controls internal controls, and that the individual was the victim of retaliation and constructive discharge after being removed as a director by majority vote of the shareholders. The claims were investigated by a newly appointed Special Investigative Committee made of up independent directors represented by special independent legal counsel. The Special Investigative Committee and legal counsel found the material claims were unsubstantiated, including those concerning alleged SEC violations, and recommended enhancements to certain corporate governance charter documents and processes which the Company promptly implemented. The 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 disputes the allegations of wrongdoing and believes the matters raised in the Complaint are without merit and therefore has and will continue to aggressively defend its interests in this matter. On February 4, 2020, the Company filed suit against a former employee for violating merger agreements with SW Kenetics, Inc., employment agreements, and by unlawfully retaining property belonging to the Company following their termination. On March 11, 2020, the former employee filed a counterclaim against the Company citing breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and declaratory judgement. The Company plans to aggressively pursue its offensive claims in order to recover economic damages as a result of its claims while seeking dismissal of the counterclaim. There were no other known contingencies at September 30, 2020.

Loss Per Common Share

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 8,381,192 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 six months ended September 30, 2020 and 2019, there are no common shares added to calculate the dilutive EPS for those periods as the effect would be antidilutive. The Company excluded warrants of 8,381,192 and 8,853,432 for the six months ended September 30, 2020 and 2019, respectively, from the weighted average diluted common shares outstanding because their inclusion would have been antidilutive.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Schedule of Concentration of Risks

For the three and six months ended September 30, 2020, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows:

	Revenues at September 30, 2020						Accounts Receivable
PERCENTAGES	Three Months Ended			Six Months Ended			September 30, 2020			March 31, 2020
Customers:
A		14.7	%		14.8	%		17.2	%		26.5	%
B		-			-			18.1	%		-
		14.7	%		14.8	%		35.3	%		26.5	%

Schedule of Disaggregated Revenue from Customers by Segment

The following table represent a disaggregation of revenue from customers by segment. We attribute net sales to segments by product types; ammunition and ammunition casings. The Company notes that revenue recognition processes are consistent between product type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product type.

	For the Three Months Ended				For the Six Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Ammunition Sales	$	8,741,280	$	1,315,756	$	15,152,948	$	2,457,255
Ammunition Casings Sales		3,271,592		1,638,799		6,519,894		4,795,880
Total Sales	$	12,012,872	$	2,954,555	$	21,672,842	$	7,253,135

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Inventories (Tables)

6 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Schedule of Inventory

At September 30, 2020 and March 31, 2020, the inventory balances are composed of:

	September 30, 2020		March 31, 2020
Finished product	$	372,747	$	1,916,417
Raw materials		5,089,516		1,771,006
Work in process		2,140,768		720,650
	$	7,603,031	$	4,408,073

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Property and Equipment (Tables)

6 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment consisted of the following at September 30, 2020 and March 31, 2020:

	September 30, 2020			March 31, 2020
Leasehold Improvements	$	126,558		$	118,222
Furniture and Fixtures		87,790			87,790
Vehicles		103,511			103,511
Equipment		21,749,879			19,578,035
Tooling		126,190			126,190
Construction in Progress		93,262			1,093,262
Total property and equipment	$	22,287,190		$	21,107,010
Less accumulated depreciation		(4,369,737	)		(3,060,681	)
Net property and equipment		17,917,453			18,046,329

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Leases (Tables)

6 Months Ended

Sep. 30, 2020

Leases [Abstract]

Schedule of Future Minimum Lease Payments Under Non-cancellable Leases

Futures minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

Years Ended March 31,
2021 (1)	$	363,140
2022		732,111
2023		742,108
2024		684,836
Thereafter		639,988
		3,162,183
Less: Amount Representing Interest		(619,611	)
	$	2,542,572

(1) This amount represents future lease payments for the remaining six months of fiscal year 2021. It does not include any lease payments for the six months ended September 30, 2020.

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Capital Stock (Tables)

6 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Schedule of Outstanding and Exercisable Stock Purchase Warrants

At September 30, 2020, 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, 2020		8,504,372		$	2.10		3.60
Granted		-			-		-
Exercised		(123,180	)		2.00		-
Forfeited or cancelled		-			-		-
Outstanding at September 30, 2020		8,381,192		$	2.10		3.08
Exercisable at September 30, 2020		8,381,192		$	2.10		3.08

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Organization and Business Activity (Details Narrative) - shares	Mar. 17, 2017	Dec. 15, 2016
Number of shares sold		475,681
Number of shares issued for pre-split		11,891,976
Reverse stock split		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.
Number of shares issued, post reverse split		580,052
Definitive Agreement [Member] | PRIVCO [Member]
Number of common stock shares issued	17,285,800
Number of shares retired	475,681
Number of shares issued to satisfy an issuance commitment	500,000
Shares equivalent to issuance recapitalization	604,371

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Going Concern (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Net losses	$ (2,338,625)	$ (3,444,260)	$ (5,442,414)	$ (7,285,662)
Net cash used in operating activities			(3,750,758)	$ (2,980,635)
Accumulated deficit	$ (39,449,659)		$ (39,449,659)		$ (34,007,245)

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Summary of Significant Accounting Policies (Details Narrative) - USD ($)			3 Months Ended		6 Months Ended		25 Months Ended
	Jun. 18, 2020	Apr. 02, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Mar. 31, 2020	Sep. 28, 2017
Allowance for doubtful accounts			$ 85,419		$ 85,419		$ 85,419	$ 62,248
Amortization of other intangible assets			357,111	$ 410,289	714,224	$ 820,578
Impairment expense
Concentration Percentage			10.00%	10.00%	10.00%	10.00%
Advertising expenses			$ 51,410	$ 200,805	$ 138,576	$ 295,422
Income tax, description					We measure recognized income tax positions at the largest amount that is greater than 50% likely of being realized.
Contingency
Warrants [Member]
Antidilutive securities excluded from computation of earnings per share, amount					8,381,192
Weighted average diluted common shares outstanding					8,381,192	8,853,432
Employees, Members of Board of Directors and Advisory Committee [member]
Number of shares issued for services					146,249
Minimum [Member]
Property and equipment useful life					5 years
Maximum [Member]
Property and equipment useful life					10 years
Federal deposit insurance corporation limit			250,000		$ 250,000		$ 250,000
Patents [Member]
Patent amortization expense			21,268	21,269	$ 42,537	$ 42,538
Agreement term, description					This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028.
Payment of note payable related party					$ 50,803	11,317
Patents [Member] | SW Kenetics Inc. [Member]
Patent amortization expense			102,067	35,119	$ 204,133	137,186
Hallam, Inc [Member]
Ownership percentage in ATI									100.00%
Agreement term, description					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
Licensing Agreements [Member]
Amortization expense			$ 12,500	$ 12,500	$ 25,000	$ 25,000
Employment agreement [Member] | Robert D. Wiley [Member]
Option granted		33,333
Options vesting in period		8,333
Vesting period		3 years
Employment agreement [Member] | Steve Hilko [Member]
Option granted	33,333
Options vesting in period	8,333
Vesting period	3 years
Employment agreement [Member] | Four Separate Employee Agreements [Member]
Option granted							540,382
Vesting period							3 years

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Summary of Significant Accounting Policies - Schedule of Concentration of Risks (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2020
Concentration percentage	10.00%	10.00%	10.00%	10.00%
Customer Concentration Risk [Member] | Revenues [Member]
Concentration percentage	14.70%		14.80%
Customer Concentration Risk [Member] | Revenues [Member] | Customer A [Member]
Concentration percentage	14.70%		14.80%
Customer Concentration Risk [Member] | Revenues [Member] | Customer B [Member]
Concentration percentage
Customer Concentration Risk [Member] | Accounts receivable [Member]
Concentration percentage			35.30%		26.50%
Customer Concentration Risk [Member] | Accounts receivable [Member] | Customer A [Member]
Concentration percentage			17.20%		26.50%
Customer Concentration Risk [Member] | Accounts receivable [Member] | Customer B [Member]
Concentration percentage			18.10%

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Summary of Significant Accounting Policies - Schedule of Disaggregated Revenue from Customers by Segment (Details) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Total Sales	$ 12,012,872	$ 2,954,555	$ 21,672,842	$ 7,253,135
Ammunition Sales [Member]
Total Sales	8,741,280	1,315,756	15,152,948	2,457,255
Casing Sales [Member]
Total Sales	$ 3,271,592	$ 1,638,799	$ 6,519,894	$ 4,795,880

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Inventories - Schedule of Inventory (Details) - USD ($)	Sep. 30, 2020	Mar. 31, 2020
Inventory Disclosure [Abstract]
Finished product	$ 372,747	$ 1,916,417
Raw materials	5,089,516	1,771,006
Work in process	2,140,768	720,650
Inventory, net	$ 7,603,031	$ 4,408,073

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Depreciation expense	$ 702,889	$ 627,492	$ 1,378,942	$ 1,210,166
Minimum [Member]
Property and equipment useful life			5 years
Maximum [Member]
Property and equipment useful life			10 years
Property and Equipment [Member] | Minimum [Member]
Property and equipment useful life			5 years
Property and Equipment [Member] | Maximum [Member]
Property and equipment useful life			10 years

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Property and Equipment - Schedule of Property and Equipment (Details) - USD ($)	Sep. 30, 2020	Mar. 31, 2020
Total property and equipment	$ 22,287,190	$ 21,107,010
Less accumulated depreciation	(4,369,737)	(3,060,681)
Net property and equipment	17,917,453	18,046,329
Leasehold Improvements [Member]
Total property and equipment	126,558	118,222
Furniture and Fixtures [Member]
Total property and equipment	87,790	87,790
Vehicles [Member]
Total property and equipment	103,511	103,511
Equipment [Member]
Total property and equipment	21,749,879	19,578,035
Tooling [Member]
Total property and equipment	126,190	126,190
Construction in Progress [Member]
Total property and equipment	$ 93,262	$ 1,093,262

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Factoring Liability (Details Narrative) - USD ($)			6 Months Ended
	Jun. 17, 2020	Jul. 02, 2019	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2020
Maximum advance amount	$ 35,000
Factoring liability			$ 2,074,621		$ 2,005,979
Interest expenses on Inventory Credit Facility			227,741
Amortization of commitment fee			$ 50,000	$ 25,000
Interest expenses				$ 40,846
Agreement extended maturity date	Jun. 17, 2022
Factoring And Security Agreement [Member]
Maximum advance amount		$ 5,000,000
Annualized interest rate		85.00%
Maximum facility, description		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.
Facility fee percentage		3.00%
Maximum facility amount		$ 150,000

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Inventory Credit Facility (Details Narrative) - USD ($)		6 Months Ended
	Jun. 17, 2020	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2020
Maximum loan amount	$ 35,000
Inventory credit facility		$ 2,250,000
Interest expense on inventory credit facility		60,725
Amortization of annual fee		$ 13,485
Revolving Inventory Loan and Security Agreement [Member]
Maximum loan amount	$ 1,750,000
Interest rate description	Annualized interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%.
Interest rate	2.00%

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Leases (Details Narrative) - USD ($)		3 Months Ended	6 Months Ended
	Jan. 26, 2020	Sep. 30, 2020	Sep. 30, 2020	Mar. 31, 2020
Leases [Abstract]
Lease renewal term		5 years	5 years
Payments for rent	$ 34,071
Lease agreement date	Mar. 31, 2025
Right use of asset	$ 737,680	$ 2,488,861	$ 2,488,861	$ 3,431,746
Operating lease liability	$ 737,680	2,047,470	2,047,470	3,107,911
Operating lease liability, current		495,102	495,102	$ 375,813
Consolidated lease expense		207,340	392,109
Operating lease expense		178,621	355,294
Other lease associated expenses		$ 28,720	$ 36,816
Weighted average remaining lease term		4 years 6 months	4 years 6 months
Weighted average discount rate for operating leases		10.00%	10.00%

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Leases - Schedule of Future Minimum Lease Payments Under Non-cancellable Leases (Details) - USD ($)		Sep. 30, 2020	Mar. 31, 2020	Jan. 26, 2020
Leases [Abstract]
2021	[1]	$ 363,140
2022		732,111
2023		742,108
2024		684,836
Thereafter		639,988
Total lease payments		3,162,183
Less: Amount Representing Interest		(619,611)
Present value of lease liabilities		$ 2,047,470	$ 3,107,911	$ 737,680

[1] This amount represents future lease payments for the remaining six months of fiscal year 2021. It does not include any lease payments for the six months ended September 30, 2020.

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Convertible Promissory Notes (Details Narrative)			1 Months Ended
	Jan. 30, 2020 USD ($) $ / shares	Jan. 15, 2020 USD ($) $ / shares	Oct. 26, 2020 USD ($) $ / shares shares	Sep. 30, 2020 $ / shares	Apr. 30, 2020	Mar. 31, 2020 $ / shares
Common stock, par value				$ 0.001		$ 0.001
Debt interest rate	8.00%				1.00%
Debt instrument maturity date description	Mature on October 15, 2020 and October 30, 2020.
Conversion rate	0.667
Debt instrument, description	If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Company's 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.
Debt instrument effective interest percentage	15.00%
Subsequent Event [Member] | Promissory Note [Member]
Outstanding principal amount converted | $			$ 2,500,000
Interest amount converted | $			$ 146,104
Shares issued for conversion of debt | shares			2,157,358
Warrants issued | shares			1,019,121
Subsequent Event [Member] | Promissory Note [Member] | Minimum [Member]
Exercise price of warrant			$ 2.19
Subsequent Event [Member] | Promissory Note [Member] | Maximum [Member]
Exercise price of warrant			2.67
Subsequent Event [Member] | Promissory Note [Member] | Initial Closing [Member]
Conversion price per share			1.21
Subsequent Event [Member] | Promissory Note [Member] | Final Closing [Member]
Conversion price per share			$ 1.26
Joseph Gunnar & Co LLC [Member]
Proceeds from convertible debt | $	$ 200,000
Warrant terms	5 years
Conversion rate	1.25
Common stock percentage	5.00%
Joseph Gunnar & Co LLC [Member] | Subsequent Event [Member] | Promissory Note [Member]
Warrants issued | shares			152,868
Joseph Gunnar & Co LLC [Member] | Subsequent Event [Member] | Promissory Note [Member] | Minimum [Member]
Exercise price of warrant			$ 1.51
Joseph Gunnar & Co LLC [Member] | Subsequent Event [Member] | Promissory Note [Member] | Maximum [Member]
Exercise price of warrant			$ 1.58
Subscription Agreements [Member]
Conversion rate	0.50
Subscription Agreements [Member] | Five Accredited Investors [Member]
Proceeds from convertible debt | $	$ 850,000	$ 1,650,000
Warrant terms	5 years	5 years
Common stock, par value	$ 0.001	$ 0.001

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Notes Payable - Related Party (Details Narrative) - USD ($)								1 Months Ended			6 Months Ended
	Nov. 05, 2020	Sep. 23, 2020	Jun. 26, 2020	Jan. 30, 2020	May 03, 2019	Mar. 31, 2019	Mar. 25, 2019	Apr. 30, 2020	Dec. 31, 2019	May 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2020
Debt instrument maturity date description				Mature on October 15, 2020 and October 30, 2020.
Debt interest rate				8.00%				1.00%
Debt description				If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Company's 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.
Interest expenses												$ 40,846
Debt maturity term								2 years
Settlement Agreement [Member]
Payment of note payable related party	$ 6,000,000
Proceeds from construction in progress			$ 1,000,000
Post Closing Transaction Note Reduction [Member]
Post-closing changes to the purchase price of transaction											$ 2,596,200
Decreased Equipment Net [Member]
Post-closing changes to the purchase price of transaction											1,871,306
Reduction in Other Intangible Assets [Member]
Post-closing changes to the purchase price of transaction											766,068
Increased Accounts Receivable [Member]
Post-closing changes to the purchase price of transaction											31,924
Increase to Deposits [Member]
Post-closing changes to the purchase price of transaction											9,250
Decreased Accumulated Amortization [Member]
Post-closing changes to the purchase price of transaction											159,530
Promissory Note [Member] | Shareholder [Member]
Debt instrument maturity date description					The note's original a maturity date of August 3, 2019 was extended to September 18, 2020.
Debt interest rate					1.25%
Promissory note					$ 375,000						260,000
Principal payments											18,195
Interest expenses											$ 10,327
Promissory Note [Member] | Fred Wagenhals [Member]
Debt interest rate											1.25%
Debt instrument maturity date									Jun. 12, 2020		Sep. 18, 2020
Promissory note									$ 90,000		$ 131,536
Principal payments											25,000
Interest expenses											5,350
Note B [Member] | Settlement Agreement [Member]
Payment of note payable related party	$ 592,982
Amended Note B [Member] | Settlement Agreement [Member]
Debt interest rate	9.00%
Notes payable related party	$ 1,687,664
Debt maturity term	36 months
Jagemann Stamping Company's [Member]
Payment of note payable related party			1,269,977
Debt monthly payments			$ 204,295
Debt description			Upon the closing of an Offering of less than $10,000,000 would be obligated to pay the lesser of ninety percent (90%) of the Offering proceeds or seventy (70%) of the then aggregate outstanding balance of the Notes; and (b) upon the closing of an Offering of more than $10,000,000 would be obligated to pay one hundred percent (100%) of the then aggregate outstanding balance of the Notes.
Jagemann Stamping Company's [Member] | Settlement Agreement [Member]
Debt instrument maturity date			Apr. 01, 2021
Shares repurchase			1,000,000
Share price per share			$ 1.50
Jagemann Stamping Company's [Member] | Inventory and Services [Member]
Payment of note payable related party			$ 2,635,797
Debt instrument maturity date			Aug. 15, 2021
Jagemann Stamping Company's [Member] | Promissory Note [Member]
Payment of note payable related party						$ 9,900,000	$ 500,000			$ 1,500,000	$ 10,400,000
Debt instrument maturity date description											On April 30, 2019, the original due date of the note was subsequently extended to April 1, 2020.
Debt interest rate											4.60%
Accrued interest													$ 178,830
Jagemann Stamping Company's [Member] | Two New Promissory Notes [Member]
Payment of note payable related party			$ 5,803,800
Debt instrument maturity date			Aug. 15, 2021
Jagemann Stamping Company's [Member] | Two Notes [Member]
Notes payable related party											$ 7,775,298
Forest Street, LLC [Member] | Promissory Note [Member]
Debt interest rate		12.00%
Debt instrument maturity date		Sep. 23, 2022
Promissory note		$ 3,500,000
Percentage of monitoring fee on principal and interest		1.00%

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Paycheck Protection Notes Payable (Details Narrative) - USD ($)		1 Months Ended
	Nov. 11, 2020	Apr. 30, 2020	Jan. 30, 2020
Proceeds from funds		$ 1,000,000
Debt interest rate		1.00%	8.00%
Debt maturity term		2 years
Subsequent Event [Member] | Paycheck Protection Program [Member]
Debt forgiveness	$ 1,000,000
BMO Harris [Member]
Proceeds from funds		$ 400,000
Western State Bank [Member]
Proceeds from funds		$ 600,000

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Capital Stock (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended
	Dec. 15, 2016	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Nov. 13, 2020
Number of stock sold	475,681
Common stock issued for services, value					$ 200,000
Subscription Agreements [Member]
Payment to accured fee				$ 35,000
Subscription Agreements [Member] | Subsequent Event [Member]
Accrued fees payable						$ 126,200
Services [Member]
Number of shares issued for services				8,336
Common stock issued for services, value				$ 13,188
Warrants [Member]
Number of common stock shares issued				279
Shares issued warrants exercise				121,213
Shares issued warrants exercise, value				$ 242,245
Shares issued cashless exercise of warrants				1,967
Warrants outstanding		8,381,192		8,381,192
Warrant One [Member] | Until April 2025 [Member]
Warrants issued to purchase common stock		966,494		966,494
Warrants exercise price		$ 1.65		$ 1.65
Warrant Two [Member] | December 2022 through August of 2024 [Member]
Warrants issued to purchase common stock		4,518,565		4,518,565
Warrants exercise price		$ 2.00		$ 2.00
Warrant Three [Member] | December 2023 through August of 2024 [Member]
Warrants issued to purchase common stock		2,896,133		2,896,133
Warrants exercise price		$ 2.40		$ 2.40
Investors [Member]
Number of stock sold				1,663,215
Number of stock sold, value				$ 2,881,871
Employees and Board of Directors [Member]
Shares issued for employees benefit				327,165
Shares issued for employees benefit, value				$ 475,736
New Issuance of Shares [Member]
Number of common stock shares issued				2,120,208

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Capital Stock - Schedule of Outstanding and Exercisable Stock Purchase Warrants (Details) - Warrants [Member]	6 Months Ended
	Sep. 30, 2020 $ / shares shares
Number of Shares, Outstanding Beginning | shares	8,504,372
Number of Shares, Granted | shares
Number of Shares, Exercised | shares	(123,180)
Number of Shares, Forfeited or Cancelled | shares
Number of Shares, Outstanding Ending | shares	8,381,192
Number of Shares, Exercisable | shares	8,381,192
Weighted Average Exercise Price, Outstanding Beginning | $ / shares	$ 2.10
Weighted Average Exercise Price, Granted | $ / shares
Weighted Average Exercise Price, Exercised | $ / shares	2.00
Weighted Average Exercise Price, Forfeited or Cancelled | $ / shares
Weighted Average Exercise Price, Outstanding Ending | $ / shares	2.10
Weighted Average Exercise Price, Exercisable | $ / shares	$ 2.10
Weighted Average Life Remaining (Years), Outstanding Beginning	3 years 7 months 6 days
Weighted Average Life Remaining (Years), Outstanding Ending	3 years 29 days
Weighted Average Life Remaining (Years), Exercisable	3 years 29 days

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Income Taxes (Details Narrative) - USD ($)	6 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Net operating loss carryforwards	$ 33,000,000
Operating Loss Carryforwards, Expiration Date, description	Expire beginning at the end of 2036.
Effective interest tax rate	0.00%	0.00%

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Subsequent Events (Details Narrative) - USD ($)	Nov. 10, 2020	Nov. 05, 2020	Oct. 22, 2020	Oct. 21, 2020	Jan. 30, 2020	Dec. 15, 2016	Apr. 30, 2020
Reverse stock split, description						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.
Debt instrument interest rate					8.00%		1.00%
Debt instrument description					If a Qualified Financing has not occurred on or before the Maturity Date, the Notes shall become convertible into shares of the Company's 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.
Subsequent Event [Member]
Reverse stock split, description			On October 22, 2020, the stockholders of the Company approved the granting to the Board of Directors of the Company (the "Board") the discretion to amend the Company's Certificate of Incorporation to effect a reverse stock split of our common stock, by a ratio of not less than 1-for-2 and not more than 1-for-4, such ratio and the implementation and timing of such reverse stock split to be determined in the sole discretion of the Board.
Subsequent Event [Member] | Three Accredited Investors [Member]
Debt principal amount	$ 1,684,000
Debt instrument interest rate	8.00%
Debt instrument maturity date	Nov. 05, 2022
Subsequent Event [Member] | Lisa Kay [Member] | Promissory Note [Member]
Debt principal amount		$ 4,000,000
Debt instrument interest rate		12.00%
Debt instrument maturity date		Nov. 05, 2023
Debt instrument description		Pursuant to the terms of the 12% Note, the Borrower shall pay Ms. Kay: (i) on a monthly basis, beginning December 10, 2020, all accrued interest (only), and (ii) on the Maturity Date, the remaining outstanding principal balance of the Loan, together with all unpaid accrued interest thereon.
Subsequent Event [Member] | Warrant One [Member]
Common stock shares issued for warrant exercise				60,606
Exercise price per share				$ 2.00
Common stock shares issued for warrant exercise, value				$ 121,212
Subsequent Event [Member] | Warrant Two [Member]
Common stock shares issued for warrant exercise				50,000
Exercise price per share				$ 2.40
Common stock shares issued for warrant exercise, value				$ 120,000