NOTES TO FINANCIAL STATEMENTS

October 5, 2018

NOTE 1 – OVERVUEW

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Basis

The accompanying financial statements and related disclosures included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments.

In the opinion of management, all adjustments have been made that are necessary for a fair statement of (a) the results of operations for the period from August 3, 2018 (inception) to October 5, 2018, (b) the financial position at October 5, 2018, and (c) cash flows for the period from August 3, 2018 (inception) to October 5, 2018.

We use the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”) and all amounts are expressed in U.S. dollars.

Unless the context otherwise requires, all references to “SWK”, “we”, “us”, “our,” or the “Company” are to SW Kenetics, Inc., an Arizona corporation.

Use of Estimates

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

Cash and Cash Equivalents

The company considers all short-term investments purchased with a maturity of three months or less to be cash equivalents. Credit risk associated with cash deposits are insured under FDIC up to $250,000 per depositor, per FDIC insured bank, per ownership category. At such time, as the Company’s cash deposits exceed FDIC limits, the company will reassess their credit risk.

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 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.

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.

Recent Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

NOTE 3 – PATENT

On August 3, 2018, a founder of SWK contributed a pending patent in return for an ownership interest in SWK. The pending patent is for a modular projectile. Patent development occurred outside of the Company and the costs associated with the development were expensed. As such, the patent has been recorded at the nominal value of $534, the carryover basis from the contributor. The patent has not yet been placed in service and accordingly has not been amortized to date.

NOTE 4 – SUBSEQUENT EVENTS

On September 27, 2018, SWK entered into a definitive Agreement and Plan of Merger with AMMO Technologies, Inc. (“ATI”), an Arizona corporation and wholly owned subsidiary of AMMO, Inc., a Delaware Corporation. On October 5, 2018, we completed the merger. Pursuant to the agreement SWK merged with and into Ammo Technologies Inc., with ATI being the survivor. Under the terms of the agreement, ATI issued to SW Kenetics Inc.’s shareholders, 1,700,002 restricted shares of common stock of AMMO, Inc., payment of $250,000 and a payment obligation of $1,250,000 subject to completion of specific milestones. Additionally, the 1,700,002 shares of common stock were issued with claw back provisions to ensure agreed upon objectives are met. Included among the list of milestones or events that must be completed are significant revenue goals incorporating the product technology of SWK. The initial payment of $250,000 was made as a deposit on August 20, 2018.

NOTE 1 - BASIS OF PRESENTATION

The unaudited pro forma condensed combined financial statements reflected the combined historical financial information of Ammo, Inc. (“Ammo”) and SW Kenetics, Inc. (“SWK”). The pro forma adjustments are preliminary and based on estimates and have been prepared to show the effects of the acquisition of SWK. The valuation and final determination of the fair value of the intangible acquired from SWK will be based on a third party valuation and may significantly differ from the preliminary.

The unaudited pro forma condensed combined balance sheet dated September 30, 2018, includes SWK’s financial information as of October 5, 2018. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2018 and for the six months ended September 30, 2018 reflects the acquisition as if it occurrent on January 1, 2018 and April 1, 2018, respectively. SWK was formed for the purpose of this transaction and no statement of operations activity took place from the time the entity was formed through the completion of this transaction.

NOTE 2 - DESCRIPTION OF THE TRANSACTION

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

The fair value of the purchased patent was $7,723,166. The purchase consideration included 1,700,002 restricted shares of our common stock issued to the three shareholders of SWK , these restricted shares of common stock were issued with claw back provisions to ensure agreed upon objectives are met, payment of $250,000 and a payment obligation of $1,250,000 subject to completion of specific milestones.

NOTE 3 - PURCHASE PRICE ALLOCATION

The consideration consisted of 1,700,002 shares of restricted common stock, payment of $250,000, and a contingent consideration payable of $1,250,000. The shares were valued at approximately $2.72, the weighted average share price of our Common Stock that was publicly traded and sold through private placement.

Total consideration recorded for the acquisition on the intangible asset is as follows:

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

AMMO, INC.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINACIAL INFORMATION

NOTE 4 - ADJUSTMENTS TO FINANCIAL INFORMATION

Explanation of Pro Forma Adjustments