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PART
I
ITEM
1. BUSINESS.
Introduction
Ammo
Inc. is a conglomerate of two premium positions in the shooting sports industry. Ammo Inc. started in ammunition manufacturing and
in 2021 broadened its portfolio with the acquisition of Gunbroker.com. Gunbroker.com is an ecommerce marketplace that connects
buyers and sellers with new/used firearms and ancillary gear and componentry for the firearm community. Gunbroker.com helps
facilitate this community with a state and federal compliant solution that connects buyers with sellers across the US with their
local federally licensed firearm dealers. This allows our base of approximately 7.8 million users to follow ownership
policies and regulations through our network of over 35,000 federally licensed firearms dealers as transfer agents. The nature and
operation of the Marketplace as an online auction and sales platform also affords our Company a unique view into the total domestic
market for the purpose of understanding sales trends at a granular level across all elements of the outdoor and sports shooting
space.
Reportable
Segments
We
operate our business within two operating segments. Our Chief Executive Officer reviews financial performance based on two operating
segments as described below.
|
● |
Ammunition
– which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition,
ammunition component and related products. |
|
● |
Marketplace
– which consists of the GunBroker.com Ecommerce marketplace. In its role as an auction site, GunBroker.com supports the lawful
sale of firearms, ammunition and hunting/shooting accessories. |
See
Note 19 of our consolidated financial statements for more information regarding our reportable segments.
Marketplace
Segment - GunBroker.com
On
April 30, 2021 (the “Effective Date”), we entered into an agreement and plan of merger (the “Merger Agreement”),
by and among us, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”),
Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, an individual (the “Seller”),
whereby Sub merged with and into Gemini, with Sub surviving the merger as our wholly owned subsidiary (the “Merger”). At
the time of the Merger, Gemini had nine subsidiaries, all of which are related to Gemini’s ownership of the GunBroker.com business.
The Merger was completed on the Effective Date.
GunBroker.com
is a large online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo,
GunBroker.com does not hold any inventory and serves to facilitate transactions between buyers and sellers. Third-party sellers list
items on the site and federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations
are followed using licensed firearms dealers as transfer agents offering a compliant solution to transact online. GunBroker.com has approximately
7.8 million registered users and averages over 1.8 million items listed for sale on its site on a daily basis.
Our
vision is to expand the services on GunBroker.com and to become a partner to those in our industry. In the short term, we will be implementing
the following services;
●
Payment Processing – facilitating payment between parties allowing sellers of all sizes to offer fast and secure electronic payments
and allowing buyers to experience the ease of instant checkout using a single platform for payment of all items purchased.
●
Carting Ability – enables our buyers to checkout multiple items from multiple sellers in a single transaction. Our buyers will
be able finalize transactions including both regulated and nonregulated items, allowing one payment, while also affording them the ability
to ship their purchases to more than one location. By way of example, a buyer will be able to complete a transaction with a single payment,
ship regulated items to a registered federal firearms license dealer, and also ship nonregulated items directly to their address.
●
GunBroker.com Analytics – launched in January 2023 through the compilation and refinement of vast Marketplace data, we offer ecommerce
market analytics to our industry peers allowing them to better manage business strategy and planning.
●
GunBroker.com Advertising – effective as of January 2023 we offer additional resources to our seller community to promote their
seller stores within GunBroker.com as well as the products they supply. Content creation for manufactures, email campaigns and banner
ads are all part of our advertising offerings that are ever evolving resources to the outdoor industry.
Enhance
Market Share, Brand Recognition, and Customer Loyalty
Our
work to enhance and simplify the user experience on the GunBroker.com marketplace platform, while adding to its merchandise and related
offerings, is designed to enhance the GunBroker.com brand by ensuring customer (both buyers and sellers) adhesion is amplified as they
access one of the largest single on-line destinations for outdoor and shooting sports enthusiasts within
the US market.
Ammunition
Segment – Manufacturing
Our
manufacturing operations are currently based out of Manitowoc, Wisconsin. We manufacture small arms ammunition and their components for
the commercial, military, and law enforcement community. Our core competency lies in our ability to deep draw rifle brass casings with
a high degree of precision up to 50 caliber. Our capacities are dependent upon mix, labor and the number of shifts we are running but
our case capacity resides in excess of 750 million to 1.0 billion pieces based on full utilization of the factory. We emphasize
an American heritage by using predominantly American-made components and raw materials in our products that are produced, inspected,
and packaged at our facilities in Manitowoc.
We
are focused on manufacturing premium pistol and rifle ammunition and supporting industry partners for manufactured components. We will
continue to leverage our proprietary brands like Streak Visual AmmunitionTM and Stelth subsonic ammunition and extend
our product offering with premium rifle lines and brands. We also support the US military with our cutting-edge developmental ammunition
programs as we seek out and effectively execute upon new governmental-based opportunities. Our production processes focus on safety,
consistency, precision, and cleanliness. Each round is developed for consistency, velocity, accuracy, and repeatability. Each round is
chamber gauged and inspected with redundant seven-step quality control processes and meet and exceed SAAMI and CIP standards.
Our
Growth Strategy
Our
goal is to enhance our position as a designer, producer, and marketer of ammunition products via our manufacturing and related sales
operations, while simultaneously enhancing and embracing the data we have in Gunbroker.com to allow us to see growing trends and demands
form the US customer base.
Design,
Produce, and Market Innovative, Distinctive, Performance-Driven, High-Quality Ammunition and Ammunition Components
We
are focused on designing, producing, and marketing innovative, distinctive, performance-driven, high-quality products that appeal to
retailers, manufacturers, and consumers that will enhance our users’ shooting experiences. Our research and development activities
continue to drive opportunity and market attractiveness for our brands. We balance our R&D prowess with best-in-class operational
efficiencies and continue to drive our cost down through rigorous continuous improvement initiatives.
Continue
to Strengthen Relationships with Channel Partners and Retailers.
We
continue to strive to strengthen our relationships with our current distributors, specialty retailers, dealers, and OEM manufacturers.
The success of our efforts depends on new caliber introduction, innovation in our operations, quality, performance of our products,
attractiveness of our retail packaging, and the guarantees we bring to our user community through our customer support efforts.
Emphasis
on Customer Satisfaction and Loyalty
We
plan to continue to emphasize customer satisfaction and loyalty by offering innovative, distinctive, high-quality products on a
timely basis and by offering effective customer service, training, and support for the user community. We regard the features,
quality, and performance of our products as the most important components of our customer satisfaction and loyalty
efforts.
Continuously
Improving Operations
We
continue our efforts to enhance our production and lean out our operations by increasing daily production quantities through equipment
acquisition, shift expansion, process improvements, increased operational availability of our equipment, and increased overall efficiency.
Further, the Company opened its new state-of-the-art manufacturing plant in Manitowoc, WI. The opening and full operation of this new
plant has positioned Ammo Inc. to be the leader in brass case supply to the OEM market and under the many brands we go to market under. The plant will allow us to exponentially increase capacity through the end of calendar 2023 and into 2024.
Products
We
design, produce, and sell ammunition and ammunition components in a variety of types, sizes, and calibers for use in handguns and long
guns. We ship our ammunition in the form of cartridges (or rounds), and also ammunition casings. A cartridge consists of four components:
a case made of brass, steel, or polymer that holds together all the other components of the cartridge; the primer, which is an explosive
chemical compound that ignites the gunpowder when struck by the firing pin; the gun powder, which is a chemical mixture that burns rapidly
and creates an expanding gas when ignited and pushes the bullet out the barrel; and the bullet, or projectile, usually containing lead
that is fired through the barrel to strike the target. We also offer ammunition casings for pistol ammunition through large rifle ammunition.
STREAK
Visual Ammunition
STREAK
VISUAL AMMUNITION™ enables shooters to see the path of the bullets. STREAK VISUAL AMMUNITION™ rounds utilize non-flammable
phosphor material that produces a glow by the utilization of the light emitted during the round discharge to make STREAK VISUAL AMMUNITION™
glow. The luminescent material is applied only to the base of the projectile, making it visible only to the shooter and those within
a 30-degree viewing window. As a result, the glow of STREAK VISUAL AMMUNITION™ is not visible to the target unlike conventional
tracers, which we believe is important to the military and law enforcement. We refer to the technology used by our STREAK VISUAL AMMUNITION™
as one-way luminescent or O.W.L. Technology™. Unlike conventional tracer ammunition, STREAK VISUAL AMMUNITION™ rounds are
not incendiary and do not utilize burning metals to generate light, thereby eliminating heat generation and making them safer for use
in various environments and avoiding serious fire hazards. STREAK VISUAL AMMUNITION™ comes in 380 auto, 9 mm, 40 S&W, 44 magnum,
45 long colt, and 38 special among other calibers.
We
hold the exclusive worldwide sales and distribution rights for the patented O.W.L. Technology™ used by our STREAK VISUAL AMMUNITION™
and pay a royalty based on our product sales incorporating this technology. On October 13, 2020, the Company further expanded its patent
portfolio as a result of the U.S. Patent and Trademark Office (USPTO)’s issuance of Patent No. 10,801,821 recognizing the Company’s
development of both a protectable and cutting-edge process to mass-produce luminescent projectiles, as well as the luminescent projectiles
manufactured as a result of the protected process.
Stelth
Subsonic Ammunition
Stelth
Subsonic ammunition is designed specifically for superior performance in suppressed firearms. Stelth ammunition finds applications in
which silence is paramount, such as in tactical training, predator night hunts, and clandestine operations. The Stelth ammunition is
produced to be a clean burning total metal jacket round to slow baffle corrosion and reduce lead emissions that collect in the suppressor
body. Stelth ammunition comes in 9mm, 40 S&W, and 45 ACP, 223, and 300BLK.
JMC
Through
Jagemann Munitions Components (“JMC”), we offer ammunition casings for pistol and rifle ammunition. Jagemann Munitions Components
is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components.
Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann Munitions Components
has become one of the largest brass manufacturers in the country, with the capacity to produce more than 750 million pieces of brass
each year with the ability to scale to over 1 billion pieces of brass each year. Proud of its American-made components and capabilities,
the Company now has complete control over the manufacturing process.
Marketing
We
market our products and services to consumers through distributors, dealers, mass market, and specialty retailers. We maintain consumer-focused
product marketing and promotional campaigns, which include print and digital advertising campaigns; social and electronic media; product
demonstrations; point-of-sales materials; in-store training, and in-store retail merchandising. Our use of social media includes Instagram,
Facebook, Twitter, and You Tube. We also utilize third-party endorsements, social influencers, and brand ambassadors.
Product
Innovation and Development
The
Company was founded on delivering new and innovative products such as Streak to the industry. Since initiating operations in 2017 and
has developed proprietary products for the commercial and military sectors. We continue this passion with developing new calibers and
products to meet and create market demand. The core competency of our manufacturing facility lies in its ability to deep draw rifle cases.
Our goal is to fill the capacity of our new facility with innovative products around this core competency. In our 2024 fiscal year, we
will be delivering on calibers with high demand in premium segments of the market such as 7mm PRC, 35 Whelan, 350 Legend, and 45-70 both
in our AMMO, Inc. Signature lines as well as brass for OEM manufacturers. We will provide our ammunition customers with a stronger line
up of high precision hunting cartridges and continue to deliver to the OEM market with an offering that provides our customers the ability
to reach their fullest potential. The competition will continue to fight for shelf space at retail and our market continues to normalize
so we must default to new caliber design and introduction to create brand strength, market positioning, and loyalty. We will continue
to push into niche markets to find margins and create opportunities for our newfound capacity at the new 185,000 sq ft facility in Manitowoc.
We do all this while following strict industry standards to ensure we deliver safe and effective products to our customers. We will continue
to add talent and engage best in class resources to enable AMMO, Inc. to continue down this path.
Since
the acquisition, we have evolved the GunBroker.com marketplace to push best in class ecommerce standards. By streamlining customer service,
we push proactive customer engagement based around outreach to the seller and buyer community. We are in the final testing stages of
a centralized payment system that will allow all, including smaller sellers, merchant processing and carting ability for the entire platform.
Centralized payment processing will allow for advanced fraud prevention, reduce manual reviews & reductions in chargebacks for the
seller community. There is continued development around listing processes and communication flow between buyers and sellers, as
well as optimization of the immense amount of self-data. We currently use our platform data to present personalized marketing
campaigns to the user base and will continue to evolve how we engage with our customer base. Marketing, Analytics, and Advertising
programs have been instrumental in the success of the prior year, we are continuing to build out teams and structure for our aggressive
go to market campaigns for this fiscal year.
Research
and Development
We
conduct research and development activities to enhance existing products and develop new products at our facilities in Manitowoc, Wisconsin,
utilizing our personnel and strategic relationships. We expense all costs associated with our research and development efforts through
either our cost of goods sold, as they are performed by the same employees who produce our finished product, or through or general and
administrative expenses if the product has not been brought to market.
Suppliers
We
purchase certain raw materials and components for our ammunition products, including brass, steel, or copper casings; ammunition primers
to ignite gun powder; gun powder; and projectiles. We believe we have reliable sources of supply for all our raw material and component
needs, but from time to time raw materials and components are subject to shortages and price increases. Most of our suppliers are U.S.-based
and provide us the materials and components at competitive rates. Our ownership of JMC supplies our ammunition casings. We plan to continue
to broaden our supplier base and secure multiple sources for all the raw materials and components we require.
Customers
We
sell our products through distribution, “Big Box” retailers, manufacturers, specialty retailers, local ammunition stores,
and shooting range operators. Our consumers include sport and recreational shooters, hunters, competitive shooters, individuals desiring
home and personal protection, manufacturers, and law enforcement and military agencies, and selected international markets. We distribute
our products under four primary product lines: AMMO Inc. Signature, STREAK VISUAL AMMUNITION™, Stelth, and JMC.
Competition
The
ammunition and ammunition casing industry is dominated by a small number of companies, a number of which are divisions of large public
companies. We compete primarily on the quality, reliability, features, performance, brand awareness, and price of our products. Our primary
competitors include Federal Premium Ammunition, Remington Arms, the Winchester Ammunition division of Olin Corporation, and various smaller
manufacturers and suppliers, including Black-Hills Ammunition, CBC Group, Fiocchi Ammunition, Hornady Manufacturing Company, PMC, Rio
Ammunition, and Wolf.
Human
Capital
As of June 9, 2023, we had
a total of 342 employees. Of these employees, 236 were engaged in manufacturing, 31 in sales, marketing and customer service, 34 in research
and development, manufacturing engineering, and software engineering, and 41 in various corporate and administrative functions (information
technology, accounting, executives, etc.). None of our employees are represented by a union in collective bargaining with us. We believe
that our employee relations are good.
Our human capital proposition
is centered around a team-oriented work environment that promotes a culture that fosters engagement, hard work, a desire to win, and accountability.
At our core, we strive to attract, develop, and retain employees that want to be a part of a dynamic workforce centered around delivering
new products and services to our passionate userbase. We value diversity, engagement, and unique viewpoints that enable us to excel in
the marketplace.
Seasonality
Our
business has not exhibited a material degree of seasonality to date but as we move into more rifle production and strive to meet our
customers projections and needs, seasonality will have a larger effect on our sales pipeline. Our net sales could be moderately higher
in our second and third fiscal quarters because of the fall hunting and holiday seasons.
Intellectual
Property
We
believe our tradenames, trademarks, and service markets are important factors in distinguishing our products. In addition, we regard
our trade secrets, technological resources, knowhow, licensing arrangements, and endorsements as important competitive factors.
Under
the terms of the 2017 merger between our wholly-owned subsidiary, AMMO Technologies Inc., an Arizona corporation (“ATI”)
and Hallam, Inc. (“Hallam”), ATI succeeded to all of the assets of Hallam and assumed the liabilities of Hallam, which
were none. The primary asset of Hallam 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 (“ULL”). The license was formally amended and assigned to ATI pursuant to an Assignment and First Amendment to
Exclusive License Agreement Assumption Agreement. Under
the terms of the merger with Hallam, we, the sole shareholder of ATI, issued to Hallam’s two shareholders, 600,000 shares of
our Common Stock, subject to restrictions, and payment of $200,000. The first payment of $100,000 to Hallam’s shareholders was
paid on September 13, 2017, and the second payment of $100,000 was paid on February 6, 2018.
We
hold the exclusive worldwide sales and distribution rights for the patented O.W.L. Technology™
used by our STREAK VISUAL AMMUNITION™ via our license agreement with ULL. We pay ULL a royalty based on our product sales
incorporating this patented technology. We have been using our O.W.L. Technology™ to compete for military contracts in part because
we believe the glow of STREAK VISUAL AMMUNITION™ not being visible to the target (which is unlike conventional tracers) is important
to the military and law enforcement.
Such
military use is allowed pursuant to that certain Amended and Restated Exclusive License Agreement between ATI and ULL which was dated
as of November 16, 2017 and effective as of January 1, 2018 (the “A&R License Agreement”). The A&R License Agreement
expires on January 1, 2022 and is renewable in the Company’s sole discretion for successive four (4) year periods provided the
Company is not in breach of the A&R License Agreement. While the parties have agreed that, effective January 1, 2022, the A&R
License Agreement was extended to January 1, 2026, the parties are still finalizing the documentation of this extension via the signing
of an amendment. On July 7, 2022, the Company and the Licensor entered into a Second Amendment
to Amended and Restated Exclusive License Agreement, effective as of January 1, 2022 (the “Second Amendment”). Pursuant to
the Second Amendment, the term of the Original License Agreement is extended for a period of four (4) years from the date of the start
of the current term, such that the term will expire on January 1, 2026.
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited
liability company. The licensing agreement grants us the exclusive worldwide rights through April 12, 2027 to Mr. James’ image
rights and all trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation
of Jesse James Branded Products. In addition, Mr. James agreed to make himself available for certain promotional activities and to promote
Jesse James Branded Products through his own social media outlets. We agreed to pay Mr. James royalty fees on the sale of ammunition
and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Through
our acquisition of SW Kenetics, Inc. (“SWK”), we acquired the rights to a patent for modular projectiles. This technology
is used in connection with our AP and HAPI lines of ammunition. The Company acquired SWK for a total of up to $1,500,000 in cash and
issued 1,700,002 restricted shares of the Common Stock. The agreement specifies that $1,250,000 of the cash is deferred pending completion
of specific milestones and the 1,700,002 shares of Common Stock are subject to claw back provisions to ensure agreed upon objective are
met. As of March 31, 2023, the Company has made $350,000 in payments. As of March 31, 2023, 1,550,134 shares remain subject to
clawback provisions. The patent will be amortized over 15 years.
Included
in the acquisition of JMC for $7,000,000 in cash, $10,400,000 delivered in the form of a Promissory Note, and 4,750,000 shares of Common
Stock, we acquired customer relationships, intellectual property, and the use of a tradename, which will be amortized over 3 years, 3
years and 5 years, respectively. These intangible assets are used in the operation and production of our ammunition casing business through
our wholly owned subsidiary, Jagemann Munition Components.
Environmental
Matters
Our
operations are subject to a variety of federal, state, and local laws and regulations relating to environmental protection, including
those governing the discharge, treatment, storage, transportation, remediation, and disposal of hazardous materials and wastes; the restoration
of damages to the environment; and health and safety matters. We believe that our operations are in material compliance with these laws
and regulations. We incur expenses in complying with environmental requirements and could incur higher costs in the future as a result
of more stringent requirements that may be enacted in the future.
Some
environmental laws, such as the U.S. federal Superfund law and similar state laws, can impose liability, without regard to fault, for
the entire cost of the cleanup of contaminated sites on current or former site owners and operators or parties who sent wastes to such
sites. Based on currently available information, we do not believe that environmental matters will have a material adverse effect on
our business, operating results, or financial condition.
Regulatory
Matters
The
manufacture, sale, and purchase of ammunition are subject to extensive federal, state, local, and foreign governmental laws. We are also
subject to the rules and regulations of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and various
state and international agencies that control the manufacture, export, import, distribution and sale of firearms, explosives, and ammunition.
Such regulations may adversely affect demand for our products by imposing limitations that increase the costs or limit the availability
of our products.
Our
failure to comply with applicable rules and regulations may result in the limitation of our growth or business activities and could result
in the revocation of licenses necessary for our business. Applicable laws and regulations provide for the following:
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require
the licensing of all persons manufacturing, exporting, importing, or selling ammunition as a business; |
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require
serialization, labeling, and tracking of the acquisition and disposition of certain types of ammunition; |
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regulate
the interstate sale of certain ammunition; |
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restrict
or prohibit the ownership, use, or sale of specified categories of ammunition; |
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require
registries of so-called “ballistic images” of ammunition fired from new guns; |
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govern
the sale, export, and distribution of ammunition; |
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regulate
the use and storage of gun powder or other energetic materials; |
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regulate
the employment of personnel with certain criminal convictions; |
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restrict
access to ammunition manufacturing facilities for certain individuals from other countries or with criminal convictions; and |
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require
compliance with International Traffic in Arms Regulations. |
The
handling of our technical data and the international sale of our products may also be regulated by the U.S. Department of State and Department
of Commerce. These agencies can impose civil and criminal penalties, including denying us from exporting our products, for failure to
comply with applicable laws and regulations.
In
addition, bills have been introduced in Congress to establish, and to consider the feasibility of establishing a nationwide database
recording so-called “ballistic images” of ammunition fired from new guns. Should such a mandatory database be established,
the cost to us, our distributors, and our customers could be significant, depending on the type of firearms and ballistic information
included in the database. Bills have been introduced in Congress in the past several years that would affect the manufacture and sale
of ammunition, including bills to regulate the manufacture, importation, and sale.
We
believe that existing federal, state, and local legislation relating to the regulation of firearms and ammunition have not had a material
adverse effect on our sales of these products. However, the regulation of firearms and ammunition may become more restrictive in the
future, and any such developments might have a material adverse effect on our business, operating results, financial condition, and cash
flows. In addition, regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions.
Transactions
taking place on the GunBroker.com site involving the lawful sale of firearms are facilitated from a listing and documentation standpoint
by GunBroker.com. The transaction is consummated between a third-party buyer and seller and requires the direct involvement of an ATF
Federal Firearms License (“FFL”) holder such as a gun shop or range that accepts receipt of the firearms and completes the
transaction and delivery subject to confirmation of compliance with applicable federal and/or state laws.
Available
Information
You
can find reports on our company including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports on our website www.ammoinc.com under the “Investor Relations” heading. These
reports are free of charge and are available as soon as reasonably practicable after they have been filed with, or furnished to, the
U.S. Securities and Exchange Commission (SEC). We are providing the address to our website solely for the information of investors and
the information on our website is not a part of this or any report that we file with the SEC.
ITEM
1A. RISK FACTORS
Purchasing
our Common Stock or Series A Preferred Stock involves a high degree of risk. You should carefully consider the following risk factors,
together with all of the information included in this Form 10-K Report, before you decide to purchase shares of our Common Stock or Series
A Preferred Stock. We believe the risks and uncertainties described below are the most significant we face. Additional risks and uncertainties
of which we are unaware, or that we currently deem immaterial, also may become important factors that affect us. If any of the following
risks occur, our business, operating results, and financial condition could be materially and adversely affected. In that case, the trading
price of our Common Stock or Series A Preferred Stock could decline, and you may lose all or part of your investment.
Risks
Related to Our Business
We
have a limited operating history on which you can evaluate our company.
With
the exception of GunBroker.com’s approximate 20 year history operating as a private company preceding the merger, we have a limited
operating history on which you can evaluate our company. Although the corporate entity has existed since 1990, we have only operated
as an ammunition manufacturer since March 2017. As a result, our business will be subject to many of the problems, expenses, delays,
and risks inherent in the establishment of a new business enterprise.
Our
performance is influenced by a variety of economic, social, and political factors.
Our performance is influenced by a variety of economic, social, and political
factors. In the year ended March 31, 2023, we believe that general economic conditions and consumer spending patterns negatively impacted
our operating results because consumers bought fewer discretionary items such as our products. These economic conditions included, but
were not limited to, declines in consumer confidence and increases in consumer debt levels. In times of economic uncertainty, consumers
tend to defer expenditures for discretionary items, which affects demand for our products. Economic conditions also affect governmental
political and budgetary policies. As a result, economic conditions also can have an adverse effect on the sale of our products to law
enforcement, government, and military customers.
Political
and other factors also can adversely affect our performance. Concerns about presidential, congressional, and state elections and
legislature and policy shifts resulting from those elections can adversely affect the demand for our products. In addition,
uncertainty surrounding the control of firearms, firearm products, and ammunition at the federal, state, and local level and
heightened fears of terrorism and crime can adversely affect consumer demand for our products. Often, such concerns result in an
increase in near-term consumer demand and subsequent softening of demand when such concerns subside. We believe that one of the
reasons our sales went down in the year ended March 31, 2023 as compared to the year ended March 31, 2022 was due to decreased
demand. We believe there was heightened demand for our products during the year ended March 31, 2022 due to the pandemic and the
political environment. Inventory levels in excess of customer demand may negatively impact operating results and cash flow.
Federal
and state legislatures frequently consider legislation relating to the regulation of firearms, including amendment or repeal of existing
legislation. Existing laws may also be affected by future judicial rulings and interpretations. If restrictive changes to legislation
develop, we could find it difficult, expensive, or even impossible to comply with them, impeding new product development and distribution
of existing products.
War, terrorism, other acts of violence
or natural or manmade disasters, such as a global pandemic, may affect the markets in which the Company operates, the Company’s
customers, the Company’s delivery of products and customer service, and could have a material adverse impact on our business, results
of operations, or financial condition.
The Company’s business and
supply chain has been adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless
of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or manmade disasters, including famine, food,
fire, earthquake, storm or pandemic events and spread of disease.
In building our main
new manufacturing facility in Manitowoc, Wisconsin, the delivery of some of the main components needed in the building process were delayed
due to supply chain disruptions. These delays caused our manufacturing capacity to be lower than it otherwise would have been causing
a drop in sales in the year ended March 31, 2023, but have since been corrected.
Such events may cause customers
to suspend their decisions on using the Company’s products and services, make it impossible to access some of our inventory, and
give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods
or services and commitments to develop new products and services. These events also pose significant risks to the Company’s personnel
and to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.
Any significant disruption to communications and travel, including travel
restrictions and other potential protective quarantine measures against a pandemic by governmental agencies, could make it difficult for
the Company to deliver goods services to its customers. War, riots, or other disasters may increase the need for our products and demand
by our government and military and may make it more difficult to provide our products to other customers.
Worldwide
economic and social instability could adversely affect our revenue, financial condition, or results of operations.
The
health of the global economy, and the credit markets and the financial services industry in particular, as well as the stability of the
social fabric of our society, affects our business and operating results. For example, the credit and financial markets may be adversely
affected by the current conflict between Russia and Ukraine and measures taken in response thereto. If the credit markets are not favorable,
we may be unable to raise additional financing when needed or on favorable terms. Our customers may experience financial difficulties
or be unable to borrow money to fund their operations, which may adversely impact their ability to purchase our products or to pay for
our products on a timely basis, if at all.
We are engaged in legal proceedings that could
cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention.
On September 24, 2019, the Company
received notice that an individual who was former member of the Board of Directors (the “Board”) who had been removed as a
director by majority vote of the stockholders and who had voluntarily resigned as an employee filed a complaint against the Company, and
certain individuals (the “Complaint”), with the U.S. Department of Labor (“DOL”). The Complaint alleges that the
individual reported potential violations of SEC rules and regulations by management and that as a result of such reports, the individual
experienced a hostile work environment; that the Company lacks sufficient 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 stockholders. The claims were investigated
by a Special Committee of the Board made up of independent directors represented by 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 parties participated
in a successful mediation at the end of June 2022 and all matters relating to this former employee/claimant were confidentially resolved
with the lawsuit dismissed with prejudice. The settlement was covered by our Employment Practices Liability Policy and did not amount
to a material amount.
On April 30, 2023,
Director and shareholder Steve Urvan filed suit in the Delaware Chancery Court against the Company, certain Directors, former directors,
employees, former employees and consultants, seeking rescission of the Company’s acquisition of GunBroker.com and certain affiliated
companies. Plaintiff Urvan’s claims include rescission, misrepresentation and fraud. The Company is currently in communications
with its insurance carriers as concerns coverage (defense and indemnification), has engaged counsel and formal/legal service of process
is being coordinated at this time. The Company and named defendants are in alignment and reasonably believe at this date that
the claims are without merit and the Company has engaged Delaware Chancery Court litigation specialists to defend its interests in all
respects in this case.
The claims made by Mr. Urvan and such other litigation or claims that may
be made against the Company or its officers or directors, from time to time, could negatively affect our business, operations or financial
position. As we grow, we will likely see a rise in the number of litigation matters against us. These matters may include employment and
labor claims, product liability, and other claims related to our products, as well as consumer and securities class actions, each of which
are typically expensive to defend. Litigation disputes could cause us to incur unforeseen expenses and otherwise occupy a significant
amount of our management’s time and attention, any of which could negatively affect our business operations and financial position.
An
inability to expand our E-commerce business could reduce our future growth.
Consumers
are increasingly purchasing products online. We operate direct-to-consumer e-commerce stores to maintain an online presence with our
end users. The future success of our online operations depends on our ability to use our marketing resources to communicate with existing
and potential customers. We face competitive pressure to offer promotional discounts, which could impact our gross margin and increase
our marketing expenses. We are limited, however, in our ability to fully respond to competitor price discounting because we cannot market
our products at prices that may produce adverse relationships with our customers that operate brick and mortar locations as they may
perceive themselves to be at a disadvantage based on lower e-commerce pricing to end consumers. There is no assurance that we will be
able to successfully expand our e-commerce business to respond to shifting consumer traffic patterns and direct-to-consumer buying trends.
In
addition, e-commerce and direct-to-consumer operations are subject to numerous risks, including implementing and maintaining appropriate
technology to support business strategies; reliance on third-party computer hardware/software and service providers; data breaches; violations
of state, federal or international laws, including those relating to online privacy; credit card fraud; telecommunication failures; electronic
break-ins and similar disruptions; and disruption of Internet service. Our inability to adequately respond to these risks and uncertainties
or to successfully maintain and expand our direct-to-consumer business may have an adverse impact on our business and operating results.
The
GunBroker.com auction website facilitates the lawful sale of firearms, ammunition and accessories between listing sellers and interested
buyers and includes the direct transactional involvement of FFLs regulated by the ATF. A change in applicable federal or state law that
prohibited GunBroker.com from providing its facilitative auction platform services would have a direct substantial financial impact on
the operations and adverse effect on the continuity of operations.
If
we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect
our rights.
Our
future success depends upon our proprietary technology. Our protective measures, including patent and trade secret protection, may prove
inadequate to protect our proprietary rights. The right to stop others from misusing our trademarks, service marks, and patents in commerce
depends to some extent on our ability to show evidence of enforcement of our rights against such misuse in commerce. Our efforts to stop
improper use, if insufficient, may lead to loss of trademark and service mark rights, brand loyalty, and notoriety among our customers
and prospective customers. The scope of any patent that we have or may obtain may not prevent others from developing and selling competing
products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution
of such claims may be highly uncertain, and expensive. In addition, our patents may be held invalid upon challenge, or others may claim
rights in or ownership of our patents.
We
may be subject to intellectual property infringement claims, which could cause us to incur litigation costs and divert management attention
from our business.
Any
intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend and divert
our management’s attention from our business. If our products were found to infringe a third party’s proprietary rights,
we could be required to enter into costly royalty or licensing agreements to be able to sell our products. Royalty and licensing agreements,
if required, may not be available on terms acceptable to us or at all.
Breaches
of our information systems could adversely affect our reputation, disrupt our operations, and result in increased costs and loss sales.
There
have been an increasing number of cyber security incidents affecting companies around the world, which have caused operational failures
or compromised sensitive corporate data. Although we do not believe our systems are at a greater risk of cyber security incidents than
other similar organizations, such cyber security incidents may result in the loss or compromise of customer, financial, or operational
data; disruption of billing, collections, or normal operating activities; disruption of electronic monitoring and control of operational
systems; and delays in financial reporting and other management functions. Possible impacts associated with a cyber security incident
may include among others, remediation costs related to lost, stolen, or compromised data; repairs to data processing systems; increased
cyber security protection costs; reputational damage; and adverse effects on our compliance with applicable privacy and other laws and
regulations.
A
failure of our information technology systems, or an interruption in their operation due to internal or external factors including cyber-attacks,
could have a material adverse effect on our business, financial condition or results of operations.
Our
operations depend on our ability to protect our information systems, computer equipment, and information databases from systems failures.
We rely on our information technology systems generally to manage the day-to-day operations of our business, operate elements of our
manufacturing facility, manage relationships with our customers, fulfill customer orders, and maintain our financial and accounting records.
Failure of our information technology systems could be caused by internal or external events, such as incursions by intruders or hackers,
computer viruses, cyber-attacks, failures in hardware or software, or power or telecommunication fluctuations or failures. The failure
of our information technology systems to perform as anticipated for any reason or any significant breach of security could disrupt our
business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, increased costs,
or loss of important information, any of which could have a material adverse effect on our business, operating results, and financial
condition. Any technology and information security processes and disaster recovery plans we use to mitigate our risk to these vulnerabilities
may not be adequate to ensure that our operations will not be disrupted should such an event occur.
Risks
Related to Our Products and Our Dependence on Third Parties
Our
success depends upon our ability to introduce new products that match customer preferences.
Our
success depends upon our ability to introduce new products that match consumer preferences. Our efforts to introduce new products into
the market may not be successful, and any new products that we introduce may not result in customer or market acceptance. We develop
new products that we believe will match consumer preferences. The development of a new product is a lengthy and costly process and may
not result in a successful product. Failure to develop new products that are attractive to consumers could decrease our sales, operating
margins, and market share and could adversely affect our business, operating results, and financial condition.
We
depend on the sale of our ammunition products.
We
manufacture ammunition and ammunition casings for sale to a wide variety of consumers, including gun enthusiasts, collectors, hunters,
sportsmen, competitive shooters, individuals desiring home and personal protection, manufacturers, law enforcement and security agencies
and officers in the United States and throughout the world. The sale of ammunition and ammunition components is influenced by the sale
and usage of firearms. Sales of firearms are influenced by a variety of economic, social, and political factors, which may result in
volatile sales. Ammunition sales represented a substantial amount of our net sales for the fiscal years ended March 31, 2023, 2022, and 2021.
If ammunition sales decline, our financial results could be adversely impacted and the stock price of our Common Stock could decline.
Our manufacturing facilities are critical to our
success.
Our manufacturing
operations are currently based out of two facilities in Manitowoc, Wisconsin and are critical to our success, as we currently
produce all of our products at these facilities. These facilities also house our principal research, development, engineering, and design
functions.
Any event that causes a disruption to the operation of these facilities
for even a relatively short period of time would adversely affect our ability to produce and ship our products and to provide service
to our customers. We make certain changes in our manufacturing operations from time to time to enhance the facilities and associated equipment
and systems and to introduce certain efficiencies in manufacturing and other processes to produce our products in a more efficient and
cost-effective manner. We have incurred significant capital and other expenditures with respect to our $26 million manufacturing plant,
but we may not be successful in continuing to improve efficiencies.
Shortages
of components and materials may delay or reduce our sales and increase our costs, thereby harming our results of operations.
The
inability to obtain sufficient quantities of raw materials and components, including casings, primers, gun powder, projectiles, and brass
necessary for the production of our products could result in reduced or delayed sales or lost orders. Any delay in or loss of sales or
orders could adversely impact our operating results. Many of the materials used in the production of our products are available only
from a limited number of suppliers. We do not have long-term supply contracts with any suppliers. As a result, we could be subject to
increased costs, supply interruptions, and difficulties in obtaining raw materials and components.
Our
reliance on third-party suppliers for various raw materials and components for our products exposes us to volatility in the availability,
quality, and price of these raw materials and components. Our orders with certain of our suppliers may represent a very small portion
of their total orders. As a result, they may not give priority to our business, leading to potential delays in or cancellation of our
orders. A disruption in deliveries from our third-party suppliers, capacity constraints, production disruptions, price increases, or
decreased availability of raw materials or commodities could have an adverse effect on our ability to meet our commitments to customers
or increase our operating costs. Quality issues experienced by third party suppliers can also adversely affect the quality and effectiveness
of our products and result in liability and reputational harm.
We
rely on third-party suppliers for most of our manufacturing equipment.
We
also rely on third-party suppliers for most of the manufacturing equipment necessary to produce our products. The failure of suppliers
to supply manufacturing equipment in a timely manner or on commercially reasonable terms could delay our plans to expand our business
and otherwise disrupt our production schedules and increase our manufacturing costs. Our orders with certain of our suppliers may represent
a very small portion of their total orders. As a result, they may not give priority to our business, leading to potential delays in or
cancellation of our orders. If any single-source supplier were to fail to supply our needs on a timely basis or cease providing us with
manufacturing equipment or components, we would be required to locate and contract with substitute suppliers. We may have difficulty
identifying a substitute supplier in a timely manner and on commercially reasonable terms. If this were to occur, our business would
be harmed. In addition, adverse economic conditions, such as recent supply chain disruptions and labor shortages and persistent inflation,
have impacted, and may continue to adversely impact our suppliers’ ability to provide us with materials and components, which may
negatively impact our business. These economic conditions make it more difficult for us to accurately forecast and plan our future business
activities.
Our
revenue depends primarily on sales by various retailers and distributors, some of which account for a significant portion of our sales.
Our
loaded ammunition and munition components revenue depends on our sales through various leading national and regional retailers, local
specialty firearms stores, and online merchants. The U.S. retail industry serving the outdoor recreation market has become relatively
concentrated. Our sales could become increasingly dependent on purchases by several large retail customers. Consolidation in the retail
industry could also adversely affect our business. If our sales were to become increasingly dependent on business with several large
retailers, we could be adversely affected by the loss or a significant decline in sales to one or more of these customers. In addition,
our dependence on a smaller group of retailers could result in their increased bargaining position and pressures on the prices we charge.
The
loss of any one or more of our large or “Big Box” retail customers or significant or numerous cancellations, reductions,
delays in purchases or changes in business practices by our large or “Big Box” retail customers could have an adverse effect
on our business, operating results, and financial condition.
These
sales channels involve a number of special risks, including the following:
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we may be unable to secure
and maintain favorable relationships with retailers and distributors; |
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we may be unable to control
the timing of delivery of our products to end-user consumers; |
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our retailers and distributors
are not subject to minimum sales requirements or any obligation to market our products to their customers; |
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our retailers and distributors
may terminate their relationships with us at any time; |
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our retailers and distributors
market and distribute competing products; and |
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our retailers may experience
closure due to COVID-19 outbreaks or other natural or manmade disasters in a particular region. |
We
have one customer that accounted for approximately 12% of our revenues for the years ended March 31, 2023 in comparison to two
customers that accounted for approximately 18% of our revenues for the year ended March 31, 2022 and one customer that
accounted for approximately 17% of our revenues for the year ended March 31, 2021. Although we intend to expand our customer base,
our revenue would likely decline if we lost any major customers or if one of these sizable customers were to significantly reduce
its orders for any reason. Because our sales are made by means of standard purchase orders rather than long-term contracts, we
cannot assure you that our customers will continue to purchase our products at current levels, or at all.
In
addition, periods of sluggish economies and consumer uncertainty regarding future economic prospects in our key markets can have an adverse
effect on the financial health of our customers, which may in turn have a material adverse effect on our business, operating results,
and financial condition.
General
inflation, including rising energy prices, and interest rates and wages could have negative impacts on our business by increasing our
operating costs and our borrowing costs as well as decreasing the capital available for our customers to purchase our products. General
inflation in the United States, Europe and other geographies has risen to levels not experienced in recent decades. Additionally, inflation
and price volatility may cause our customers to reduce use of our products would harm our business operations and financial position.
We
extend credit to our customers for periods of varying duration based on an assessment of the customer’s financial condition, generally
without requiring collateral, which increases our exposure to the risk of uncollectable receivables. In addition, we face increased risk
of order reduction or cancellation when dealing with financially ailing retailers or retailers struggling with economic uncertainty.
We may reduce our level of business with customers and distributors experiencing financial difficulties and may not be able to replace
that business with other customers, which could have a material adverse effect on our business, operating results, and financial condition.
Our
gross margins depend upon our sales mix.
Our
gross margin is higher when our sales mix is skewed toward our higher-margin proprietary product lines versus a lower contribution from
mid-market ammunition that we also manufacture. If our actual sales mix results in a lower overall percentage from our proprietary lines,
our gross margins will be reduced, affecting our results of operations.
We
face intense competition that could result in our losing or failing to gain market share and suffering reduced sales.
We
operate in intensely competitive markets that are characterized by price erosion and competition from major domestic and international
companies. Competition in the markets in which we operate is based on a number of factors, including price, quality, product innovation,
performance, reliability, styling, product features, and warranties, and sales and marketing programs. This intense competition could
result in pricing pressures, lower sales, reduced margins, and lower market share.
Our
competitors include Federal Premium Ammunition, Remington Arms, the Winchester Ammunition Division of Olin Corporation, and various smaller
manufacturers and importers, including Black Hills Ammunition, CBC Group, Fiocchi Ammunition, Hornady, PMC, Rio Ammunition, and Wolf.
Most of our competitors have greater market recognition, larger customer bases, long-term government contracts, and substantially greater
financial, technical, marketing, distribution, and other resources than we possess and that afford them competitive advantages. As a
result, they may be able to devote greater resources to the promotion and sale of products, to invest more funds in intellectual property
and product development, to negotiate lower prices for raw materials and components, to deliver competitive products at lower prices,
and to introduce new products and respond to consumer requirements more quickly than we can.
Our
competitors could introduce products with superior features at lower prices than our products and could also bundle existing or new products
with other more established products to compete with us. Certain of our competitors may be willing to reduce prices and accept lower
profit margins to compete with us. Our competitors could also gain market share by acquiring or forming strategic alliances with other
competitors.
Finally,
we may face additional sources of competition in the future because new distribution methods offered by the Internet and electronic commerce
have removed many of the barriers to entry historically faced by start-up companies. Retailers also demand that suppliers reduce their
prices on products, which could lead to lower margins. Any of the foregoing effects could cause our sales to decline, which would harm
our financial position and results of operations.
Our
ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:
|
● |
our success in developing,
producing, marketing, and successfully selling new products; |
|
● |
our ability to address
the needs of our consumer customers; |
|
● |
the pricing, quality, performance,
and reliability of our products; |
|
● |
the quality of our customer
service; |
|
● |
the efficiency of our production;
and |
|
● |
product or technology introductions
by our competitors. |
Because
we believe technological and functional distinctions among competing products in our markets are perceived by many end-user consumers
to be relatively modest, effectiveness in marketing and manufacturing are particularly important competitive factors in our business.
Seasonality
and weather conditions may cause our operating results to vary from quarter to quarter.
Because
many of our products are used for seasonal outdoor sporting activities, our operating results may be significantly impacted by unseasonable
weather conditions. Accordingly, our operating results could suffer when weather patterns do not conform to seasonal norms.
Shipments
of ammunition for hunting are highest during the months of June through September to meet consumer demand for the fall hunting season
and holidays. The seasonality of our sales may change in the future. Seasonal variations in our operating
results may reduce our cash on hand, increase our inventory levels, and extend our accounts receivable collection periods. This in turn
may cause us to increase our debt levels and interest expense to fund our working capital requirements.
We
manufacture and sell products that create exposure to potential product liability, warranty liability, or personal injury claims and
litigation.
Our
products are used in activities and situations that involve risk of personal injury and death. Our products expose us to potential product
liability, warranty liability, and personal injury claims and litigation relating to the use or misuse of our products, including allegations
of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product or activities associated with the
product, negligence, and strict liability. If successful, any such claims could have a material adverse effect on our business, operating
results, and financial condition. Defects in our products may result in a loss of sales, recall expenses, delay in market acceptance,
and damage to our reputation and increased warranty costs, which could have a material adverse effect on our business, operating results,
and financial condition. Although we maintain product liability insurance in amounts that we believe are reasonable, we may not be able
to maintain such insurance on acceptable terms, if at all, in the future and product liability claims may exceed the amount of insurance
coverage or may not be covered by our insurance policies. In addition, our reputation may be adversely affected by such claims, whether
or not successful, including potential negative publicity about our products.
Our
business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition
or reputation would likely have a material adverse effect on our business.
Our
brand recognition and reputation are critical aspects of our business. We believe that maintaining and further enhancing our brands,
particularly our STREAK VISUAL AMMUNITION™ brands, and our reputation are critical to retaining existing customers and attracting
new customers. We also believe that the importance of our brand recognition and reputation will continue to increase as competition in
our markets continues to develop.
We
anticipate that our advertising, marketing, and promotional efforts will increase in the foreseeable future as we continue to seek to
enhance our brands and consumer demand for our products. Historically, we have relied on print and electronic media advertising to increase
consumer awareness of our brands to increase purchasing intent and conversation. We anticipate that we will increasingly rely on other
forms of media advertising, including social media and e-marketing. Our future growth and profitability will depend in large part upon
the effectiveness and efficiency of our advertising, promotion, public relations, and marketing programs. These brand promotion activities
may not yield increased revenue and the efficacy of these activities will depend on a number of factors, including our ability to do
the following:
|
● |
determine the appropriate
creative message and media mix for advertising, marketing, and promotional expenditures; |
|
● |
select the right markets,
media, and specific media vehicles in which to advertise; |
|
● |
identify the most effective
and efficient level of spending in each market, media, and specific media vehicle; and |
|
● |
effectively manage marketing
costs, including creative and media expenses, to maintain acceptable customer acquisition costs. |
In
addition, certain of our current or future products may benefit from endorsements and support from particular sportsmen, athletes, or
other celebrities, and those products and brands may become personally associated with those individuals. As a result, sales of the endorsed
products could be materially and adversely affected if any of those individuals’ images, reputations, or popularity were to be
negatively impacted.
Increases
in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expenses or cause
us to choose less expensive but possibly less effective marketing and advertising channels. If we implement new marketing and advertising
strategies, we may incur significantly higher costs than our current channels, which in turn could adversely affect our operating results.
Implementing new marketing and advertising strategies also could increase the risk of devoting significant capital and other resources
to endeavors that do not prove to be cost effective. We also may incur marketing and advertising expenses significantly in advance of
the time we anticipate recognizing revenue associated with such expenses and our marketing and advertising expenditures may not generate
sufficient levels of brand awareness and conversation or result in increased revenue. Even if our marketing and advertising expenses
result in increased sales, the increase might not offset our related expenditures. If we are unable to maintain our marketing and advertising
channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective
channels, our marketing and advertising expenses could increase substantially, our customer base could be adversely affected, and our
business, operating results, financial condition, and reputation could suffer.
A
portion of our revenue is contingent on an exclusive license agreement with the University of Louisiana at Lafayette.
A
significant portion of our revenue is attributable to the sale of our STREAK VISUAL AMMUNITION™. The manufacturing of
our STREAK product relies, in part, on a patent that is held by ULL. We have an exclusive license to use the licensed technology, derivative
and related technology worldwide. We may renew this license agreement for successive four-year periods provided we are in compliance
with the agreement. If we breach the license agreement, the licensor may terminate the agreement and if we fail to renew the license,
we may be unable to use the technology, which, in either case, could significantly harm our results of operations.
Regulatory
Risks
We
are subject to extensive regulation and could incur fines, penalties and other costs and liabilities under such requirements.
Like
many other manufacturers and distributors of consumer products, we are required to comply with a wide variety of laws, rules, and regulations,
including those relating to labor, employment, the environment, the export and import of our products, and taxation. These laws, rules,
and regulations currently impose significant compliance requirements on our business, and more restrictive laws, rules and regulations
may be adopted in the future.
Our
operations are subject to a variety of laws and regulations relating to environmental protection, including those governing the discharge,
treatment, storage, transportation, remediation, and disposal of certain materials and wastes, and restoration of damages to the environment,
and health and safety matters. We could incur substantial costs, including remediation costs, resource restoration costs, fines, penalties,
and third-party property damage or personal injury claims as a result of liabilities under or violations of such laws and regulations
or the permits required thereunder. While environmental laws and regulations have not had a material adverse effect on our business,
operating results, financial condition, the ultimate cost of environmental liabilities is difficult to accurately predict and we could
incur material additional costs as a result of requirements or obligations imposed or liabilities identified in the future.
As
a manufacturer and distributor of consumer products, we are subject to the Consumer Products Safety Act, which empowers the Consumer
Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances,
the Consumer Products Safety Commission could require us to repurchase or recall one or more of our products. In addition, laws regulating
certain consumer products exist in some cities and states, and in other countries in which we sell our products, and more restrictive
laws and regulations may be adopted in the future. Any repurchase or recall of our products could be costly to us and could damage our
reputation. If we were required to remove, or we voluntarily removed, our products from the market, our reputation could be tarnished,
and we could have large quantities of finished products that we are unable to sell. We are also subject to the rules and regulations
of the Bureau of Alcohol, Tobacco, Firearms and Explosives, or the ATF. If we fail to comply with ATF rules and regulations, the ATF
may limit our growth or business activities, levy fines against or revoke our license to do business. Our business, and the business
of all producers and marketers of ammunition and firearms, is also subject to numerous federal, state, local, and foreign laws, regulations,
and protocols. Applicable laws have the following effects:
|
● |
require the licensing of
all persons manufacturing, exporting, importing, or selling firearms and ammunition as a business; |
|
● |
require background checks
for purchasers of firearms; |
|
● |
impose waiting periods
between the purchase of a firearm and the delivery of a firearm; |
|
● |
prohibit the sale of firearms
to certain persons, such as those below a certain age and persons with criminal records; |
|
● |
regulate the use and storage
of gun powder or other energetic materials; |
|
● |
regulate our employment
of personnel with criminal convictions; and |
|
● |
restrict access to firearm
manufacturing facilities for individuals from other countries or with criminal convictions. |
Also,
the export of our products is controlled by International Traffic in Arms Regulations, or “ITAR”, and Export Administration
Regulations, or “EAR”. The ITAR implements the provisions of the Arms Export Control Act and is enforced by the U.S. Department
of State. The EAR implements the provisions of the Export Administration Act and is enforced by the U.S. Department of Commerce. Among
their many provisions, the ITAR and the EAR require a license application for the export of many of our products. In addition, the ITAR
requires congressional approval for any firearms export application with a total value of $1 million or higher. Further, because our
manufacturing process includes certain toxic, flammable and explosive chemicals, we are subject to the Chemical Facility Anti-Terrorism
Standards, as administered by the U.S. Department of Homeland Security, which require that we take additional reporting and security
measures related to our manufacturing process.
Several
states currently have laws in effect that are similar to, and, in certain cases, more restrictive than, these federal laws. Compliance
with all of these regulations is costly and time-consuming. Any violation of any of these regulations could cause us to incur fines and
penalties, may also lead to restrictions on our ability to manufacture and sell our products and services and to import or export the
products we sell and may cause our business to be harmed.
Changes
in government policies and firearms legislation could adversely affect our financial results.
The
sale, purchase, ownership, and use of firearms are subject to numerous and varied federal, state, and local governmental regulations.
Federal laws governing firearms include the National Firearms Act, the Federal Firearms Act, the Arms Export Control Act, and the Gun
Control Act of 1968. These laws generally govern the manufacture, import, export, sale, and possession of firearms and ammunition. We
hold all necessary licenses to legally sell ammunition in the United States.
Currently,
the federal legislature and several state legislatures are considering additional legislation relating to the regulation of firearms
and ammunition. These proposed bills are extremely varied. If enacted, such legislation could effectively ban or severely limit the sale
of affected firearms and ammunition. In addition, if such restrictions are enacted and are incongruent, we could find it difficult, expensive,
or even practically impossible to comply with them, which could impede new product development and the distribution of existing products.
We cannot assure you that the regulation of our business activities will not become more restrictive in the future and that any such
restriction will not have a material adverse effect on our business.
Any
adverse change to the interpretations of the Second Amendment (Right to Bear Arms) could impact our ability to conduct business by restricting
the ownership and use of firearms in the United States.
Risks
Related to our Common Stock
Our
shares are listed on the Nasdaq Capital Market; however, if we fail to comply with Nasdaq’s rules for continued listing or other
requirements, our shares may be delisted.
Our
Common Stock is listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “POWW.” If we fail to comply
with Nasdaq’s rules for continued listing, including, without limitation, minimum market capitalization and other requirements,
Nasdaq may take steps to delist our shares. Failure to maintain our Nasdaq listing would make it more difficult for shareholders to sell
our Common Stock and more difficult to obtain accurate price quotations on our Common Stock. The delisting of our shares could have an
adverse effect on the price of our Common Stock. Our ability to issue additional securities for financing or other purposes, or otherwise
to arrange for any financing we may need in the future, may also be materially and adversely affected if our Common Stock is not traded
on a national securities exchange.
The
exercise of warrants, and issuance of incentive stock grants may have a dilutive effect on our stock, and negatively impact the price
of our Common Stock.
As
of June 9, 2023, we had 2,460,946 warrants outstanding with a weighted average exercise price of $2.46. As of June 9, 2023, there were
no options outstanding and 1,428,659 shares of Common Stock are reserved for future issuance under the 2017 Equity Incentive Plan. We
plan to adopt a new Incentive Stock Plan designed to assist us in attracting, motivating, retaining, and rewarding high-quality executives,
directors, officers, employees, and individual consultants by enabling such persons to acquire or increase a proprietary interest in
our company to strengthen the mutuality of interests between such persons and our stockholders and providing such persons with performance
incentives to expand their maximum efforts in the creation of stockholder value under the plan. We will be able to grant stock options,
restricted stock, restricted stock units, stock appreciation rights, bonus stocks, and performance awards under the plan.
To
the extent that any of the outstanding warrants and future options are exercised, dilution to the interests of our stockholders may occur.
For the life of such warrants and options, the holders will have the opportunity to profit from a rise in the price of the Common Stock
with a resulting dilution in the interest of the other holders of Common Stock. The existence of such warrants and options may adversely
affect the market price of our Common Stock.
Our
management has concluded that we have material weaknesses in our internal controls over financial reporting and that our disclosure controls
and procedures are not effective. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent financial fraud. As a result, current and potential stockholders could lose confidence in our
financial reporting.
As
a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404
requires us to include management’s assessment of the effectiveness of our internal control over financial reporting as of the
end of the fiscal year in our Annual Report on Form 10-K. This report must also include disclosure of any material weaknesses in internal
control over financial reporting that we have identified.
During
the audit of our financial statements for the year ended March 31, 2023, our management identified material weaknesses in our internal
control over financial reporting. The Company failed to maintain an effective control environment due to the following:
| ● | the
Company’s management and the governance did not maintain appropriately designed entity-level
controls impacting the control environment to prevent or detect material misstatements to
the consolidated financial statements. These deficiencies were attributed to limited personnel
to assist with the accounting and financial reporting function and inadequate oversight and
accountability over the performance of control activities, including establishment of a Whistleblower
Hotline and lack of formalization of certain key governance elements: management delegation,
annual board committee charter review, acknowledgement of code of conduct, and approval of
the annual budget; |
| | |
| ● | the
Company failed to maintain properly designed segregation of duties, both within manual processes
and system access; |
| | |
| ● | the
Company failed to maintain effectively designed controls over journal entries, both recurring
and nonrecurring, account reconciliations, and periodic flux analysis. Journal entries were
not always accompanied by sufficient supporting documentation and were not adequately reviewed
and approved for validity, completeness, and accuracy. In most instances, persons responsible
for reviewing journal entries and account reconciliations for validity, completeness, and
accuracy were also responsible for preparation. |
| | |
| ● | the
Company failed to maintain effectively designed controls over the period-end financial reporting
process, including adequate tie-out and review of documentation that supports the financial
statements; and |
| | |
| ● | the Company failed to maintain effectively designed controls over information
technology general controls in the areas of user provisioning and de-provisioning, application
change management, operating system and logical access controls, and segregation of duties for information technology (“IT”)
systems that supports the Company’s financial reporting process. |
These material weaknesses, if not remediated, create an increased risk of misstatement of the Company’s
financial results, which, if material, may require future restatement thereof. A failure to implement improved internal controls, or
difficulties encountered in their implementation or execution, could cause future delays in our reporting obligations and could have
a negative effect on us and the trading price of our Common Stock. If these weaknesses and inadequate disclosure controls and procedures
continue, investors could lose confidence in the accuracy and completeness of our financial reports and other disclosures.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed.
General
Risk Factors
Our
operating results may experience significant fluctuations.
Many
factors can contribute to significant fluctuations in our results of operations. These factors include the following:
|
● |
the cyclicality of the
markets we serve; |
|
● |
the timing and size of
new orders; |
|
● |
the cancellation of existing
orders; |
|
● |
the volume of orders relative
to our capacity; |
|
● |
product introductions and
market acceptance of new products or new generations of products; |
|
● |
timing of expenses in anticipation
of future orders; |
|
● |
changes in product mix; |
|
● |
availability of production
capacity; |
|
● |
changes in cost and availability
of labor and raw materials; |
|
● |
timely delivery of products
to customers; |
|
● |
pricing and availability
of competitive products; |
|
● |
new product introduction
costs; |
|
● |
changes in the amount or
timing of operating expenses; |
|
● |
introduction of new technologies
into the markets we serve; |
|
● |
pressures on reducing selling
prices; |
|
● |
our success in serving
new markets; |
|
● |
adverse publicity regarding
the safety, performance, and use of our products; |
|
● |
the institution and adverse
outcome of any litigation; |
|
● |
political, economic, or
regulatory developments; |
|
● |
changes in economic conditions;
and |
|
● |
natural and manmade disasters,
including COVID-19. |
As
a result of these and other factors, we believe that period-to-period comparisons of our results of operations may not be meaningful
in the short term, and our performance in a particular period may not be indicative of our performance in any future period.
We
may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.
In
the future, we may require additional capital to fund the planned expansion of our business and to respond to business opportunities,
challenges, potential acquisitions, or unforeseen circumstances. We could encounter unforeseen difficulties that may deplete our capital
resources rapidly, which could require us to seek additional financing in the near future. The timing and amount of any additional financing
that is required to continue the expansion of our business and the marketing of our products will depend on our ability to improve our
operating results and other factors. We may not be able to secure additional debt or equity financing on a timely basis or on favorable
terms, or at all. Such financing could result in substantial dilution of the equity interests of existing stockholders. If we are unable
to secure any necessary additional financing, we may need to delay expansion plans, conserve cash, and reduce operating expenses. There
is no assurance that any additional financing will be sufficient, that the financing will be available on terms favorable to us or to
existing stockholders and at such times as required, or that we will be able to obtain the additional financing required for the continued
operation and growth of our business. Any debt financing obtained by us in the future could involve restrictive covenants relating to
our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional
capital and to pursue business opportunities. If we raise additional funds through further issuances of equity, convertible debt securities,
or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership
of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our
Common Stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability
to grow or support our business and to respond to business challenges could be significantly limited.
Our
charter documents and Delaware law could make it more difficult for a third party to acquire us and discourage a takeover.
Our
certificate of incorporation, bylaws, and Delaware law contain certain provisions that may have the effect of deterring or discouraging,
among other things, a non-negotiated tender or exchange offer for shares of Common Stock, a proxy contest for control of our company,
the assumption of control of our company by a holder of a large block of Common Stock, and the removal of the management of our company.
Such provisions also may have the effect of deterring or discouraging a transaction which might otherwise be beneficial to stockholders.
Our certificate of incorporation also may authorize our board of directors, without stockholder approval, to issue one or more series
of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of
Common Stock. Delaware law also imposes conditions on certain business combination transactions with “interested stockholders.”
Our certificate of incorporation authorizes our Board of Directors to fill vacancies or newly created directorships. A majority of the
directors then in office may elect a successor to fill any vacancies or newly created directorships. Such provisions could limit the
price that investors might be willing to pay in the future for shares of our Common Stock and impede the ability of the stockholders
to replace management.
The
elimination of monetary liability against our directors, officers, and employees under Delaware law and the existence of indemnification
rights to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our
directors, officers, and employees. We also may have entered into contractual indemnification obligations under employment agreements
with our executive officers. The foregoing indemnification obligations could result in our incurring substantial expenditures to cover
the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant
costs may also discourage us from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties and may
similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions,
if successful, might otherwise benefit our company and our stockholders.
Our
certification of incorporation designates the Court of Chancery in the State of Delaware as the sole and exclusive forum for actions
or proceedings that may be initiated by our stockholders, which could discourage claims or limit stockholders’ ability to make
a claim against the Company, our directors, officers, and employees.
Our
Amended and Restated Certificate of Incorporation states that unless the Corporation consents in writing to the selection of an alternative
forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial)
to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) an action asserting a claim of breach of
fiduciary duty owed by any director, officer, or other employee of the Corporation to the Corporation or the Corporation’s stockholders,
(iii) any action asserting a claim against the Corporation, its directors, officers, or employees arising pursuant to any provision of
the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws, or (iv) any action asserting
a claim against the Corporation, its directors, officers, or employees governed by the internal affairs doctrine, except for, as to each
of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to
the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of
Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than
the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.
These
exclusive forum provisions do not apply to claims under the Securities Act or the Exchange Act. The exclusive forum provision may discourage
claims or limit stockholders’ ability to submit claims in a judicial forum that they find favorable and may create additional costs
as a result. If a court were to determine the exclusive forum provision to be inapplicable and unenforceable in an action, we may incur
additional costs in conjunction with our efforts to resolve the dispute in an alternative jurisdiction, which could have a negative impact
on our results of operations.
Risks
Related to our Series A Preferred Stock
The
Series A Preferred Stock ranks junior to all of our indebtedness and other liabilities.
In
the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, holders of the Series A Preferred Stock will be entitled
to receive any of our assets remaining only after all of our indebtedness and other liabilities have been paid. The rights of holders
of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current
and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock.
Also, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and to the indebtedness and other
liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries would be,
separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock.
If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of
the Series A Preferred Stock then outstanding. We have incurred and may in the future incur substantial amounts of debt and other obligations
that will rank senior to the Series A Preferred Stock. At March 31, 2023, our total liabilities equaled approximately $38.9 million.
Certain
of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred
Stock. Also, future offerings of debt or senior equity securities may adversely affect the market price of the Series A Preferred Stock.
If we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture
or other instruments containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities
that we issue in the future may have rights, preferences and privileges more favorable than those of the Series A Preferred Stock and
may result in dilution to owners of the Series A Preferred Stock. We and, indirectly, our shareholders, will bear the cost of issuing
and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions
and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. The holders
of the Series A Preferred Stock will bear the risk of our future offerings, which may reduce the market price of the Series A Preferred
Stock and will dilute the value of their holdings in us.
The
trading market for the Series A preferred stock may not provide investors with adequate liquidity.
The
Series A Preferred Stock is listed on Nasdaq under the symbol “POWWP.” We cannot assure you that holders of the Series A
Preferred Stock will be able to sell their shares at favorable prices or at all. The difference between bid and ask prices in any secondary
market for the Series A Preferred Stock could be substantial. Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Series A Preferred Stock, and holders of the Series A Preferred Stock may be required to bear the financial risks of
an investment in the Series A Preferred Stock for an indefinite period of time.
We
may issue additional shares of Series A Preferred Stock and additional series of preferred stock that rank on parity with the Series
A Preferred Stock as to dividend rights, rights upon liquidation or voting rights.
We
are allowed to issue additional shares of Series A Preferred Stock and additional series of preferred stock that would rank junior to
the Series A Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant
to our certificate of incorporation and the certificate of designations relating to the Series A Preferred Stock without any vote of
the holders of the Series A Preferred Stock. The issuance of additional shares of Series A Preferred Stock and additional series of preferred
stock that have been authorized pursuant to our certificate of incorporation and the certificate of designations could have the effect
of reducing the amounts available to the Series A Preferred Stock upon our liquidation or dissolution or the winding up of our affairs.
It also may reduce dividend payments on the Series A Preferred Stock if we do not have sufficient funds to pay dividends on all Series
A Preferred Stock outstanding and other classes or series of stock with greater or equal priority with respect to dividends.
Also,
although holders of Series A Preferred Stock are entitled to limited voting rights, as described in this prospectus supplement under
“Description of the Series A Preferred Stock—Voting Rights,” with respect to the circumstances under which the holders
of Series A Preferred Stock are entitled to vote, the Series A Preferred Stock votes separately as a class along with all other series
of our preferred stock that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting
rights of holders of Series A Preferred Stock may be significantly diluted, and the holders of such other series of preferred stock that
we may issue may be able to control or significantly influence the outcome of any vote.
Future
issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may cause prevailing
market prices for the Series A Preferred Stock and our Common Stock to decline and may adversely affect our ability to raise additional
capital in the financial markets at times and prices favorable to us.
Market
interest rates may materially and adversely affect the value of the Series A Preferred Stock.
One
of the factors that influences the price of the Series A Preferred Stock is the dividend yield on the Series A Preferred Stock (as a
percentage of the market price of the Series A Preferred Stock) relative to market interest rates. An increase in market interest rates,
which in recent years have been at low levels relative to historical rates, may lead prospective purchasers of the Series A Preferred
Stock to expect a higher dividend yield (and higher interest rates would likely increase our borrowing costs and potentially decrease
funds available for dividend payments). Thus, higher market interest rates could cause the market price of the Series A Preferred Stock
to materially decrease.
We
may not be able to pay dividends on the Series A Preferred Stock if we have insufficient cash to make dividend payments.
Our
ability to pay cash dividends on the Series A Preferred Stock requires us to have either net profits or positive net assets (total assets
less total liabilities) over our capital, to be able to pay our debts as they become due in the usual course of business. Further, notwithstanding
these factors, we may not have sufficient cash to pay dividends on the Series A Preferred Stock. Our ability to pay dividends may be
impaired if any of the risks described in this prospectus, including the documents incorporated by reference herein, were to occur. Also,
payment of our dividends depends upon our financial condition and other factors as our board of directors may deem relevant from time
to time. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be
available to us in an amount sufficient to enable us to make distributions on our Common Stock, if any, and preferred stock, including
the Series A Preferred Stock to pay our indebtedness or to fund our other liquidity needs.
Dividends
or other payments with respect to the Series A Preferred Stock may be subject to withholding taxes in circumstances where we are not
obliged to make gross up payments, and this could result in holders receiving less than expected in such circumstances.
In
the event of certain changes to current tax law that require tax to be withheld from dividends or other payments on the Series A Preferred
Stock, we are not required to make gross up payments in respect of such taxes. This would result in holders of Series A Preferred Stock
receiving less than expected and could materially adversely affect the return on your investment.
Our
Series A Preferred Stock has not been rated.
We
have not sought to obtain a rating for the Series A Preferred Stock. No assurance can be given, however, that one or more rating agencies
might not independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price
of the Series A Preferred Stock. Also, we may elect in the future to obtain a rating for the Series A Preferred Stock, which could adversely
affect the market price of the Series A Preferred Stock. Ratings only reflect the views of the rating agency or agencies issuing the
ratings and such ratings could be revised downward, placed on a watch list or withdrawn entirely at the discretion of the issuing rating
agency if in its judgment circumstances so warrant. Any such downward revision, placing on a watch list or withdrawal of a rating could
have an adverse effect on the market price of the Series A Preferred Stock.
We
may redeem the Series A Preferred Stock.
On
or after May 18, 2026, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time.
Also, upon the occurrence of a Change of Control (as defined below under “Description of the Series A Preferred Stock - Redemption”),
we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change
of Control occurred. We may have an incentive to redeem the Series A Preferred Stock voluntarily if market conditions allow us to issue
other preferred stock or debt securities at a rate that is lower than the dividend on the Series A Preferred Stock. If we redeem the
Series A Preferred Stock, then from and after the redemption date, dividends will cease to accrue on shares of Series A Preferred Stock,
the shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights as a holder of those shares will terminate,
except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.
The
market price of the Series A Preferred Stock could be substantially affected by various factors.
The
market price of the Series A Preferred Stock depends on many factors, which may change from time to time, including:
|
● |
prevailing interest rates,
increases in which may have an adverse effect on the market price of the Series A Preferred Stock; |
|
|
|
|
● |
trading prices of similar
securities; |
|
|
|
|
● |
our history of timely dividend
payments; |
|
|
|
|
● |
the annual yield from dividends
on the Series A Preferred Stock as compared to yields on other financial instruments; |
|
|
|
|
● |
general economic and financial
market conditions; |
|
● |
government action or regulation; |
|
|
|
|
● |
the financial condition,
performance and prospects of us and our competitors; |
|
|
|
|
● |
changes in financial estimates
or recommendations by securities analysts with respect to us or our competitors in our industry; |
|
|
|
|
● |
our issuance of additional
preferred equity or debt securities; and |
|
|
|
|
● |
actual or anticipated variations
in quarterly operating results of us and our competitors. |
As
a result of these and other factors, holders of the Series A Preferred Stock may experience a decrease, which could be substantial and
rapid, in the market price of the Series A Preferred Stock, including decreases unrelated to our operating performance or prospects.
A
holder of Series A Preferred Stock has extremely limited voting rights.
The
voting rights for a holder of Series A Preferred Stock are limited. Our shares of Common Stock are the only class of our securities that
carry full voting rights. Voting rights for holders of the Series A Preferred Stock exist primarily with respect to the ability to elect,
voting together with the holders of any other series of our preferred stock having similar voting rights, two additional directors to
our board of directors, subject to limitations described in this prospectus supplement entitled “Description of the Series A Preferred
Stock—Voting Rights,” in the event that dividends payable on the Series A Preferred Stock are in arrears for four or more
consecutive or non-consecutive quarterly dividend periods, and with respect to voting on amendments to our certificate of incorporation
or certificate of designations relating to the Series A Preferred Stock that materially and adversely affect the rights of the holders
of Series A Preferred Stock or authorize, increase or create additional classes or series of our capital stock that are senior to the
Series A Preferred Stock. Other than the limited circumstances described in the prospectus and except to the extent required by law,
holders of Series A Preferred Stock do not have any voting rights. Please see the section in this prospectus supplement entitled “Description
of the Series A Preferred Stock—Voting Rights.”
The
Series A Preferred Stock is not convertible, and investors will not realize a corresponding upside if the price of the Common Stock increases.
The
Series A Preferred Stock is not convertible into the Common Stock and earns dividends at a fixed rate. Accordingly, an increase in market
price of our Common Stock will not necessarily result in an increase in the market price of our Series A Preferred Stock. The market
value of the Series A Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial paper and
other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution satisfy the liquidation
preference with respect to, the Series A Preferred Stock.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
Our
executive offices are located in Scottsdale, Arizona where we lease approximately 21,000 square feet under a month-to-month triple net
lease for approximately $20,000 per month. This space houses our principal executive, administration, and marketing functions.
We
lease a 10,000 square foot facility located in Atlanta, Georgia for approximately $19,000 per month. This space houses our GunBroker.com
offices and operations.
We
lease a 36,000 square foot facility located in Manitowoc, Wisconsin for approximately $10,000 per month. We utilize this facility for
manufacturing and packaging.
We
lease a 5,000 square foot facility located in Marietta, Georgia for approximately $3,000 per month. The purpose of this space is for
warehousing related to our GunBroker.com operations.
We
own a 185,000 square foot facility in Manitowoc, Wisconsin. Since our second fiscal quarter in the year ended March 31, 2023, we have
utilized this facility for ammunition and casing manufacturing, research
and development, packing, and shipping activities. A portion of this facility was financed by our Construction Loan. The terms of the
Construction Loan are documented in Note 11 of our financial statements.
ITEM
3. 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 2 of our Financial Statements for additional disclosure.
ITEM
4. MINE SAFETY DISCLOSURE
None.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND BUSINESS ACTIVITY
We
were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments
and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On
December 15, 2016, the Company’s majority shareholders sold 475,681 (11,891,976 pre-split) of their outstanding shares to Mr. Fred
W. Wagenhals (“Mr. Wagenhals”) resulting in a change in control of the Company. Mr. Wagenhals was appointed as sole officer
and the sole member of the Company’s Board of Directors.
The
Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW, (iii)
an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to Delaware, and
(iv) a 1-for-25 reverse stock split (“Reverse Split”) of the issued and outstanding shares of the common stock of the Company.
As a result of the reverse split, the previous issued and outstanding shares of common stock became 580,052 shares; no shareholder was
reversed below 100 shares, and all fractional shares resulting from the reverse split were rounded up to the next whole share. All references
to the outstanding stock have been retrospectively adjusted to reflect this split. These transactions were effective as of December 30,
2016.
On
March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (PRIVCO) under which the Company
acquired all of the outstanding shares of common stock of (PRIVCO). Under the terms of the Agreement, the Company issued 17,285,800 newly
issued shares of common stock of the Company. In connection with this transaction the Company retired 475,681 shares of common stock
and issued 500,000 shares of common stock to satisfy an issuance commitment. The acquisition was considered to be a capital transaction.
The transaction was the equivalent to the issuance by PRIVCO of 604,371 shares to the Company’s shareholders accompanied by a recapitalization.
The weighted average number of outstanding shares has been adjusted for this transaction. (PRIVCO) subsequently changes its name to AMMO
Munitions, Inc.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing
the condensed consolidated financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax
assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation and warrant-based compensation.
Goodwill
We
evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that would more likely than
not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to utilize
a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test.
We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value
of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more
likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the
estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows.
Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected
category expansion, pricing, market segment share, and general economic conditions. Due to the declines in the value of our stock price
and market capitalization, we assessed qualitative factors to determine if it is more likely than not that the fair value of the Marketplace
segment is less than its carrying amount. Through our analysis we determined our stock price and market capitalization decline it is
not indicative of a decrease in the fair value of our Marketplace segment and a fair value calculation using the discounted cash
flows was more appropriate due to the operational performance of the reporting segment. Accordingly, the impairment of Goodwill was not
warranted for the year ended March 31, 2023. As of March 31, 2023, the Company has a goodwill carrying value of
$90,870,094, all of which is assigned to the Marketplace segment. However, due to declines in the value of the Company’s common
stock and market capitalization, it is possible that the book values of our Marketplace segment could exceed its fair value, which may
result in the recognition of a material, noncash impairment of goodwill for the year ending March 31, 2024.
Cash
and Cash Equivalents
For
purposes of the consolidated statements of cash flows, we consider highly liquid financial instruments purchased with a maturity of three
months or less to be cash equivalents.
Restricted
Cash
We
consider cash to be restricted when withdrawal or general use is legally restricted. Our restricted cash balance is comprised of cash
on deposit with banks to secure the Construction Loan Agreement as discussed in Note 11. We report restricted cash in the Consolidated
Balance Sheets as current or non-current classification based on the expected duration of the restriction.
AMMO,
INC.
NOTES
TO 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.
License
Agreements
We
are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited
liability company. The license agreement grants us the exclusive worldwide rights through April 12, 2026 to Mr. James’ image rights
and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse
James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to
reimburse him for any out-of-pocket expenses and reasonable travel expenses.
We
were 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.
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.
Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a royalty to the patent holder, based on a $0.01 per unit
basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the years ended March
31, 2023, 2022, and 2021, the Company recognized royalty expenses of $99,268, $44,764, and $87,093 respectively under this agreement.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
August 2018, we applied for additional patent coverage for the manufacturing methods or application of the Hybrid Luminescence Ammunition
Technology on a variety of projectile and ammunition types. The costs of filing this patent were expensed.
On
October 5, 2018, we completed the acquisition of SW Kenetics Inc. AMMO Technologies, Inc. succeeded all of the assets of SW Kenetics
Inc. and assumed all of the liabilities.
The
primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned
and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
We
intend to continue building our patent portfolio to protect our proprietary technologies and processes, and will file new applications
where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other
Intangible Assets
On
March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition
of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended
and Restated Asset Purchase Agreement (See Note 18). The intangible assets acquired include a tradename, customer relationships, and
intellectual property.
On
April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight
Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments, LLC, a
Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight
Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments,
LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of GunBroker.com, an online auction marketplace dedicated
to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships, intellectual
property, software and domain names.
Impairment
of Long-Lived Assets
We
continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable.
When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows
is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
No impairment expense was recognized for the years ended March 31, 2023, 2022, and 2021.
Revenue
Recognition
We
generate revenue from the production and sale of ammunition, ammunition casings, and marketplace fee revenue, which includes auction
revenue, payment processing revenue, and shipping income. We recognize revenue according to Accounting Standard Codification –
Revenue from Contract with Customers (“ASC 606”). When the customer obtains control over the promised goods or services,
we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the
following five-step model to determine revenue recognition:
|
● |
Identification
of a contract with a customer |
|
● |
Identification
of the performance obligations in the contact |
|
● |
Determination
of the transaction price |
|
● |
Allocation
of the transaction price to the separate performance allocation |
|
● |
Recognition
of revenue when performance obligations are satisfied |
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
We
only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods
or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606,
we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether
each promised good or service is distinct.
For
Ammunition Sales and Casing Sales, our contracts contain a single performance obligation and the entire transaction price is allocated
to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective
performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when
the customer obtains control of our product, which typically occurs upon shipment of the product or the performance of the service. In
the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued
Liabilities. We will recognize revenue when the performance obligation is met.
For
Marketplace revenue, the performance obligation is satisfied, and revenue is recognized as follows:
Auction
revenue consists of optional listing fees with variable pricing components based on customer options selected from the GunBroker website
and final value fees based on a percentage of the final selling price of the listed item. The performance obligation is to process the
transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction is processed.
Payment
processing revenue consists of fees charged to customers on a transactional basis. The performance obligation is to process the transactions
as initiated by the customer. The price is set by the GunBroker user agreement on the website based on stand-alone selling prices. Revenue
is recognized at a point in time when the transaction is processed.
Shipping
income consists of fees charged to customers for shipping of sold items listed on the GunBroker website. The performance obligation is
to ship the item sold as initiated by the customer. The price is set based on the third-party service provider selected to be used by
the customer as well as the speed and location of shipment. Revenue is recognized at a point in time when the shipping label is printed.
Banner
Advertising Campaign Revenue consists of fees charged to customers for advertisement placement and impressions generated through the
GunBroker website. The performance obligation is to generate the number of impressions specified by the customer on banner advertisements
on the GunBroker website using the placement selected by the customer. The price is set by the GunBroker user agreement on the website
based on standalone selling prices, or by advertising insertion order as negotiated by media broker. If the number of impressions promised
is not generated, the customer receives a refund and the refund is applied to the transaction price. Banner advertising campaigns generally
run for one month, and revenue is recognized at a point in time at the end of the selected month.
Product
Sales consists of fees charged for the liquidation of excess inventory for partner distributors. The performance obligation is to sell
and ship the inventory item as initiated by the customer. The price depends on whether the inventory is a fixed price item or an auction
item. For a fixed price item, the Company performs research to determine the current market rate for such an item, and the item is listed
at that price. For an auction item, the price is set by what the buyer is willing to pay. The Company acts as a principal in these transactions
due to the extent of control they have over the product prior to the sale. Due to the principal determination, gross revenue is recognized
at a point in time when the item has been shipped.
Identity
Verification consists of fees charged to customers for identity verification in order to gain access to the GunBroker website. The performance
obligation is to process the identity verification as initiated by the customer. The price is set by the GunBroker user agreement on
the website based on a stand-alone selling price. Revenue is recognized at a point in time when the identity verification is completed.
For
the years ended March 31, 2023, 2022, and 2021, the Company’s customers that comprised more than ten percent (10%) of total revenues and
accounts receivable were as follows:
SCHEDULE OF CONCENTRATION OF RISKS
| |
For the Year Ended March 31, 2023 | | |
For the Year Ended March 31, 2022 | |
|
For the Year Ended March 31, 2021 |
|
PERCENTAGES | |
Revenues | | |
Accounts Receivable | | |
Revenues | | |
Accounts Receivable | |
|
Revenues |
|
|
Accounts
Receivable
|
|
| |
| | |
| | |
| | |
| |
|
|
|
|
|
|
|
|
Customers: | |
| | | |
| | | |
| | | |
| | |
|
|
|
|
|
|
|
|
| |
| | | |
| | | |
| | | |
| | |
|
|
|
|
|
|
|
|
A | |
| 12.2 | % | |
| - | | |
| - | | |
| - | |
|
|
16.5 |
% |
|
|
23.3 |
% |
B | |
| - | | |
| - | | |
| - | | |
| 11.8 | % |
|
|
- |
|
|
|
- |
|
C | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
- |
|
|
|
11.9 |
% |
D | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
- |
|
|
|
10.6 |
% |
| |
| 12.2 | % | |
| - | | |
| - | | |
| 11.8 | % |
|
|
16.5 |
% |
|
|
45.8 |
% |
Disaggregated
Revenue Information
The
following table represent a disaggregation of revenue from customers by category. We attribute net sales to categories by product or
services types; ammunition, ammunition casings, and marketplace fees. The Company notes that revenue recognition processes are consistent
between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type
due to the customers of each product and service type.
SCHEDULE OF DISAGGREGATED REVENUE FROM CUSTOMERS BY SEGMENT
| |
| | |
| |
|
|
|
|
| |
For the Year Ended |
|
| |
March 31, 2023 | | |
March 31, 2022 | |
|
March 31, 2021 |
|
Ammunition Sales | |
$ | 114,116,044 | | |
$ | 161,459,025 | |
|
$ |
49,620,530 |
|
Marketplace Fee Revenue | |
| 63,149,673 | | |
| 64,608,516 | |
|
|
- |
|
Ammunition Casings Sales | |
| 14,174,084 | | |
| 14,201,625 | |
|
|
12,861,800 |
|
Total Sales | |
$ | 191,439,801 | | |
$ | 240,269,166 | |
|
$ |
62,482,330 |
|
Ammunition
products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also
sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated
through our Gunbroker.com online auction marketplace.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
All
sales are recorded upon shipment and, depending on credit worthiness of customer, the payment terms will vary from thirty (30) to sixty
(60) days. No refunds are allowed on any product shipped.
Each
product manufactured by the Company has standard specifications and performance objectives. The Company has an extensive product testing
program and, if the Company were given notice of a product defect by a customer, the Company would request the return of the product
so that the manufacturing defect could be identified.
Advertising
Costs
We
expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. Marketplace advertising
costs are expenses as they are incurred in cost of revenues. We incurred advertising expenses recognized in selling expenses of
$1,068,700,
$1,406,043,
and $257,866 for the years ended March 31, 2023, 2022, and 2021 respectively. We incurred marketplace advertising expenses of 286,479
and $417,017
in cost of revenues for the years ended March 31, 2023 and 2022. We did not have marketplace advertising expenses in cost of revenues for the year ended March 31, 2021.
Fair
Value of Financial Instruments
We
measure options and warrants at fair value in accordance with Accounting Standards Codification 820 – Fair Value Measurement (“ASC
820”). The objective of ASC 820 is to increase consistency and comparability in fair value measurements and to expand disclosures
about fair value measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. ASC 820 specifies a valuation hierarchy based on whether the inputs
to those valuation techniques are observable or unobservable.
Observable
inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions.
These two types of inputs have created the following fair value hierarchy:
Level
1 – Quoted prices for identical instruments in active markets;
Level
2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that
are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets;
and
Level
3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
This
hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair
value.
We
value all common stock issued for services on the date of the agreements, using the price at which shares were being sold to private
investors or at the value of the services performed.
We
valued warrants issued for services at their respective grants dates during the years ended March 31, 2023, 2022, and 2021 using valuation methods
and assumptions that consider, among other factors, the fair value of the underlying stock, risk free interest rate, volatility, and
expected life.
SCHEDULE OF FAIR VALUE MEASUREMENT INPUTS AND VALUATION TECHNIQUES
| |
March 31, 2023 | | |
March 31, 2022 | |
|
March 31,
2021 |
|
| |
| | |
| |
|
|
|
|
Risk free interest rate | |
| 3.9 | % | |
| 1.21%-1.74 | % |
|
|
0.32%-0.38 |
% |
Expected volatility | |
| 77.5 | % | |
| 89.1%-90.7 | % |
|
|
88.9%-90.4 |
% |
Expected term | |
| 2.5 years | | |
| 2.5 years | |
|
|
2.5 years |
|
Expected dividend yield | |
| 0 | % | |
| 0 | % |
|
|
0 |
% |
SCHEDULE OF STOCKHOLDERS' EQUITY NOTE, WARRANTS OR RIGHTS
| |
Quoted Active Markets for Identified Assets | | |
Significant Other Observable Inputs | | |
Significant Unobservable Inputs | | |
Total | |
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
| |
March 31, 2023 | |
| | | |
| | | |
| | | |
| | |
Warrants issued for services | |
$ | - | | |
$ | 427,639 | | |
$ | - | | |
$ | 427,639 | |
March 31, 2022 | |
| | | |
| | | |
| | | |
| | |
Warrants issued for services | |
$ | - | | |
$ | 1,090,077 | | |
$ | - | | |
$ | 1,090,077 | |
March 31, 2021 | |
| | | |
| | | |
| | | |
| | |
Warrants issued for convertible promissory notes conversion | |
$ | - | | |
$ | 1,315,494 | | |
$ | - | | |
$ | 1,315,494 | |
In
connection with our acquisition of Gemini, we used the Level 2 inputs in estimating the fair value of the transaction. Please refer to
Note 14.
Inventories
We
state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists
of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other
costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 other income or 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.
Compensated
Absences
We
accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General
(“ASC 710”).
Research
and Development
To
date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through
our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become
necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop
new technologies and lines of ammunition.
Excise
Tax
As
a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and
collect an 11%
excise tax for all products sold into these channels. During the years ended March 31, 2023, 2022, and 2021, we recognized
approximately $9.8
million, $14.6
million, and $4.3 million 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.
Stock-Based
Compensation
We account for stock-based compensation at fair value in accordance with
Accounting Standards Codification 718 – Compensation – Stock Compensation (“ASC 718”). Which requires the measurement
and recognition of compensation expense for all share-based payment awards to employees and directors. We measure stock compensation based
on reference to the closing fair market value of our Common Stock on the date of grant. Stock-based compensation is recognized on a straight
line basis over the vesting periods and forfeitures are recognized in the periods they occur.
Concentrations
of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of March 31, 2023, our bank
account balances exceeded federally insured limits, however, we have not incurred losses related to these deposits.
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.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Certain
conditions may exist as of the date the consolidated financial statements are issued that may result in a loss to us but will only be
resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted
claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived
merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our
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 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 up of 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 parties participated in a successful mediation at the
end of June 2022 and all matters relating to this former employee/claimant were confidentially resolved with the lawsuit dismissed
with prejudice. The settlement was covered by our Employment Practices Liability Policy and did not amount to a material
amount.
On February 10,
2022, AMMO filed a Texas state court complaint against Expansion Industries pursing eight (8) claims in pursuit of recovery of
AMMO’s in primer acquisition deposit monies (i.e., Breach of Contract, Common Law Fraud, Violations of Texas Theft Liability
Act, Conversion, Negligent Misrepresentation, Unjust Enrichment, Money Had and Received and Constructive Trust). AMMO has since
moved aggressively to further the process, including successfully garnishing a portion of the deposit monies in Expansion bank
accounts, filing a Motion for Summary Judgement, continuing to pursue written discovery, and amending the Complaint to add Expansion
principal as an individual party. The putative primer manufacturer settled the two related lawsuits in September 2022 by repaying
all deposit monies due AMMO, in addition to payment of principally all fees and costs incurred by the Company in pursuit of the
resolution. The principal lawsuit and AMMO’s garnishment action adverse the defendant were dismissed with prejudice.
Along
with countless other suppliers of Remington Outdoors, AMMO was served with an avoidance claim lawsuit by the bankruptcy trustee.
AMMO presented substantial “ordinary course” defense evidence to the Trustee and the case was settled for a nominal sum
in September 2022, with the lawsuit dismissed with prejudice.
AMMO is defending two contract arbitration cases adverse former
employees that are presently in discovery, one involving an employee terminated for cause and the second action involving a
termination without cause wherein the former employee is seeking contract wages, commissions and allegedly earned common stock.
Discovery is ongoing at this time in the employment arbitration matters. While discovery continues, the Company received a favorable
ruling on a partial motion for summary judgment in the “for cause” arbitration case wherein the arbitrator ruled the
employee had stolen funds and thus granted the Company’s dispositive motion.
The
Company also received notice in October 2022 that an OSHA whistleblower complaint had been filed with the US Department of Labor by
an employee that had been terminated for cause. The regulatory filing was received after AMMO refused to capitulate to the former
employee’s demands. AMMO has produced documents and submitted its position statement to OSHA and the matters is currently
pending at the agency level.
On April 30, 2023, Director and shareholder Steve Urvan filed suit in the Delaware Chancery Court
against the Company, certain Directors, former directors, employees, former employees and consultants, seeking rescission of the
Company’s acquisition of GunBroker.com and certain affiliated companies. Plaintiff Urvan’s claims include rescission,
misrepresentation and fraud. The Company is currently in communications with its insurance carriers as concerns coverage (defense
and indemnification), has engaged counsel and formal/legal service of process is being coordinated at this time. The Company and
named defendants are in alignment in all respects, reasonably believe at this date that the claims are without merit and the Company
has engaged Delaware Chancery Court litigation specialists to defend its interests in all respects in this case. There were no other
known contingencies at March 31, 2023 and 2022.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recent
Accounting Pronouncements
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which replaces the current
incurred loss impairment methodology for most financial assets with the current expected credit loss (“CECL”) methodology.
The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses
rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The guidance
should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The guidance is effective
for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.
We anticipate that this ASC will not have a material effect on the Company’s financial statements.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement
of Equity Securities Subject to Contractual Sale Restrictions” which clarifies that a contractual restriction on the sale of an
equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair
value. The guidance also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction
and requires specific disclosures for equity securities subject to contractual sale restrictions. These changes will become effective
for the Company on April 1, 2024, with early adoption permitted. We are currently evaluating the potential impact of these changes.
Management
does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
NOTE
3 – INCOME/(LOSS) PER COMMON SHARE
We
calculate basic income/(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. We use
the treasury stock method, in the determination of dilutive shares outstanding during each reporting period. We have issued warrants
to purchase 2,460,946
shares of common stock. Due to the loss from operations in the year ended March 31, 2023, there are no common shares added to
calculate the dilutive loss per share for that period as the effect would be antidilutive. The Company excluded warrants of 2,406,946
for the year ended March 31, 2023 and warrants of 150,000
and equity incentive awards of 20,000
for the year ended March 31, 2022, from the weighted average diluted common shares outstanding because their inclusion would have
been antidilutive.
SCHEDULE OF INCOME/(LOSS) PER COMMON SHARE
| |
2023 | | |
|
2022 |
|
|
2021 | |
| |
For the Year Ended March 31, | |
| |
2023 | | |
2022 |
|
|
2021 | |
| |
| | |
|
|
|
|
| |
Numerator: | |
| | | |
|
|
|
|
| | |
Net income/(loss) | |
$ | (4,596,038 | ) | |
$ |
33,247,436 |
|
|
$ | (7,182,294 | ) |
Less: Preferred stock dividends | |
| (3,105,034 | ) | |
|
(2,668,648 |
) |
|
| - | |
Net income/(loss) attributable to common stockholders | |
$ | (7,701,072 | ) | |
$ |
30,578,788 |
|
|
$ | (7,182,294 | ) |
| |
| | | |
|
|
|
|
| | |
Denominator: | |
| | | |
|
|
|
|
| | |
Weighted averaged shares of common stock - basic | |
| 117,177,885 | | |
|
112,328,680 |
|
|
| 55,041,502 | |
Effect of dilutive common stock purchase warrants | |
| - | | |
|
1,861,040 |
|
|
| - | |
Effect of dilutive equity incentive awards | |
| - | | |
|
- |
|
|
| - | |
Weighted average shares
of common stock - Diluted | |
| 117,177,885 | | |
|
114,189,720 |
|
|
| 55,041,502 | |
| |
| | | |
|
|
|
|
| | |
Basic earnings per share: | |
| | | |
|
|
|
|
| | |
Income/(loss) per share attributable to common stockholders - basic | |
$ | (0.07 | ) | |
$ |
0.27 |
|
|
$ | (0.14 | ) |
| |
| | | |
|
|
|
|
| | |
Diluted earnings per share: | |
| | | |
|
|
|
|
| | |
Income/(loss) per share attributable to common stockholders - diluted | |
$ | (0.07 | ) | |
$ |
0.27 |
|
|
$ | (0.14 | ) |
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – ACCOUNTS RECEIVABLE
Our
net accounts receivable are summarized as follows:
SCHEDULE OF ACCOUNTS RECEIVABLE
| |
| | | |
| | |
| |
March 31, 2023 | | |
March 31, 2022 | |
Accounts receivable | |
$ | 32,592,931 | | |
$ | 47,010,336 | |
Less: allowance for doubtful accounts | |
| (3,246,551 | ) | |
| (3,055,252 | ) |
Accounts receivable,
net | |
$ | 29,346,380 | | |
$ | 43,955,084 | |
The
following presents a reconciliation of our allowance for doubtful accounts for the periods presented:
March 31, 2021 | |
$ | 148,540 | |
Increase in allowance | |
| 2,903,304 | |
Write-off of uncollectible amounts | |
| (12,703 | ) |
Purchase accounting | |
| 16,111 | |
March 31, 2022 | |
| 3,055,252 | |
Increase in allowance | |
| 2,160,323 | |
Write-off of uncollectible amounts | |
| (1,969,024 | ) |
March 31, 2023 | |
$ | 3,246,551 | |
NOTE
5 – INVENTORIES
At
March 31, 2023 and March 31, 2022, the inventory balances are composed of:
SCHEDULE OF INVENTORIES
| |
March 31, 2023 | | |
March 31, 2022 | |
Finished product | |
$ | 14,362,514 | | |
$ | 6,167,318 | |
Raw materials | |
| 23,898,596 | | |
| 33,924,813 | |
Work in process | |
| 16,083,709 | | |
| 18,924,021 | |
| |
| | | |
| | |
Inventory net | |
$ | 54,344,819 | | |
$ | 59,016,152 | |
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
Property
and equipment consisted of the following at March 31, 2023 and March 31, 2022:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
March 31, 2023 | | |
March 31, 2022 | |
Leasehold Improvements | |
$ | 257,009 | | |
$ | 257,009 | |
Building and Improvements | |
| 28,623,329 | | |
| - | |
Furniture and Fixtures | |
| 384,650 | | |
| 343,014 | |
Vehicles | |
| 153,254 | | |
| 153,254 | |
Equipment | |
| 40,233,186 | | |
| 32,524,850 | |
Tooling | |
| 143,710 | | |
| 143,710 | |
Construction in Progress | |
| 734,781 | | |
| 14,335,371 | |
Total property and equipment | |
$ | 70,529,919 | | |
$ | 47,757,208 | |
Less accumulated depreciation | |
| (14,566,664 | ) | |
| (10,119,402 | ) |
Net property and equipment | |
| 55,963,225 | | |
| 37,637,806 | |
Depreciation
Expense for the years ended March 31, 2023, 2022, and 2021 totaled $4,452,908,
$4,266,126, and $2,904,968,
respectively. Of these totals $3,747,723, $3,101,929, and $2,674,161
were included in cost of goods sold for the years ending March 31, 2023, 2022, and 2021. Additionally, $705,185, $1,164,197, and $230,797
were included in depreciation and amortization expenses in operating expenses.
NOTE
7 – 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 a 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. We did not have an outstanding balance on our Factoring liability as of March 31, 2023. As of March 31, 2022, the outstanding balance
of the Factoring Liability was $485,671. Interest
expense recognized on the Factoring Liability for the year ended March 31, 2023 was $153,646,
including $37,500 of
amortization of the commitment fee, for the year ended March 31, 2022, $327,746,
including $100,000 of
amortization of the commitment fee, for the year ended March 31, 2021,
$305,747, including $50,000 of amortization of the commitment fee.
On
June 17, 2021, this agreement was amended which extended the maturity date to June 17, 2024.
NOTE
8 – 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 March 31, 2022, the outstanding balance of the Inventory Credit Facility was $825,675
and no outstanding balance remained as of March
31, 2023. Interest expense recognized on the Inventory Credit Facility for the year ended March 31, 2023 was $6,580,
for the year ended March 31, 2022 was $40,940,
including $8,561
of
amortization of the annual fee, and for the year ended March 31,
2021 was $171,414, including $36,439 of amortization of the annual fee.
NOTE
9 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale, AZ, Atlanta and Marietta, GA, and Manitowoc, WI under contracts we classify
as operating leases. None of our leases are financing leases. The Scottsdale lease does not include a renewal option. In August of 2021
we extended the lease of our Atlanta offices through May of 2027, accordingly we increased our Right of Use Assets and Operating Lease
Liabilities by $501,125 at September 30, 2021. In January of 2022, we extended the lease of our second Manitowoc, WI location and increased
our Right of Use Assets and Operating Lease Liabilities by $308,326. We terminated our lease agreement in our first Manitowoc, WI location
during the year ended March 31, 2023. Accordingly, we decreased our Right of Use Assets and Operating Lease Liabilities by $901,076.
As
of March 31, 2023 and March 31, 2022, total Right of Use Assets were $1,261,634 and $2,791,850, respectively. As of March 31, 2023 and
March 31, 2022, total Operating Lease Liabilities were $1,374,224 and $2,922,780, respectively. The current portion of our Operating
Lease Liability on March 31, 2023 and March 31, 2022 is $470,734 and $831,429, respectively, and is reported as a current liability. The
remaining $903,490 of the total $1,374,224 for the year ended March 31, 2023 and the $2,091,351 of the total $2,922,780 for the year
ended March 31, 2022 of the Operating Lease Liability is presented as a long-term liability net of the current portion.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated
lease expense for the year ended March 31, 2023 was $881,171 including $861,777 of operating lease expense and $19,394 of other lease
associated expenses such as association dues, taxes, utilities, and other month to month rentals. Consolidated lease expense for the
year ended March 31, 2022 was $1,221,473 including $1,177,589 of operating lease expense and $43,884 of other lease associated expenses
such as association dues, taxes, utilities, and other month to month rentals. Consolidated lease expense for the year ended March 31, 2021 was $844,441 including $742,433 of operating lease expense
and $102,008 of 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 3.3 years and 10.0%, respectively
at March 31, 2023 and were 3.5 years and 10.0%, respectively at March 31, 2022.
Future
minimum lease payments under non-cancellable leases as of March 31, 2023 are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES
Years Ended March 31, | |
| |
2024 | |
$ | 583,768 | |
2025 | |
| 387,214 | |
2026 | |
| 351,962 | |
2027 | |
| 257,508 | |
2028 | |
| 43,660 | |
Thereafter | |
| - | |
Total
Lease Payments | |
| 1,624,112 | |
Less: Amount Representing Interest | |
| (249,888 | ) |
Present value of lease
liabilities | |
$ | 1,374,224 | |
NOTE
10 – NOTES PAYABLE – RELATED PARTY
In
connection with the acquisition of the casing division of Jagemann Stamping Company (“JSC”), a $10,400,000 promissory note
was executed on March 14, 2020. 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. The note is secured by all the equipment purchased from JSC. JSC owned at least five percent (5%)
of our shares outstanding from March 2019 through March 16, 2021.
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 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.
As
a result of the Settlement Agreement, the Company agreed to forego $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 year ended March 31, 2021.
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. The total interest expense recognized on Note A was $216,160
for the year ended March 31, 2021. The total interest expense recognized on the original Note B was $62,876
for the year ended March 31, 2021.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s balance of Amended Note B was $180,850 at March 31, 2023 and $865,771 at March 31, 2022. The Company recognized $48,665,
$110,518, and $60,100 in interest expense on Amended Note B for the years ended March 31, 2023, 2022, and 2021, respectively.
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 was amended and 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
nine months ended December, 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 year ended March 31, 2021.
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 amended maturity date is September 18, 2020. The Company made $25,000 in principal
payments during the year ended March 31, 2021 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 year ended March 31, 2021.
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 $3.5 million, 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.
On
December 14, 2020, the Company entered into a Debt Conversion Agreement with the Lender Pursuant to the Agreement, the Company and Forest
Street agreed to convert $2,100,000 of the Note’s principal into 1,000,000 shares of the Company’s common stock. The share
issuance occurred on December 15, 2020. As a result of the Debt Conversion Agreement the remaining balance of the Forest Street Note
was $1,400,000. On January 14, 2021, the Company paid the remaining $1,400,000 in principal and accrued interest of the Forest Street
Note. The Company recognized $137,666 in interest expense related to the Forest Street Note for the year ended March 31, 2021.
On
January 22, 2021, the Company repurchased 1,000,000 shares of the Company’s common stock issued to JSC at a price of $1.50 per
share pursuant to the Amended APA.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – CONSTRUCTION NOTE PAYABLE
On
October 14, 2021, we entered into a Construction Loan Agreement (the “Loan Agreement”) with Hiawatha National Bank (“Hiawatha”).
The Loan Agreement specifies that Hiawatha may lend up to $11,625,000 to the Borrower to pay a portion of the construction costs of an
approximately 160,000 square foot manufacturing facility to be constructed on our property (the “Loan”). The first advance
of Loan funds by Hiawatha was made on October 14, 2021 in the amount of $329,843. We received advances of Loan funds
approximately every month as our “owner’s equity” was fully funded into the ongoing new plant construction project.
The Loan is an advancing term loan and not a revolving loan so any portion of the principal repaid cannot be reborrowed.
Additionally,
on October 14, 2021, we issued a Promissory Note in favor of Hiawatha (the “Note”) in the amount of up to $11,625,000
with an interest rate of four and one-half percent (4.5%).
The maturity date of the Note is October
14, 2026. Under the terms of the Loan Agreement, we are required to make monthly payments of $64,620 which consists of principial
and interest until the maturity date, at which time the remaining principial balance of the Loan would become due.
We
can prepay the Note in whole or in part starting in July 2022 with a prepayment premium of one percent (1%) of the principal being prepaid.
The
Loan Agreement contains customary events of default including, but not limited to, a failure to make any payments pursuant to the Loan
Agreement or Note, a failure to complete construction of the project, a lien of $100,000 or more against the property, or a transfer
of the property without Hiawatha’s consent. Upon the occurrence of an event of default, among other remedies, the amounts due pursuant
to the Loan can be accelerated, Hiawatha can foreclose on the property pursuant to the mortgage, and a late charge of five percent (5%)
of the amount due will be owed with all amounts then owed pursuant to the Note bearing interest at an increased rate.
For
the year ended March 31, 2023 approximately $11.2 million of Loan funds were advanced including $1.0 million of cash collateral or restricted
cash as security for the Loan. We made $150,743 in principal payments for the year ended March 31, 2023. The restricted cash can be released
per the terms documented in the Loan Agreement filed with the Commission on Form 10-Q on February 14, 2022. During the year ended March
31, 2023, $500,000 of restricted cash was released to the Company.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – CAPITAL STOCK
Our
authorized capital consists of 200,000,000 shares of common stock with a par value of $0.001 per share.
During the year ended March 31, 2021,
we issued 47,895,828 shares of common stock as follows:
|
● |
34,512,143 shares were
sold to investors for $138,564,619 |
|
● |
3,145,481 shares were issued
for the conversion of convertible promissory notes for $4,831,206 |
|
● |
6,521,563 shares were issued
to investors for exercised warrants valued for $13,952,336 |
|
● |
732,974 shares were issued
for cashless exercise of 1,300,069 warrants |
|
● |
1,000,000 shares were issued
pursuant to a debt conversion agreement for $2,100,000 |
|
● |
943,336 shares were issued
for services provided to the Company valued at $1,707,500 |
|
● |
1,016,331 shares valued
at $1,450,359 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation |
|
● |
24,000 shares were issued
to investors for $48,000 in liquidation damage fees |
|
● |
1,000,000 shares were repurchased from JSC for a total value of $1,500,000
and subsequently cancelled |
During
the year ended March 31, 2022, we issued 23,385,780 shares of common stock as follows:
|
● |
20,000,000
shares were issued in connection with our merger of Gemini Direct Investments, LLC valued at $142,691,282 |
|
● |
431,080
shares were issued to investors for exercised warrants valued for $943,907 |
|
● |
374,584
shares were issued for cashless exercise of 443,110 warrants |
|
● |
772,450
shares valued at $1,631,701 were issued for services and equipment provided to the Company |
|
● |
1,807,666
shares valued at $5,759,000 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as
compensation |
During
the year ended March 31, 2023, we issued 2,077,059 shares of common stock as follows:
|
● |
200,003
shares were issued to investors for exercised warrants valued for $101,506 |
|
● |
99,762
shares were issued for cashless exercise of 100,000 warrants |
|
● |
1,777,294
shares valued at $5,807,779 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as
compensation |
At
March 31, 2023, 2022, and 2021 outstanding and exercisable stock purchase warrants consisted of the following:
SCHEDULE
OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
| |
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 | |
| 2,925,204 | | |
| 2.31 | | |
| 2.47 | |
Exercised | |
| (7,821,631 | ) | |
| 2.08 | | |
| - | |
Forfeited or cancelled | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2021 | |
| 3,607,945 | | |
$ | 2.31 | | |
| 3.24 | |
Exercisable at March 31, 2021 | |
| 3,179,730 | | |
$ | 2.27 | | |
| 3.05 | |
SCHEDULE
OF OUTSTANDING AND EXERCISABLE STOCK PURCHASE WARRANTS
| |
Number of Shares | | |
Weighted Averaged Exercise Price | | |
Weighted Average Life Remaining (Years) | |
Outstanding at March 31, 2021 | |
| 3,607,945 | | |
$ | 2.31 | | |
| 3.24 | |
Granted | |
| 200,000 | | |
| 0.01 | | |
| 3.92 | |
Exercised | |
| (874,190 | ) | |
| 1.76 | | |
| - | |
Forfeited or cancelled | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2022 | |
| 2,933,755 | | |
$ | 2.32 | | |
| 2.29 | |
Exercisable at March 31, 2022 | |
| 2,933,755 | | |
$ | 2.32 | | |
| 2.29 | |
| |
Number of Shares | | |
Weighted Averaged Exercise Price | | |
Weighted Average Life Remaining (Years) | |
Outstanding at March 31, 2022 | |
| 2,933,755 | | |
$ | 2.32 | | |
| 2.29 | |
Granted | |
| 150,000 | | |
| 0.01 | | |
| 4.5 | |
Exercised | |
| (300,003 | ) | |
| 0.34 | | |
| - | |
Forfeited or cancelled | |
| (322,806 | ) | |
| 2.00 | | |
| - | |
Outstanding at March 31, 2023 | |
| 2,460,946 | | |
$ | 2.46 | | |
| 1.59 | |
Exercisable at March 31, 2023 | |
| 2,460,946 | | |
$ | 2.46 | | |
| 1.59 | |
As
of March 31, 2023, we had 2,460,946 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 911 shares of Common Stock
at an exercise price of $1.65 per share until April 2025; (2) warrants to purchase 1,448,758 shares of our Common Stock at an exercise
price of $2.00 per share consisting of 16% of the warrants until August 2024, and 84% until February 2026; (3) warrants to purchase 474,966
shares of Common Stock at an exercise price of $2.40 until September 2024; (4) warrants to purchase 386,311 shares of Common Stock at
an exercise price of $2.63 until November 2025, and (5) warrants to purchase 150,000 shares of Common Stock at an exercise price of $6.72
until February 2024.
NOTE
13 – PREFERRED STOCK
On
May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State
of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications,
terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The
Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”), as to dividend rights and rights as
to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, ranks: (1) senior to all classes or series
of Common Stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Series A Preferred
Stock; (2) on parity with any future class or series of the Company’s capital stock expressly designated as ranking on parity with
the Series A Preferred Stock; (3) junior to any future class or series of the Company’s capital stock expressly designated as ranking
senior to the Series A Preferred Stock; and (4) junior to all the Company’s existing and future indebtedness.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Series A Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. In the event of the voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares for the Series A Preferred
Stock are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders (i.e.,
after satisfaction of all the Company’s liabilities to creditors, if any) an amount equal to $25.00 per share of the Series A Preferred
Stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment before any distribution or payment may be
made to holders of shares of Common Stock or any other class of or series of the Corporation’s capital stock ranking, as to rights
to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up, junior to the Series A Preferred
Stock.
The
Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly
authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series
A Preferred Stock will accrue on the stated amount of $25.00 per share of the Series A Preferred Stock at a rate per annum equal to 8.75%
(equivalent to $2.1875 per year), payable quarterly in arrears. Dividends on the Series A Preferred Stock declared by our board of directors
(or a duly authorized committee of our board of directors) will be payable quarterly in arrears on March 15, June 15, September 15 and
December 15.
Generally,
the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event
(each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for
a limited period of time.
On
May 19, 2021, we entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., as representative
of several underwriters (collectively, the “Underwriters”), relating to a firm commitment public offering of 1,097,200 newly
issued shares of our 8.75% Series A Preferred Stock at a public offering price of $25.00 per share. Under the terms of the Underwriting
Agreement, we granted the Underwriters a 45-day option to purchase up to an additional 164,580 shares of Series A Preferred Stock from
us. The gross proceeds to us from the sale of 1,097,200 shares of Series A Preferred Stock, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us, was $27,430,000. The closing of the offering took place on May 21, 2021.
On
May 25, 2021, we entered into an additional underwriting agreement with Alexander Capital, L.P. relating to a firm commitment public
offering of 138,220 newly issued shares of our Series A Preferred Stock at a public offering price of $25.00 per share. The closing of
the offering took place on May 27, 2021. The gross proceeds to us from the sale of 138,220 shares of Series A Preferred Stock, before
deducting underwriting discounts and commissions and estimated offering expenses payable by us, were $3,455,500. Additionally, the Underwriters
exercised its previously announced over-allotment option to purchase 164,580 shares of Series A Preferred Stock pursuant to that certain
Underwriting Agreement dated May 19, 2021, by and between us and Alexander Capital, L.P., as representative of the several underwriters
identified therein. We closed the exercise of the over-allotment option on May 27, 2021. The gross proceeds from the exercise of the
over-allotment option were $4,114,500, before deducting underwriting discounts and commissions.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred
dividends accumulated as of March 31, 2022 were $144,562. On August 27, 2021 the Board of Directors of the Company declared a dividend
on the Company’s Series A Preferred Stock for the period beginning May 21, 2021 (the first issuance date of the Series A Preferred
Stock) through and including June 30, 2021 payable on September 15, 2021 to holders of record of Series A Preferred Stock on August 31,
2021 equal to $0.241246528 per share. Dividends totaling $337,745 were paid on September 15, 2021. On November 17, 2021, the Board of
Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning July 1, 2021 through
and including December 14, 2021 payable on December 15, 2021 to holders of record of Series A Preferred Stock on November 30, 2021 equal
to $1.01475694444444 per share. Dividends totaling $1,420,660 were paid on December 15, 2021. On February 18, 2022, the Board of Directors
of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning December 15, 2021 through
and including March 14, 2022 payable on March 15, 2022 to holders of record of Series A Preferred Stock on February 28, 2022 equal to
$0.546875 per share. Dividends totaling $765,642 were paid on March 15, 2022.
Preferred
dividends accumulated as of March 31, 2023 were $144,618. On February 17, 2023, the Board of Directors of the Company declared a dividend
on the Company’s Series A Preferred Stock for the period beginning December 15, 2022 through and including March 14, 2023 payable
on March 15, 2023 to holders of record of Series A Preferred Stock on February 28, 2023 equal to $0.546875 per share. Dividends totaling $765,625 were
paid on March 15, 2023. On November 18,
2022, the Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning
September 15, 2022 through and including December 14, 2022 payable on December 15, 2022 to holders of record of Series A Preferred Stock
on November 30, 2022 equal to $0.5529514 per share. Dividends totaling $774,132 were paid on December 15, 2022. On August 17, 2022, the
Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning June 15,
2022 through and including September 14, 2022 payable on September 15, 2022 to holders of record of Series A Preferred Stock on August
31, 2022 equal to $0.55902778 per share. Dividends totaling $782,639 were paid on September 15, 2022. On May 12, 2022, the Board of
Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning March 15, 2022
through and including June 14, 2022 payable on June 15, 2022 to holders of record of Series A Preferred Stock on May 31, 2022 equal to
$0.559027777777778 per share. Dividends totaling $782,639 were paid on June 15, 2022.
NOTE
14 – ACQUISITIONS
Gemini
Direct Investments, LLC
On
April 30, 2021 (the “Effective Date”) we entered into an agreement and plan of merger (the “Merger Agreement”),
by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company
(“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan,
an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary
of the Company (the “Merger”). At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s
ownership of the Gunbroker.com business. Gunbroker.com is an on-line auction marketplace dedicated to firearms, hunting, shooting, and
related products. The Merger was completed on the Effective Date.
In
consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i)
the Company assumed and repaid an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $50,000,000 (the “Assumed
Indebtedness”); and, (ii) the issued and outstanding membership interests in Gemini (the “Membership Interests”), held
by the Seller, automatically converted into the right to receive (A) $50,000,000 (the “Cash Consideration”), and (B) 20,000,000
shares of common stock of the Company, $0.001 par value per share (the “Stock Consideration”).
In
connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) 14,500,000 shares
issued without being held in escrow or requiring prior stockholder approval; (b) 4,000,000 shares issued subject to the Pledge and Escrow
Agreement; and (c) 1,500,000 shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the
“Additional Securities”).
The
total estimated consideration consisted of cash payment of $50,000,000 less $1,350,046 of acquired cash, a working capital adjustment
of $2,000,000, debt assumption and repayment upon closing of $50,000,000, contingent consideration of $10,755,000 for 1,500,000 Additional
Securities, and 18,500,000 shares of AMMO Inc. Common Stock. The shares were valued at $7.17 per share, the five-day average closing
price of the Company’s Common Stock immediately preceding the signing of the binding agreement.
Pursuant
to the Merger Agreement, the Company completed a Post-Closing Adjustment following the close of the Merger equal to the Closing Working
Capital minus the Estimated Working Capital at closing of the Merger. Accordingly, the Company received a cash payment of $129,114 and
adjusted the $2,000,000 Estimated Working Capital Adjustment in the fair value of the consideration transferred to $1,870,886.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
accordance with the acquisition method of accounting for business combinations, the assets acquired, and the liabilities assumed have
been recorded at their respective fair values. The consideration in excess of the fair values of assets acquired, and liabilities assumed
are recorded as goodwill, which we expect to be deductible for tax purposes. The goodwill consists largely of the growth and profitability
expected from this Merger.
The
fair value of the consideration transferred was valued as follows:
SCHEDULE
OF FAIR VALUE OF CONSIDERATION TRANSFERRED
| |
| | |
Cash | |
$ | 48,649,954 | |
Working capital adjustment | |
| 1,870,886 | |
Contingent consideration | |
| 10,755,000 | |
Common stock | |
| 132,645,000 | |
Assumed debt | |
| 50,000,000 | |
| |
| | |
Fair
value of consideration transferred | |
$ | 243,920,840 | |
The
allocation for the consideration recorded for the acquisition is as follows:
SCHEDULE
OF ALLOCATION FOR CONSIDERATION
| |
| | |
Accounts receivable, net | |
$ | 17,002,362 | |
Prepaid expenses | |
| 478,963 | |
Equipment | |
| 1,051,980 | |
Deposits | |
| 703,389 | |
Other Intangible assets(1) | |
| 146,617,380 | |
Goodwill(1) | |
| 90,870,094 | |
Right of use assets - operating leases | |
| 612,727 | |
Accounts payable | |
| (12,514,919 | ) |
Accrued expenses | |
| (196,780 | ) |
Operating lease liability | |
| (704,356 | ) |
| |
| | |
Total Consideration | |
$ | 243,920,840 | |
(1)
|
Other
intangible assets consist of Tradenames, Customer Relationships, Intellectual Property, and other tangible assets related to the
acquired business. |
We
recorded approximately $1.3 million in transaction costs in the year ended March 31, 2022 related to the above acquisition.
Unaudited
Pro Forma Results of Operations
These
pro forma results of operations give effect to the acquisition as if it had occurred on April 1, 2021. Material pro forma adjustments
include the removal of approximately $1.8 million of interest expenses and debt discount amortization and the addition of approximately
$0.9 million of depreciation and amortization expenses.
SCHEDULE
OF UNAUDITED PRO FORMA RESULTS OF OPERATIONS
INCOME STATEMENT DATA | |
For the Year Ended March 31, 2022 | |
| |
| |
Net revenues | |
$ | 248,314,587 | |
Net income | |
$ | 37,793,924 | |
The
unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative
of the results of operations and financial position that would have been achieved had the acquisition been completed and taken place
on the dates indicated or the future consolidated results of operations or financial position of the Company.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 – ACCRUED LIABILITIES
At
March 31, 2023 and March 31, 2022, accrued liabilities were as follows:
SCHEDULE OF ACCRUED LIABILITIES
| |
March 31, 2023 | | |
March 31, 2022 | |
Accrued FAET | |
$ | 1,808,065 | | |
$ | 2,408,318 | |
Accrued professional fees | |
| 736,323 | | |
| 66,000 | |
Income taxes payable | |
| 403,739 | | |
| 1,749,488 | |
Accrued sales commissions | |
| 252,366 | | |
| 932,712 | |
Unearned revenue | |
| 101,593 | | |
| 201,891 | |
Accrued interest | |
| 2,681 | | |
| 4,762 | |
Accrued payroll | |
| 430,344 | | |
| 458,027 | |
Other accruals | |
| 618,243 | | |
| 357,616 | |
Accrued liabilities | |
$ | 4,353,354 | | |
$ | 6,178,814 | |
NOTE
16– RELATED PARTY TRANSACTIONS
On
November 3, 2022, AMMO, Inc. (the “Company”) entered into a Settlement Agreement (the “Settlement Agreement”)
with Steven F. Urvan and Susan T. Lokey (collectively with each of their respective affiliates and associates, the “Urvan Group”).
Pursuant
to the Settlement Agreement, the Urvan Group has agreed to withdraw its notice of stockholder nomination of its seven director candidates
(the “Urvan Candidates”) and its demand to inspect books and records, pursuant to Section 220 of the General Corporation
Law of the State of Delaware, and the Company agreed to immediately increase the size of the Board from seven to nine directors and appoint
Christos Tsentas and Wayne Walker (each, a “New Director” and the New Directors together with Mr. Urvan, the “Urvan
Group Directors”) to the Board to serve as directors with terms expiring at the 2022 annual meeting of stockholders (the “2022
Annual Meeting”). The Company will include the Urvan Group Directors in its director candidates slate for the 2022 Annual Meeting
and any subsequent annual meeting of stockholders of the Company occurring prior to the Termination Date (as defined below). The Company
has agreed to not increase the size of the Board above nine directors prior to the Termination Date unless the increase is approved by
at least seven directors. Mr. Wagenhals will continue to serve as a director and Chairman of the Board.
Unless
otherwise mutually agreed to in writing by each party, the Settlement Agreement will remain in effect until the date that is the earlier
of (i) 30 days prior to the earlier of (A) the deadline set forth in the notice requirements of Federal “Universal Proxy Rules”
promulgated under Rule 14a-19(a) and Rule 14a-19(b) under the Securities Exchange Act of 1934, as amended (the “UPR Deadline”)
relating to the Company’s 2023 annual meeting of stockholders (the “2023 Annual Meeting”) and (B) any deadline that
may be set forth in the Company’s Amended and Restated Certificate of Incorporation (as amended from time to time, the “Certificate”)
or Bylaws (the “Bylaws”) following the execution of the Settlement Agreement relating to the nomination of director candidates
for election to the Board at the 2023 Annual Meeting, and (ii) 90 days prior to the first anniversary of the 2022 Annual Meeting (such
date, the “Termination Date”). However, if the Company notifies Mr. Urvan in writing at least 15 days prior to such Termination
Date that the Board irrevocably offers to re-nominate the Urvan Group Directors for election at the 2023 Annual Meeting and Mr. Urvan
accepts such offer within 15 days of receipt of such notice, the Termination Date will be automatically extended until the earlier of
(i) 30 days prior to the earlier of (A) the UPR Deadline relating to the Company’s 2024 annual meeting of stockholders (the “2024
Annual Meeting”) and (B) any deadline that may be set forth in the Certificate or the Bylaws following execution of the Settlement
Agreement relating to the nomination of director candidates for election to the Board at the 2024 Annual Meeting, and (ii) 90 days prior
to the first anniversary of the 2023 Annual Meeting. Notwithstanding the foregoing, the “Termination Date” shall not occur
prior to 20 days after Mr. Urvan’s departure from the Board.
Pursuant
to the Settlement Agreement, the Company will suspend the previously announced separation of Company into Action Outdoor Sports, Inc.
and Outdoor Online, Inc., pending the further evaluation of strategic options by the Board. The Company paid approximately $500,000 of
the Urvan Group’s costs, fees and expenses per the terms of the Settlement Agreement. Additionally, the Company issued 125,000
shares of Common Stock for a total value of $437,500 to an employee and issued 110,000 shares of Common Stock for a total value of $385,000
to an independent contractor as a result of termination without cause per the terms of the Settlement Agreement.
The
foregoing summary of the Settlement Agreement does not purport to be complete and is subject to, and qualified in its entirety, by reference
to the full text of the Settlement Agreement, a copy of which was previously filed as Exhibit 10.1 in the Form 8-K filed with the SEC
on November 7, 2022, and incorporated herein by reference.
During
the year ended March 31, 2023, we paid $551,916
in service fees to two independent contractors
of which $223,333
were created as a result of termination without
cause as a result of our Proxy Settlement Agreement. The two independent contractors 141,419
shares of our common stock for a total value
of $494,967
in addition to the issuances described in the
foregoing paragraphs. We issued 45,000
shares in the aggregate to its advisory committee
members for service for a total value of $129,750.
Through our acquisition of Gemini, a related party relationship was created through one of our Members of the Board of Directors by ownership
of entities that transacts with Gemini. We recognized $215,300
in Marketplace Revenue for the year ended March
31, 2022 that was attributable to that relationship. There was $182,344 included in our Accounts Receivable at March 31, 2023 as a result of this relationship.
During
the year ended March 31, 2022, we paid $229,083
in service fees to an independent contractor and 60,000
shares in the aggregate to its advisory committee members for service for a total value of $173,000.
Through our acquisition of Gemini, a related party relationship was created through one of our Members of the Board of Directors by
ownership of an entity that transacts with Gemini. We recognized $1,042,277
in Marketplace Revenue for the year ended March 31, 2022 that was attributable to that relationship. There was $139,164 included in our Accounts Receivable at March 31, 2022 as a result of this relationship.
In
connection with the acquisition of the casing division of JSC, a promissory note was executed. On April 30, 2019, the note was subsequently
extended to April 1, 2020. The note bears interest per annum at approximately 4.6% payable in arrears monthly. On June 26, 2020, the
Company extended the promissory note until August 15, 2021. As of March 31, 2021, we accrued interest of $352,157 related to the note.
The was paid in full on November 5, 2020. JSC owned at least five percent (5%) of our shares outstanding from March 2019 through March
16, 2021.
In
October of 2019, 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.
Through
the Administrative and Management Services Agreement the Company with JSC, the Company purchased approximately incurred $2.0
million in inventory support services, and $170,355
of rent expenses for the year ended March 31, 2023. Through the Administrative and Management Services Agreement the Company with
JSC, the Company purchased approximately incurred $1.7
million in inventory support services, and $408,852
of rent expenses for the year ended March 31, 2022. For the year ended March 31, 2021, the Company purchased approximately $3.4 million in inventory support services,
and incurred $405,171 of rent expenses for the year ended March 31, 2021.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
June 26, 2020, the Company and 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, 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.
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. The total interest expense recognized
on Note A $216,160 for the year ended March 31, 2021. The total interest expense recognized on the original Note B was $62,876 for the
year ended March 31, 2021.
The
Company’s balance of Amended Note B was $180,850 and $865,771 at March 31, 2023 and 2022, respectively. The Company recognized
$48,665, $110,518, and $60,100 in interest expense on Amended Note B for the years ended March 31, 2023, 2022, and 2021, respectively.
On
January 22, 2021, the Company repurchased 1,000,000 shares of the Company’s common stock issued to JSC at a price of $1.50 per
share pursuant to the Amended APA.
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 was amended and 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
nine months ended December, 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 year ended March 31, 2021.
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 amended maturity date is September 18, 2020. The Company made $25,000 in principal
payments during the year ended March 31, 2021 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 year ended March 31, 2021.
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 $3.5 million, 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.
On
December 14, 2020, the Company entered into a Debt Conversion Agreement with the Lender Pursuant to the Agreement, the Company and
Forest Street agreed to convert $2,100,000 of the Note’s principal into 1,000,000 shares of the Company’s common stock.
The share issuance occurred on December 15, 2020. As a result of the Debt Conversion Agreement the remaining balance of the Forest
Street Note was $1,400,000. On January 14, 2021, the Company paid the remaining $1,400,000 in principal and accrued interest of the
Forest Street Note. The Company recognized $137,666 in interest expense related to the Forest Street Note for the year ended March
31, 2021.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
17 – INCOME TAXES
The
income tax (provision) benefit for the periods shown consist of the following:
SCHEDULE OF INCOME TAX PROVISION BENEFIT
| |
2023 | | |
2022 | |
|
2021 |
|
Current | |
| | | |
| | |
|
|
|
|
US Federal | |
$ | - | | |
$ | (1,302,811 | ) |
|
|
- |
|
US State | |
| - | | |
| (446,677 | ) |
|
|
- |
|
Total current provision | |
| - | | |
| (1,749,488 | ) |
|
|
- |
|
Deferred | |
| | | |
| | |
|
|
|
|
US Federal | |
| (578,679 | ) | |
| (7,727,011 | ) |
|
|
582,724 |
|
US State | |
| (151,559 | ) | |
| (2,649,261 | ) |
|
|
137,276 |
|
Total deferred benefit | |
| (730,238 | ) | |
| (10,376,272 | ) |
|
|
720,000 |
|
Change in valuation allowance | |
| - | | |
| 8,839,791 | |
|
|
(720,000 |
) |
Income tax (provision) benefit | |
$ | (730,238 | ) | |
$ | (3,285,969 | ) |
|
|
- |
|
The
reconciliation of income tax expense computed at the U.S. federal statutory rate of 21% to the income tax provision is as follows:
SCHEDULE OF RECONCILIATION OF INCOME TAX
| |
2023 | | |
2022 | |
|
2021 |
|
Computed tax expense | |
$ | 21 | % | |
$ | 21 | % |
|
|
21 |
% |
State taxes, net of Federal income tax benefit | |
| 6 | % | |
| 7 | % |
|
|
5 |
% |
Change in valuation allowance | |
| 0 | % | |
| 24 | % |
|
|
(10 |
)% |
Employee stock awards | |
| (40 | )% | |
| 4 | % |
|
|
(5 |
)% |
Stock grants | |
| (2 | )% | |
| 0 | % |
|
|
(1 |
)% |
Stock for services | |
| 0 | % | |
| 0 | % |
|
|
(6 |
)% |
Other | |
| 1 | % | |
| 0 | % |
|
|
0 |
% |
Non-deductible meals & entertainment | |
| 0 | % | |
| 0 | % |
|
|
0 |
% |
Contingent consideration fair value | |
| 1 | % | |
| 1 | % |
|
|
0 |
% |
Stock and Warrants on Note Conversion | |
| (5 | )% | |
| 1 | % |
|
|
(4 |
)% |
Total provision for income taxes | |
$ | (18 | )% | |
$ | 9 | % |
|
|
0 |
% |
The
Company’s effective tax rates was (18%)
for the year ended March 31, 2023. During the
year ended March 31, 2023, the effective tax rate differed from the U.S. federal statutory rate primarily due to Employee stock awards.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Significant
components of the Company’s deferred tax liabilities and assets are as follows:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2023 | | |
2022 | |
Deferred tax assets | |
| | | |
| | |
Net
operating loss carryforward | |
$ | 871,331 | | |
$ | - | |
Loss on purchase | |
| 826,311 | | |
| 879,319 | |
Other | |
| - | | |
| - | |
Total deferred tax assets | |
$ | 1,697,642 | | |
$ | 879,319 | |
| |
| | | |
| | |
Deferred tax liabilities | |
| | | |
| | |
Depreciation expense | |
$ | (2,906,214 | ) | |
$ | (2,208,361 | ) |
Other | |
| (1,101,020 | ) | |
| (207,439 | ) |
Total deferred tax liabilities | |
$ | (4,007,234 | ) | |
$ | (2,415,800 | ) |
Net deferred tax assets/(liabilities) | |
$ | (2,309,592 | ) | |
$ | (1,536,481 | ) |
Valuation allowance | |
| - | | |
| - | |
Net deferred tax assets/(liabilities) | |
$ | (2,309,592 | ) | |
$ | (1,536,481 | ) |
The
Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether
tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25,
the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized
is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To
the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense
in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments
are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize
a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable
taxing authorities. The Company has evaluated tax positions taken by the Company and has concluded that as of March 31, 2023 and 2022,
there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require
disclosure in the financial statements.
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, 2020, 2021, 2022, and 2023 are subject to audit.
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
18 – GOODWILL AND INTANGIBLE ASSETS
During
our fiscal year ended March 31, 2022, we recorded $90,870,094
of Goodwill generated from our Merger with Gemini. The balance of Goodwill at March 31, 2023 and 2022 was $90,870,094. We did not have any goodwill prior to the year ended March 31, 2022.
Total
amortization expense of our intangible assets was $13,072,967,
$13,072,967
and $1,971,188 for the years ended March 31, 2023, 2022, and 2021, respectively.
Intangible
assets consisted of the following:
SCHEDULE
OF INTANGIBLE ASSETS
| |
| |
March 31, 2023 | |
| |
Life | |
Licenses | | |
Patent | | |
Other Intangible Assets | |
Licensing Agreement – Jesse James | |
5 | |
$ | 125,000 | | |
$ | - | | |
$ | - | |
Licensing Agreement – Jeff Rann | |
5 | |
| 125,000 | | |
| - | | |
| - | |
Streak Visual Ammunition patent | |
11.2 | |
| - | | |
| 950,000 | | |
| - | |
SWK patent acquisition | |
15 | |
| - | | |
| 6,124,005 | | |
| - | |
Jagemann Munition Components: | |
| |
| | | |
| | | |
| | |
Customer Relationships | |
3 | |
| - | | |
| - | | |
| 1,450,613 | |
Intellectual Property | |
3 | |
| - | | |
| - | | |
| 1,543,548 | |
Tradename | |
5 | |
| - | | |
| - | | |
| 2,152,076 | |
GDI Acquisition: | |
| |
| | | |
| | | |
| | |
Tradename | |
15 | |
| - | | |
| - | | |
| 76,532,389 | |
Customer List | |
10 | |
| - | | |
| - | | |
| 65,252,802 | |
Intellectual Property | |
10 | |
| - | | |
| - | | |
| 4,224,442 | |
Other Intangible Assets | |
5 | |
| - | | |
| - | | |
| 607,747 | |
| |
| |
| 250,000 | | |
| 7,074,005 | | |
| 151,763,617 | |
| |
| |
| | | |
| | | |
| | |
Accumulated amortization – Licensing Agreements | |
| |
| (250,000 | ) | |
| - | | |
| - | |
Accumulated amortization – Patents | |
| |
| - | | |
| (2,041,251 | ) | |
| - | |
Accumulated amortization – Intangible Assets | |
| |
| - | | |
| - | | |
| (28,036,807 | ) |
| |
| |
$ | - | | |
$ | 5,032,754 | | |
$ | 123,726,810 | |
| |
| |
March 31, 2022 | |
| |
Life | |
Licenses | | |
Patent | | |
Other Intangible Assets | |
Licensing Agreement – Jesse James | |
5 | |
$ | 125,000 | | |
$ | - | | |
$ | - | |
Licensing Agreement – Jeff Rann | |
5 | |
| 125,000 | | |
| - | | |
| - | |
Streak Visual Ammunition patent | |
11.2 | |
| - | | |
| 950,000 | | |
| - | |
SWK patent acquisition | |
15 | |
| - | | |
| 6,124,005 | | |
| - | |
Jagemann Munition Components: | |
| |
| | | |
| | | |
| | |
Customer Relationships | |
3 | |
| - | | |
| - | | |
| 1,450,613 | |
Intellectual Property | |
3 | |
| - | | |
| - | | |
| 1,543,548 | |
Tradename | |
5 | |
| - | | |
| - | | |
| 2,152,076 | |
GDI Acquisition: | |
| |
| | | |
| | | |
| | |
Tradename | |
15 | |
| - | | |
| - | | |
| 76,532,389 | |
Customer List | |
10 | |
| - | | |
| - | | |
| 65,252,802 | |
Intellectual Property | |
10 | |
| - | | |
| - | | |
| 4,224,442 | |
Other Intangible Assets | |
5 | |
| - | | |
| - | | |
| 607,747 | |
| |
| |
| 250,000 | | |
| 7,074,005 | | |
| 151,763,617 | |
| |
| |
| | | |
| | | |
| | |
Accumulated amortization – Licensing Agreements | |
| |
| (250,000 | ) | |
| - | | |
| - | |
Accumulated amortization – Patents | |
| |
| - | | |
| (1,547,787 | ) | |
| - | |
Accumulated amortization – Intangible Assets | |
| |
| - | | |
| - | | |
| (15,463,230 | ) |
| |
| |
$ | - | | |
$ | 5,526,218 | | |
$ | 136,300,387 | |
Annual
estimated amortization of intangible assets for the next five fiscal years are as follows:
SCHEDULE
OF ANNUAL AMORTIZATION OF INTANGIBLE ASSET
Years Ended March 31, | |
Estimates for Fiscal Year | |
2024 | |
$ | 13,102,785 | |
2025 | |
| 12,664,775 | |
2026 | |
| 12,664,775 | |
2027 | |
| 12,553,355 | |
2028 | |
| 12,543,226 | |
Thereafter | |
| 65,230,648 | |
Annual amortization of
intangible assets | |
$ | 128,759,564 | |
AMMO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 – SEGMENTS
On
April 30, 2021, the Company entered into an agreement and plan of merger with Gemini, which, along with its subsidiaries, engages primarily
in the operation of an online marketplace dedicated to firearms, hunting, shooting and related products. As a result, at March 31, 2023,
our Chief Executive Officer reviews financial performance based on two operating segments as follows:
|
● |
Ammunition – which consists of our manufacturing business. The Ammunition
segment engages in the design, production and marketing of ammunition, ammunition component and related products. |
|
● |
Marketplace – which consists of the GunBroker.com Ecommerce marketplace.
In its role as an auction site, GunBroker.com supports the lawful sale of firearms, ammunition and hunting/shooting accessories. |
In
the current period, we began the reporting of the separate allocation of certain corporate general and administrative expenses including
non-cash stock compensation expense, as such we have updated the prior period disclosure herein. The following tables set forth certain
financial information utilized by management to evaluate our operating segments for the annual periods presented:
SCHEDULE
OF OPERATING SEGMENTS
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
For the Year Ended March 31, 2023 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 128,290,128 | | |
$ | 63,149,673 | | |
$ | - | | |
$ | 191,439,801 | |
Cost of Revenues | |
| 126,914,265 | | |
| 9,116,939 | | |
| - | | |
| 136,031,204 | |
General and administrative expense | |
| 10,378,456 | | |
| 9,707,425 | | |
| 25,302,873 | | |
| 45,388,754 | |
Depreciation and amortization | |
| 578,326 | | |
| 12,700,436 | | |
| - | | |
| 13,278,762 | |
Income/(Loss) from Operations | |
$ | (9,580,919 | ) | |
$ | 31,624,873 | | |
$ | (25,302,873 | ) | |
$ | (3,258,919 | ) |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
For the Year Ended March 31, 2022 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 175,660,650 | | |
$ | 64,608,516 | | |
$ | - | | |
$ | 240,269,166 | |
Cost of Revenues | |
| 142,773,306 | | |
| 8,732,351 | | |
| - | | |
| 151,505,657 | |
General and administrative expense | |
| 11,932,721 | | |
| 8,434,308 | | |
| 17,544,970 | | |
| 37,911,999 | |
Depreciation and amortization | |
| 1,579,778 | | |
| 12,122,370 | | |
| - | | |
| 13,702,148 | |
Income/(Loss) from Operations | |
$ | 19,374,845 | | |
$ | 35,319,487 | | |
$ | (17,544,970 | ) | |
$ | 37,149,362 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
For the Year Ended March 31, 2021 | |
| |
Ammunition | | |
Marketplace | | |
Corporate and other expenses | | |
Total | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | 62,482,330 | | |
$ | - | | |
$ | - | | |
$ | 62,482,330 | |
Cost of Revenues | |
| 51,095,679 | | |
| - | | |
| - | | |
| 51,095,679 | |
General and administrative expense | |
| 4,269,558 | | |
| - | | |
| 10,837,834 | | |
| 15,107,392 | |
Depreciation and amortization | |
| 1,659,243 | | |
| - | | |
| - | | |
| 1,659,243 | |
Income/(Loss) from Operations | |
$ | 5,475,850 | | |
$ | - | | |
$ | 10,834,834 | | |
$ | (5,379,984 | ) |
Total
assets by segment were as follows:
SCHEDULE
OF TOTAL ASSETS SEGMENTS
| |
March 31, 2023 | | |
March 31, 2022 | |
|
March 31, 2021 |
|
Ammunition | |
$ | 154,044,607 | | |
$ | 160,305,107 | |
|
$ |
179,379,341 |
|
Marketplace | |
| 258,290,780 | | |
| 253,873,206 | |
|
|
- |
|
| |
$ | 412,335,387 | | |
$ | 414,178,313 | |
|
$ |
179,379,341 |
|
Total
capital expenditures by segment were as follows:
SCHEDULE
OF CAPITAL EXPENDITURE SEGMENT
| |
March 31, 2023 | | |
March 31, 2022 | |
|
March 31, 2021 |
|
Ammunition | |
$ | 10,819,177 | | |
$ | 17,728,023 | |
|
$ |
7,437,265 |
|
Marketplace | |
| 1,722,148 | | |
| 1,490,959 | |
|
|
- |
|
| |
$ | 12,541,325 | | |
$ | 19,218,982 | |
|
$ |
7,437,265 |
|
NOTE
20 - SUBSEQUENT EVENT
Common
Stock Issuances
Subsequent
to March 31, 2023, we issued 25,111
shares of Common Stock to our employees, independent contractors and Members of our Board of Directors as compensation for a total
value of $45,346 or $1.81 per share.
Note Payable Related Party Repayment
Subsequent to March 31, 2023,
we repaid the remaining outstanding principal balance on Amended Note B.