10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

AMMO, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

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

 

7681 E Gray Road, Scottsdale, AZ 85260

(Address of Principal Executive Offices) (Zip Code)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value   POWW  

The Nasdaq Stock Market LLC (Nasdaq

Capital Market)

8.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value   POWWP  

The Nasdaq Stock Market LLC (Nasdaq

Capital Market)

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer
Non-accelerated filer ☐ Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

As of February 7, 2024, there were 118,660,984 shares of $0.001 par value Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I  
     
ITEM 1: FINANCIAL STATEMENTS 3
  Condensed Consolidated Balance Sheets as of December 31, 2023 (Unaudited) and March 31, 2023 3
  Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended December 31, 2023, and 2022 4
  Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three and nine months ended December 31, 2023, and 2022 5
  Condensed Consolidated Statements of Cash flow (Unaudited) for the nine months ended December 31, 2023, and 2022 6
  Notes to Condensed Consolidated Financial Statements (Unaudited) 8
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 24
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 32
ITEM 4: CONTROLS AND PROCEDURES 32
     
PART II  
   
ITEM 1: LEGAL PROCEEDINGS 34
ITEM 1A: RISK FACTORS 34
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 34
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 34
ITEM 4: MINE SAFETY DISCLOSURE 34
ITEM 5: OTHER INFORMATION 35
ITEM 6: EXHIBITS 35
SIGNATURES 36

 

2

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

AMMO, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   December 31, 2023   March 31, 2023 
   (Unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $54,679,868   $39,134,027 
Accounts receivable, net   21,121,450    29,346,380 
Inventories   49,502,732    54,344,819 
Prepaid expenses   3,708,865    5,126,667 
Current portion of restricted cash   -    500,000 
Total Current Assets   129,012,915    128,451,893 
           
Equipment, net   57,278,603    55,963,255 
           
Other Assets:          
Deposits   2,265,932    7,028,947 
Patents, net   4,662,656    5,032,754 
Other intangible assets, net   114,296,627    123,726,810 
Goodwill   90,870,094    90,870,094 
Right of use assets - operating leases   2,113,943    1,261,634 
Deferred income tax asset   115,908    - 
TOTAL ASSETS  $400,616,678   $412,335,387 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current Liabilities:          
Accounts payable  $19,146,138   $18,079,397 
Accrued liabilities   6,570,668    4,353,354 
Current portion of operating lease liability   463,059    470,734 
Note payable related party   -    180,850 
Current portion of construction note payable   265,977    260,429 
Insurance premium note payable   173,029    2,118,635 
Total Current Liabilities   26,618,871    25,463,399 
           
Long-term Liabilities:          
Contingent consideration payable   80,080    140,378 
Construction note payable, net of unamortized issuance costs   10,797,696    10,922,443 
Operating lease liability, net of current portion   1,737,615    903,490 
Deferred income tax liability   -    2,309,592 
Total Liabilities   39,234,262    39,739,302 
           
Shareholders’ Equity:          
Series A cumulative perpetual preferred Stock 8.75%, ($25.00 per share, $0.001 par value) 1,400,000 shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively   1,400    1,400 
Common stock, $0.001 par value, 200,000,000 shares authorized 119,994,033 and 118,562,806 shares issued and 118,643,593 and 118,294,478 outstanding at December 31, 2023 and March 31, 2023, respectively   118,644    118,294 
Additional paid-in capital   395,449,082    391,940,374 
Accumulated deficit   (31,513,554)   (18,941,825)
Treasury Stock   (2,673,156)   (522,158)
Total Shareholders’ Equity   361,382,416    372,596,085 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $400,616,678   $412,335,387 

 

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

 

3

 

 

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

                 
   For the Three Months Ended
December 31,
   For the Nine Months Ended
December 31,
 
   2023   2022   2023   2022 
                 
Net Revenues                    
Ammunition sales(1)  $17,322,967   $20,250,965   $46,945,585   $90,607,817 
Marketplace revenue   13,985,034    15,419,202    40,371,952    46,486,842 
Casing sales   4,698,463    3,041,327    17,315,888    10,661,420 
Total Revenues   36,006,464    38,711,494    104,633,425    147,756,079 
                     
Cost of Revenues   25,096,088    26,184,315    71,410,243    104,257,529 
Gross Profit   10,910,376    12,527,179    33,223,182    43,498,550 
                     
Operating Expenses                    
Selling and marketing   236,565    1,010,543    822,098    3,987,214 
Corporate general and administrative   5,803,255    7,835,201    21,606,442    17,920,197 
Employee salaries and related expenses   3,390,153    4,705,636    13,096,468    11,414,434 
Depreciation and amortization expense   3,401,156    3,309,074    10,117,001    9,950,752 
Total operating expenses   12,831,129    16,860,454    45,642,009    43,272,597 
Income/(Loss) from Operations   (1,920,753)   (4,333,275)   (12,418,827)   225,953 
                     
Other Expenses                    
Other income/(loss)   4,576    (170,403)   376,186    28,193 
Interest expense   (193,046)   (320,439)   (609,561)   (538,191)
Total other expense, net   (188,470)   (490,842)   (233,375)   (509,998)
                     
Loss before Income Taxes   

(2,109,223

)   (4,824,117)   (12,652,202)   (284,045)
                     
Provision for Income Taxes   (465,234)   (721,125)   (2,419,883)   1,369,427 
                     
Net Loss   (1,643,989)   (4,102,992)   (10,232,319)   (1,653,472)
                     
Preferred Stock Dividend   (782,639)   (782,639)   (2,339,410)   (2,339,409)
                     
Net Loss Attributable to Common Stock Shareholders  $(2,426,628)  $(4,885,631)  $(12,571,729)  $(3,992,881)
                     
Net Loss per share                    
Basic  $(0.02)  $(0.04)  $(0.11)  $(0.03)
Diluted  $(0.02)  $(0.04)  $(0.11)  $(0.03)
                     
Weighted average number of shares outstanding                    
Basic   118,447,154    117,348,511    118,110,943    116,950,013 
Diluted   118,447,154    117,348,511    118,110,943    116,950,013 

 

(1) Included in revenue for the three months ended December 31, 2023 and 2022 are excise taxes of $1,498,429 and $1,669,206, respectively. Included in revenue for the nine months ended December 31, 2023 and 2022 are excise taxes of $3,958,391 and $7,816,598, respectively.

 

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

 

4

 

 

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

                                 

 

  Preferred Stock   Common Shares   Additional Paid-In   Accumulated   Treasury     
   Number   Par Value   Number   Par Value   Capital   (Deficit)   Stock   Total 
                                 
Balance as of March 31, 2023   1,400,000   $        1,400    118,294,478   $        118,294   $391,940,374   $(18,941,825)  $(522,158)  $372,596,085 
                                         
Employee stock awards   -    -    390,111    391    822,406    -    -    822,797 
Stock grants   -    -    -    -    50,750    -    -    50,750 
Preferred stock dividends   -    -    -    -    -    (638,038)   -    (638,038)
Dividends accumulated on preferred stock   -    -    -    -    -    (136,094)   -    (136,094)
Net loss   -    -    -    -    -    (1,093,033)   -    (1,093,033)
Treasury shares purchased   -    -    (738,831)   (739)   -    -    (1,456,005)   (1,456,744)
                                         
Balance as of June 30, 2023   1,400,000    1,400    117,945,758    117,946    392,813,530    (20,808,990)   (1,978,163)   370,145,723 
                                         
Employee stock awards   -    -    712,783    713    1,467,236    -    -    1,467,949 
Stock grants   -    -    -    -    50,750    -    -    50,750 
Preferred stock dividends declared   -    -    -    -    -    (646,545)   -    (646,545)
Dividends accumulated on preferred stock   -    -    -    -    -    (136,094)   -    (136,094)
Net loss   -    -    -    -    -    (7,495,297)   -    (7,495,297)
Treasury shares purchased   -    -    (197,798)   (198)   -    -    (398,627)   (398,825)
                                         
Balance as of September 30, 2023   1,400,000    1,400    118,460,743    118,461    394,331,516    (29,086,926)   (2,376,790)   362,987,661 
                                         
Employee stock awards   -    -    328,333    328    686,771    -    -    687,099 
Stock grants   -    -    -    -    50,750    -    -    50,750 
Common stock purchase options   -    -    -    -    380,045    -    -    380,045 
Preferred stock dividends   -    -    -    -    -    (638,021)   -    (638,021)
Dividends accumulated on preferred stock   -    -    -    -    -    (144,618)   -    (144,618)
Net loss   -    -    -    -    -    (1,643,989)   -    (1,643,989)
Treasury shares purchased   -    -    (145,483)   (145)   -    -    (296,366)   (296,511)
                                         
Balance as of December 31, 2023   1,400,000   $1,400    118,643,593   $118,644   $395,449,082   $(31,513,554)  $(2,673,156) 

$

361,382,416 

 

   Preferred Stock   Common Shares   Additional Paid-In    Accumulated    Treasury     
   Number   Par Value   Number   Par Value   Capital   (Deficit)   Stock   Total 
                                 
Balance as of March 31, 2022   1,400,000   $        1,400    116,485,747   $        116,487   $385,426,431   $(11,240,752)  $-   $374,303,566 
                                         
Common stock issued for cashless warrant exercise   -    -    99,762    99    (99)   -    -    - 
Employee stock awards   -    -    338,375    338    1,174,725    -    -    1,175,063 
Stock grants   -    -    -    -    47,844    -    -    47,844 
Preferred stock dividends declared   -    -    -    -    -    (638,071)   -    (638,071)
Dividends accumulated on preferred stock   -    -    -    -    -    (136,061)   -    (136,061)
Net income   -    -    -    -    -    3,253,027    -    3,253,027 
                                         
Balance as of June 30, 2022   1,400,000   $1,400    116,923,884   $116,924   $386,648,901   $(8,761,857)  $-   $378,005,368 
                                         
Common stock issued for cashless warrant exercise   -    -    12,121    12    24,230    -    -    24,242 
Employee stock awards   -    -    338,750    339    1,176,036    -    -    1,176,375 
Stock grants   -    -    -    -    43,750    -    -    43,750 
Preferred stock dividends declared   -    -    -    -    -    (646,595)   -    (646,595)
Dividends accumulated on preferred stock   -    -    -    -    -    (136,044)   -    (136,044)
Net income   -    -    -    -    -    (803,507)   -    (803,507)
                                         
Balance as of September 30, 2022   1,400,000   $1,400    117,274,755   $117,275   $387,892,917   $(10,348,003)  $-   $377,663,589 
                                         
Common stock issued for exercised warrants   -    -    165,152    165    31,639    -    -    31,804 
Employee stock awards   -    -    604,510    604    2,105,931    -    -    2,106,535 
Stock grants   -    -    -    -    43,750    -    -    43,750 
Warrants issued for services   -    -              427,639    -    -    427,639 
Preferred stock dividend   -    -    -    -    -    (638,304)   -    (638,304)
Dividends accumulated on preferred stock   -    -    -    -    -    (144,334)   -    (144,334)
Net loss   -    -    -    -    -    (4,102,992)   -    (4,102,992)
Treasury shares purchased   -    -    (150,000)   (150)   -    -    (290,861)   (291,011)
                                         
Balance as of December 31, 2022   1,400,000   $1,400    117,894,417   $117,894   $390,501,876   $(15,233,633) 

$

(290,861)  $375,096,676 

 

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

 

5

 

 

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 

         
   For the Nine Months Ended
December 31,
 
   2023   2022 
         
Cash flows from operating activities:          
Net Loss  $(10,232,319)  $(1,653,472)
Adjustments to reconcile Net Loss to Net Cash provided by operations:          
Depreciation and amortization   14,047,216    12,950,972 
Debt discount amortization   62,440    62,440 
Employee stock awards   2,977,845    4,457,973 
Stock grants   152,250    135,344 
Common stock purchase options   380,045    - 
Warrants Issued for Services   -    106,909 
Contingent consideration payable fair value   (60,298)   (45,572)
Allowance for doubtful accounts   1,117,565    1,327,419 
Reduction in right of use asset   362,402    512,063 
Deferred income taxes   (2,425,500)   1,283,481 
Changes in Current Assets and Liabilities          
Accounts receivable   7,107,365    12,208,054 
Due from related parties   -    15,000 
Inventories   4,842,087    (8,129,249)
Prepaid expenses   2,474,001    1,941,206 
Deposits   4,763,015    1,678,415 
Accounts payable   1,066,741    (5,852,397)
Accrued liabilities   2,072,696    (2,044,248)
Operating lease liability   (388,261)   (522,917)
Net cash provided by operating activities   28,319,290    18,431,421 
           
Cash flows from investing activities:          
Purchase of equipment   (5,562,283)   (10,566,182)
Net cash used in investing activities   (5,562,283)   (10,566,182)
           
Cash flow from financing activities:          
Proceeds from factoring liability   37,252,869    57,300,000 
Payments on factoring liability   (37,252,869)   (56,107,221)
Payments on inventory facility, net   -    (825,675)
Payments on note payable - related party   (180,850)   (507,508)
Payments on insurance premium note payment   (3,001,805)   (1,916,070)
Proceeds from construction note payable   -    1,000,000 
Payments on construction note payable   (181,639)   (66,586)
Preferred stock dividends paid   (2,194,792)   (2,195,075)
Common stock repurchase plan   (2,152,080)   (291,011)
Common stock issued for exercised warrants   -    56,046 
Net cash used in financing activities   (7,711,166)   (3,553,100)
           
Net increase in cash   15,045,841    4,312,139 
Restricted cash, beginning of period   500,000    - 
Cash, beginning of period   39,134,027    23,281,475 
Cash and restricted cash, end of period  $54,679,868   $27,593,614 
Restricted cash, end of period  $-   $500,000 
Cash, end of period  $54,679,868   $27,093,614 

 

(Continued)

 

6

 

 

AMMO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 

   For the Nine Months Ended
December 31,
 
   2023   2022 
         
Supplemental cash flow disclosures:          
Cash paid during the period for:          
Interest  $548,118   $433,761 
Income taxes  $-   $1,302,811 
           
Non-cash investing and financing activities:          
Operating lease liability  $1,214,711   $901,076 
Insurance premium note payment  $1,056,199   $2,035,519 
Dividends accumulated on preferred stock  $144,618   $144,334 
Construction note payable  $-   $10,237,032 
Warrants issued for services  $-   $427,639 

 

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

 

7

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY

 

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

 

On December 15, 2016, the Company’s majority shareholders sold their common stock 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 of the issued and outstanding shares of the common stock of the Company. 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. PRIVCO subsequently changes its name to AMMO Munitions, Inc.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Basis

 

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

 

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2023. The results for the three and nine month period ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and nine month periods ended December, 2023 and 2022, (b) the financial position at December 31, 2023, and (c) cash flows for the nine month periods ended December 31, 2023 and 2022.

 

8

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

We use the accrual basis of accounting and U.S. GAAP and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.

 

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

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for credit losses, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation and warrant-based compensation.

 

Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended March 31, 2023, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We adopted ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) and ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” in the current period. These policy changes did not result in a material effect on the Company’s financial statements. There have been no other significant changes to these policies during the three and nine months ended December 31, 2023. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2023.

 

Goodwill

 

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Due to the declines in the value of our stock price and market capitalization in the year ended March 31, 2023, we assessed qualitative factors to determine if it is more likely than not that the fair value of the Marketplace segment is less than its carrying amount. Through our analysis we determined our stock price and market capitalization decline is not indicative of a decrease in the fair value of our Marketplace segment and a fair value calculation using the discounted cash flows was more appropriate due to the operational performance of the reporting segment. Accordingly, the impairment of Goodwill was not warranted for the three and nine months ended December 31, 2023. As of December 31, 2023, the Company has a goodwill carrying value of $90,870,094, all of which is assigned to the Marketplace segment. However, should there continue to be a decline in the Company’s 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.

 

9

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Our accounts receivable represents amounts due from customers for products sold and include an allowance for estimated credit losses which is estimated based on the collectability and age of the accounts receivable balances and categorization of customers with similar financial condition. At December 31, 2023 and March 31, 2023, we reserved $4,387,581 and $3,246,551, respectively, of allowance for doubtful accounts.

 

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 Note Payable 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.

 

License Agreements

 

We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company. The license agreement grants us the exclusive worldwide rights through April 12, 2026 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.

 

Patents

 

On September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by the 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 quarterly royalty to the patent holder, based on a $0.01 per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the three months ended December 31, 2023 and 2022, the Company recognized royalty expenses of $2,714 and $8,794, respectively under this agreement. For the nine months ended December 31, 2023 and 2022, the Company recognized royalty expenses of $10,384 and $89,340, respectively under this agreement.

 

10

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.

 

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

 

Other Intangible Assets

 

On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement. The intangible assets acquired include a tradename, customer relationships, and intellectual property.

 

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 three and nine months ended December 31, 2023 and 2022.

 

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

 

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AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

We only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred 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.

 

12

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 three and nine months ended December 31, 2023, the Company did not have any customers that comprised more than ten percent (10%) of total revenues or accounts receivable.

 

Disaggregated Revenue Information

 

The following table represents 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. We note that revenue recognition processes are consistent between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product and service type.

 

 

                         
    For the Three Months Ended     For the Nine Months Ended  
   

December 31, 2023

    December 31, 2022     December 31, 2023     December 31, 2022  
Ammunition sales(1)   $ 17,322,967     $ 20,250,965     $ 46,945,585     $ 90,607,817  
Marketplace fee revenue     13,985,034       15,419,202        40,371,952        46,486,842  
Ammunition casings sales      4,698,463       3,041,327        17,315,888        10,661,420  
Total Sales   $ 36,006,464     $ 38,711,494     $ 104,633,425     $ 147,756,079 

 

(1) Included in revenue for the three months ended December 31, 2023 and 2022 are excise taxes of $1,498,429 and $1,669,206, respectively. Included in revenue for the nine months ended December 31, 2023 and 2022 are excise taxes of $3,958,391 and $7,816,598, respectively.

 

Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell directly to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated through our GunBroker.com online auction marketplace.

 

Advertising Costs

 

We expense advertising costs as they are incurred in selling and marketing expenses of operating expenses. Marketplace advertising costs are expensed as they are incurred in cost of revenues. We incurred advertising expenses of $297,166 and $240,449, of which $75,655 and $217,422 related to our ammunition segment, for the three months ended December 31, 2023 and 2022, respectively, and recognized in selling and marketing expenses and $221,511 and $23,027 of marketplace advertising expenses recognized in cost of revenues for the three months ended December 31, 2023 and 2022, respectively. We incurred advertising expenses of $850,001 and $1,156,205, of which $289,319 and $912,959 related to our ammunitions segment, for the nine months ended December 31, 2023 and 2022, respectively, and recognized in selling and marketing expenses and $560,682 and $243,246 of marketplace advertising expenses recognized in cost of revenues for the nine months ended December 31, 2023 and 2022, respectively.

 

Fair Value of Financial Instruments

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of December 31, 2023. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts receivable, accounts payable, amounts due to related parties, and the construction note payable. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

 

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.

 

13

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Property and Equipment

 

We state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated useful lives, which are generally 5 to 10 years for equipment and 40 years for our building.

 

Compensated Absences

 

We accrue a liability for compensated absences in accordance with Accounting Standards Codification 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.

 

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. On April 1, 2023 we adopted ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” Accordingly, stock based compensation is valued using market value of our Common Stock. Stock-based compensation is recognized on a straight line basis over the vesting periods and forfeitures are recognized in the periods they occur. We account for common stock purchase option awards by estimating the fair value of each option award on the grant date using the Black-Scholes option pricing model that uses assumption and estimates that we believe are reasonable. There were 328,333 and 1,431,227 shares of common stock issued to employees, members of the Board of Directors, and members of our advisory committee for services during the three and nine months ended December 31, 2023, respectively. There were 604,510 and 1,281,635 shares of common stock issued to employees, members of the Board of Directors, and members of our advisory committee for services during the three and nine months ended December 31, 2022, respectively.

 

Concentrations of Credit Risk

 

Accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2023, our bank account balances exceeded federally insured limits.

 

Income Taxes

 

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

 

Excise Tax

 

As a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect an 11% excise tax for all products sold into these channels. During the three and nine months ended December 31, 2023, we recognized approximately $1.5 million and $4.0 million, respectively, in excise taxes. During the three and nine months ended December 31, 2022, we recognized approximately $1.7 million and $7.8 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.

 

14

 

 

AMMO, Inc.

NOTES TO CONDENSED 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.

 

AMMO was involved in three contract arbitration cases with adverse former employees, one of which is still active. The first one involved an employee terminated for cause who is seeking contract wages and stock that was earned but clawed back upon his termination. In that case, the Company received a favorable ruling on a partial motion for summary judgment wherein the arbitrator ruled the employee had refused to return funds he received as reimbursement for invoices he never paid. The arbitrator, thus, granted the Company’s partially dispositive motion. The remaining claims went to an arbitration hearing in late September 2023. No decision has yet been rendered.

 

The second case involved an employee who was terminated without cause wherein the former employee is seeking contract wages, commissions and allegedly earned common stock. The Company also received notice in October 2022 that an OSHA whistleblower complaint had been filed with the US Department of Labor by that same 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 matter is currently pending at the agency level. AMMO uncovered additional information through work with counsel and investigators and a supplemental response was provided to OHSA on or about July 10, 2023. The Company and the employee agreed to arbitrate the case. The parties reached a resolution of all outstanding claims in November 2023 and all claims have been dismissed.

 

The third case involved an employee who was terminated without cause wherein the former employee is seeking contract wages and commissions. The Company and the employee agreed to arbitrate the case in August 2023. The parties reached a resolution of all outstanding claims in January 2024 and all claims have been dismissed.

 

On April 30, 2023, Director and Stockholder Steve Urvan filed suit in the Delaware Court of Chancery against the Company, certain Directors, former directors, employees, former employees and consultants. Urvan’s complaint alleges fraudulent misrepresentation in connection with the Company’s acquisition of GunBroker.com and certain affiliated companies. Urvan seeks relief in the form of a Court order for partial rescission of the Merger and compensatory damages. The Company and the individual defendants believe that the claims are without merit and have moved to dismiss Urvan’s complaint. The Company has also filed a separate lawsuit against Urvan in the Delaware Court of Chancery alleging, among other things, that Urvan committed fraud in connection with the GunBroker.com sale and that Urvan breached his indemnification obligations to AMMO after the sale. On September 11, 2023, the Court of Chancery consolidated the Company’s lawsuit against Urvan with Urvan’s lawsuit against the Company and the individual defendants. On September 18, 2023, AMMO filed an amended complaint that added a new fraudulent inducement claim and a claim for violation of the Arizona Securities Act. Urvan has moved to dismiss AMMO’s affirmative claims. The Court of Chancery held a hearing on both motions to dismiss in the consolidated action on December 18, 2023. The parties are currently awaiting a ruling.

 

The Company received an assessment from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) for penalties related to excise tax filings in prior fiscal years. A request for abatement was submitted on May 22, 2023, which was subsequently denied by the TTB. The Company participated in an appeals conference in October of 2023 and is currently awaiting a determination.

 

On December 6, 2023, Director and Stockholder Steve Urvan filed suit in the Delaware Court of Chancery against the Company alleging the Company wrongfully refused to provide him access to certain categories of documents. The Company has asserted as an affirmative defense that Mr. Urvan’s primary purpose is to obtain documents to support his claims in the Delaware Plenary Litigation filed April 30, 2023, in which discovery is currently stayed. The parties are currently completing document discovery. A one-day trial is scheduled at the end of February 2024.

 

We have accrued for contingencies totaling approximately $0.2 million and $1.3 million for the three and nine months ended December 31, 2023, respectively. There were no other known contingencies at December 31, 2023.

 

15

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 income/(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 2,256,296 shares of common stock. Due to the net loss attributable to common shareholders for the three and nine months ended December 31, 2023, potentially dilutive securities, which consists of 152,048 and 65,459 of respective warrants, 44,303 and 39,890 of respective equity incentive awards, and 150,000 of respective common stock purchase options were excluded, as a result of the treasury stock method, from the dilutive EPS calculation as the effect would be antidilutive. Due to the net loss attributable to common shareholders for the three and nine months ended December 31, 2022, potentially dilutive securities, which consists of 389,544 and 1,070,694 (536,311 and 150,000 warrants, respectively, for the three and nine months ended December 31, 2022 were excluded as a result of the treasury stock method) common stock purchase warrants and 5,281 and 19,095 equity incentive awards, respectively for the three and nine months ended December 31, 2022, have been excluded from the dilutive EPS calculation as the effect would be antidilutive.

 

                 
  

For the Three Months Ended

December 31,

  

For the Nine Months Ended

December 31,

 
   2023   2022   2023   2022 
                 
Numerator:                    
Net loss  $(1,643,989)  $(4,102,992)  $(10,232,319)  $(1,653,472)
Less: Preferred stock dividends   (782,639)   (782,639)   (2,339,410)   (2,339,409)
Net loss attributable to common stockholders  $(2,426,628)  $(4,885,631)  $(12,571,729)  $(3,992,881)
                     
Denominator:                    
Weighted average shares of common stock – Basic   118,447,154    117,348,511    118,110,943    116,950,013 
Effect of dilutive common stock purchase warrants   -    -    -    - 
Effect of dilutive equity incentive awards   -    -    -    - 
Effect of dilutive common stock purchase options   -    -    -    - 
Weighted average shares of common stock - Diluted   118,447,154    117,348,511    118,110,943    116,950,013 
                     
Earnings per share:                    
Loss per share attributable to common stockholders – basic  $(0.02)  $(0.04)  $(0.11)  $(0.03)
Loss per share attributable to common stockholders – diluted  $(0.02)  $(0.04)  $(0.11)  $(0.03)

 

NOTE 4 – INVENTORIES

 

At December 31, 2023 and March 31, 2023, the inventory balances are composed of:

   December, 2023   March 31, 2023 
Finished product  $15,710,247   $14,362,514 
Raw materials   22,760,289    23,898,596 
Work in process   11,032,196    16,083,709 
Inventory net  $49,502,732   $54,344,819 

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

We state 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 5 to 10 years for equipment and 40 years for our building. 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 expense. 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.

 

16

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Property and Equipment consisted of the following at December 31, 2023 and March 31, 2023:

 

   December 31, 2023   March 31, 2023 
Leasehold Improvements  $257,009   $257,009 
Building   29,067,369    28,623,329 
Furniture and Fixtures   413,746    384,650 
Vehicles   153,254    153,254 
Equipment   44,104,409    40,233,186 
Tooling   143,710    143,710 
Construction in Progress   1,952,152    734,781 
Total property and equipment  $76,091,649   $70,529,919 
Less accumulated depreciation   (18,813,046)   (14,566,664)
Net property and equipment  $57,278,603   $55,963,255 

 

Depreciation Expense for the three and nine months ended December 31, 2023 totaled $1,486,889, and $4,246,935, respectively. For three and nine months ended December 31, 2023 depreciation expense included in Cost of Revenues totaled $1,229,128 and $3,560,117, respectively and $257,761 and $686,818 of depreciation expense was included in Operating Expenses for three and nine months ended December 31, 2023. Depreciation Expense for the three and nine months ended December 31, 2022 totaled $1,089,243, and $3,150,691, respectively. For three and nine months ended December 31, 2022 depreciation expense included in Cost of Revenues totaled $923,564 and $2,630,122, respectively and $165,679 and $520,569 of depreciation expense was included in Operating Expenses for three and nine months ended December 31, 2022.

 

NOTE 6 – FACTORING LIABILITY

 

On July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains a maximum advance amount of $5,000,000 on 85% of eligible accounts and has an annualized interest rate of the Prime Rate published from time to time by the Wall Street Journal plus 4.5%. The agreement contains a 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 December 31, 2023. For the three and nine months ended December 31, 2023, interest expense recognized on the Factoring Liability was $81,952 and $185,319, respectively, including $62,500 of amortization of the commitment fee. For the three and nine months ended December 31, 2022, interest expense recognized on the Factoring Liability was $42,286 and $111,220 including $37,500 of amortization of the commitment fee.

 

On June 17, 2023, per the terms of this agreement, the maturity date was extended to June 17, 2025.

 

On November 29, 2023, we provided FSW notice of termination of the agreement. The agreement terminated on December 29, 2023. We recognized an expense of $281,108 in relation to the termination of the agreement with FSW.

 

NOTE 7 – INVENTORY CREDIT FACILITY

 

On June 17, 2020, we entered into a Revolving Inventory Loan and Security Agreement with FSW. FSW will establish a revolving credit line, and make loans from time to time to the Company for the purpose of providing capital. The twenty-four month agreement secured by our inventory, among other assets, contains a maximum loan amount of $1,750,000 on eligible inventory and has an annualized interest rate of the greater of the three-month LIBOR rate plus 3.09% or 8%. The agreement contains a fee of 2% of the maximum loan amount ($35,000) assessed to the Company. On July 31, 2020, the Company amended its Revolving Loan and Security Agreement to increase the maximum inventory loan amount to $2,250,000. As of December 31, 2023, there was no outstanding balance of the Inventory Credit Facility. There was no interest expense for the three and nine months ended December 31, 2023. Interest expense recognized on the Inventory Credit Facility was $6,580 and $24,256 for the three and nine months ended December 31, 2022, respectively.

 

On November 29, 2023, we provided FSW notice of termination of the agreement. The agreement terminated on December 29, 2023.

 

NOTE 8 – REVOLVING LOAN

 

On December 29, 2023, we entered into a Loan and Security Agreement (the “Sunflower Agreement”) by and among the Company and other borrowers party to the Agreement (collectively, the “Borrower”), the lenders party thereto (collectively, the “Lenders”) and Sunflower Bank, N.A., as administrative agent and collateral agent (the “Agent”). Capitalized terms used but not otherwise defined herein have the same definitions given to such terms in the Sunflower Agreement under the terms of the Sunflower Agreement, the Lenders have provided to the Borrower a revolving loan in the principal amount of the lesser of (a) $20,000,000 (the “Total Commitment Amount”) and (b) the Borrowing Base (a formula based on certain amounts owed to Borrower for goods sold or services provided and eligible inventory (the “Revolving Loan”). The proceeds of loans under the Sunflower Agreement may be used for working capital, general corporate purposes, Permitted Acquisitions, to pay fees and expenses incurred in connection with the Revolving Line, to facilitate Borrower’s stock repurchase program and to fund Borrower’s general business requirements.

 

The Revolving Loan bears interest at a rate of the greater of (x) 3.50% (the “Floor Rate”) and (y) Term SOFR, plus 3.00% (the “Revolving Facility Applicable Rate”) and is computed on the basis of a 360-day year for the actual number of days elapsed. Except in an Event of Default (as defined below), Advances under the Revolving Loan shall bear interest, on the outstanding Daily Balance thereof, at the Revolving Facility Applicable Rate. Interest is due and payable on the first calendar day of each month during the term of the Sunflower Agreement. The Borrower is also obligated to pay to Agent, for the ratable benefit of Lenders, an origination fee, Prepayment Fee, unused facility fee, collateral monitoring fee and Lender Expenses.

 

The Borrower may borrow, repay and reborrow under the Revolving Loan until December 29, 2026 (the “Maturity Date”), at which time the commitments will terminate and all outstanding loans, together with all accrued and unpaid interest, must be repaid. If the Revolving Loan is refinanced by another lender prior to the Maturity Date, an additional fee payable concurrently with such refinancing in an amount equal to (i) three percent (3.0%) of the Total Commitment Amount, if such financing occurs after the Closing Date but on or prior to the first anniversary of the Closing Date, (ii) two percent (2.0%) of the Total Commitment Amount, if such refinancing occurs after the first anniversary of the Closing Date but on or prior to the second anniversary of the Closing Date, and (iii) one percent (1.0%) of the Total Commitment Amount, if such refinancing occurs after the second anniversary of the Closing Date but on or prior to the third anniversary of the Closing Date (the “Prepayment Fee”).

 

The Sunflower Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Borrower’s and the Borrower’ subsidiaries’ ability to, among other things, incur subsidiary indebtedness, grant liens, merge or consolidate, dispose of substantially all assets of the Borrower and its subsidiaries, taken as a whole, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock, and enter into restrictive agreements, in each case subject to customary exceptions.

 

The Sunflower Agreement includes customary events of default (each, an “Event of Default”) that include, among other things, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, insolvency defaults, material judgment defaults, attachment defaults, subordinated debt default, guaranty defaults, and governmental approval defaults. Upon an Event of Default, all Obligations under the Sunflower Agreement shall bear interest at a rate equal to three (3.0) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

 

We did not have an outstanding balance on our Revolving Loan as of December 31, 2023.

 

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. During the nine months ended December 31, 2023, we extended the term of our Scottsdale lease for five years and increased our Right of Use Assets and Operating Lease Liabilities by $1,252,896 and we terminated our Marietta lease resulting in a $35,919 decrease to our Right of Use Assets and a $38,185 decrease to our Operating Lease Liabilities. 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 December 31, 2023 and March 31, 2023, total Right of Use Assets were $2,113,943 and $1,261,634, respectively. As of December 31, 2023 and March 31, 2023, total Operating Lease Liabilities were $2,200,674 and $1,374,224, respectively. The current portion of our Operating Lease Liability on December 31, 2023 and March 31, 2023 is $463,059 and $470,734, respectively, and is reported as a current liability. The remaining $1,737,615 of the total $2,200,674 as of December 31, 2023 and the $903,490 of the total $1,374,224 as of March 31, 2023 of the Operating Lease Liability is presented as a long-term liability net of the current portion.

 

17

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated lease expense for the nine months ended December 31, 2023 was $502,889 including $477,065 of operating lease expense and $25,824 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 4.2 years and 10.0%, respectively.

 

Future minimum lease payments under non-cancellable leases as of December 31, 2023 are as follows:

 

Years Ended March 31,    
2024 (1)  $165,040 
2025   666,233 
2026   665,069 
2027   581,574 
2028   379,067 
Thereafter   258,102 
Total Lease Payments   2,715,085 
Less: Amount Representing Interest   (514,411)
Present value of lease liabilities  $2,200,674 

 

  (1) This amount represents future lease payments for the remaining three months of fiscal year 2024. It does not include any lease payments for the nine months ended December 31, 2023.

 

NOTE 10 – NOTES PAYABLE – RELATED PARTY

 

For the nine months ended December 31, 2023, the Company made $180,850 in principal payments, respectively, in connection with the Amended Note B, an amended related party note payable with Jagemann Stamping Company (“JSC”). We entered into the Amended Note B with JSC on November 4, 2020 and the note matured on June 26, 2023. We recognized $1,788 in interest expense for the three and nine months ended December 31, 2023 and $12,753 and $41,450 in respective interest expenses for the three and nine months ended December 31, 2022, respectively.

 

18

 

 

AMMO, Inc.

NOTES TO CONDENSED 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 specified 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”). Hiawatha advanced Loan funds from October 2021 to October 2022 totaling $11,625,000. 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.

 

As of July 2022, we are eligible to prepay the Note in whole or in part 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.

 

We are required to maintain a Debt Service Coverage Ratio, as defined in the terms of the Loan Agreement, of not less than 1.25 to 1.00 for the period defined below and continuing to and including the Maturity Date. The Debt Service Coverage Ratio shall be tested on an annual basis, as of July 1, for each previous year. We maintained compliance under the Loan Agreement since its inception.

 

We made $181,639 in principal payments for the nine months ended December 31, 2023. The restricted cash can be released per the terms documented in the Loan Agreement filed with the Commission as an exhibit to Form 10-Q on February 14, 2022. During the year ended March 31, 2023, $500,000 of restricted cash was released with $500,000 remaining restricted. During the nine months ended December 31, 2023, the remaining $500,000 of restricted cash was released.

 

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 nine month period ended December 31, 2023, we issued 1,431,227 shares of common stock as follows:

 

  1,431,227 shares valued at $2,977,845 were issued to employees, members of the Board of Directors, and members of the Advisory Committee as compensation

 

19

 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

At December 31, 2023, outstanding and exercisable stock purchase warrants consisted of the following:

 

 

  

Number of

Shares

  

Weighted

Average

Exercise

Price

  

Weighted

Average Life

Remaining

(Years)

 
Outstanding at March 31, 2023   2,460,946   $2.46    1.59 
Granted   -    -    - 
Exercised   -    -    - 
Forfeited or cancelled   (204,650)   2.00    - 
Outstanding at December 31, 2023   2,256,296   $2.51    1.05 
Exercisable at December 31, 2023   2,256,296   $2.51    1.05 

 

As of December 31, 2023, we had 2,256,296 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 1,244,108 shares of our Common Stock at an exercise price of $2.00 per share consisting of 1% of the warrants until August 2024, and 99% 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.

 

Option Granted

 

During the nine months ended December 31, 2023, we granted stock options (“Options”) to purchase 400,000 shares of our Common Stock to our Chief Executive Officer, of which (i) 100,000 Options shall vest on the Effective Date, and (ii) 300,000 Options shall vest in equal quarterly installments of 25,000 over 3 years beginning on the first quarter ended September 30, 2023. The Options shall (a) be exercisable at an exercise price per share equal to the closing market price of the Company’s common stock on the date of the grant, (b) have a term of ten years, and (c) be on such other terms as shall be determined by the Board (or the Compensation Committee of the Board) and set forth in a customary form of stock option agreement under the Plan evidencing the Options. We recognized $380,045 in expense related to the Options for the three and nine months ended December 31, 2023.

 

Number of Options   400,000 
Option Vesting Period   Up to 3 years 
Per share grant price  $2.08 
Dividend yield   - 
Expected volatility   83.5%
Risk-free interest rate   4.13%
Expected life (years)   5.75 
Weighted average fair value  $1.50 

 

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 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.

 

Preferred dividends accumulated as of December 31, 2023 were $144,618. On May 15, 2023, the Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning March 15, 2023 through and including June 14, 2023 payable on June 15, 2023 to holders of record of Series A Preferred Stock on May 31, 2023 equal to $0.55902778 per share. Dividends totaling $782,639 were paid on June 15, 2023. On August 15, 2023, the Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning June 15, 2023 through and including September 14, 2023 payable on September 15, 2023 to holders of record of Series A Preferred Stock on August 31, 2023 equal to $0.55902778 per share. Dividends totaling $782,639 were paid on September 15, 2023. On November 15, 2023, the Board of Directors of the Company declared a dividend on the Company’s Series A Preferred Stock for the period beginning September 15, 2023 through and including December 14, 2023 payable on December 15, 2023 to holders of record of Series A Preferred Stock on November 30, 2023 equal to $0.5529514 per share. Dividends totaling $774,132 were paid on December 15, 2023.

 

 20 
 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14 – GOODWILL AND INTANGIBLE ASSETS

 

Amortization expenses related to our intangible assets for the three and nine months ended December 31, 2023 and 2022 were $3,266,761 and $9,800,281, respectively.

 

 

       December 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        -    (2,411,349)   - 
Accumulated amortization – Intangible Assets        -    -    (37,466,990)
        $-   $4,662,656   $114,296,627 

 

Annual amortization of intangible assets for the next five fiscal years are as follows:

 

Years Ended March 31, 

Estimates for

Fiscal Year

 
2024 (1)  $3,302,629 
2025   12,664,775 
2026   12,664,775 
2027   12,553,355 
2028   12,543,226 
Thereafter   65,230,523 
Annual amortization of intangible assets  $118,959,283 

 

(1) This amount represents future amortization for the remaining three months of fiscal year 2024. It does not include any amortization for the nine months ended December 31, 2023.

 

 21 
 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 15 – SEGMENTS

 

Our Chief Executive Officer reviews financial performance based on our two operating segments as follows:

 

  Ammunition – which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition and ammunition component products.
  Marketplace – which consists of the GunBroker.com marketplace. In its role as an auction site, GunBroker.com supports the lawful sale of firearms, ammunition and hunting/shooting accessories.

 

The reporting of the separate allocation of certain corporate general and administrative expenses includes non-cash stock compensation expense. The following tables set forth certain financial information utilized by management to evaluate our operating segments for the interim period presented:

 

   Ammunition   Marketplace  

Corporate

and other

expenses

   Total 
   For the Three Months Ended December 31, 2023 
   Ammunition   Marketplace  

Corporate

and other

expenses

   Total 
                 
Net Revenues  $22,021,430   $13,985,034   $-   $36,006,464 
Cost of Revenues   23,022,304    2,073,784    -    25,096,088 
General and administrative expense   1,305,721    2,454,695    5,669,557    9,429,973 
Depreciation and amortization   125,012    3,276,144    -    3,401,156 
Income/(Loss) from Operations  $(2,431,607)  $6,180,411   $(5,669,557)  $(1,920,753)

 

   Ammunition   Marketplace  

Corporate

and other

expenses

   Total 
   For the Nine Months Ended December 31, 2023 
   Ammunition   Marketplace  

Corporate

and other

expenses

   Total 
                 
Net Revenues  $64,261,473   $40,371,952   $-   $104,633,425 
Cost of Revenues   65,672,676    5,737,567    -    71,410,243 
General and administrative expense   6,694,699    7,204,547    21,625,762    35,525,008 
Depreciation and amortization   384,021    9,732,980    -    10,117,001 
Income/(Loss) from Operations  $(8,489,923)  $17,696,858   $(21,625,762)  $(12,418,827)

 

   Ammunition   Marketplace  

Corporate

and other

expenses

   Total 
   For the Three Months Ended December 31, 2022 
   Ammunition   Marketplace   Corporate
and other
expenses
   Total 
                 
Net Revenues  $23,292,292   $15,419,202   $-   $38,711,494 
Cost of Revenues   23,865,275    2,319,040    -    26,184,315 
General and administrative expense   4,838,081    1,719,707    6,993,592    13,551,380 
Depreciation and amortization   143,378    3,165,696    -    3,309,074 
Income/(Loss) from Operations  $(5,554,442)  $8,214,759   $(6,993,592)  $(4,333,275)

 

 22 
 

 

AMMO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

   Ammunition   Marketplace  

Corporate

and other

expenses

   Total 
   For the Nine Months Ended December 31, 2022 
   Ammunition   Marketplace   Corporate
and other
expenses
   Total 
                 
Net Revenues  $101,269,237   $46,486,842   $-   $147,756,079 
Cost of Revenues   97,555,732    6,701,797    -    104,257,529 
General and administrative expense   12,117,828    6,713,561    14,490,456    33,321,845 
Depreciation and amortization   437,694    9,513,058    -    9,950,752 
Income/(Loss) from Operations  $(8,842,017)  $23,558,426   $(14,490,456)  $225,953 

 

NOTE 16 – INCOME TAXES

 

The income tax provision effective tax rates were 22.1% and 19.1% for the three and nine months ended December 31, 2023, respectively, and 14.9% and 482.1% for the three and nine months ended December 31, 2022, respectively. During the three and nine months ended December 31, 2023, the effective tax rate differed from the U.S. federal statutory rate primarily due to employee stock awards. For the three and nine months ended December 31, 2022, the effective tax rate differed from the U.S. federal statutory rate due to state income taxes.

 

The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended March 31, 2021, 2022 and 2023 are subject to audit.

 

NOTE 17 – RELATED PARTY TRANSACTIONS

 

During the nine months ended December 31, 2023, we paid $410,173 in service fees to two independent contractors consisting of a $244,640 payment due upon termination without cause. The two independent contractors were issued 168,581 shares of our common stock for a total value of $350,345, which consisted of an issuance of 134,240 shares due upon termination without cause. We issued 25,000 shares in the aggregate to our advisory committee members for service for a total value of $53,250. 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. There was $201,646 included in our Accounts Receivable at December 31, 2023 as a result of this relationship.

 

On July 24, 2023, Fred Wagenhals departed as CEO and the Board appointed Mr. Wagenhals the Company’s Executive Chairman. Mr. Wagenhals remains a member of the Board. Mr. Wagenhals received the following payments in connection with his transition from CEO to Executive Chairman: (i) total cash payments of $1,060,290; (ii) 300,000 shares of Common Stock for a total value of $624,000.

 

On July 26, 2023, we obtained a $1.6 million letter of credit with Northern Trust for collateral for a bond related to a judgement assessed to GunBroker.com. On July 17, 2023, we generated a $1.6 million certificate of deposit with Northern Trust for security on the letter of credit. The term of the certificate of deposit is twelve months and includes interest of approximately 5%. Per the terms of the Merger Agreement, filed with the Commission on a Current Report on Form 8-K on May 6, 2021 (the “Current Report”), the Seller is required to pay or be liable for these losses (capitalized terms are defined the Current Report).

 

In July of 2023, the Company filed suit in the Delaware Chancery Court against Director and Shareholder Steve Urvan for claims arising out of the Company’s acquisition of certain companies referenced as the GunBroker.com family of companies. The claims arise based upon Mr. Urvan’s repeated failure and refusal to honor contractual defense and indemnification obligations arising under that certain Merger Agreement, along with alleged misrepresentations.

 

NOTE 18 – SUBSEQUENT EVENTS

 

Common Stock Issuances

 

Subsequent to the December 31, 2023, the Company issued 17,391 shares as employee stock awards for a total value of $36,521.

 

 23 
 

 

 

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

 

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

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc., a Delaware corporation, and its wholly owned consolidated subsidiaries.

 

Overview

 

AMMO, Inc., owner of the GunBroker.com Marketplace, the largest online marketplace serving the firearms and shooting sports industries, and a vertically integrated producer of high-performance ammunition and premium components began its operations in 2016.

 

Through our GunBroker.com Marketplace segment (acquired in April 2021), we allow third party sellers to list items consisting of firearms, hunting gear, fishing equipment, outdoor gear, collectibles, and much more on our site, while facilitating compliance with federal and state laws that govern the sale of firearms and restricted items. This allows our base of over 8.0 million users to follow ownership policies and regulations through our network of over 32,000 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 sports and shooting space. Our vision is to expand the services on GunBroker.com and to become a peer 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 using a single form of payment for all items purchased,

 

● Carting Ability - allowing our buyers to purchase multiple items from multiple sellers at one point in time, and,

 

● GunBroker.com Analytics – through the compilation and refinement of vast Marketplace data, we plan to offer domestic market analytics to our industry peers to allow them to better manage their businesses.

 

Through our Ammunition segment, we are tailoring our focus to build a new future for our manufacturing operations focused on 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 that complement our technologically innovative heritage. We also continue to ensure dynamic performance under the exacting standards of the US military complex in support of our cutting-edge developmental ammunition programs as we seek out and effectively execute upon new governmental-based opportunities.

 

 24 
 

 

In September of 2022, we began operating out of our new 185,000 square foot manufacturing facility. This new, state-of-the-art ammunition production facility is part of our commitment to the continuing development of differentiated, cutting-edge technology.

 

Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following information should be read in conjunction with our consolidated financial statements included in this Quarterly Report beginning on page 3.

 

Our financial results for the three and nine months ended December 31, 2023 reflect our newly positioned organization as we transition into our new strategic direction. We believe that we have hired a strong team of professionals, developed innovative products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider and marketplace. We continue to focus on growing our top line revenue and streamlining our operations. We experienced a 7.0% and 29.2% decrease in our Net Revenues for the three and nine months ended December 31, 2023 compared with the three and nine months ended December 31, 2022. This was the result of decreased ammunition sales due to changes in market demand as well as a shift in operations to an increased focus on ammunition casing sales.

 

The following table presents summarized financial information taken from our condensed consolidated statements of operations for the three and nine months ended December 31, 2023 compared with the three and nine months ended December 31, 2022:

 

  

For the Three Months

Ended

  

For the Nine Months

Ended

 
  

December 31,

2023

  

December 31,

2022

  

December 31,

2023

  

December 31,

2022

 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Net Sales  $36,006,464   $38,711,494   $104,633,425   $147,756,079 
Cost of Revenues   25,096,088    26,184,315    71,410,243    104,257,529 
Gross Margin   10,910,376    12,527,179    33,223,182    43,498,550 
Sales, General and Administrative Expenses   12,831,129    16,860,454    45,642,009    43,272,597 
Income (loss) from Operations   (1,920,753)   (4,333,275)   (12,418,827)   225,953 
Other income (expense)                    
Other expense   (188,470)   (490,842)   (233,375)   (509,998)
Loss before provision for income taxes  $(2,109,223)  $(4,824,117)  $(12,652,202)  $(284,045)
Provision (benefit) for income taxes   (465,234)   (721,125)   (2,419,883)   1,369,427 
Net Loss  $(1,643,989)  $(4,102,992)  $(10,232,319)  $(1,653,472)

 

Non-GAAP Financial Measures

 

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

 

Adjusted EBITDA

 

  

For the Three Months

Ended

  

For the Nine Months

Ended

 
   31-Dec-23   31-Dec-22   31-Dec-23   31-Dec-22 
                 
Reconciliation of GAAP net income to Adjusted EBITDA                    
Net Loss  $(1,643,989)  $(4,102,992)  $(10,232,319)  $(1,653,472)
Provision for Income Taxes   (465,234)   (721,125)   (2,419,883)   1,369,427 
Depreciation and amortization   4,753,650    4,356,004    14,047,216    12,950,972 
Interest expense, net   193,046    320,439    609,561    538,191 
Employee stock awards   687,099    2,106,535    2,977,845    4,457,973 
Stock grants   50,750    43,750    152,250    135,344 
Common stock purchase options   380,045    -    380,045