AMMO(POWWP) - 2024 Q4 - Annual Report

PART I This section covers the company's business, risk factors, cybersecurity, properties, and legal proceedings ITEM 1: BUSINESS AMMO, Inc. operates in ammunition manufacturing and the GunBroker.com marketplace, expanding e-commerce services and enhancing ammunition production Introduction AMMO, Inc. is a conglomerate with two premium positions in the shooting sports industry: ammunition manufacturing and GunBroker.com, an e-commerce marketplace - Ammo Inc. is a conglomerate with two premium positions in the shooting sports industry: ammunition manufacturing and GunBroker.com, an e-commerce marketplace acquired in 2021[19] - GunBroker.com connects buyers and sellers of new/used firearms and gear, facilitating transactions through a network of over 31,000 federally licensed firearm dealers for compliance[19] - The marketplace has approximately 8.1 million users and provides insights into domestic market sales trends[19] Reportable Segments The company operates in two reportable segments: Marketplace (GunBroker) and Ammunition (Manufacturing) - The company operates in two reportable segments: Marketplace (GunBroker) and Ammunition (Manufacturing)[20] - The Marketplace segment, GunBroker.com, acquired in April 2021, is a large online platform for firearms, hunting, shooting, and related products, facilitating transactions without holding inventory[22][23] - GunBroker.com had approximately 8.1 million registered users and over 2.6 million average daily listings in fiscal year 2024[23] - New services implemented or planned for GunBroker include payment processing, carting ability, GunBroker Analytics (rebranding to Outdoor Analytics in FY2025), GunBroker Advertising, Collector's Elite, and Financing Partnerships[24][25][26][27][28][29] - The Ammunition segment's manufacturing operations are based in Manitowoc, WI, producing small arms ammunition and components for commercial, military, and law enforcement, with a core competency in deep drawing rifle brass casings[31] Our Growth Strategy The company aims to enhance its position in ammunition design, production, and marketing, while leveraging GunBroker.com data to identify market trends and adjust business strategies - The company aims to enhance its position in ammunition design, production, and marketing, while leveraging GunBroker.com data to identify market trends and adjust business strategies[34] - A shift in operational strategy towards higher brass casing production and sales negatively impacted sales in FY2024 compared to FY2023[35] - Key strategic pillars include designing innovative products, strengthening channel partner relationships, emphasizing customer satisfaction, and continuously improving operations through equipment acquisition, shift expansion, and process improvements at the Manitowoc, WI plant[36][37][38][39] Products The company designs, produces, and sells small caliber ammunition and components for commercial and military applications, ranging from 25 auto to 50 caliber - The company designs, produces, and sells small caliber ammunition and components (cases, primers, gunpowder, bullets) for commercial and military applications, ranging from 25 auto to 50 caliber[40] - Proprietary ammunition lines include STREAK VISUAL AMMUNITION™ (one-way luminescent technology, non-incendiary) and Stelth Subsonic Ammunition (designed for suppressed firearms)[41][43] - Through Jagemann Munition Components (JMC), the company offers high-quality pistol and rifle brass casings, leveraging decades of manufacturing experience[44] Marketing Products and services are marketed to consumers through various channels, including distributors, dealers, mass market, and specialty retailers, utilizing diverse advertising methods - Products and services are marketed to consumers through distributors, dealers, mass market, and specialty retailers, utilizing print and digital advertising, social media (Instagram, Facebook, X, LinkedIn, YouTube), product demonstrations, and third-party endorsements[45] Product Innovation and Development The company focuses on developing new and innovative products for commercial and military sectors, leveraging its core competency in deep drawing rifle cases - The company focuses on developing new and innovative products, such as STREAK VISUAL AMMUNITION™, for commercial and military sectors, leveraging its core competency in deep drawing rifle cases[46] - For FY2025, new product calibers with high demand in premium segments (e.g., 6.5 PRC, 7mm PRC, 450 Bushmaster) will be introduced under AMMO, Inc. Signature lines and as brass for OEM manufacturers[46] - GunBroker Marketplace has evolved with features like a multi-item cart and payment application (launched March 2024) to streamline checkout, facilitate cross-selling, and drive revenue[47][48] Research and Development R&D activities for ammunition products are conducted at the Manitowoc, WI facilities, while GunBroker Marketplace invests in advancements for search, database, and AI technologies - R&D activities for ammunition products are conducted at the Manitowoc, WI facilities, with costs expensed through cost of goods sold or general and administrative expenses[49] - GunBroker Marketplace invests in R&D for advancements in search, document processing, database, and AI technologies, focusing on enhanced security, data protection, customer service, and system resiliency[50] Suppliers The company purchases raw materials and components for ammunition primarily from U.S.-based suppliers and is broadening its supplier base to mitigate shortages and price increases - The company purchases raw materials and components for ammunition (brass, steel, copper jackets, primers, projectiles) primarily from U.S.-based suppliers[51] - A strategy to broaden the supplier base and secure multiple sources for raw materials and components is in place to mitigate potential shortages and price increases[51] - GunBroker continuously evaluates partner relationships and integrations to strengthen communication, efficiency, and generate cost savings[52] Customers Ammunition products are sold through various channels to sport shooters, hunters, law enforcement, and military agencies, while GunBroker Marketplace serves outdoor-oriented customers and the industry - Ammunition products are sold through distributors, 'Big Box' retailers, manufacturers, specialty retailers, local ammunition stores, and shooting range operators to various consumers including sport shooters, hunters, law enforcement, and military agencies[53] - GunBroker Marketplace serves outdoor-oriented customers, including buyers and sellers, and is expanding to service manufacturers and the industry with analytics, advertising, and promotional content[54] Competition The ammunition industry is dominated by a few large companies, with competition based on quality, reliability, features, performance, brand awareness, and price - The ammunition industry is dominated by a few large companies, with competition based on quality, reliability, features, performance, brand awareness, and price[55] - GunBroker Marketplace competes with other online marketplaces, direct e-commerce, brick-and-mortar stores, and big box retailers, while also forming symbiotic relationships with these businesses[56] Human Capital As of June 10, 2024, the company had 374 employees, with a human capital strategy focused on promoting engagement, hard work, and accountability in a team-oriented environment - As of June 10, 2024, the company had 374 employees, with 263 in manufacturing, 29 in sales/marketing/customer service, 33 in R&D/engineering, and 49 in corporate/administrative functions[57] - The human capital strategy focuses on a team-oriented environment that promotes engagement, hard work, and accountability, valuing diversity and unique viewpoints[58] Seasonality While historically not materially seasonal, the business anticipates increased seasonality, particularly in rifle production, with net sales potentially higher in the second and third fiscal quarters - While historically not materially seasonal, the business anticipates increased seasonality, particularly in rifle production, with net sales potentially higher in the second and third fiscal quarters due to fall hunting and holiday seasons[59] Intellectual Property Tradenames, trademarks, service marks, trade secrets, technological resources, know-how, licensing arrangements, and endorsements are considered important competitive factors - Tradenames, trademarks, service marks, trade secrets, technological resources, know-how, licensing arrangements, and endorsements are considered important competitive factors[61] - The company holds exclusive worldwide sales and distribution rights for the patented O.W.L. Technology™ used in STREAK VISUAL AMMUNITION™ through a license agreement with the University of Louisiana at Lafayette (ULL), renewable until January 1, 2026[62][63][64] - Exclusive worldwide rights to Jesse James' image and trademarks for branded products are held through April 12, 2027[65] - Acquired rights to a patent for modular projectiles (used in AP and HAPI ammunition lines) through SW Kenetics, Inc. acquisition in 2018[66] - Acquired customer relationships, intellectual property, and tradename use through the acquisition of Jagemann Munitions Components[66] Regulatory Matters The manufacture, sale, and purchase of ammunition are subject to extensive federal, state, local, and foreign governmental laws and regulations, including those from the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) - The manufacture, sale, and purchase of ammunition are subject to extensive federal, state, local, and foreign governmental laws and regulations, including those from the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)[68] - Regulations include licensing requirements, serialization, interstate sale restrictions, ownership prohibitions, and compliance with International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR)[69][72] - Failure to comply with regulations could result in growth limitations, revocation of licenses, civil and criminal penalties, and adverse effects on business[69][70] - GunBroker site transactions for firearms require direct involvement of ATF FFL holders to ensure compliance with federal and state laws[74] - AMMO, Inc. operates two main segments: Ammunition Manufacturing and the GunBroker.com e-commerce marketplace[19] - GunBroker.com is an e-commerce marketplace for firearms and related products, with approximately 8.1 million users and over 2.6 million average daily listings in FY2024[19][23] - The company is expanding GunBroker services to include payment processing, carting ability, GunBroker Analytics (rebranded to Outdoor Analytics in FY2025), GunBroker Advertising, Collector's Elite, and Financing Partnerships[24][25][26][27][28][29] - The Ammunition segment manufactures small arms ammunition and components, focusing on premium pistol and rifle ammunition, proprietary brands (STREAK VISUAL AMMUNITION™, stelTH/™), and developmental ammunition programs for the U.S. military[31][32] - The company's growth strategy involves enhancing ammunition production, leveraging GunBroker data for market trends, and continuously improving operations at its Manitowoc, WI facility[34][39] ITEM 1A: RISK FACTORS The company faces significant risks from its limited operating history, economic and political factors, legal proceedings, and regulatory changes Risks Related to Our Business The company has a limited operating history as an ammunition manufacturer and acquired GunBroker in 2021, leading to inherent risks of a new business enterprise - The company has a limited operating history as an ammunition manufacturer (since March 2017) and acquired GunBroker in 2021, leading to inherent risks of a new business enterprise[78] - Performance is influenced by economic conditions (e.g., consumer confidence, debt levels), social factors, and political shifts (e.g., elections, firearm control legislation), which can negatively impact demand for discretionary products[79][80][81] - War, terrorism, violence, or natural disasters (like pandemics) can disrupt markets, supply chains, and customer service, materially impacting business and financial results[83][84][85] - Ongoing legal proceedings, including a lawsuit by Director Steve Urvan seeking rescission of the GunBroker acquisition and $140 million in damages, could cause unforeseen expenses and divert management attention[87][88] - Failure to expand the e-commerce business, protect intellectual property, or prevent cybersecurity breaches could curtail future growth, lead to litigation costs, and damage reputation[89][90][91][92][93][94][95] Risks Related to Our Products and Our Dependence on Third Parties Success depends on introducing new products that match consumer preferences; failure in product development could decrease sales, operating margins, and market share - Success depends on introducing new products that match consumer preferences; failure in product development could decrease sales, operating margins, and market share[96] - The company is highly dependent on ammunition sales, which are volatile due to economic, social, and political factors influencing firearm sales and usage[97] - Disruptions to manufacturing facilities in Manitowoc, WI, could adversely affect production and shipping capabilities[98][99] - Shortages or price volatility of raw materials and components (brass, steel, copper jackets, primers, propellant, projectiles) from limited third-party suppliers could delay sales and increase costs[100][101] - Revenue relies heavily on sales through various retailers and distributors; loss of major customers or significant order reductions could materially impact business[103][104][105] - Intense competition, characterized by price erosion and competition from larger companies, could lead to losing market share, reduced sales, and lower margins[110][112][113][114] - Seasonality and unseasonable weather conditions, particularly for outdoor sporting activities, may cause operating results to vary, with higher sales expected in Q2 and Q3 due to hunting and holidays[116][117] - Products carry exposure to potential product liability, warranty, or personal injury claims, which could result in substantial costs, recalls, and reputational damage[119] - Brand recognition and reputation are critical; ineffective advertising or negative impacts on endorsers could adversely affect sales and customer loyalty[120][121][122][124] - A significant portion of revenue from STREAK VISUAL AMMUNITION is contingent on an exclusive license agreement with ULL; breach or failure to renew could severely harm results[125] - Excess inventory can lead to write-downs, impacting financial statements by reducing inventory value, increasing cost of goods sold, and affecting cash flow[126][130] Regulatory Risks The company is subject to extensive federal, state, local, and foreign laws and regulations, with non-compliance potentially leading to fines, penalties, and business restrictions - The company is subject to extensive federal, state, local, and foreign laws and regulations (e.g., labor, environment, export/import, taxation, Consumer Products Safety Act, ATF rules), with non-compliance potentially leading to fines, penalties, and business restrictions[127][128][129][131][132] - Changes in government policies and firearms legislation, including potential bans or severe limits on sales, could adversely affect financial results and impede product development and distribution[133][134] - Any adverse change to the interpretations of the Second Amendment could restrict firearm ownership and use, impacting the company's ability to conduct business[135] Risks Related to our Common Stock Failure to comply with Nasdaq listing rules could lead to delisting, making it harder for shareholders to sell common stock and negatively impacting its market price - Failure to comply with Nasdaq listing rules could lead to delisting, making it harder for shareholders to sell common stock and negatively impacting its market price[136] - The exercise of outstanding warrants (1,664,555 shares at $2.15 weighted average exercise price) and issuance of incentive stock grants (2,303,159 shares reserved) may dilute existing stockholders' ownership and negatively impact the common stock's market price[137][138] - Material weaknesses in internal control over financial reporting and ineffective disclosure controls and procedures could lead to inaccurate financial reporting, fraud, regulatory action, and loss of investor confidence[139][140][141] Risks Related to our Series A Preferred Stock Series A Preferred Stock ranks junior to all company indebtedness and other liabilities, meaning holders would receive payment only after creditors in bankruptcy or liquidation - Series A Preferred Stock ranks junior to all company indebtedness and other liabilities, meaning holders would receive payment only after creditors in bankruptcy or liquidation[149] - Existing or future debt instruments may restrict dividend payments on Series A Preferred Stock, and future offerings of debt or senior equity could adversely affect its market price[150] - The trading market for Series A Preferred Stock may lack adequate liquidity, and the company may issue additional shares of Series A Preferred Stock or other preferred stock ranking pari passu, potentially diluting existing holders[151][152] - Increases in market interest rates could decrease the market price of Series A Preferred Stock, and the company may not have sufficient cash to pay dividends[155][156] - Dividends may be subject to withholding taxes without gross-up payments, and the Series A Preferred Stock has not been rated, which could affect its market price[157][158] - The company may redeem Series A Preferred Stock on or after May 18, 2026, or upon a Change of Control, potentially at a lower rate than market conditions[159] - Holders of Series A Preferred Stock have extremely limited voting rights, primarily related to electing directors if dividends are in arrears or on certain amendments affecting their rights[162] - Series A Preferred Stock is not convertible into common stock, so investors will not benefit from an increase in common stock market price[163] General Risk Factors Operating results may experience significant fluctuations due to factors such as market cyclicality, order timing/size, product introductions, changes in product mix, and costs - Operating results may experience significant fluctuations due to factors such as market cyclicality, order timing/size, product introductions, changes in product mix, labor/raw material costs, competitive pricing, and economic/regulatory developments[142] - The company may not be able to secure additional financing on favorable terms, or at all, to meet future capital needs, potentially leading to delayed expansion plans or reduced operating expenses[144] - Charter documents and Delaware law contain provisions that could make it more difficult for a third party to acquire the company and discourage takeovers, potentially limiting the price investors are willing to pay[145] - The designation of the Delaware Court of Chancery as the exclusive forum for stockholder actions could discourage claims or limit stockholders' ability to make claims against the company[147][148] - The company has a limited operating history as an ammunition manufacturer since March 2017 and acquired GunBroker in 2021, exposing it to inherent risks of a new business enterprise[78] - Performance is influenced by economic (consumer confidence, debt levels), social, and political factors (elections, firearm control uncertainty, terrorism fears), which can cause volatile demand for products[79][80] - Ongoing legal proceedings, including a lawsuit filed by Director Steve Urvan seeking rescission of the GunBroker acquisition and $140 million in damages, could incur unforeseen expenses and divert management attention[87][88] - Breaches of information systems or failures of IT systems could adversely affect reputation, disrupt operations, and result in increased costs and loss of sales[94][95] - The company is highly dependent on ammunition sales, which are influenced by firearm sales and usage, leading to potential adverse impacts if sales decline[97] - Material weaknesses in internal control over financial reporting were identified for the year ended March 31, 2024, increasing the risk of financial misstatement and potentially impacting investor confidence[139][140] ITEM 1B: UNRESOLVED STAFF COMMENTS There are no unresolved staff comments to report ITEM 1C: CYBERSECURITY The company maintains an integrated cybersecurity risk management framework, overseen by the Board, to protect assets and ensure operational integrity Risk management and strategy Cybersecurity risk management is integrated into the broader risk management framework and overseen by the Board of Directors - Cybersecurity risk management is integrated into the broader risk management framework and overseen by the Board of Directors[165] - Processes include continuous evaluation of potential threats, regular security assessments of third-party service providers, and stringent monitoring[166] - The Information Security Program protects personal/proprietary information, guards against threats, and prevents unauthorized access[168][176] - A comprehensive incident response plan is in place for preparing, detecting, responding to, and recovering from cybersecurity incidents[168] - Third-party experts conduct information security testing, including penetration testing, aligned with NIST Cybersecurity Framework and PCI DSS[170] Governance The Board of Directors oversees cybersecurity risk management, receiving reports from management and senior IT leadership - The Board of Directors oversees cybersecurity risk management, receiving reports from management and senior IT leadership[171] - Senior IT leaders and compliance officers are responsible for developing and implementing cybersecurity programs and ensuring compliance with laws and regulations[172] - Information on cybersecurity risks is communicated through direct discussions and reports to the Board and its committees[173] - Cybersecurity risk management is integrated into the broader risk management framework and overseen by the Board of Directors[165] - Comprehensive processes are in place to assess, identify, and manage material cybersecurity risks, including continuous threat evaluation, third-party security assessments, and monitoring[166] - The Information Security Program aims to ensure security and confidentiality of personal/proprietary information, protect against threats, and prevent unauthorized access[168][176] - Incident response plans detail procedures for preparing, detecting, responding to, and recovering from cybersecurity incidents, ensuring legal compliance[168] - Third-party experts conduct information security testing, including penetration testing, aligned with NIST Cybersecurity Framework and PCI DSS[170] - Senior IT leaders and compliance officers are responsible for developing and implementing cybersecurity programs, informed by their teams and reporting to the Board[172][173] ITEM 2: PROPERTIES The company operates executive, GunBroker, and manufacturing facilities across Scottsdale, Atlanta, and Manitowoc, including a large owned production plant - Executive offices are located in Scottsdale, AZ, leasing approximately 21,000 square feet[175] - GunBroker offices and operations are housed in a 10,000 square foot leased facility in Atlanta, GA[177] - A 36,000 square foot facility in Manitowoc, WI, is leased for manufacturing and packaging[177] - The company owns a 185,000 square foot facility in Manitowoc, WI, used for ammunition and casing manufacturing, R&D, packing, and shipping, with a portion financed by a Construction Loan[178] ITEM 3: LEGAL PROCEEDINGS The company is defending a lawsuit by Director Steve Urvan regarding the GunBroker acquisition, seeking $140 million in damages - Director Steve Urvan filed a lawsuit on April 30, 2023, against the company and certain individuals, alleging fraudulent inducement in the GunBroker.com acquisition[179] - Mr. Urvan seeks partial rescission of the transaction, monetary damages, and other relief, with claims including misrepresentation and fraud[179] - The company and named defendants believe the claims are without merit and are vigorously defending their interests[179] - Other routine litigation, claims, disputes, proceedings, and investigations are not expected to have a material effect on the company's financial position, results of operations, or cash flows[180] ITEM 4: MINE SAFETY DISCLOSURE This item is not applicable to AMMO, Inc PART II This section details the market for common equity, management's financial analysis, market risks, financial statements, and internal controls ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES Common stock is listed on Nasdaq, with no common dividends, $3.0 million in preferred dividends paid, and an active share repurchase program - Common Stock is listed on Nasdaq under the symbol 'POWW' since December 1, 2020[183] - As of June 10, 2024, there were 119,181,067 shares of Common Stock outstanding and approximately 271 holders of record[6][184] - The company has never declared or paid dividends on its Common Stock and intends to retain earnings for business, not paying dividends in the foreseeable future[185] - Preferred dividends on Series A Preferred Stock amounted to $3.0 million for FY2024, with $0.1 million of unpaid accrued dividends as of the filing date[185][186] Securities Authorized for Issuance under Equity Compensation Plans (as of March 31, 2024) | Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |---|---|---|---| | 2017 Equity Incentive Plan | - | - | 2,303,159 | | Total | - | - | 2,303,159 | - A share repurchase program for up to $30 million of common stock was authorized on February 8, 2022, extended until February 2025. Approximately 1.4 million shares have been repurchased, with $27.4 million remaining available[191][192] ITEM 6: RESERVED This item is reserved and not required ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION This section analyzes financial performance, noting decreased FY2024 revenues and net loss due to strategic shifts and legal expenses Overview AMMO, Inc. operates the GunBroker Marketplace, the largest online marketplace for firearms and shooting sports, and is a vertically integrated producer of high-performance ammunition and components - AMMO, Inc. operates the GunBroker Marketplace, the largest online marketplace for firearms and shooting sports, and is a vertically integrated producer of high-performance ammunition and components[197] - The GunBroker Marketplace segment (acquired April 2021) facilitates transactions for firearms, hunting, and outdoor gear, ensuring compliance with federal and state laws through a network of over 31,000 federally licensed firearms dealers[198] - Recent expansions to the GunBroker platform include payment processing, carting ability, GunBroker Analytics (rebranding to Outdoor Analytics in FY2025), and GunBroker Advertising[198][199][200] - The Ammunition segment focuses on manufacturing premium pistol and rifle ammunition and components, leveraging proprietary brands like STREAK VISUAL AMMUNITION™ and /stelTH/™, and supporting U.S. military developmental programs[201] Fiscal Year 2024 Compared to Fiscal Year 2023 Net Revenues decreased by 24.2% to $145.1 million in FY2024 from $191.4 million in FY2023, primarily due to decreased bulk pistol and rifle ammunition sales - Net Revenues decreased by 24.2% to $145.1 million in FY2024 from $191.4 million in FY2023, primarily due to decreased bulk pistol and rifle ammunition sales ($40.2 million), proprietary ammunition sales ($4.5 million), and GunBroker Marketplace revenue ($9.2 million), partially offset by an increase in casing sales ($7.5 million)[203][213] - The decrease in sales was attributed to changes in market demand, a shift in operational strategy focusing on higher brass casing production, and equipment malfunction in rifle production[203][213] Summarized Financial Information (FY2024 vs FY2023) | Metric | March 31, 2024 | March 31, 2023 | |---|---|---| | Net Revenues | $145,054,572 | $191,439,801 | | Cost of Revenues | $102,431,803 | $136,031,204 | | Gross Margin | $42,622,769 | $55,408,597 | | Sales, general & administrative expenses | $61,199,966 | $58,667,516 | | Income (loss) from Operations | $(18,577,197) | $(3,258,919) | | Net Income (Loss) | $(15,565,200) | $(4,596,038) | Adjusted EBITDA Reconciliation (FY2024 vs FY2023) | Metric | March 31, 2024 | March 31, 2023 | |---|---|---| | Net Loss | $(15,565,200) | $(4,596,038) | | Provision for income taxes | $(3,791,063) | $730,238 | | Depreciation and amortization | $18,813,897 | $17,519,949 | | Interest expense, net | $446,473 | $632,062 | | Employee stock awards | $4,082,108 | $5,807,779 | | Stock grants | $203,000 | $179,094 | | Common stock purchase options | $430,457 | - | | Warrants issued for services | - | $213,819 | | Other income (expense), net | $332,593 | $(25,181) | | Contingent consideration fair value | $(80,540) | $(63,764) | | Other nonrecurring expenses | $10,498,990 | $1,248,865 | | Proxy contest fees | - | $4,724,385 | | Adjusted EBITDA | $15,370,715 | $26,371,208 | Net Revenues by Category (FY2024 vs FY2023) | Category | March 31, 2024 | March 31, 2023 | |---|---|---| | Proprietary Ammunition | $6,265,500 | $10,779,035 | | Standard Ammunition | $63,125,301 | $103,337,009 | | Ammunition Casings | $21,721,695 | $14,174,084 | | Marketplace Revenue | $53,942,076 | $63,149,673 | | Total Net Revenues | $145,054,572 | $191,439,801 | - Cost of Revenues decreased by $33.6 million, from $136.0 million to $102.4 million, due to decreased net sales and increased non-cash depreciation, labor, and overhead for production[218] - Gross margin percentage increased to 29.4% in FY2024 from 28.9% in FY2023, primarily due to the higher margins of the GunBroker marketplace, offset by increased labor and overhead in the ammunition segment[219] - Operating expenses increased by $2.5 million, with corporate general and administrative expenses rising by $4.9 million (due to $9.2 million in nonrecurring legal fees, offset by the absence of $4.7 million in proxy contest fees from the prior year), and employee salaries increasing by $1.0 million (due to a $0.8 million employee bonus program)[221][223][224] - Total other expense increased by $0.4 million, mainly due to $0.2 million in losses on asset disposal, partially offset by a decrease in interest expense and an increase in interest income[225] - A federal and state income tax benefit of $3.8 million was recorded in FY2024, compared to a $0.7 million provision in FY2023, due to the increased net loss before taxes[226] Fiscal Year 2023 Compared to Fiscal Year 2022 Net Revenues decreased by 20.3% to $191.4 million in FY2023 from $240.3 million in FY2022, almost entirely due to a $48.1 million decrease in bulk pistol and rifle ammunition sales - Net Revenues decreased by 20.3% to $191.4 million in FY2023 from $240.3 million in FY2022, almost entirely due to a $48.1 million decrease in bulk pistol and rifle ammunition sales[230][235] Summarized Financial Information (FY2023 vs FY2022) | Metric | March 31, 2023 | March 31, 2022 | |---|---|---| | Net Revenues | $191,439,801 | $240,269,166 | | Cost of Revenues | $136,031,204 | $151,505,657 | | Gross Margin | $55,408,597 | $88,763,509 | | Sales, general & administrative expenses | $58,667,516 | $51,614,147 | | Income (loss) from Operations | $(3,258,919) | $37,149,362 | | Net Income (Loss) | $(4,596,038) | $33,247,436 | Adjusted EBITDA Reconciliation (FY2023 vs FY2022) | Metric | March 31, 2023 | March 31, 2022 | |---|---|---| | Net Income (Loss) | $(4,596,038) | $33,247,436 | | Provision for income taxes | $730,238 | $3,285,969 | | Depreciation and amortization | $17,519,949 | $17,339,093 | | Interest expense, net | $632,062 | $637,797 | | Employee stock awards | $5,807,779 | $5,759,000 | | Stock grants | $179,094 | $252,488 | | Stock for services | - | $4,200 | | Warrants issued for services | $213,819 | $718,045 | | Contingent consideration fair value | $(63,764) | $(385,750) | | Other income | $(25,181) | $(21,840) | | Proxy contest fees | $4,724,385 | - | | Other nonrecurring expenses | $1,248,865 | - | | Adjusted EBITDA | $26,371,208 | $60,836,438 | Net Revenues by Category (FY2023 vs FY2022) | Category | March 31, 2023 | March 31, 2022 | |---|---|---| | Proprietary Ammunition | $10,779,035 | $10,071,659 | | Standard Ammunition | $103,337,009 | $151,387,366 | | Ammunition Casings | $14,174,084 | $14,201,625 | | Marketplace Revenue | $63,149,673 | $64,608,516 | | Total Net Revenues | $191,439,801 | $240,269,166 | - Cost of revenues decreased by $15.5 million, or 10.2%, due to decreased sales and increases in non-cash depreciation, labor, overhead, and raw materials[236] - Gross margin percentage decreased to 28.9% in FY2023 from 36.9% in FY2022, primarily due to increases in material, labor, and overhead costs in the ammunition segment, partially offset by the higher margins of GunBroker.com[237] - Operating expenses increased by $7.1 million, with corporate general and administrative expenses rising by $8.0 million (including $5.6 million for a proxy contest and $1.2 million in nonrecurring expenses) and employee salaries increasing by $2.1 million[238][239][242][243] - Other income and interest expense remained constant, with changes in interest expense mainly due to increases related to the Construction Note Payable and decreases in Factoring Liability and Inventory Credit Facility activity[244] - A provision for federal and state income taxes of $0.7 million was recorded in FY2023, compared to $3.3 million in FY2022, due to the decrease in net income (loss) before taxes[245] Liquidity and Capital Resources As of March 31, 2024, cash and cash equivalents increased by $16.5 million to $55.6 million from $39.1 million in FY2023 - As of March 31, 2024, cash and cash equivalents increased by $16.5 million to $55.6 million from $39.1 million in FY2023[248] Working Capital Summary | Metric | March 31, 2024 | March 31, 2023 | |---|---|---| | Current assets | $131,525,266 | $128,451,893 | | Current liabilities | $30,940,272 | $25,463,399 | | Working capital | $100,584,994 | $102,988,494 | - Existing working capital, cash flow from operations, bank borrowings, and sales of equity/debt securities are expected to be adequate to fund operations for the next year[250] - The company has $2.6 million in fixed lease payment obligations as of March 31, 2024, with $0.7 million payable within the next 12 months[251] - A Construction Note Payable has $0.8 million in principal and interest payments due within the next 12 months, with the principal maturing on October 14, 2026[252] - A Revolving Loan with Sunflower Bank, N.A. for up to $20 million was obtained in December 2023 for working capital and general corporate purposes, but no balance was outstanding as of the filing date[253] Cash Flows from Operating Activities | Metric | FY2024 | FY2023 | |---|---|---| | Net cash provided by operations | $32.6 million | $35.6 million | Cash Flows from Investing Activities | Metric | FY2024 | FY2023 | |---|---|---| | Net cash used in investing activities | $8.0 million | $12.5 million | | Primarily for purchases of production equipment and capitalized development costs for GunBroker. | | | Cash Flows from Financing Activities | Metric | FY2024 | FY2023 | |---|---|---| | Net cash used in financing activities | $8.7 million | $6.7 million | | Key activities include insurance premium note payments, preferred stock dividends, common stock repurchases, and related party note payments. | | | - No off-balance sheet arrangements existed as of March 31, 2024, that would have a material effect on financial condition or results of operations[260] Critical Accounting Estimates and Policies The preparation of financial statements requires significant estimates and judgments, particularly for allowances for credit losses, deferred tax assets, inventories, and goodwill - The preparation of financial statements requires significant estimates and judgments, particularly for allowances for credit losses, deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, and stock/warrant-based compensation[261][262][264] - Goodwill is evaluated for impairment annually or more frequently; as of March 31, 2024, the goodwill carrying value of $90.9 million (assigned to the Marketplace segment) was not impaired, but future declines in stock price could lead to impairment[263][370] - Accounts receivable includes an allowance for credit losses, which was $3.7 million at March 31, 2024, up from $3.2 million at March 31, 2023[265][371][440] - Inventories are stated at the lower of cost or net realizable value, using the weighted-average cost method, and provisions are made for excess, damaged, or obsolete items[266][410] - Revenue is recognized according to ASC 606 using a five-step model, with specific performance obligations for ammunition sales, casing sales, and various marketplace fee revenues (auction, compliance, payment processing, shipping, advertising, product sales, identity verification)[268][269][270][271][272][273][274][275][276][277][385][388][389][390][391][392][393][394][395] - An 11% excise tax on ammunition sales to non-government U.S. entities is included in net sales and expensed to cost of goods sold, totaling $6.2 million in FY2024[278][417] - Stock-based compensation is accounted for at fair value in accordance with ASC 718, recognized on a straight-line basis over vesting periods[281][418] - AMMO, Inc. is transitioning to a new operational strategy focusing on higher brass casing production and sales, which negatively impacted sales in FY2024[203] - Net Revenues decreased by 24.2% in FY2024 compared to FY2023, primarily due to decreased ammunition and marketplace sales, partially offset by increased casing sales[203][213] - The company reported a net loss of approximately $15.6 million in FY2024, compared to a net loss of $4.6 million in FY2023[205][227] - Gross margin percentage increased slightly to 29.4% in FY2024 from 28.9% in FY2023, driven by the higher margins of the GunBroker marketplace segment[219] - Operating expenses increased by $2.5 million in FY2024, primarily due to a $9.2 million increase in nonrecurring professional and legal fees, offset by decreased selling and marketing expenses[221][223] - As of March 31, 2024, cash and cash equivalents increased to $55.6 million from $39.1 million in FY2023[248] ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is interest rate fluctuations, particularly affecting its $20.0 million Revolving Loan - The primary market risk exposure is interest rate risk, particularly from the Revolving Loan which is indexed to market rates[282] - If the full $20.0 million commitment of the Revolving Loan were utilized, a 100 basis point increase in interest rates would result in an additional $200,000 interest expense for the year[282] - The interest rates on the Construction Note Payable are not indexed to market rates[282] ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data are presented as a separate section of this Annual Report on Form 10-K, starting on page F-1 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes in or disagreements with accountants on accounting and financial disclosure to report ITEM 9A: CONTROLS AND PROCEDURES Management concluded that disclosure controls and internal control over financial reporting were ineffective due to material weaknesses, with remediation underway - As of March 31, 2024, the CEO and CFO concluded that disclosure controls and procedures were not effective[285][287] - Management concluded that internal control over financial reporting was not effective as of March 31, 2024, due to identified material weaknesses[291] - Material weaknesses include an ineffective control environment, unresolved segregation of duties conflicts with system access, failures in IT General Controls (user access, application change management, logical access controls) for a third-party IT system, and ineffective management review procedures[295][310] - Remediation efforts include improving guidance, implementing a whistleblower hotline, adopting new accounting policies, hiring personnel, and planning for a new accounting system to address IT control limitations[296][297][298] - Previously identified material weaknesses (ineffective entity-level controls, insufficient personnel, inadequate oversight, and control failures over journal entries/reconciliations) have been remediated, except for the need for sufficient qualified personnel and enhanced management review procedures[299] - The independent registered public accounting firm, Pannell Kerr Forster of Texas, P.C., issued an adverse opinion on the company's internal control over financial reporting as of March 31, 2024[305] ITEM 9B: OTHER INFORMATION There is no other information to report under this item ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to AMMO, Inc PART III This section incorporates information on directors, executive compensation, security ownership, related party transactions, and principal accounting fees by reference ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement ITEM 11: EXECUTIVE COMPENSATION Executive compensation information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security ownership information for beneficial owners and management is incorporated by reference from the 2024 proxy statement ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information on related party transactions and director independence is incorporated by reference from the 2024 proxy statement ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES Principal accounting fees and services information is incorporated by reference from Proposal 2 in the 2024 proxy statement PART IV This section includes exhibits, financial statement schedules, and required signatures for the annual report ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists financial statements, schedules, and a comprehensive index of exhibits filed with the Form 10-K - Financial Statements and Financial Statement Schedules are set forth under Part II, Item 8 of this report[324] - A complete list of exhibits, including merger agreements, certificates of incorporation, bylaws, license agreements, employment agreements, and certifications, is provided[325][326] SIGNATURES The report is duly signed by the Chief Executive Officer, Chief Financial Officer, Chairman, and other Directors on June 13, 2024 - The report is signed by Jared R. Smith, Chief Executive Officer, and Robert D. Wiley, Chief Financial Officer, on June 13, 2024[332] - Signatures from the Chairman of the Board, Fred W. Wagenhals, and other Directors are also included[333] Index to Consolidated Financial Statements This section indexes the consolidated financial statements, including the auditor's report, balance sheets, statements of operations, equity, cash flows, and notes Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion on financial statements but an adverse opinion on internal controls due to material weaknesses - Pannell Kerr Forster of Texas, P.C. issued an unqualified opinion on AMMO, Inc.'s consolidated financial statements for the three-year period ended March 31, 2024[338][341] - However, the firm expressed an adverse opinion on the company's internal control over financial reporting as of March 31, 2024, due to identified material weaknesses[339][305] - A critical audit matter identified was the impairment of long-lived assets, due to the judgment and subjectivity involved in reviewing management's estimates for projected revenue growth, operating margins, and future production changes[343] Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2024 and 2023 Consolidated Balance Sheets (March 31, 2024 vs 2023) | ASSETS | March 31, 2024 | March 31, 2023 | |---|---|---| | Current Assets: | | | | Cash and cash equivalents | $55,586,441 | $39,134,027 | | Accounts receivable, net | $28,221,321 | $29,346,380 | | Inventories | $45,563,334 | $54,344,819 | | Prepaid expenses | $2,154,170 | $5,126,667 | | Current portion of restricted cash | - | $500,000 | | Total Current Assets | $131,525,266 | $128,451,893 | | Equipment, net | $58,082,040 | $55,963,255 | | Other Assets: | | | | Deposits | $349,278 | $7,028,947 | | Patents, net | $4,539,290 | $5,032,754 | | Other intangible assets, net | $111,049,067 | $123,726,810 | | Goodwill | $90,870,094 | $90,870,094 | | Right of use assets - operating leases | $2,000,093 | $1,261,634 | | Deferred income tax asset | $1,487,088 | - | | TOTAL ASSETS | $399,902,216 | $412,335,387 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Current Liabilities: | | | | Accounts payable | $23,156,495 | $18,079,397 | | Accrued liabilities | $7,030,667 | $4,353,354 | | Current portion of operating lease liability | $479,651 | $470,734 | | Note payable related party | - | $180,850 | | Current portion of construction note payable | $273,459 | $260,429 | | Insurance premium note payable | - | $2,118,635 | | Total Current Liabilities | $30,940,272 | $25,463,399 | | Long-term Liabilities: | | | | Contingent consideration payable | $59,838 | $140,378 | | Construction note payable, net of unamortized issuance costs | $10,735,241 | $10,922,443 | | Operating lease liability, net of current portion | $1,609,836 | $903,490 | | Deferred income tax liability | - | $2,309,592 | | Total Liabilities | $43,345,187 | $39,739,302 | | Shareholders' Equity: | | | | Series A cumulative perpetual preferred Stock 8.75% | $1,400 | $1,400 | | Common stock | $119,181 | $118,294 | | Additional paid-in capital | $396,730,170 | $391,940,374 | | Accumulated deficit | $(37,620,566) | $(18,941,825) | | Treasury Stock | $(2,673,156) | $(522,158) | | Total Shareholders' Equity | $356,557,029 | $372,596,085 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $399,902,216 | $412,335,387 | Consolidated Statements of Operations This section presents the company's revenues, expenses, and net income or loss for the fiscal years ended March 31, 2024, 2023, and 2022 Consolidated Statements of Operations (FY2024, FY2023, FY2022) | Metric | 2024 | 2023 | 2022 | |---|---|---|---| | Net Revenues | | | | | Ammunition sales | $69,390,801 | $114,116,044 | $161,459,025 | | Marketplace revenue | $53,942,076 | $63,149,673 | $64,608,516 | | Casing sales | $21,721,695 | $14,174,084 | $14,201,625 | | Total Net Revenues | $145,054,572 | $191,439,801 | $240,269,166 | | Cost of Revenues | $102,431,803 | $136,031,204 | $151,505,657 | | Gross Profit | $42,622,769 | $55,408,597 | $88,763,509 | | Operating Expenses | | | | | Selling and marketing | $1,370,079 | $4,729,540 | $7,310,216 | | Corporate general and administrative | $29,583,274 | $24,980,079 | $16,986,344 | | Employee salaries and related expenses | $16,703,822 | $15,679,135 | $13,615,439 | | Depreciation and amortization expense | $13,542,791 | $13,278,762 | $13,702,148 | | Total operating expenses | $61,199,966 | $58,667,516 | $51,614,147 | | Income/(Loss) from Operations | $(18,577,197) | $(3,258,919) | $37,149,362 | | Other Expenses | | | | | Other income | $(332,593) | $25,181 | $21,840 | | Interest expense | $(446,473) | $(632,062) | $(637,797) | | Total other expense | $(779,066) | $(606,881) | $(615,957) | | Income/(Loss) before Income Taxes | $(19,356,263) | $(3,865,800) | $36,533,405 | | Provision for Income Taxes | $(3,791,063) | $730,238 | $3,285,969 | | Net Income/(Loss) | $(15,565,200) | $(4,596,038) | $33,247,436 | | Preferred Stock Dividend | $(3,122,049) | $(3,105,034) | $(2,668,649) | | Net Income/(Loss) Attributable to Common Stock Shareholders | $(18,687,249) | $(7,701,072) | $30,578,787 | | Net Income/(Loss) per share | | | | | Basic | $(0.16) | $(0.07) | $0.27 | | Diluted | $(0.16) | $(0.07) | $0.27 | | Weighted average number of shares outstanding | | | | | Basic | 118,249,486 | 117,177,885 | 112,328,680 | | Diluted | 118,249,486 | 117,177,885 | 114,189,720 | Consolidated Statements of Stockholders' Equity This section details changes in shareholders' equity, including common stock, preferred stock, additional paid-in capital, and accumulated deficit Consolidated Statements of Stockholders' Equity (FY2024, FY2023, FY2022) | Metric | Preferred Stock (Number) | Preferred Stock (Par Value) | Common Shares (Number) | Common Shares (Par Value) | Additional Paid-In Capital | Accumulated (Deficit) | Treasury Stock | Total | |---|---|---|---|---|---|---|---|---| | Balance as of March 31, 2021 | - | $ - | 93,099,967 | $93,100 | $202,073,968 | $(41,819,539) | $ - | $160,347,529 | | Acquisition stock issuances | - | - | 20,000,000 | 20,000 | 142,671,282 | - | - | 142,691,282 | | Common stock issued for exercised warrants | - | - | 431,080 | 431 | 943,476 | - | - | 943,907 | | Common stock issued for cashless warrant exercise | - | - | 374,584 | 375 | (375) | - | - | - | | Common stock issued for services and equipment | - | - | 772,450 | 773 | 1,630,928 | - | - | 1,631,701 | | Employee stock awards | - | - | 1,807,666 | 1,808 | 5,757,192 | - | - | 5,759,000 | | Stock grants | - | - | - | - | 252,488 | - | - | 252,488 | | Issuance of Series A Preferred Stock, net of issuance costs | 1,400,000 | 1,400 | - | - | 31,007,396 | - | - | 31,008,796 | | Warrant issued for services | - | - | - | - | 1,090,076 | - | - | 1,090,076 | | Preferred stock dividends declared | - | - | - | - | - | (2,524,087) | - | (2,524,087) | | Dividends accumulated on preferred stock | - | - | - | - | - | (144,562) | - | (144,562) | | Net income | - | - | - | - | - | 33,247,436 | - | 33,247,436 | | 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 exercised warrants | - | - | 200,003 | 200 | 101,306 | - | - | 101,506 | | Common stock issued for cashless warrant exercise | - | - | 99,762 | 99 | (99) | - | - | - | | Employee stock awards | - | - | 1,777,294 | 1,776 | 5,806,003 | - | - | 5,807,779 | | Stock grants | - | - | - | - | 179,094 | - | - | 179,094 | | Warrants issued for services | - | - | - | - | 427,639 | - | - | 427,639 | | Preferred stock dividends declared | - | - | - | - | - | (638,071) | - | (638,071) | | Dividends accumulated on preferred stock | - | - | - | - | - | (144,618) | - | (144,618) | | Preferred stock dividend | - | - | - | - | - | (2,322,346) | - | (2,322,346) | | Net Loss | - | - | - | - | - | (4,596,038) | - | (4,596,038) | | Treasury shares purchased | - | - | (268,328) | (268) | - | - | (522,158) | (522,426) | | 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 | | Common stock issued for exercised warrants | - | - | 31,750 | 32 | 76,168 | - | - | 76,200 | | Employee stock awards | - | - | 1,936,951 | 1,938 | 4,080,170 | - | - | 4,082,108 | | Stock grants | - | - | - | - | 203,000 | - | - | 203,000 | | Common stock purchase options | - | - | - | - | 430,457 | - | - | 430,457 | | Preferred stock dividends declared | - | - | - | - | - | (638,071) | - | (638,071) | | Dividends accumulated on preferred stock | - | - | - | - | - | (144,618) | - | (144,618) | | Preferred stock dividend | - | - | - | - | - | (2,330,852) | - | (2,330,852) | | Net loss | - | - | - | - | - | (15,565,200) | - | (15,565,200) | | Treasury shares purchased | - | - | (1,082,112) | (1,082) | - | - | (2,150,998) | (2,152,080) | | Balance as of March 31, 2024 | 1,400,000 | $1,400 | 119,181,067 | $119,182 | $396,730,169 | $(37,620,566) | $(2,673,156) | $356,557,029 | Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and