AMMO(POWW) - 2025 Q4 - Annual Report

Part I Business Outdoor Holding Company now exclusively operates GunBroker.com, an online marketplace for firearms and accessories, facing competition and extensive regulation after its ammunition segment sale - On January 20, 2025, the company agreed to sell its Ammunition Manufacturing Business for a gross price of $75.0 million, closing on April 18, 2025, with net proceeds of approximately $42.9 million, followed by a name change to Outdoor Holding Company[20] - The GunBroker.com marketplace is the company's sole continuing operation, with approximately 8.4 million registered users and an average of 3.67 million daily listings as of March 31, 2025[22] - The company implemented several platform enhancements in fiscal year 2025, including an enhanced shopping cart, improved auction checkout, and a redesigned homepage[23][27] - The business operates in a highly regulated industry, requiring compliance with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), the National Firearms Act (NFA), and the Gun Control Act (GCA), among other federal, state, and local laws[37] - As of June 10, 2025, the company had 81 employees, with none represented by a union[32] Risk Factors The company identifies numerous business, legal, regulatory, and financial risks, including dependence on user retention, intense competition, cybersecurity threats, and material weaknesses in internal controls - Business performance is highly dependent on the ability to attract and retain an active community of buyers and sellers on the GunBroker platform[46] - The company faces substantial competition from peer-to-peer marketplaces, e-commerce dealers, direct-to-consumer manufacturers, and traditional auction houses with online platforms[51][53] - The restatement of financial statements has led to significant costs, management diversion, and a pending SEC investigation into areas including share-based compensation accounting and executive compensation disclosure[93] - Management has concluded that there are material weaknesses in internal control over financial reporting related to the control environment, complex accounting, related-party transactions, and segregation of duties, increasing the risk of financial misstatement[104][106] - The business is exposed to significant regulatory risk from federal, state, and local laws governing firearms and ammunition, which could change and adversely impact demand for products sold on the platform[110][113][114] - The Series A Preferred Stock ranks junior to all company indebtedness and other liabilities, and its trading market may lack adequate liquidity[127][129] Unresolved Staff Comments The company reports that it has no unresolved comments from the SEC staff - None[140] Cybersecurity The company's cybersecurity risk management is integrated into its overall risk framework and overseen by the Board of Directors, with an Information Security Program in place to protect data - The Board of Directors provides oversight for cybersecurity risk management, receiving reports from management and senior IT leadership[146][148] - The company's Information Security Program is designed to protect personal and proprietary information and is periodically assessed against the NIST Cybersecurity Framework and PCI DSS[143][145] - The company acknowledges experiencing cybersecurity incidents in the ordinary course of business but states they have not had a material adverse effect on the company to date[151] Properties The company leases two primary facilities: its executive offices in Scottsdale, Arizona, and the GunBroker operations office in Atlanta, Georgia Leased Properties | Location | Size (sq ft) | Monthly Rent | Purpose | | :--- | :--- | :--- | :--- | | Scottsdale, AZ | ~21,000 | ~$25,000 | Principal executive, administration, marketing | | Atlanta, GA | 10,000 | ~$20,000 | GunBroker offices and operations | Legal Proceedings The company reports on several significant legal matters, including the settlement and dismissal of the Delaware Litigation and an ongoing breach of contract lawsuit seeking $100 million in damages - The Delaware Litigation, involving lawsuits between the company and Steve Urvan, was fully settled and dismissed with prejudice in June 2025[154] - The MN Action involves a breach of contract claim by Innovative Computer Professionals, Inc (DCP) against GunBroker.com, alleging $100 million in damages, with a trial expected in January 2026[157] Mine Safety Disclosure This item is not applicable to the company's operations - Not applicable[158] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq under "POWW", with no common stock dividends ever paid, while a $30.0 million share repurchase program expired in February 2025 with $8.6 million utilized - The company's Common Stock is traded on the Nasdaq Capital Market under the symbol "POWW"[160] - No dividends have ever been declared or paid on Common Stock, but the company paid preferred dividends on its Series A Preferred Stock amounting to $3.0 million in each of the fiscal years 2025, 2024, and 2023[162] - A share repurchase program for up to $30.0 million of common stock expired on February 6, 2025, with $8.6 million used to repurchase approximately 4.8 million shares, leaving $21.4 million unused at expiration[165][166] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A details the company's financial performance, focusing on continuing operations after the Ammunition segment divestiture, reporting a significant net loss and decreased liquidity due to litigation and increased legal fees - The company sold its Ammunition segment, which closed on April 18, 2025, for net proceeds of approximately $42.9 million, with the segment now reported as discontinued operations[175] - A major litigation with Steve Urvan was settled in May 2025, including issuing a warrant for 7.0 million shares, a $12.0 million promissory note, and a $39.0 million promissory note, with Mr Urvan appointed CEO and Chairman[177][178][179][180] Key Financial Metrics (Continuing Operations, in millions) | Financial Metric (Continuing Operations) | FY 2025 | FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $49.4 | $53.9 | (8.4%) | | Gross Profit | $42.9 | $46.3 | (7.3%) | | Loss from Operations | $(59.7) | $(6.4) | (827%) | | Net Loss from Continuing Operations | $(65.2) | $(5.4) | (1108%) | | Adjusted EBITDA | $15.3 | $24.0 | (36.3%) | - The significant increase in operating expenses in FY2025 was primarily due to a $29.1 million contingency for the Delaware Litigation and a $14.1 million increase in legal and professional fees related to the restatement, investigations, and litigation[197] - Cash and cash equivalents decreased by $25.4 million, from $55.6 million at the end of FY2024 to $30.2 million at the end of FY2025[210] - A critical accounting estimate involved classifying the Ammunition segment as held for sale, which resulted in an estimated loss on classification of approximately $45.8 million[236] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, including fluctuations in interest rates and commodity prices, in the ordinary course of its business activities, but has not used market risk sensitive instruments for trading purposes - The company is exposed to market risks from fluctuations in interest rates and commodity prices, which can affect its operating, investing, and financing activities[244] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses identified during a Special Committee Investigation, leading to a financial restatement and an adverse auditor opinion - A Special Committee Investigation uncovered accounting errors that required the restatement of financial statements for fiscal years 2022, 2023, and 2024[246][247] - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to identified material weaknesses[249] - Material weaknesses were identified in several areas: Control Environment, Information and Communication, Monitoring Activities, and Control Activities (including Complex Technical Accounting, Related Party Transactions, Financial Reporting, and Segregation of Duties)[254][255][256] - Management has initiated a remediation plan that includes hiring a new CFO and VP of Accounting, reinforcing compliance communications, implementing new policies for related parties and perquisites, and establishing a formal disclosure committee[258] - The independent registered public accounting firm issued an adverse opinion, stating the Company has not maintained effective internal control over financial reporting as of March 31, 2025[264] Part III Directors, Executive Officers, and Corporate Governance Information for this item, including details on directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2025 definitive proxy statement[278] Executive Compensation Details regarding executive compensation are incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2025 definitive proxy statement[279] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning the security ownership of certain beneficial owners and management is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2025 definitive proxy statement[280] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2025 definitive proxy statement[281] Principal Accounting Fees and Services Details about the fees paid to the principal accountant and the services provided are incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the company's 2025 definitive proxy statement[282] Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed as part of the Annual Report on Form 10-K, including governance documents, material contracts, and certifications, and indicates that financial statements and schedules are included under Item 8 - This section provides a comprehensive list of all exhibits filed with the Form 10-K, such as the Asset Purchase Agreement for the ammunition business sale, the Settlement Agreement with Steve Urvan, and various executive employment and separation agreements[286][287][288] Financial Statements and Notes Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the consolidated financial statements but an adverse opinion on internal control over financial reporting due to material weaknesses, identifying "Settlement Valuation" as a critical audit matter - The auditor issued an unqualified opinion on the financial statements, finding them to be fairly presented in conformity with U.S GAAP[300] - An adverse opinion was issued on the company's internal control over financial reporting due to material weaknesses[301] - The valuation of the $29.1 million litigation settlement contingency was identified as a Critical Audit Matter due to the significant management judgment and subjectivity involved[305] Consolidated Financial Statements The consolidated financial statements present the company's financial position, results of operations, and cash flows, reflecting a significant decrease in total assets, an increase in total liabilities, and a substantial net loss driven by continuing and discontinued operations Consolidated Balance Sheet (in millions) | Consolidated Balance Sheet (in millions) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $72.1 | $131.5 | | Total Assets | $297.3 | $403.0 | | Total Current Liabilities | $62.1 | $31.0 | | Total Liabilities | $75.3 | $45.0 | | Total Shareholders' Equity | $222.0 | $358.0 | Consolidated Statement of Operations (in millions) | Consolidated Statement of Operations (in millions) | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Net Revenues (Continuing) | $49.4 | $53.9 | $63.1 | | Net Loss from Continuing Operations | $(65.2) | $(5.4) | $3.6 (Income) | | Loss from Discontinued Operations | $(65.6) | $(11.2) | $(12.4) | | Net Loss Attributable to Common Shareholders | $(133.9) | $(19.7) | $(11.9) | Consolidated Statement of Cash Flow (in millions) | Consolidated Statement of Cash Flow (in millions) | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Cash from Continuing Operations | $(5.1) | $17.5 | | Net Cash from Discontinued Operations | $(7.4) | $9.3 | | Net Decrease in Cash | $(25.4) | $16.0 (Increase) | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial results, including the accounting for discontinued operations, a $29.1 million litigation settlement contingency, debt instruments, related-party transactions, and subsequent events like the ammunition business sale and litigation settlement terms Note 4: Discontinued Operations and Assets Held for Sale This note details the financial impact of classifying the Ammunition segment as held for sale and reporting it as a discontinued operation, including a $45.8 million impairment charge in FY2025 - The Ammunition segment was classified as held for sale, and its results are presented as discontinued operations for all periods shown[386] - An impairment charge of $45.8 million was recorded in FY2025 to write down the carrying value of the Ammunition segment's assets to fair value less costs to sell, including a $16.9 million write-down of inventory[390][392][394] Discontinued Operations (Ammunition Segment) | Discontinued Operations (Ammunition Segment) | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Revenues | $74.9M | $91.1M | | Loss from Discontinued Operations (pre-tax) | $(67.2)M | $(14.1)M | | Includes $45.8M impairment in FY2025 | | | Note 9: Related Party Transactions This note discloses several transactions with related parties, including final payments on a note to Jagemann Stamping Company, the $8.0 million Triton Settlement, and undisclosed payments received by a former executive from a company vendor - The company paid the remaining balance on a promissory note to former related party Jagemann Stamping Company during FY2024[410] - In connection with the Triton Settlement, the company paid $8.0 million, with a portion effectively covered by the cancellation of 2,857,143 shares held by Steve Urvan[374][375] - The company was made aware that a former executive, Chris Larson, received undisclosed payments totaling $814,863 from a third-party service provider to the company between January 2022 and March 2024[415][417] Note 13: Income Taxes The company's effective tax rate was 15.2% for FY2025, with a significant $36.0 million valuation allowance recorded against net deferred tax assets due to uncertainty regarding their future realization, resulting in a $6.3 million tax provision despite a pre-tax loss - For FY2025, the company recorded a tax provision of $6.3 million on a pre-tax loss from continuing operations of $58.9 million[446] - A valuation allowance of $36.0 million was recorded against deferred tax assets in FY2025 due to uncertainty about their future realization[446][449] - The company has a liability for uncertain tax positions of $1.6 million as of March 31, 2025, which includes accrued penalties and interest[450] Note 16: Subsequent Events This note details significant events after the fiscal year-end, including the sale of the Ammunition business, separation agreements with former executives, and the settlement of the Delaware Litigation with Steve Urvan, involving the issuance of warrants and promissory notes - The sale of the Ammunition Manufacturing Business was completed on April 18, 2025, resulting in a recognized gain on sale of $1.3 million[462] - On May 30, 2025, the company settled litigation with Steve Urvan, issuing a warrant to purchase 7.0 million shares at $1.81/share as part of the settlement[470][471] - The settlement also required the issuance of two unsecured promissory notes to Mr Urvan's designee: one for $12.0 million and another for $39.0 million[473][475]