AMMO INC

Introduction

Ammo Inc. is a conglomerate of two premium positions in the shooting sports industry. Ammo Inc. started in ammunition manufacturing and broadened its portfolio with the acquisition of GunBroker.com (“GunBroker”) in 2021. GunBroker is an e-commerce marketplace (“Marketplace”) that connects buyers and sellers with new/used firearms and ancillary gear and componentry for the outdoor community. GunBroker helps facilitate this community with a state and federal compliant solution that connects buyers with sellers across the United States (“U.S.”) with their local federally licensed firearm dealers. This allows our base of approximately 8.1 million users to follow ownership policies and regulations through our network of over 31,000 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 view into the total domestic market for the purpose of understanding sales trends at a granular level across all elements of the outdoor and sports shooting space.

Reportable Segments

We operate our business within, and our Chief Executive Officer reviews financial performance based on two operating segments as described below.

See Note 20 of our consolidated financial statements for more information regarding our reportable segments.

Marketplace Segment - GunBroker

We acquired GunBroker.com on April 30, 2021, pursuant to an agreement and plan of merger by and among us, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, dated as of such date, whereby Sub merged with and into Gemini, with Sub surviving the merger as our wholly owned subsidiary. At the time of the merger, Gemini had nine subsidiaries, all of which related to Gemini’s ownership of the GunBroker.com business.

GunBroker is a large online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo, GunBroker does not hold any inventory listed on its site and serves to facilitate transactions between buyers and sellers. Third-party sellers list items on the site and federal and state laws govern the sale of firearms and other restricted items. Licensed firearms dealers act as transfer agents to ensure compliance with ownership policies and regulations during online transactions. GunBroker has approximately 8.1 million registered users and had over 2.6 million average daily listings on its site for the 2024 fiscal year.

We intend to continue to expand the services we provide on GunBroker, which will enable us to become a partner to those in our industry. In this regard, we implemented the following services since January 2023;

● Payment Processing – facilitating payment between parties allowing sellers to offer fast and secure electronic payments and allowing buyers to experience the ease of instant checkout.

● Carting Ability – enabling buyers to checkout multiple items from multiple sellers in a single transaction. Buyers will be able finalize transactions, including both regulated and nonregulated items, allowing one payment, while also having the ability to ship their purchases to more than one location. By way of example, a buyer will be able to complete a transaction with a single payment and ship the regulated items purchased to a registered federal firearms license dealer and the nonregulated items directly to their own address.

● GunBroker Analytics – through the compilation and refinement of vast Marketplace data, we offer e-commerce market analytics to our industry peers allowing them to better manage business strategy and planning. The analytics offering will be rebranded to Outdoor Analytics during fiscal year 2025 to expand service offerings.

● GunBroker Advertising – content creation for manufacturers, email campaigns, and banner ads are all part of our advertising offerings to the outdoor industry.

Further, we intend to implement the following additional services in our 2025 fiscal year:

● Collector’s Elite – a new initiative designed specifically for the discerning collector. This premium program offers curated, high-end auctions featuring rare and distinct firearms and collectibles, with a unique, cost-effective structure tailored to enhance both buyer and seller experiences.

● Financing Partnerships – through our partnership with Gearfire Capital, we aim to empower retailers by offering flexible financing options to their customers, enhancing purchasing power and driving sales growth. This initiative will enable participating retailers to offer their customers competitive financing options, making it easier for buyers to purchase the products they need and want.

Enhance Market Share, Brand Recognition, and Customer Loyalty

Our work to enhance and simplify the user experience on the GunBroker Marketplace platform, while adding to its merchandise and related offerings, is designed to enhance the GunBroker brand by ensuring customer (both buyers and sellers) adhesion is amplified as they access one of the largest single on-line destinations for outdoor and shooting sports enthusiasts within the U.S. market.

Ammunition Segment – Manufacturing

Our manufacturing operations are currently based out of Manitowoc, Wisconsin (“WI”). We manufacture small arms ammunition and their components for the commercial, military, and law enforcement community. Our core competency lies in our ability to deep draw rifle brass casings with a high degree of precision up to 50 caliber. As the ability to deep draw rifle cases allows our manufacturing facility to have precise control over dimensions, ensuring consistent cartridge dimensions for reliable firearm function. Our manufacturing capacities are dependent upon mix, labor, and the number of shifts we are running. We emphasize an American heritage by using predominantly American-made components and raw materials in our products that are produced, inspected, and packaged at our facilities in Manitowoc, WI.

We focus on manufacturing premium pistol and rifle ammunition and supporting industry partners for manufactured components. We will continue to leverage our proprietary brands like STREAK VISUAL AMMUNITION™ and stelTH/™ and extend our product offering with premium rifle lines and brands. We also support the U.S. military with our developmental ammunition programs as we seek out and effectively execute upon new governmental-based opportunities. Our production processes focuses on safety, consistency, precision, and cleanliness. Each round is developed for consistency, velocity, accuracy, and repeatability. Each round is chamber gauged, a dimension inspection process, and inspected with quality control processes that meet or exceed Sporting Arms and Ammunition Manufacturers’ Institute (“SAAMI”) and Commission Internationale Permanente pour l’Epreuve des Armes à Feu Portatives (“CIP”) standards.

Our Growth Strategy

We intend to continue to enhance our position as a designer, producer, and marketer of ammunition products via our manufacturing and related sales operations, while simultaneously enhancing and embracing the data we have in GunBroker.com to allow us to see growing trends and demands in the U.S. customer base, and to adjust our business plans and strategies accordingly.

We believe that the shift in our operational strategy focusing on higher brass casing production and sales negatively impacted our sales in the year ended March 31, 2024, as compared to the year ended March 31, 2023.

Design, Produce, and Market Innovative, Distinctive, Performance-Driven, High-Quality Ammunition and Ammunition Components

We are focused on designing, producing, and marketing innovative, distinctive, performance-driven, high-quality products that appeal to retailers, manufacturers, and consumers that will enhance our users’ shooting experiences. Our research and development activities continue to drive opportunity and market attractiveness for our brands. We balance our Research and Development (“R&D”) prowess with best-in-class operational efficiencies and continue to drive our costs down through rigorous continuous improvement initiatives.

Continue to Strengthen Relationships with Channel Partners and Retailers.

We continue to strive to strengthen our relationships with our current distributors, specialty retailers, dealers, and OEM manufacturers. The success of our efforts depends on new caliber introduction, innovation in our operations, quality, performance of our products, attractiveness of our retail packaging, and the guarantees we bring to our user community through our customer support efforts.

Emphasis on Customer Satisfaction and Loyalty

We plan to continue to emphasize customer satisfaction and loyalty by offering innovative, distinctive, high-quality products on a timely basis and by offering effective customer service, training, and support for the user community. We regard the features, quality, and performance of our products as the most important components of our customer satisfaction and loyalty efforts.

Continuously Improving Operations

We continue our efforts to enhance our production and lean out our operations by increasing daily production quantities through equipment acquisition, shift expansion, process improvements, increased operational availability of our equipment, and increased overall efficiency. Since the opening in August 2022 of the Company’s state-of-the-art manufacturing plant in Manitowoc, WI, it positioned AMMO, Inc. to be the leader in brass case supply to the OEM market and under the many brands we go to market under. The plant grants us the ability to increase capacity based upon the needs of the market and through further expansion of our casing and loading lines.

Products

We design, produce, and sell small caliber ammunition and components for commercial and military applications for a variety of calibers ranging from 25 auto to 50 caliber. We ship our ammunition in the form of cartridges (or rounds), and ammunition casings for pistol ammunition through large rifle ammunition. A cartridge consists of four components: a case made of brass, steel, or polymer that holds together all the other components of the cartridge; the primer, which is an explosive chemical compound that ignites the gunpowder when struck by the firing pin; the gun powder, which is a chemical mixture that burns rapidly and creates an expanding gas when ignited and pushes the bullet out the barrel; and the bullet, or projectile, usually containing lead that is fired through the barrel to strike the target.

STREAK VISUAL AMMUNITION™

STREAK VISUAL AMMUNITION™ enables shooters to see the path of the bullets. STREAK VISUAL AMMUNITION™ rounds utilize non-flammable phosphor material that produces a glow by the utilization of the light emitted during the round discharge to make STREAK VISUAL AMMUNITION™ glow. The luminescent material is applied only to the base of the projectile, making it visible only to the shooter and those within a 30-degree viewing window. As a result, the glow of STREAK VISUAL AMMUNITION™ is not visible to the target unlike conventional tracers, which we believe is important to the military and law enforcement. We refer to the technology used by our STREAK VISUAL AMMUNITION™ as one-way luminescent or O.W.L. Technology™. Unlike conventional tracer ammunition, STREAK VISUAL AMMUNITION™ rounds are not incendiary and do not utilize burning metals to generate light, thereby eliminating heat generation and making them safer for use in various environments and avoiding serious fire hazards. STREAK VISUAL AMMUNITION™ comes in 380 auto, 9 millimeter, 40 Smith& Wesson, 44 magnum, 45 long colt, and 38 special among other calibers.

We hold the exclusive worldwide sales and distribution rights for the patented O.W.L. Technology™ used by our STREAK VISUAL AMMUNITION™ and pay a royalty based on our product sales incorporating this technology. On October 13, 2020, the Company further expanded its patent portfolio as a result of the U.S. Patent and Trademark Office (“USPTO”)’s issuance of Patent No. 10,801,821 recognizing the Company’s development of both a protectable and cutting-edge process to mass-produce luminescent projectiles, as well as the luminescent projectiles manufactured as a result of the protected process.

Stelth Subsonic Ammunition

Stelth Subsonic Ammunition (“/stelTH/™”) is designed specifically for superior performance in suppressed firearms. Stelth ammunition finds applications in which silence is paramount, such as in tactical training, predator night hunts, and clandestine operations. The Stelth ammunition is produced to be a clean burning total metal jacket round to slow baffle corrosion and reduce lead emissions that collect in the suppressor body. Stelth ammunition comes in 9mm, 40 Smith & Wesson, and 45 Automatic Colt Pistol, 223, and 300 Blackout.

Jagemann Munition Components

Through our wholly owned subsidiary Jagemann Munitions Components (“JMC”), we offer ammunition casings for pistol and rifle ammunition. Jagemann Munitions Components is backed by decades of manufacturing experience that allows the production of high-quality pistol brass and rifle brass components. Borne from the automotive industry and refined over time to deliver durable and consistent sporting components, Jagemann Munitions Components has become one of the largest brass manufacturers in the country.

Marketing

We market our products and services to consumers through distributors, dealers, mass market, and specialty retailers. We maintain consumer-focused product marketing and promotional campaigns, which include print and digital advertising campaigns; social and electronic media; product demonstrations; point-of-sales materials; in-store training, and in-store retail merchandising. Our use of social media includes Instagram, Facebook, X (formerly known as “Twitter”), LinkedIn, and YouTube. We also utilize third-party endorsements, social influencers, and brand ambassadors.

Product Innovation and Development

The Company was founded on delivering new and innovative products, such as STREAK VISUAL AMMUNITION™ to the firearms industry. Since initiating operations in 2017, we have developed proprietary products for the commercial and military sectors. We continue to develop new product calibers and products to meet and create market demand. The core competency of our manufacturing facility lies in its ability to deep draw rifle cases. Our goal is to fill the capacity of our new Manitowoc facility with innovative products around this core competency. In our fiscal year ended March 31, 2025, we will be delivering on product calibers with high demand in premium segments of the market such as 6.5 Precision Rifle Cartridge (“PRC”), 7 millimeter PRC, 450 Bushmaster, 35 Whelen, 350 Legend, and 45-70 both in our AMMO, Inc. Signature lines as well as brass for OEM manufacturers. We expect that we and our competitors will continue to fight for shelf space at retail outlets and that, as our market transitions from high demand periods, we must introduce new product caliber designs to foster brand strength, market positioning, and loyalty. The targeted markets that we’ve expanded into encompass sport shooting enthusiasts, hunting-specific ammunition, self-defense ammunition, law enforcement and military agencies. We aim to further penetrate these sectors through product differentiation, focusing on our STREAK VISUAL AMMUNITION™, /stelTH/™, Signature-on-Target, and HUNT product lines, all of which offer higher profit margins relative to their selling price. We will continue to add talent and engage best in class resources to enable AMMO, Inc. to continue down this path.

Since the acquisition, we have evolved the GunBroker Marketplace to push best in class e-commerce standards. By streamlining customer service, we push proactive customer engagement based around outreach to the seller and buyer community. In March 2024, GunBroker went live with a multi-item cart and payment application to facilitate credit card processing empowering our buyer and sellers with a streamlined checkout process. This will enable GunBroker to facilitate cross selling and drive revenue for our marketplace community. We continue to develop listing processes and improve communication flow between buyers and sellers, while also optimizing the immense amount of market data. We currently use our platform data to present personalized marketing campaigns to the user base and will continue to evolve how we engage with our customer base. Marketing, analytics, and advertising programs have been instrumental in our success to date and we are continuing to build out our teams and structure for our aggressive go to market campaigns for this fiscal year.

Research and Development

We conduct research and development activities to enhance existing products and develop new products at our facilities in Manitowoc, WI, by utilizing our personnel and strategic relationships. We expense all costs associated with our research and development efforts through either our cost of goods sold, as they are performed by the same employees who produce our finished product, or through our general and administrative expenses if the product has not been brought to market.

GunBroker Marketplace researches and integrates advancements in search, document processing, database, and artificial intelligence technologies. Research and development investments continue to be made for enhanced security, data protection, customer service, improved site capacity, and system resiliency.

Suppliers

We purchase certain raw materials and components for our ammunition products, including brass, steel, or copper jackets; ammunition primers to ignite propellant; and projectiles. We believe that we have reliable sources of supply for all our raw material and component needs, but from time to time raw materials and components are subject to shortages and price increases. Most of our suppliers are U.S.-based and provide us these materials and components at competitive rates. We plan to continue to broaden our supplier base and secure multiple sources for all the raw materials and components that we require.

GunBroker continually evaluates partner relationships and integrations to strengthen and streamline communication and efficiency. Consolidation with best in class partners to strengthen relationships and generate cost savings by maximizing their product and service offerings.

Customers

We sell our products through distributors, “Big Box” retailers, manufacturers, specialty retailers, local ammunition stores, and shooting range operators. Our consumers include sport and recreational shooters, hunters, competitive shooters, individuals desiring home and personal protection, manufacturers, law enforcement and military agencies, and selected international markets. We distribute our products under six primary product lines: AMMO, Inc. Signature, STREAK VISUAL AMMUNITION™, /stelTH/™, HUNT, Signature-on-Target, and Jagemann Munitions Components. Sales outside of the United States require licenses and approval from either the U.S. Department of Commerce or the U.S. State Department. This permits the Company to export and broker ammunition and other controlled items covered under ITAR.

GunBroker Marketplace is uniquely positioned to service the outdoor oriented customer. Traditionally our customers have been considered the buyers and sellers on the marketplace, but we are growing into servicing manufacturers, our sellers, and the industry with analytics, advertising and promotional content. We also support numerous regional chains, individuals, and small businesses.

Competition

The ammunition and ammunition casing industry is dominated by a small number of companies, a number of which are divisions of large public companies. We compete primarily on the quality, reliability, features, performance, brand awareness, and price of our products. Our primary competitors include Federal Premium Ammunition, Remington Arms, the Winchester Ammunition division of Olin Corporation, Hornady Manufacturing Company, and various smaller manufacturers and suppliers, including Black-Hills Ammunition, CBC Group, Fiocchi Ammunition, PMC, Rio Ammunition, and Wolf Ammunition.

Our GunBroker Marketplace competition comes in multiple formats including other online marketplaces, direct e-commerce, brick & mortar, big box retailers, national, regional, and local stores. Through our marketplace we have created a symbiotic relationship with these same businesses. As e-commerce evolves, retail store front competitors such as Sportsman’s Warehouse, Bass Pro Shops, Cabela’s, and Academy Sports have the ability to attract our customers through in-store pick up and no Federal Firearms License (“FFL”) transfer fees. Manufacturers with an e-commerce presence such as Palmetto State Armory, Ammunition Depot, Vista Outdoors, and Freedom Munitions have the ability to market their products aggressively with less margin impact through their direct-to-consumer model.

Human Capital

As of June 10, 2024, we had a total of 374 employees. Of these employees, 263 were engaged in manufacturing, 29 in sales, marketing and customer service, 33 in research and development, manufacturing engineering, and software engineering, and 49 in various corporate and administrative functions (information technology, accounting, executives, etc.). None of our employees are represented by a union in collective bargaining with us. We believe that our employee relations are good.

Our human capital proposition is centered around a team-oriented work environment that promotes a culture that fosters engagement, hard work, a desire to win, and accountability. At our core, we strive to attract, develop, and retain employees that want to be a part of a dynamic workforce centered around delivering new products and services to our passionate user base. We value diversity, engagement, and unique viewpoints that enable us to excel in the marketplace.

Seasonality

Our business has not exhibited a material degree of seasonality to date but as we move into more rifle production and strive to meet our customers’ projections and needs, seasonality will have a larger effect on our sales pipeline. In particular, our net sales could be moderately higher in our second and third fiscal quarters because of the fall hunting and holiday seasons.

Intellectual Property

We believe our that tradenames, trademarks, and service markets are important factors in distinguishing our products. In addition, we regard our trade secrets, technological resources, knowhow, licensing arrangements, and endorsements as important competitive factors.

Under the terms of the 2017 merger between our wholly-owned subsidiary, AMMO Technologies Inc., an Arizona corporation (“ATI”) and Hallam, Inc. (“Hallam”), ATI succeeded to all of the assets of Hallam and assumed the liabilities of Hallam, which were none. The primary asset of Hallam was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013 owned by University of Louisiana at Lafayette (“ULL”). The license was formally amended and assigned to ATI pursuant to an Assignment and First Amendment to Exclusive License Agreement Assumption Agreement. Under the terms of the merger with Hallam, we, the sole shareholder of ATI, issued to Hallam’s two shareholders, 600,000 shares of our Common Stock, subject to restrictions, and payment of $200,000. The first payment of $100,000 to Hallam’s shareholders was paid on September 13, 2017, and the second payment of $100,000 was paid on February 6, 2018.

We hold the exclusive worldwide sales and distribution rights for the patented O.W.L. Technology™used by our STREAK VISUAL AMMUNITION™ via our license agreement with ULL. We pay ULL a royalty based on our product sales incorporating this patented technology. We have been using our O.W.L. Technology™ to compete for military contracts in part because we believe that the glow of STREAK VISUAL AMMUNITION™ not being visible to the target (which is unlike conventional tracers) is important to the military and law enforcement.

Such military use is allowed pursuant to that certain Amended and Restated Exclusive License Agreement between ATI and ULL, dated as of November 16, 2017 and effective as of January 1, 2018, as amended(the “License Agreement”). The License Agreement has been renewed twice and currently expires on January 1, 2026, and is renewable in the Company’s sole discretion for successive four-year periods provided the Company is not in breach of the License Agreement.

We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company. The licensing agreement grants us the exclusive worldwide rights through April 12, 2027 to Mr. James’ image rights and all trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. In addition, Mr. James agreed to make himself available for certain promotional activities and to promote Jesse James Branded Products through his own social media outlets. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.

Through our acquisition of SW Kenetics, Inc. (“SWK”) in 2018, we acquired the rights to a patent for modular projectiles. We use this technology is used in connection with our AP and HAPI lines of ammunition.

Included in the acquisition of Jagemann Munitions Components we acquired customer relationships, intellectual property, and the use of a tradename. These intangible assets are used in the operation and production of our ammunition casing business through Jagemann Munition Components.

Regulatory Matters

The manufacture, sale, and purchase of ammunition are subject to extensive federal, state, local, and foreign governmental laws. We are also subject to the rules and regulations of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and various state and international agencies that control the manufacture, export, import, distribution and sale of firearms, explosives, and ammunition. Such regulations may adversely affect demand for our products by imposing limitations that increase the costs or limit the availability of our products.

Our failure to comply with applicable rules and regulations may result in the limitation of our growth or business activities and could result in the revocation of licenses necessary for our business. Applicable laws and regulations provide for the following:

The handling of our technical data and the international sale of our products may also be regulated by the U.S. Department of State and Department of Commerce. These agencies can impose civil and criminal penalties, including denying us from exporting our products, for failure to comply with applicable laws and regulations.

In addition, bills have been introduced in Congress to establish, and to consider the feasibility of establishing a nationwide database recording so-called “ballistic images” of ammunition fired from new guns. Should such a mandatory database be established, the cost to us, our distributors, and our customers could be significant, depending on the type of firearms and ballistic information included in the database. Bills have been introduced in Congress in the past several years that would affect the manufacture and sale of ammunition, including bills to regulate their manufacture, importation, and sale.

Our business, and the business of all producers and marketers of ammunition and firearms, is also subject to numerous federal, state, local, and foreign laws, regulations, and protocols. Applicable laws have the following effects:

Also, the export of our products is controlled by International Traffic in Arms Regulations, or “ITAR”, and Export Administration Regulations, or “EAR”. The ITAR implements the provisions of the Arms Export Control Act and is enforced by the U.S. Department of State. The EAR implements the provisions of the Export Administration Act and is enforced by the U.S. Department of Commerce. Among their many provisions, the ITAR and the EAR require a license application for the export of many of our products. In addition, the ITAR requires congressional approval for any firearms export application with a total value of $1 million or higher. Further, because our manufacturing process includes certain toxic, flammable and explosive chemicals, we are subject to the Chemical Facility Anti-Terrorism Standards, as administered by the U.S. Department of Homeland Security, which require that we take additional reporting and security measures related to our manufacturing process.

We believe that existing federal, state, and local legislation relating to the regulation of firearms and ammunition have not had a material adverse effect on our sales of these products. However, the regulation of firearms and ammunition may become more restrictive in the future, and any such developments might have a material adverse effect on our business, operating results, financial condition, and cash flows. In addition, regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions.

Transactions taking place on the GunBroker site involving the lawful sale of firearms are facilitated from a listing and documentation standpoint by GunBroker. The transaction is consummated between a third-party buyer and seller and requires the direct involvement of an ATF FFL holder such as a gun shop or range that accepts receipt of the firearms and completes the transaction and delivery subject to confirmation of compliance with applicable federal and/or state laws.

Available Information

You can find reports on our company including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports on our websitewww.ammoinc.com under the “Investor Relations” heading. These reports are available free of charge and as soon as reasonably practicable after they have been filed with, or furnished to, the U.S. Securities and Exchange Commission (the “SEC”). We are providing the address of our website solely for the information of investors and the information on our website is not a part of or incorporated into this or any report that we file with the SEC.