Outdoor Holding Co (POWW) FY 2024 MD&A

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

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

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

Overview

AMMO,
Inc., owner of the GunBroker Marketplace, the largest online marketplace serving the firearms and shooting sports industries, and
a vertically integrated producer of high-performance ammunition and premium components began its operations in 2017.

Through
our GunBroker Marketplace segment (acquired in April 2021), we allow third party sellers to list items consisting of firearms,
hunting gear, fishing equipment, outdoor gear, collectibles, and much more on our site, while facilitating compliance with federal
and state laws that govern the sale of firearms and restricted items. This allows our base of over 8.1 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 unique view into the
total domestic market for the purpose of understanding sales trends at a granular level across all elements of the outdoor sports
and shooting space. Our vision is to expand the services on GunBroker and to become a peer to those in our industry. Recent
expansions we have made to the platform are;

●
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 – enables our buyers to checkout multiple items from multiple sellers in a single transaction. Our buyers are
able to finalize one transaction including both regulated and nonregulated items, while also affording them the ability to ship
their purchases to more than one location.

●
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 manufactures, email campaigns and banner ads are all part of our advertising offerings
to the outdoor industry.

Through
our Ammunition segment, we are tailoring our focus of our manufacturing operations to the production of premium pistol
and rifle ammunition and supporting industry partners with manufactured components such as premium pistol and rifle brass casings.
We will continue to leverage our flagship brands that are proprietary in nature like STREAK VISUAL AMMUNITION™ , /stelTH/™, Signature-on-Target, and HUNT and extend our product offering with premium rifle lines and brands that complement our technologically
innovative heritage. We also continue to ensure dynamic performance under the exacting standards of the U.S. military complex in
support of our cutting-edge developmental ammunition programs as we seek out and effectively execute upon new governmental-based
opportunities.

Results
of Operations

The following discussion is intended to provide our financial statements with a narrative
from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect
our future results. The following information should be read in conjunction with our consolidated financial statements included
in this Annual Report beginning on page F-1.

Fiscal
Year 2024 Compared to Fiscal Year 2023

Our financial
results for the year ended March 31, 2024 reflect our transition into our new operational
strategic position, focusing on higher brass casing production and sales. We believe
that we have hired a strong team of professionals and developed innovative products to establish our presence as a high-quality
ammunition provider and marketplace. We continue to focus on building profitability through our rifle brass manufacturing. We
experienced a 24.2% decrease in our Net Revenues for the year ended March 31, 2024 compared with the year ended March 31, 2023. This
was the result of decreased revenue in both of our reporting segments due to changes in market demand as discussed below, and specifically for our
ammunition division, changes in pricing, sales mix. 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. Additionally, equipment malfunction related to
rifle production in our manufacturing facility in Manitowoc caused lower production output contributing to lower sales
results. Our focus on creating profitability is in contrast to revenue growth.

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The
following table presents summarized financial information for the years ended March 31, 2024 and 2023, taken from our consolidated
statements of operations:

Non-GAAP
Financial Measures

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

Adjusted
EBITDA

Adjusted
EBITDA is a non-GAAP financial measures that displays our net loss, adjusted to eliminate the effect of certain items as described below.

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We
have excluded the following non-cash expenses from our non-GAAP financial measures: provision or benefit for income taxes;
depreciation and amortization; share-based or warrant-based compensation expenses; and changes to the contingent consideration fair
value. We believe that it is useful to exclude these non-cash expenses because the amount of such expenses in any specific period
may not directly correlate to the underlying performance of our business operations.

Adjusted
EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, and non-recurring expenses incurred as a
result of a proxy contest as these items are not components of our core operations.

Non-GAAP
financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the
related financial information prepared in accordance with GAAP. These limitations include the following:

Because
of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our
net loss and our other financial results presented in accordance with GAAP.

Net
Revenues

The following table shows our revenues by the various categories that comprise our total revenues for the years ended
March 31, 2024 and March 31, 2023. “Proprietary ammunition” include those lines of ammunition that we manufacture at our facilities
and sell under the brand names “STREAK VISUAL AMMUNITION™” and “/stelTH/™”. We define “standard ammunition” as non-proprietary ammunition that directly competes with other brand
manufacturers. Our “standard ammunition” includes ammunition that we manufacture at our facilities as well as any completed
ammunition that we acquire in the open market for sale to others. Also included in this category is low cost target pistol and rifle ammunition
as well as bulk packaged ammunition that we manufacture using reprocessed brass casings. Ammunition within the standard ammunition product
line typically carries much lower gross margins than our proprietary ammunition.

Net
Revenues for the year ended March 31, 2024 decreased by $46.4 million, or 24.2%, from the prior year due to changes in market
conditions. This was due to the result of a decrease of $40.2 million in sales of bulk pistol and rifle ammunition, $4.5 million in
sales of Proprietary Ammunition, and $9.2 million in sales generated from our GunBroker Marketplace, which primarily consists of
auction revenue, as well as payment processing revenue, and shipping income, partially offset by an increase of $7.5 million in our
casing sales. 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. Additionally, equipment
malfunction related to rifle production in our manufacturing facility in Manitowoc caused lower production output contributing to
lower sales results. Management anticipates an increase in ammunition casings sales as capacities come online in its new Manitowoc
facility.

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With
our new Manitowoc facility coming online we will continue to expand distribution into commercial markets, introduce new
product lines, and continue to initiate sales to U.S. law enforcement, military, and international markets.

For example, through
our acquisition of SWK, the Company has developed and deployed a line of tactical armor piercing (“AP”) and hard armor piercing incendiary
(“HAPI”) precision ammunition to meet the lethality requirements of both the U.S. and foreign military customers. We continue to demonstrate
our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement
discussions. The Company has since developed the ballistic match (“BMMPR”) and Signature-on-Target rounds under contract with the
U.S. Government in support of U.S. special operations which have been publicly announced pursuant to governmental authorization. Additional
work continues in support of the military operations of the U.S. and its ally military components which is not currently subject to disclosure.

It
is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for
our Company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution
channels, both in the United States and abroad, that we anticipated will drive sustained sales opportunity in the military, law enforcement,
and commercial markets.

Cost
of Revenues

Cost
of Revenues decreased by approximately $33.6 million from $136.0 million to $102.4 million for the year ended March 31, 2024 compared
to the comparable period ended in 2023. This was the result of a significant decrease in net sales as well increases to non-cash depreciation
related to increases in production equipment, expensing of increased labor, and overhead used to produce finished product during 2024
as compared to 2023. Cost of Revenues for our ammunition segment consists of product cost and cost directly and indirectly associated
with getting those products to a sellable state and for our marketplace segment, consists of cost associated with facilitating transactions
on the platform.

Gross
Margin

Our
gross margin percentage, which measures our gross profit as a percentage of sales increased to 29.4% during the year ended March 31,
2024 from 28.9% for the year ended March 31, 2023. This was primarily a result of our marketplace, GunBroker which, by nature has significantly higher margins than our manufactured products, offset
by increases in labor costs and overhead in our
ammunition segment.

We
believe that as we grow ammunition segment sales through new markets and expanded distribution that our gross margins will continue
to increase. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the
following:

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Operating
Expenses

Operating
expenses consists of selling and marketing expenses, corporate general & administrative, and employee salaries and related
expenses. Operating expenses increased by approximately $2.5 million for the year ended March 31, 2024 compared to the prior year,
and increased as a percentage of sales to 42.2% in the 2024 fiscal year from 30.6% for the year ended March 31, 2023. This increase
was primarily due to a $4.9 million, or 18.4%, increase in corporate general and administrative expenses, offset by a $3.4 million,
or 71.0%, decrease in selling and marketing expenses, during the year ended March 31, 2024 compared to the prior year.

Selling and marketing expenses
consists of commissions related to our sales, as well as advertising and marketing expenses. During the year ended March 31, 2024, our
selling and marketing expenses decreased primarily as a result of decreases in sales commission due to the decrease in the amount of sales
of our products and services compared to the year ended March 31, 2023.

The
increase in our corporate general and administrative expenses was due primarily to an increase of $9.2 million of nonrecurring
expenses, consisting of professional and legal fees that are nonrecurring in nature, offset by the lack of expenses relating to a proxy contest in connection with our annual meeting of stockholders held
on January 5, 2023, in connection with which we incurred $4.7 million in expenses.

In
addition, employee salaries and related expenses increased approximately $1.0 million for the year ended March 31, 2024 compared to the
year ended March 31, 2023. Such increase was primarily the result of $0.8 million of additional payroll expenses that we incurred as
a result of the implementation of an employee bonus program during the 2024 fiscal year.

Other Income and Expenses

Total other expense for the year
ended March 31, 2024, increased by $0.4 million compared to the year ended March 31, 2023. This was primarily the result of $0.2 million
in losses recorded on the disposal of assets.

The decrease in interest expense was mainly due to additional interest of approximately $0.2 million during the year
ended March 31, 2024 compared to the prior year on our Construction Note Payable, offset by approximately $0.3 million of interest income.

Income Taxes

For the year ended March 31, 2024, we recorded a benefit for federal and state income taxes of approximately $3.8
million in comparison to a $0.7 million provision for federal and state income taxes in the year ended March 31, 2023, as a result of
the increase in our net loss before taxes during fiscal 2024 compared to the prior year.

Net
Loss

We
ended the year ended March 31, 2024 with a net loss of approximately $15.6 million compared with a Net Loss of approximately $4.6 million
for the year ended March 31, 2023.

Our
goal is to continue to improve our operating results as we focus on increasing sales and reducing our operating expenses.

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Fiscal
Year 2023 Compared to Fiscal Year 2022

Results
of Operations

Our
financial results for the year ended March 31, 2023 reflect our newly positioned organization as
we transition into our new manufacturing facility. We believe that we have hired a strong team of professionals, developed innovative
products, and continue to raise capital sufficient to establish our presence as a high-quality ammunition provider and marketplace. We
continue to focus on growing our top line revenue and streamlining our operations. We continue to focus on growing our top line
revenue, and streamlining our operations. We experienced a 20.3% decrease in our Net Revenues for the year ended March 31, 2023 compared
with the year ended March 31, 2022. This was the result of decreased ammunition sales due to changes in market demand.

The following table presents summarized financial information for the years ended March 31, 2023 and 2022, taken
from our consolidated statements of operations:

Non-GAAP Financial Measures

Adjusted
EBITDA

In
addition to the adjustments described above, we have modified our adjusted EBITDA calculation in our 2023 fiscal year to remove the adjustment
for excise taxes as we believe this is a better representation of our operations. In prior periods, we included an adjustment for excise
taxes, but will not include this adjustment in future periods.

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Net
Revenues

The
following table shows our revenues by the various categories that comprise our total net revenues for the years ended March 31, 2023
and March 31, 2022.

Revenues for the year ended March 31, 2023 decreased by $48.8 million, or 20.3%, from the prior year almost entirely
as the result of a $48.1 million decrease in sales of bulk pistol and rifle ammunition. Sales of bulk pistol and rifle ammunition decreased
year-over-year due to changes in market conditions.

Cost of Revenues

Cost of revenues decreased by
$15.5 million, or 10.2%, for the year ended March 31, 2023 compared to the year ended March 31, 2022. This was the result of the decrease
in sales of our products, as discussed in “Revenues” above, as well increases to non-cash depreciation related to increases
in production equipment, expensing of increased labor, overhead, and raw materials used to produce finished product during 2023 as compared
to 2022.

Gross Margin

Our gross margin percentage decreased
to 28.9% during the year ended March 31, 2023 from 36.9% during the year ended March 31, 2022. This was primarily a result of increases
in the costs of materials, labor, and overhead in our ammunition segment, which was offset by our online marketplace, GunBroker.com which,
by nature has significantly higher margins than our manufactured products.

Operating Expenses

Operating expenses increased by
$7.1 million for the year ended March 31, 2023 compared to the prior year, and increased as a percentage of sales to 30.6% from 21.5%
for the year ended March 31, 2022. This increase was primarily due to increases of $8.0 million, or 47.1%, in corporate general and administrative
expenses and $2.1 million, or 15.2%, in employee salaries and related expenses, offset by a $2.6 million, or 35.3%, decrease in selling
and marketing expenses, during the year ended March 31, 2023 compared to the prior year.

For the year ended March 31, 2023, we incurred additional expenses in the amounts of $5.6 million related to a proxy
contest, of which $0.9 million was included non-cash stock compensation, and $1.2 million of nonrecurring expenses.

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Selling and marketing expenses
decreased during the year ended Marh 31, 2023, compared to the prior year, primarily as a result of the decreases in sales commission
due to the year-over-year decrease in the amount of sales of our products.

Corporate
general and administrative expenses increased year-over-year due to $6.6 million of legal and professional fees and expenses
incurred during 2023, largely related to the proxy contest, as discussed above, and $1.2 million of nonrecurring expenses, which
consist of professional and legal fees that are nonrecurring in nature, for which there were no comparable expenses during the year
ended March 31, 2022.

Employee
salaries and related expenses increased $2.1 million for the year ended March 31, 2023 compared to the year ended March 31, 2022,
primarily as a result of $2.1 million of additional payroll expenses incurred as a result of payments due upon termination without
cause as a result of the Proxy Settlement Agreement (as discussed in Note 17 – Related Party Transactions of our consolidated
financial statements) and the addition of employees in our Marketplace segment.

Other Income and Expense

For
the year ended March 31, 2023, other income and interest expense remained constant compared with year ended March 31, 2022. The
change to interest expense from the prior periods was mainly due to increases related to our Construction Note Payable of
approximately $0.3 million and decreases in activity related to our Factoring Liability and our Inventory Credit Facility of
approximately $0.3 million.

Income Taxes

For the year ended March 31, 2023, we recorded a provision for federal and state income taxes of approximately $0.7
million in comparison to $3.3 million in the year ended March 31, 2022, as a result of the decrease in net income(loss) before taxes.

Net
Income

We
ended the year ended March 31, 2023 with a net loss of approximately $4.6 million compared with a Net Income of approximately $33.2 million
for the year ended March 31, 2022.

Our
goal is to continue to improve our operating results as we focus on increasing sales and reducing our operating expenses.

Liquidity
and Capital Resources

As
of March 31, 2024, we had $55,586,441 of cash and cash equivalents, an increase of $16,452,414 from March 31, 2023.

Working
capital is summarized and compared as follows:

Liquidity

We expect existing
working capital, cash flow from operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund
our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings,
and related-party notes. These sources have been adequate to fund our recurring cash expenditures including but not limited to our working
capital requirements, capital expenditures to expand our operations, debt repayments, and acquisitions. We intend to continue to use
the aforementioned sources of funding for capital expenditures, debt repayments, share repurchases, and any potential acquisitions.

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Leases

We
lease three locations that are used for our offices, production, and warehousing. As of March 31, 2024, we had $2.6 million of fixed lease
payment obligations with $0.7 million payable within the next 12 months. Please refer to Note 10 – Leases for additional information.

Construction
Note Payable

We
financed a portion of our new production facility with our Construction Note Payable. We expect to make $0.8 million in principal and
interest payments within the next 12 months. The principal balance of the Construction Note will mature on October 14, 2026.

Revolving Loan

We have obtained a Revolving Loan
with Sunflower Bank, National Association (“N.A.”) for up to $20,000,000 in December of 2023. The proceeds may be used for working capital, general corporate purposes,
Permitted Acquisitions, to pay fees and expenses incurred in connection with the Revolving Line, to facilitate our stock repurchase program
and to fund our general business requirements. We have not made use of the Revolving Loan as of the date of this filing.

Changes
in cash flows are summarized as follows:

Operating
Activities

For
the year ended March 31, 2024, net cash provided by operations totaled $32.6 million. This was primarily the result of our net loss
of $15.6 million, offset by decreases to our period end inventories of $8.8 million, deposits of $6.7 million, prepaid expenses of
$4.0 million, accounts receivable of $0.4 million, increases in accounts payable of $5.1 million and increases in accrued
liabilities of $2.5 million. The cash provided by operations included the benefit of non-cash expenses for depreciation and
amortization of $18.8 million, employee stock compensation of $4.1 million, $0.4 million of allowance for credit losses, common
stock purchase options of $0.4 million, and stock grants totaling $0.2 million, which was offset by $3.8 million of deferred income
taxes.

For
the year ended March 31, 2023, net cash provided by operations totaled $35.6 million. This was primarily the result of our net loss
of $4.6 million, decreases to our period end accounts receivable of $14.4 million, inventories of $4.7 million,
deposits of $4.3 million, and  prepaid expenses of $2.8 million offset by increases in accounts payable and accrued
liabilities of $8.7 million and $2.8 million, respectively. The cash used in operations was partially offset by the benefit of
non-cash expenses for depreciation and amortization of approximately $17.5 million, employee stock compensation of $5.8 million,
$1.6 million of deferred income taxes, stock grants totaling $0.2 million, $0.2 million of allowance for credit losses, and $0.2
million of warrants issued for services.

Investing
Activities

During
the year ended March 31, 2024, we used $8.0 million in net cash for investing activities. Net cash used in investing activities
consisted of $8.0 million related to purchases of production equipment, and capitalized development costs related to our
marketplace, GunBroker.

During
the year ended March 31, 2023, we used approximately $12.5 million in net cash for investing activities. Net cash used in investing activities
consisted of approximately $12.5 million related to purchases of production equipment, the construction of our new manufacturing facility
in Manitowoc, WI, and capitalized development costs related to our marketplace, GunBroker.

Financing
Activities

During
the year ended March 31, 2024, net cash used in financing activities was $8.7 million, consisting of $3.2 million of insurance premium note payments, $3.0 million of preferred stock dividends paid, $2.2 million used to repurchase shares of Common Stock pursuant to our repurchase plan, and $0.2 million in payments of our related party note payable. These items were offset by $0.1
million of proceeds from warrants exercised for common stock. Additionally, $37.3 million was generated from accounts
receivable factoring, which was offset by payments of $37.3 million.

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During
the year ended March 31, 2023, net cash used in financing activities was $6.7 million, consisting of $3.0 million of preferred stock dividends paid, $2.1 million of insurance premium note payments, an $0.8 million reduction
in our Inventory Credit Facility, and  $0.7 million in payments of our related party note payable. These items were offset by $1.0
million generated from our construction note payable and $0.1 million of proceeds from warrants exercised for common stock. Additionally,
approximately $71.3 million was generated from accounts receivable factoring, which was offset by payments of approximately $72.3 million.

Off-Balance
Sheet Arrangements

As
of March 31, 2024, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future
material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.

Critical
Accounting Estimates and Policies

Our
discussion and analysis of our financial condition and results of operation are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, however actual results
may differ from these estimates. We have identified several accounting principles that we believe are key to the understanding of
our financial statements. These important accounting policies and estimates require our most difficult subjective
judgements.

We believe that certain assumptions and estimates associated with the valuation
of allowances for credit losses, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets,
stock-based compensation, and warrant-based compensation are material in nature due to the subjectivity associated with them and have
the greatest potential impact on our consolidated financial statements. Therefore, we consider the assumptions and estimates associated
with these (as further detailed below) to be our critical accounting estimates. Please refer to Note 2 – Summary of Significant
Accounting Policies of our consolidated financial statements for more information on our critical accounting estimates and policies.

Goodwill

We
evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that would more likely than
not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to utilize
a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test.
We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value
of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more
likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the
estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows.
Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected
category expansion, pricing, market segment share, and general economic conditions. Due to the declines in the value of our stock price
and market capitalization, we assessed qualitative factors to determine if it is more likely than not that the fair value of the Marketplace
segment is less than its carrying amount. Through our analysis we determined our stock price and market capitalization decline it is
not indicative of a decrease in the fair value of our Marketplace segment and a fair value calculation using the discounted cash flows
was more appropriate due to the operational performance of the reporting segment. Accordingly, the impairment of Goodwill was not warranted
for the year ended March 31, 2024. As of March 31, 2024, the Company has a goodwill carrying value of $90,870,094 ,
all of which is assigned to the Marketplace segment. However, due to declines in the value of the Company’s common stock and market
capitalization in previous years which have since stabilized, it is possible that the book values of our Marketplace segment could exceed its fair value, which may result in the recognition
of a material, noncash impairment of goodwill for the year ending March 31, 2025.

Use
of Estimates

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

Accounts
Receivable and Allowance for Credit Losses

Our
accounts receivable represents amounts due from customers for products sold and include an allowance for credit losses which
is estimated based on the aging of the accounts receivable and specific identification of uncollectible accounts. At March 31, 2024 and
March 31, 2023, we reserved $3,666,078 and $3,246,551, respectively, of allowance for credit losses.

Inventory

We
state inventories at the lower of cost or net realizable value. We determine cost by using the weighted-average cost of raw materials
method, which approximates the first-in, first-out method and includes allocations of manufacturing labor and overhead. We make provisions
when necessary, to reduce excess, potential damaged or obsolete inventories. These provisions are based on our best estimates. At March
31, 2024, and March 31, 2023, we conducted a full analysis of inventory on hand and expensed all inventory not currently in use, or for
which there was no future demand.

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Research
and Development

To
date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through
our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become
necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop
new technologies and lines of ammunition.

Revenue
Recognition

We
generate revenue from the production and sale of ammunition, ammunition casings, and marketplace fee revenue, which includes auction
revenue, payment processing revenue, and shipping income. We recognize revenue according to Accounting Standard Codification –
Revenue from Contract with Customers (“ASC 606”). When the customer obtains control over the promised goods or services,
we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the
following five-step model to determine revenue recognition:

We
only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods
or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606,
we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether
each promised good or service is distinct.

For
Ammunition Sales and Casing Sales, our contracts contain a single performance obligation and the entire transaction price is
allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to
the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize
revenues (net) when the customer obtains control of our product, which typically occurs upon shipment of the product or the
performance of the service based upon the terms of the contract. In the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We
included Deferred Revenue in our Accrued Liabilities. We will recognize revenue when the performance obligation is met.

For
Marketplace revenue, the performance obligation is satisfied, and revenue is recognized as follows:

Auction
revenue consists of optional listing fees with variable pricing components based on customer options selected from the GunBroker website
and final value fees based on a percentage of the final selling price of the listed item. The performance obligation is to process the
transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction is processed.

Compliance fee revenue consists
of fees charged to customers based on a percentage of the final price of an item at the time or purchased. The performance obligation
is to process the transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction is processed.

Payment
processing revenue consists of fees charged to customers on a transactional basis. The performance obligation is to process the transactions
as initiated by the customer. The price is set by the GunBroker user agreement on the website based on stand-alone selling prices. Revenue
is recognized at a point in time when the transaction is processed.

Shipping
income consists of fees charged to customers for shipping of sold items listed on the GunBroker website. The performance obligation is
to ship the item sold as initiated by the customer. The price is set based on the third-party service provider selected to be used by
the customer as well as the speed and location of shipment. Revenue is recognized at a point in time when the shipping label is printed.

Banner
Advertising Campaign Revenue consists of fees charged to customers for advertisement placement and impressions generated through the
GunBroker website. The performance obligation is to generate the number of impressions specified by the customer on banner advertisements
on the GunBroker website using the placement selected by the customer. The price is set by the GunBroker user agreement on the website
based on standalone selling prices, or by advertising insertion order as negotiated by media broker. If the number of impressions promised
is not generated, the customer receives a refund and the refund is applied to the transaction price. Banner advertising campaigns generally
run for one month, and revenue is recognized at a point in time at the end of the selected month.

Product
Sales consists of fees charged for the liquidation of excess inventory for partner distributors. The performance obligation is to sell
and ship the inventory item as initiated by the customer. The price depends on whether the inventory is a fixed price item or an auction
item. For a fixed price item, the Company performs research to determine the current market rate for such an item, and the item is listed
at that price. For an auction item, the price is set by what the buyer is willing to pay. The Company acts as a principal in these transactions
due to the extent of control they have over the product prior to the sale. Due to the principal determination, gross revenue is recognized
at a point in time when the item has been shipped.

Identity
Verification consists of fees charged to customers for identity verification in order to gain access to the GunBroker website. The performance
obligation is to process the identity verification as initiated by the customer. The price is set by the GunBroker user agreement on
the website based on a stand-alone selling price. Revenue is recognized at a point in time when the identity verification is completed.

Excise
Tax

As
a result of regulations imposed by the federal government for sales of ammunition to non-government U.S. entities, we charge and
collect an 11% excise tax for all products sold into these channels. During the years ended March 31, 2024, 2023, and 2022, we
recognized $6.2  million, $9.8 million, and $14.6 million respectively, in excise taxes. For
ease in selling to commercial markets, excise tax is included in our unit price for the products sold. We record this through net
sales and expense the offsetting tax expense to cost of goods sold.

Fair
Value of Financial Instruments

Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of March 31,
2024. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial
instruments include cash, accounts receivable, accounts payable, amounts due to related parties and the construction
note payable. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts
approximate fair values or they are payable on demand.

41

Income
Taxes

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

Stock-Based
Compensation

We
account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation
– Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all
share-based payment awards to employees and directors. On April 1, 2023 we adopted ASU 2022-03, “Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions.” Accordingly, stock-based compensation is valued using market
value of our Common Stock. Stock-based compensation is recognized on a straight-line basis over the vesting periods and forfeitures
are recognized in the periods they occur. We account for common stock purchase option awards by estimating the fair value of each
option award on the grant date using the Black-Scholes option pricing model that uses assumption and estimates that we believe are
reasonable. There were 1,936,951 and 1,777,294 shares of common stock issued to employees, members of the Board of Directors, and
members of our advisory committee for services for the years ended March 31, 2024 and March 31, 2023, respectively.