U.S. Securities and Exchange Commission
                             Washington, D.C. 20549


                                   Form 10-KSB/A

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 2003

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

For the transition period from _______________ to ________________

Commission File No.: 000-32379

                            American Ammunition, Inc.
                       ---------------------------------
               (Name of small business registrant in its charter)



         California                                      91-2021594
-------------------------------                        -------------------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                               Identification No.)

3545 NW 71st Street
Miami, FL                                                      33147
----------------------------------------               -------------------------
(Address of principal executive offices)                     (Zip Code)


Registrant's telephone number: (305) 835-7400


Securities registered under Section 12(b) of the Exchange Act:

    Title of each class                                Name of each exchange
                                                       on which registered
         None
-----------------------------                     ------------------------------


Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $0.001 par value
                            ------------------------
                                (Title of class)

Copies of Communications Sent to:

                                Mintmire & Associates
                                265 Sunrise Avenue, Suite 204
                                Palm Beach, FL 33480
                                Tel: (561) 832-5696 - Fax: (561) 659-5371



<PAGE>



Check  whether  the  registrant  (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

Yes [X] No [_]


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]


State registrant's revenues for its most recent fiscal year. $1,984,997


The aggregate market value of the voting common equity held by non-affiliates as
of December 31, 2003 was $10,786,078.24 based upon 66,893,628 shares outstanding
of which  38,521,708 was held by  non-affiliates  and a share price of $0.28. No
non-voting common equity is outstanding.

     The purpose of this first amendment to the Company's  Annual Report on Form
10-KSB is to correct four (4) errors to the audited financial statements for the
period ended  December  31,  2003.  Amended  financial  statements  are attached
hereto.






















<PAGE>



                                     PART I


Item 1. Description of Business

                              Business Development

Certain  statements  contained  in  this  annual  filing,   including,   without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

Given  these  uncertainties,  readers  of this Form  10-KSB  and  investors  are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any revisions to any of the forward-  looking  statements
contained herein to reflect future events or developments.

American  Ammunition,  Inc. (the "Company") was incorporated on February 1, 2000
in the State of California as  FirsTelevision.com.  It subsequently  changed its
corporate  name to FBI  Fresh  Burgers  International  with a  business  plan of
marketing the concept of a national "fast food" restaurant chain to children and
young adults, with a menu of fresh burgers, fries and sandwiches.

On  September  29,  2001,  the  Company,  F&F  Equipment,  Inc.  d/b/a  American
Ammunition  ("AA") and the  individual  shareholders  of AA entered into a share
exchange  agreement  whereby the shareholders of AA exchanged 100% of the issued
and  outstanding  stock of AA for  21,000,000  post-  forward  split  shares  of
restricted common stock of the Company. AA then became a wholly-owned subsidiary
of the Company.

The  acquisition of AA, on September 29, 2001, by the Company  effected a change
in control and was  accounted for as a "reverse  acquisition"  whereby AA is the
accounting  acquirer for  financial  statement  purposes.  Accordingly,  for all
periods subsequent to the September 29, 2001 change in control transaction,  the
financial  statements of the Company reflect the historical financial statements
of AA from its  inception on October 4, 1983 and the  operations  of the Company
subsequent to September 29, 2001.

Concurrent  with the September  29, 2001 reverse  acquisition  transaction,  the
Company  amended its Articles of  Incorporation  to change the Company's name to
American Ammunition,  Inc. and modified the Company's capital structure to allow
for  the  issuance  of up to  320,000,000  total  equity  shares  consisting  of
20,000,000  shares of preferred  stock and  300,000,000  shares of common stock.
Both classes of stock have a par value of $0.001 per share.

On October 9, 2001,  the Company  effected a three (3) for one (1) forward stock
split.  This action  caused the then issued and  outstanding  shares to increase
from  2,990,400 to  8,971,200  on the action date.  The effect of this action is
reflected in the  accompanying  financial  statements as of the first day of the
first period presented.



                                       3
<PAGE>




AA was  incorporated  on October 4, 1983 under the laws of the State of Florida.
The Company was formed to engage  principally in the "import,  export,  retail &
wholesale of firearms equipment,  ammunition & other devices and for the purpose
of transacting any and/or all lawful business."

The Company  relied upon Section 4(2) of the  Securities Act of 1933, as amended
(the "Act") and Rule 506 of Regulation D promulgated thereunder ("Rule 506") for
recent issuances of its unregistered securities. In each instance, such reliance
was based upon the fact that (i) the  issuance  of the shares did not  involve a
public  offering,  (ii)  there  were no more  than  thirty-five  (35)  investors
(excluding  "accredited  investors"),   (iii)  each  investor  who  was  not  an
accredited  investor  either alone or with his purchaser  representative(s)  has
such  knowledge  and  experience  in financial  and business  matters that he is
capable of evaluating the merits and risks of the prospective investment, or the
issuer  reasonably  believes  immediately  prior to  making  any sale  that such
purchaser comes within this description,  (iv) the offers and sales were made in
compliance  with Rules 501 and 502, (v) the securities  were subject to Rule 144
limitations on resale and (vi) each of the parties was a sophisticated purchaser
and had full  access to the  information  on the  Company  necessary  to make an
informed  investment  decision by virtue of the due  diligence  conducted by the
purchaser or  available  to the  purchaser  prior to the  transaction  (the "506
Exemption").

La Jolla Cove Investors

On October 4, 2002, the Company issued an 8.0% Convertible Debenture (Debenture)
in the face  amount of  $250,000  and a Warrant  which  requires  the  Holder to
purchase  shares of common stock equal to ten (10) times the number of shares of
common stock issued to the Holder on  conversion of the  Debenture.  In no event
shall the number of shares issued under the Warrant exceed 30,000,000.

During the second  quarter of Calendar  2003,  the Holder made  additional  cash
advances  to the  Company  totaling  $350,000  which  were  applied  to the then
outstanding principal balance on the Debenture.

The Debenture  bears  interest at 8.0% and matures on October 4, 2004.  The full
principal  amount  of the  Debenture  is due upon  default,  as  defined  in the
Debenture  agreement.  The  Debenture  interest  is  payable  monthly in arrears
commencing on November 15, 2002.

At December  31, 2003 and 2002,  respectively,  the  outstanding  balance on the
Debenture was approximately $391,365 and $250,000.

In  December   2002,   the  Company  and  the  Debenture   Holder   amended  the
above-referenced debenture and warrants as follows:

     The number of common  shares into which the  debenture  may be converted is
     equal to the dollar amount of the debenture being  converted  multiplied by
     eleven, minus the product of the conversion price,  multiplied by ten times
     the  dollar  amount  of  the  debenture  being  converted,  divided  by the
     conversion  price.  The  conversion  price is obtained by  multiplying  the
     average of the five (5) lowest Volume Weighted Average Prices (VWAP) during
     the 20  trading  days  prior  to the  date of  conversion  by the  Discount
     Multiplier of 80%.

     The warrants are exercisable at $1.00 per share for up to 2,500,000 shares.
     The warrant holder is obligated to exercise the warrant  concurrently  with
     the  conversion  of the debenture for a number of shares equal to ten times
     the dollar amount of the debenture being converted.

The Company was obligated to file a Registration  Statement under the Securities
Act of 1933 to register the underlying  conversion shares on either Form SB-2 or
S-3. This Registration  Statement was declared effective by the U. S. Securities
and Exchange Commission on May 14, 2003.



                                       4
<PAGE>



The Debenture Holder has  contractually  committed to convert not less than 5.0%
and not more than  10.0% of the  original  face value of the  Debenture  monthly
beginning the month after the effective date of the  Registration  Statement and
the Holder is required to concurrently  exercise warrants and purchase shares of
common stock equal to ten (10) times the number of shares of common stock issued
to the Holder upon the respective mandatory conversion of the Debenture.

The Holder has further  contractually  agreed to restrict its ability to convert
the  Debenture or exercise  their  warrants and receive  shares of the Company's
common  stock  such  that  the  number  of  shares  held by the  Holder  and its
affiliates  after such  conversion or exercise does not exceed 4.99% of the then
issued and outstanding shares of common stock of the Company.

In the event an  election  to convert is made and the  volume  weighted  average
price of the Company's  common stock is below $0.30 per share, the Company shall
have the right to prepay  any  portion  of the  outstanding  Debenture  that was
elected to be converted, plus any accrued and unpaid interest, at 125.0%.

Due to the  contractually  agreed  mandatory  conversion of this Debenture,  the
Company has  reflected  this  transaction  in its balance sheet as a "mezzanine"
level debt  obligation on its balance  sheet,  between "Total  Liabilities"  and
"Stockholders'  Equity". Upon the respective mandatory  conversion,  the Company
will  relieve  the  respective  portion  of the  Debenture  and the any  related
accrued,  but unpaid interest,  and credit this amount to the respective "common
stock" and "additional  paid-in capital"  accounts in the  stockholder's  equity
section for the par value and excess amount over the par value of the respective
shares issued.

As the warrant is  non-detachable  from the Debenture and requires  simultaneous
exercise upon  conversion of the Debenture,  no value was assigned to the issued
warrant.  Upon exercise of the warrant,  the Company will record the issuance of
the  underlying  shares as a new  issuance  of common  stock on the date of each
respective exercise.

On various dates through  December 31, 2003,  the  Debenture  Holder  elected to
convert an aggregate $208,635, through 24 separate transactions,  in outstanding
Debenture  principal into restricted,  unregistered  common stock. This election
caused the Company to issue 4,561,753 shares of restricted,  unregistered common
stock to the Debenture Holder. Additionally, pursuant to the contract terms, the
Debenture Holder concurrently  exercised a portion of the outstanding Warrant to
purchase 2,086,350 shares of the Company's restricted, unregistered common stock
for gross proceeds of $2,086,350.

As of December 31, 2003, pursuant to the conversion terms of the Debenture,  the
Debenture  Holder was  approximately  $77,500  in  arrears in the  contractually
obligated conversions,  and accordingly,  the related mandatory warrant exercise
of approximately $775,000.

Preferred Stock Transactions

Preferred  stock  consists of the  following  as of December  31, 2003 and 2002,
respectively:

                                       December 31, 2003    December 31, 2002
                                       -----------------    -----------------
                                       # shares    value    # shares    value
                                       --------  ---------  --------  ---------

Series A Cumulative Convertible Stock   12,000   $  60,000    41,000  $ 205,000
Series B Cumulative Convertible Stock   91,700     458,500         -          -
                                       -------   ---------  --------  ---------
                                       103,700   $ 518,500    41,000  $ 205,000
                                       =======   =========  ========  =========



                                       5
<PAGE>


In September,  October and November 2001, the Company sold an aggregate  222,600
shares of $5.00 Series A Convertible  Preferred Stock (Series A Preferred Stock)
for total  proceeds  of  approximately  $1,113,000  through a Private  Placement
Memorandum.  The Series A Convertible  Preferred  Stock  provides for cumulative
dividends at a rate of 8.0% per year,  payable  quarterly,  in cash or shares of
the  Company's  common stock at the Company's  election.  Each share of Series A
Preferred  Stock is  convertible  into 11 shares of the  Company's  common stock
initially  at any time  after 6 months  of the  date of issue  and  prior to the
notice of redemption  at the option of the holder,  subject to  adjustments  for
customary  anti-dilution events. In December 2001, at the request of the holders
of the Series A Preferred Stock, the Company and the individual holders modified
the holding period for conversion to allow for conversion in December 2001.

In September 2001, the Company's principal stockholder  converted  approximately
$4,007,327 of unsecured  debt and  approximately  $3,546,273  of cumulative  and
unpaid accrued interest into 1,510,710 shares of Series A Preferred Stock.

In  September  2001, a creditor of the Company  agreed to convert  approximately
$10,000 of trade accounts payable into 2,000 shares of Series A Preferred Stock.

In December 2001,  concurrent with a modification in the holding period prior to
conversion,  certain holders of the Series A Preferred Stock orally notified the
Company of their intent to exercise the conversion  features on 1,749,720 issued
and outstanding  shares of Series A Preferred  Stock into  19,246,920  shares of
common  stock prior to December  31,  2001.  Due to the timing of the  requisite
documentation,  the  clerical  activities  related to this  conversion  were not
completed until February 2002.

In conjunction with the Series A Preferred Stock, certain shares were sold after
the Company's common stock was approved for trading by the National  Association
of Securities  Dealers on the OTC Bulletin  Board in October 2001. The shares of
Series A Preferred  Stock sold  subsequent  to this date had an  equivalent  per
share  value of  common  stock  below  the  ending  quoted  market  price of the
Company's common stock on their respective issue dates. This difference  created
a Beneficial  Conversion  Feature  Discount of  approximately  $1,207,993.  This
discount was then  amortized  over the unexpired time period between the date of
issue of the eligible shares and the eligible  conversion date, as amended.  All
of the shares sold  subsequent  to the initial  trading  date were  converted in
December  2001  and,  accordingly,  the  approximate  $1,207,993  in  Beneficial
Conversion Feature Discount was fully amortized to operations.

In December 2002, a holder of 5,000 shares of Series A Preferred Stock exercised
his  conversion  rights and converted  these shares of Series A Preferred  Stock
into 55,000 shares of restricted, unregistered common stock.

In January 2003,  three  separate  holders of 9,000 shares of Series A Preferred
Stock exercised their  conversion  rights and converted these shares of Series A
Preferred stock into 99,000 shares of restricted, unregistered common stock.

In May 2003,  the Company  sold an  aggregate  91,700  shares of $5.00  Series B
Convertible  Preferred  Stock (Series B Preferred  Stock) for total  proceeds of
approximately  $458,500 through a separate  Private  Placement  Memorandum.  The
Series B Convertible Preferred Stock provides for cumulative dividends at a rate
of 8.0% per year, payable  quarterly,  in cash or shares of the Company's common
stock at the  Company's  election.  Each  share of Series B  Preferred  Stock is
convertible  into 11 shares of the Company's  common stock initially at any time
after 6 months of the date of issue and prior to the notice of redemption at the
option of the holder, subject to adjustments for customary anti-dilution events.

Common Stock Transactions

In February 2002, the Company converted  $100,000 in short-term debt payable and
accrued  interest  of  approximately  $25,000 to an  existing  stockholder  into
277,778 shares of restricted,  unregistered  common stock.  This transaction was
consummated  at a price of $0.45 per share,  which  approximates  the discounted
"fair value" of the Company's  common stock based on the quoted closing price of
the  Company's  common  stock on the date of the  respective  transaction.  This
transaction paid in full all outstanding short-term debt.


                                       6
<PAGE>


In March 2002,  in two  separate  transactions,  the Company  sold an  aggregate
1,388,890  shares  of  restricted,  unregistered  common  stock to two  separate
investors for aggregate proceeds of approximately  $500,000.  Each sale was made
at a price of $0.36 per share, which approximates the discounted "fair value" of
the  Company's  common stock based on the quoted  closing price of the Company's
common stock on the date of each  respective  transaction.  These  proceeds were
used to supplement operational working capital.

In March 2002,  the Company  issued  32,000 shares of  restricted,  unregistered
common  stock to a member of the  Company's  Board of Directors  for  consulting
services  related to the Company's  reverse merger  transaction  and for various
marketing  services.  This transaction was valued at approximately  $11,520,  or
$0.36 per share, which approximates the discounted "fair value" of the Company's
common stock based on the quoted closing price of the Company's  common stock on
the date of the respective transaction.

In March 2002,  the Company  issued  41,665 shares of  restricted,  unregistered
common stock to an unrelated  party for  stockholder  and other public  relation
services.  This  transaction was valued at approximately  $15,000,  or $0.36 per
share,  which  approximates  the discounted "fair value" of the Company's common
stock based on the quoted  closing  price of the  Company's  common stock on the
date of the respective transaction.

In April  and May  2002,  the  Company  issued an  aggregate  432,721  shares of
restricted,  unregistered  common  stock to three  creditors  in  settlement  of
approximately $182,017 in open trade accounts payable. Each issuance was made at
a price of either $0.45 or $0.36 per share,  which  approximates  the discounted
"fair value" of the Company's  common stock based on the quoted closing price of
the Company's common stock on the date of each respective transaction.

In June 2002, the Company  issued  347,223  shares of  restricted,  unregistered
common stock to an existing  stockholder to reimburse said  stockholder  for his
cash  payment  on  behalf  of the  Company  of  previously  accrued  legal  fees
associated with the bank related  litigation,  which was concluded in June 2001,
and for other consulting  services  currently being provided by the stockholder.
This transaction was valued at approximately $125,000, or $0.36 per share, which
approximates  the discounted "fair value" of the Company's common stock based on
the  quoted  closing  price  of the  Company's  common  stock on the date of the
respective transaction.

In June 2002, the Company sold 277,778 shares of restricted, unregistered common
stock to an investor for aggregate proceeds of approximately $100,000. This sale
was made at a price of $0.36 per share,  which approximates the discounted "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this transaction were used to supplement operational working capital.

In July 2002, the Company sold 384,615 shares of restricted, unregistered common
stock to an existing  stockholder for cash proceeds of  approximately  $100,000.
This  sale was  made at a price  of $0.26  per  share,  which  approximates  the
discounted  "fair  value" of the  Company's  common  stock  based on the  quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In August  2002,  the Company sold 384,615  shares of  restricted,  unregistered
common stock to an existing stockholder for cash proceeds of $100,000. This sale
was made at a price of $0.26 per  share,  which was below the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's  common  stock  on  the  date  of  the  respective  transaction.   The
differential between the discounted "fair value" (approximately $0.29 per share)
and the  selling  price  resulted  in a charge to  operations  of  approximately
$11,346 for compensation  expense related to common stock issuances at less than
"fair  value".  The  proceeds  of this  transaction  were  used  to pay  down an
equivalent portion of the Company's long-term note payable to a bank.




                                       7
<PAGE>



In August  2002,  the Company  sold 20,506  shares of  restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$6,152. This sale was made at a price of $0.30 per share, which approximates the
discounted  "fair  value" of the  Company's  common  stock  based on the  quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The proceeds of this  transaction  were used to directly  retire a
trade account payable to a specific vendor.

In August 2002,  the Company  issued 24,999 shares of  restricted,  unregistered
common stock to an unrelated  party for  stockholder  and other public  relation
services.  This  transaction was valued at  approximately  $6,875,  or $0.28 per
share,  which  approximates  the discounted "fair value" of the Company's common
stock based on the quoted  closing  price of the  Company's  common stock on the
date of the respective transaction.

In September  2002, the Company sold 277,778 shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.36 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In September  2002, the Company sold 277,778 shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.26 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction. The proceeds from this transaction were used to support operational
working capital.

In September  2002, the Company sold 222,222 shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.45 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The proceeds of this transaction were used to support  operational
working capital.

In November 2002,  the Company sold 384,615  shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.26 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In December  2002,  the Company sold an aggregate  120,170 shares of restricted,
unregistered  common  stock  to  an  existing   stockholder  in  three  separate
transactions valued at an aggregate of approximately  $31,244.  These sales were
made at a price of $0.26 per share,  which was in excess of the discounted "fair
value" of the Company's common stock on the date of each respective transaction.
The proceeds of this  transaction  were used to directly  retire a trade account
payable to a specific vendor.

In December 2002,  the Company sold 384,615  shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.26 per share, which was in excess
of the discounted "fair value" of the Company's common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In December 2002,  the Company issued 55,000 shares of restricted,  unregistered
common stock upon the exercise of 5,000 shares of outstanding Series A Preferred
Stock upon the exercise of the  conversion  option by the Holder of the Series A
Preferred Stock.



                                       8
<PAGE>



During June,  July and September  2002, the Company  issued an aggregate  21,987
shares of  restricted,  unregistered  common  stock in payment of  approximately
$10,400  in accrued  dividends  payable on the  Company's  outstanding  Series A
Preferred  Stock for the quarters ended December 31, 2001,  March 31, 2002, June
30, 2002 and September 30, 2002.

In January 2003, the Company  issued an aggregate  937,568 shares of restricted,
unregistered  common stock for cash proceeds of  approximately  $324,182.  These
sales  were made at a price of either  $0.23 or $0.36  per  share,  which was in
excess of the discounted "fair value" of the Company's common stock based on the
quoted closing price of the Company's common stock on the date of the respective
transaction.  The proceeds of this transaction  were used for operating  working
capital.

In February 2003, the Company issued 384,615 shares of restricted,  unregistered
common stock for cash proceeds of approximately $100,000.  These sales were made
at a price of $0.26 per  share,  which was in  excess  of the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this  transaction  were used to reduce the  Company's  outstanding  long-term
debt.

In March 2003, the Company  issued  972,222  shares of restricted,  unregistered
common stock for cash proceeds of approximately $350,000.  These sales were made
at a price of $0.36 per  share,  which was in  excess  of the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this  transaction  were used to reduce the  Company's  outstanding  long-term
debt.

In March 2003,  the Company  issued an aggregate  966,608  shares of restricted,
unregistered  common  stock to the  Holder  of the  Company's  8.0%  Convertible
Debenture  upon notice of  conversion  of $35,000 of  outstanding  principal and
exercise of a portion of the outstanding  warrant to purchase  350,000 shares of
common stock.  This transaction was valued at $385,000,  or approximately  $0.40
per share,  which was in excess of the discounted  "fair value" of the Company's
common stock based on the quoted closing price of the Company's  common stock on
the date of the respective  transaction.  The cash proceeds of this  transaction
were used to provide working capital and support operations.

In May 2003, the Company issued 1,967 shares of restricted,  unregistered common
stock in payment of  approximately  $1,200 in accrued  dividends  payable on the
Company's  outstanding  Series A Preferred Stock for the quarter ended March 31,
2003.

During the period from July 1, 2003  through  September  30,  2003,  the Company
issued  an  aggregate   2,902,129   shares  of  common  stock,  in  15  separate
transactions,  in  exchange  for the  redemption  of  approximately  $93,500  in
outstanding  debenture  balance  and  approximately  $935,000  in cash  from the
exercise of the  affiliated  warrant.  Where the closing  price of the Company's
common stock was in excess of the  respective  price per share on the respective
transaction   date,   the  Company   recognized  a  charge  to  operations   for
"compensation  expense  related  to common  stock  issuances  at less than "fair
value".  The cumulative effect of transactions  where the transaction  price, as
established in the Debenture  Agreement,  was less than the closing price on the
date  of  the  respective  transactions  resulted  in  a  cumulative  charge  to
operations of approximately $317,539 during this time period.

In October 2003, in a separate transaction, the Company sold 2,200,000 shares of
restricted,  unregistered common stock to the Debenture Holder for cash proceeds
of approximately $400,000, or approximately $0.18 per share, which was in excess
of the discounted "fair value" of the Company's common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The cash proceeds of this transaction were used to provide working
capital and support operations.



                                       9
<PAGE>



In October  2003,  the Company  issued an aggregate  1,659,847  shares of common
stock,  in  3  separate   transactions,   in  exchange  for  the  redemption  of
approximately   $40,000  in  outstanding  debenture  balance  and  approximately
$400,000 in cash from the exercise of the affiliated warrant.  Where the closing
price of the Company's  common stock was in excess of the  respective  price per
share on the respective  transaction  date,  the Company  recognized a charge to
operations for  "compensation  expense related to common stock issuances at less
than "fair value".  The cumulative effect of transactions  where the transaction
price,  as  established  in the Debenture  Agreement,  was less than the closing
price on the date of the respective transactions resulted in a cumulative charge
to operations of approximately $146,189 during this time period.

In October 2003,  the Company  issued an aggregate  37,866 shares of restricted,
unregistered  common  stock in  payment  of  approximately  $16,710  in  accrued
dividends payable on the Company's  outstanding  Series A and Series B Preferred
Stock for the quarters ended June 30, 2003 and September 30, 2003, collectively.

Long-Term Debt Payable to a Bank

On June 28, 2001,  the Company  executed a $950,000  note payable to a financial
institution.  This note bore interest at the Wall Street Journal published prime
rate plus 2.0%.

During  Calendar 2002, the Company made five (5) lump-sum  principal  reductions
aggregating $500,000 to the outstanding balance on this note. As of December 31,
2002, the Company owed $450,000 on this note.  Upon each lump-sum  payment,  the
Company executed a modification to the payment terms on the note.

During Calendar 2003, the Company made two (2) lump-sum principal reductions
aggregating $450,000 to the outstanding balance on this note. As of March 31,
2003, this note was retired in full.

See (b) "Business of  Registrant"  immediately  below for a  description  of the
Company's business.

Business of Registrant

General

The Company changed its name to American Ammunition,  Inc. on September 26, 2001
and currently is quoted on the OTC-BB under the symbol "AAMI".

On September 29, 2001, the Company entered into a Share Exchange  Agreement with
AA whereby 100% of the shares of AA were acquired by the Company in exchange for
shares of the Company's common stock. A new Board of Directors  consisting of AA
directors took control of the Company.

The Company's  principal  executive  offices are located at 3545 NW 71st Street,
Miami, Florida 33147; and its telephone number is (305) 835-7400.

We had minimal  operations  until  September  2001,  when we  acquired  American
Ammunition  Inc.  and since such  acquisition  are  engaged  principally  in the
manufacture  and sale of  ammunition  for retail and wholesale  sales.  American
Ammunition is an established small arms munitions  manufacturer with an existing
distribution  network.  The  ammunition  market  is  dominated  by  three  major
manufacturers, however, we believe we are poised to enter and impact the growing
ammunition market with our manufacturing equipment and techniques.  In addition,
we are an approved Department of Defense contractor.

We began as an assembler and re-loader of ammunition in several calibers.  As we
grew,  management  realized  that the only way to break into the industry was to
become a vertically  integrated  manufacturer.  Our founders invested heavily in
research and  development,  equipment,  and technology and focused on increasing
our market share. As a result,  we continued  manufacturing our initial calibers
along with special  order  ammunition  for the  Department  of Defense.  Further
streamlining  of the  operations  resulted  in the  manufacture  of the  current



                                       10
<PAGE>



ammunition  product line: 9  millimeter,  .45  automatic,  .380  automatic,  .32
automatic,  .40 Smith and Wesson,  38 Special,  30 carbine,  223  Remington,  38
Super, .44 Special and 32 Smith and Wesson Long . We have also added .44 Magnum,
..308,  .50 AE and .50 caliber  manufacture  in Israel and shipped to the Company
for  distribution  under the  Company's  brand name.  We have  identified  these
products as having the largest share of the market for the next several years.

We sell our products into both domestic and foreign  markets.  At this time, our
domestic  sales  are  made to both  private  sector  entities  and  governmental
agencies,  principally  Federal. Our international sales are, at this time, made
solely to foreign  governments,  principally  for military use.  During Calendar
2003 and 2002,  our sales  were  approximately  93.8% and  100.0%  domestic  and
approximately  6.2% and 0.0%  international.  We  anticipate  the  international
governmental  portion of our business to grow in future periods;  however, we do
not anticipate our international business to outgrow our domestic sales.

Equipment and Production Line Capabilities

American  Ammunition  owns all the equipment  necessary to take the raw material
from cup, lead, primer and powder,  to the finished  product,  a loaded round of
ammunition.  The process of  manufacturing  diverse  calibers of  ammunition  is
extremely  complex  and  requires  tolerances  of +/-  .0005"  to be  maintained
throughout the process.

Our technology and equipment enable us to produce a large variety of handgun and
rifle  ammunition.  We have a machine  shop and  maintains  our own  testing and
quality  assurance  equipment  and program.  Ammunition  is a  performance-based
product.  Therefore, after the manufacturing process is complete, the ammunition
must comply with specific protocols such as velocity, accuracy, and pressure. We
purchase  raw  materials  in bulk and  strive to take  advantage  of  prepayment
discounts to produce significant savings in the manufacturing process. There are
and have been  instances  when discounts have been and may be missed due to cash
flow restrictions.

We are  evaluating the addition of several  products to our existing  production
lines,  including  the  addition of high speed  projectile  forming  machines to
supplement the existing casting machines. This addition would effectively double
or triple projectile production capacity, while improving projectile quality and
performance.  We also  are  making  provisions  to  increase  other  aspects  of
production  capacity,  which would complement long term goals of both production
volume and product diversity.

In 2003 and 2004 we  acquired  equipment  which  will  allow  us to  expand  our
production  capacity  in areas  which they have  traditionally  been slower than
other areas of our manufacturing process. The acquisition of additional presses,
for example,  has helped us to balance out our assembly line process so that all
portions of our  projectiles  are  manufactured in time with each other. We hope
this will cut our  manufacturing  and labor costs and as a result,  make us more
efficient at producing small arms ammunition.

We also recently  acquired laser gauging  computer  equipment for the purpose of
improving  and  automating  quality  control  processes.   This  newly  acquired
equipment,  when added to the  production  line,  will  automatically  eject bad
projectiles  from the  assembly  line.  This  should  further  improve the final
products we produce and cut labor costs  associated  with manual  inspection  of
product.

Business Strategy

American  Ammunition  is an  autonomous  manufacturer  of  ammunition,  with the
technology and equipment to take advantage of the growing market.

The barrier to entry into the  ammunition  market is  extremely  high,  however,
American Ammunition is an established small arms munitions manufacturer, with an
existing distribution network. We manufacture our ammunition by creating most of
the components ourselves.




                                       11
<PAGE>


In  management's  opinion,  the  ammunition  market  has grown  each year and it
appears that supply is not keeping up with demand,  thus  allowing for companies
like  American  Ammunition  to  make  a  significant  impact  in  sales  through
distributors in commercial markets and in addition sales to government agencies,
the military  and  exports.  American  Ammunition  has been  seeking  additional
capital  to  allow  it to  enlarge  its  operations  to  take  advantage  of its
technological capacities, equipment and the existing marketplace.

Marketing and Sales Distribution

Traditionally,   American  Ammunition  has  had  a  domestic  sales  network  of
distributors  and sales  representatives.  In the past,  Ellett  Brothers,  Inc.
accounted for large portions of the Company's  total sales for fiscal year 2001,
2002 and even 2003.  However,  in first quarter 2004,  the Company  launched its
Dealer Direct Program and hired Paul Goebel as its National  Sales  Manager.  In
doing so, the Company has completely  revamped the way it distributes  and sells
its products domestically.

In essence,  the Company cut out the "middle  man"  distributor  by offering its
products  directly to and soliciting  orders  directly from the 66,000  licensed
dealers in the United States.  In doing this, the Company may offer its products
to dealers cheaper than dealers would otherwise  obtain them from  distributors,
while  increasing  the Company's  profit  margins as well. It also  eliminates a
second freight charge from the distributor to the dealer,  as product is shipped
directly from the manufacturer to the dealer.

The Company's marketing strategy consists of several new key features to attract
dealers  directly to the  Company,  rather  than to a  distributor.  First,  the
Company is  offering  "net 60" day credit  terms to smaller  dealers,  who would
ordinarily  be forced to pay for product up front.  The Company has  developed a
screening  process for qualifying these smaller dealers on an individual  basis.
Although  offering net 60 credit terms to dealers  results in increased  risk to
the Company in its account  receivables  as compared to payment in advance,  the
Company has exponentially  diversified its receivables (and therefore its credit
risk)  from  thirteen  (13)  main  distributors  to  potentially   thousands  of
individual dealers.

Secondly,  the Company now offers free freight  (shipping) to dealers on certain
orders which exceed a specified  amount.  Shipping of small arms  ammunition has
always been a large  portion of the cost passed to  consumers  as the product is
heavy and requires extra care in shipping.  The Company has  determined  that it
can ship its products at a reduced rate in quantity and offers free  shipping as
an incentive on qualified  orders.  As previously,  explained,  a second freight
charge  has  also  been  avoided  by  eliminating  the   distributor   from  the
transaction.

Additionally, the Company's increasing automation and dealer direct program have
considerably  sped up the time it  takes  to  provide  a  dealer  with  demanded
product.  Company  management has become aware of an unfulfilled need of dealers
to  be  provided  with  almost  instant  gratification  when  demand  at  retail
establishments  increases.  Many  dealers  have  communicated  with the  Company
complaining  that it took  their  distributors  too long to  provide  them  with
additional  product supply when demand  dictated.  The Company believes that its
new distribution  strategy  complimented with recent automation has cut the time
it takes a dealer to receive the Company's products by more than half.

The Company only recently upgraded its website to include  e-commerce  capacity,
wherein  licensed  dealers  who are  pre-registered  with the  Company can order
online direct from the Company.  Sales in this manner are slow,  but the Company
is hopeful that as it steers dealers who currently order from the Company to the
site, it will further  automate the way in which  dealers  place product  orders
from the Company.





                                       12
<PAGE>



The Company  plans to  continue to  aggressively  pursue new  customers  through
promotions,  advertising  and  trade  shows.  It  intends  to  solicit  original
equipment manufacturer  subcontract work from the three (3) major manufacturers;
seek additional  means of commercial  distribution;  seek further  Department of
Defense and law enforcement contracts; solicit further export sales and increase
its dealings with mass merchandisers/chain stores.

American  Ammunition  has been  certified by the United  States  Small  Business
Administration  as a "qualified  HUBZone  small  business  concern."  Under this
program, small businesses can qualify  for special set-aside  contracts,  get up
to a 10% edge in competitive  contract bidding or even be the sole-source bidder
in some cases. The program's name signifies the effort to promote  businesses in
"historically  under-utilized  business zones," generally blighted areas and its
purpose is to create jobs for those who live in such areas as well.

We are marketing our manufacturing flexibility to numerous Department of Defense
and  commercial  munitions   manufacturers  as  subcontractors   allowing  prime
contractors  to  reap  the  benefits  of our  "HUBZone  certification",  thereby
allowing such prime contractors to comply with Federal Acquisition  Requirements
for the use of  "small  and  under-utilized  minority  business"  in  fulfilling
government contracts.

The Small Business  Reauthorization Act of 1997 increased the overall government
agencies'  procurement  goals for small  business  to 23% and called for HUBZone
contracts to increase from 1.5% of these procurements to 3% by 2003.

Pricing and Value

We have been able to price our products  competitively at a price lower than any
of the "big three" manufacturers,  Remington, ATK, and Winchester. We capitalize
on the fact that the "big three" have very large corporate  infrastructures and,
in  management's  opinion,  have to pay much  higher  labor costs to their plant
personnel.  This  pricing  strategy  permits the  distributor  to  purchase  our
product,  add significant profit and sell such product at a retail price that is
lower than that at which the distributor can purchase the competitors' product.

Advertising & Promotion

American  Ammunition intends to gear its advertising  towards magazine and print
media,  focused on the gun and  Ammunition,  handgun and  shooting  markets.  We
believe  that such  advertising  will result in greater name  recognition  among
individual  consumers.  Currently,  our sales  are  generated  with very  little
advertising  and  we  believe  that  advertising  could  significantly   improve
retail/mass merchandiser sales and increase market share.

Status of Publicly Announced Products and Services

Israeli Military Industries Ltd.

The Company has developed a relationship  with Israeli Military  Industries Ltd.
("IMI"),  whereby the two (2) companies work together on individual projects. To
date,  the  companies  have  primarily  focused  their  cooperation  on  federal
contracts  and on the  Company's  dealer  direct  program.  In  such  contracts,
projectiles  manufactured  by IMI have been assembled by the Company under IMI's
strict quality control requirements.

The joint venture has benefited the Company in several ways. First and foremost,
IMI has a distinct  following as a result of offering very high quality products
of the course of many years.  Associating  the Company's name with IMI's history
has  added  value to the  Company's  brand  and  reputation  in the  small  arms
ammunition  industry.  Second, IMI manufactures  different calibers and products
than the  Company,  thereby  increasing  the  catalogue of items the Company may
offer  to its  dealers.  IMI  produces  commercial  ammunition,  similar  to the
Company.  However,  it also specializes in the production of law enforcement and
military  grade  ammunition,  which  the  Company  currently  does  not have the



                                       13
<PAGE>



production  capability  to  produce  on its own.  Lastly,  on past  and  current
cooperation initiatives,  IMI has shipped projectiles and materials for assembly
at no cost to the  Company,  thereby  saving the  Company the time value of such
costs  were it to have  produced  such  items or  purchased  such raw  materials
itself.

Triton

On February 10, 2004,  the Company  executed a  non-binding  letter of intent to
acquire  the assets of Triton  Ammunition  Corporation  ("Triton").  Such assets
include machinery,  raw materials and intellectual  property rights. Triton will
convey  patents and licenses for the Hi-Vel and Quik-Shok  lines of  ammunition.
For such  assets,  the Company is  obligated  to issue  shares of the  Company's
restricted  common stock  valued at  $1,400,000  based upon the average  closing
market price for the five (5) trading days ending on the third (3rd) trading day
immediately prior to closing on the definitive  agreement.  The letter of intent
is subject to further due  diligence  and expired if a definitive  agreement was
not  executed on or before  February  21,  2004,  however the LOI has since been
extended.

The Company  believes  that with the  acquisition  of certain  Triton  specialty
ammunition and its partnership with IMI on certain ventures, the Company will be
able to offer an increased product line to its dealers.

ECO-AMMO(TM)

The  Company  is  now  manufacturing  and  distributing  ECO-AMMO(tm).  It  is a
lead-free  projectile  with reduced  lead  pollutants  sometimes  referred to as
"green" ammo.  ECO-AMMO is ideal for indoor ranges since it  disintegrates  upon
impact and therefore  does not ricochet.  AAMI has been acquiring and developing
technology to market this environmentally friendly ammunition for some time. The
advent of the dealer direct  program  enables the product to be distributed at a
lower cost and should open up the market to more consumers.

Aircraft Bullet

We were assigned a serial number (60/325,046) from the U.S. Patent and Trademark
Office for our provisional  patent application filed on September 26, 2001 for a
bullet that will not pierce an aircraft  fuselage but will penetrate  human soft
tissue. The product has been specifically designed for use inside the cabin of a
commercial aircraft;  however, it has additional applications for use in nuclear
power plants, at hazardous materials storage facilities, and for home defense.

We  departed  completely  from  standard  ballistics  for  the  design  of  this
projectile to meet what American Ammunition  perceives as a growing and unfilled
need.  Two of the basic  design  criteria  in  ballistics  are  penetration  and
expansion  of the  projectile.  In this  design,  these  two  factors  have been
controlled to meet the specific  requirements  of weapons  discharged  inside an
aircraft cabin, while insuring fuselage integrity.  This design is a new concept
in close quarter  ammunition:  a bullet capable of  incapacitating  an assailant
without damaging surrounding structure.

Design and material selection allows for the inverted expansion and aft internal
collapse of the projectile  mass.  Upon impact with the aircraft  fuselage,  the
bullet internally collapses;  therefore not allowing for the transfer of kinetic
energy forward or penetration  above that required for soft tissue  penetration.
Testing has been successful using test sections of various  commercial  airliner
fuselages as well as ballistic  testing using both ordinance  gelatin and bovine
tissue.  This  performance  criterion is  accomplished  without  sacrificing the
standard velocity and accuracy of the caliber being used. A video of those tests
can be viewed on our website at  www.a-merc.com  in the New Product Section.  We
believe that these research and  development  efforts will provide a new product
to the public safety and security marketplace.




                                       14
<PAGE>


Industrial Plating Enterprise Company

Industrial  Plating  Enterprise  Company (IPE), a wholly owned subsidiary,  is a
high volume "barrel plating" facility  currently  operating at approximately 30%
of its capacity.  IPE is meeting all of the parent company's  projectile plating
needs at this  time.  As the parent  company's  projectile  plating  requirement
grows,  IPE  will  increase  production  to meet  that  need.  IPE's  innovative
hazardous materials and hazardous waste management and treatment system is fully
capable of meeting increased production requirements.  IPE's management, intends
to explore adding  additional  metallization  and coating processes to diversify
its  services to the parent  company as well as offering  its  services to other
industries with the eventual goal of generating revenue to the parent company.

Competition

The market for small  arms  ammunition  is  becoming  increasingly  competitive.
Companies such as Remington,  Federal and  Winchester  are all better  equipped,
more experienced and better financed than us.

For years,  the large  manufacturers  have supplied the  component  parts of the
manufacturing process to smaller companies to assemble and distribute. A company
making its own components,  can produce and market a quality lower cost product.
This concept,  coupled with technology and progressive and environmentally sound
manufacturing practices (i.e. cans and recycled plastic packaging), has resulted
in a quality, affordable product reaching the marketplace.

We believe it is  feasible to increase  our  production  capacity by 50% to 100%
over the next 3 years  utilizing  existing  equipment by increasing  only labor,
material and other  incidental  costs.  Management  bases this prediction on the
fact that we had reduced sales in fiscal 2001 due to a lack of funding.  We have
already received  significant bank and private  placement funding in fiscal 2002
to ramp up  operations  thereby  significantly  increasing  our  presence in the
market.

Sources and Availability of Raw Materials

We manufacture our ammunition by creating most of the components ourselves.  The
materials  needed to produce our ammunition  products are widely  available from
numerous third parties.  No shortage of materials is expected in the foreseeable
future.

Research and Development

The Company believes that research and development is an important factor in its
future  growth.  The small arms  ammunition  industry  is closely  linked to the
latest technological advances. Therefore, the Company must continually invest in
the  technology  to  provide  the best  quality  product  to the  public  and to
effectively  compete with other  companies in the industry.  No assurance can be
made that the  Company  will have  sufficient  funds to  purchase  technological
advances as they become available.

Patents, Copyrights and Trademarks

We intend to protect our original intellectual property with patents, copyrights
and/or trademarks as appropriate.

Our head stamp "A-MERC " was  registered as a trademark on May 10,1994.  We were
assigned a serial number  (60/325,046) from the U.S. Patent and Trademark Office
for our provisional  patent application filed on September 26, 2001 for a bullet
that will not pierce an aircraft fuselage but will penetrate human soft tissue.

Governmental Regulation

In  accordance  with the  provisions of Title 1, Gun Control Act of 1968, we are
required  to be licensed  to import  firearms  and  manufacture  ammunition  for
firearms.  Such  licensing  is subject to  limitations  in Chapter 44, Title 18,
United  States Code.  In the event such licenses are not renewed for any reason,
we would have to cease our operations




                                       15
<PAGE>



In  accordance  with these  requirements,  we carry two  licenses  issued by the
Department of Treasury, Bureau of Alcohol, Tobacco and Firearms:

     License No.  1-59-025-06-3D  69152 for "06 - Manufacturer of Ammunition for
Firearms", which license expires on April 1, 2006; and

     License No.  1-59-025-08-3D-69454  for  "08-Importer  of Firearm other than
Destructive Devices", which license expires on April 1, 2006.

In the  event  such  licenses  were  not  renewed  for any  reason,  we would be
precluded from continuing our operations.

We are not aware of any other license requirements or government regulation at a
state or federal level  specific to their  business and believes that it in full
compliance with its existing licenses.

Effect of Probable Governmental Regulation on the Business

We are not aware of any pending legislation at either the state or federal level
that would change the  requirements  under which it is licensed and is not aware
of any reason why the existing  licenses  cannot be renewed at their  expiration
dates.  There can be no  assurance  that  legislation  will not be proposed  and
enacted at some time in the future that would  preclude us from  continuing  our
operations.  Should such legislation be enacted,  and should the we be precluded
from continuing our operations,  it would have a materially  adverse effect upon
our business and future.

Cost and Effects of Compliance with Environmental Laws

As  a  manufacturer,  we  are  subject  to  general  local,  state  and  federal
regulations  governing  environmental  concerns.  We believe that we have always
been and continue to be in compliance with all such laws.

Special  precautions  have been  taken us to ensure  that  adequate  ventilation
exists  for the  portion of our  operations  that  utilize  lead  and/or  brass.
Additionally,  our gunpowder supply is humidity and temperature  controlled in a
secure facility.

Employees

At  March  1,  2004,  we  employed  61  persons.  None of  these  employees  are
represented by a labor union for purposes of collective bargaining.  We consider
our  relations  with our  employees to be  excellent.  We may employ  additional
personnel,   as  necessary,   to   accommodate   future  sales  and   production
requirements.


Item 2.  Description Of Property

The Company  leases its  corporate  office and  manufacturing  facility from its
controlling  stockholder under a long-term operating lease agreement.  The lease
requires a monthly payment of approximately  $5,410,  including applicable sales
taxes.  The Company is responsible for all utilities and  maintenance  expenses.
The lease  expires on July 31, 2004 and contains a clause that upon  expiration,
the Company and the controlling  shareholder shall renegotiate the annual rental
amount.  Total  rent  expense  under this lease was  approximately  $67,075  and
$54,100, respectively, for each of the years ended December 31, 2003 and 2002.

The  Company's  subsidiary,  IPE,  leases  its  manufacturing  facility  from an
unrelated third-party under a long-term operating lease agreement. This lease is
for a period of five (5) years and requires graduated monthly payments, changing
on the lease anniversary date, ranging from approximately $1,751 to $1,914, plus
the applicable  sales taxes.  The Company is  responsible  for all utilities and
maintenance expenses.  The lease expires on February 28, 2007 and may be renewed
for an additional five (5) year term at a rental rate of  approximately  $1,971,
plus applicable sales taxes for the first renewal year and 3.0% increase on each
succeeding   anniversary   date.   Total  rent  expense  under  this  lease  was
approximately  $20,752 and  $16,622,  respectively,  for each of the years ended
December 31, 2003 and 2002.




                                       16
<PAGE>


Future minimum rental payments on the above leases are as follows:

         Year ended
         December 31,                Amount
         ------------              ----------
         2004                      $   60,754
         2005                          23,565
         2006                          24,276
         2007                           4,076
                                    ---------
         Totals                    $  112,671
                                    =========

We believe that our  facilities  are adequate for our needs for the  foreseeable
future.


Item 3. Legal Proceedings

The Company is not a party to any pending  litigation at this time nor is any of
its property subject to any pending legal proceedings.


Item 4. Submission of Matters to a Vote of Security Holders

None.


                                     Part II


Item 5. Market for Common Equity and Related Stockholder Matters.

     a) Market Information.

The common  stock of the  Company  currently  is quoted on the Over the  Counter
Bulletin  Board under the symbol  "AAMI" and has been since  October  23,  2001.
Prior to that time, it was approved for trading under symbol "FBIB," although it
never traded under that symbol.  The ask/high and bid/low  information  for each
quarter since October 23, 2001 are as follows:

Quarter                    Ask/High     Bid/Low
---------------------      --------     --------
09/01/2001-12/31/2001      1.75         0.53

01/01/2002-03/31/2002      0.81         0.33

04/01/2002-06/31/2002      0.65         0.36

07/01/2002 - 09/30/2002    0.57         0.31

10/01/2002 - 12/31/2002    0.47         0.38

12/31/2002 - 03/31/2003    0.78         0.53

04/01/2003 - 06/30/2003    0.85         0.42

07/01/2003 - 09/30/2003    0.55         0.37

10/01/2003 - 12/31/2003    0.42         0.22

1/1/2004   - 3/31/2004     0.50         0.27




                                       17
<PAGE>


Please note that  over-the-counter  market quotations have been provided herein.
The quotations reflect inter-dealer prices, without retail markup,  mark-down or
commission and may not represent actual transactions.

     (b) Holders.

As of  December  31,  2003  the  Company  had one  hundred  seventy-eight  (178)
shareholders  of record of its  66,893,628  outstanding  shares of common stock,
32,077,324 of which were restricted Rule 144 shares and 34,816,304 of which were
free-trading.  Of the Rule 144  shares,  24,067,705  shares  have  been  held by
affiliates of the Company for more than one (1) year.

     (c) Dividends.

The Company has never paid or declared  any  dividends  on its common  stock and
does not anticipate paying cash dividends in the foreseeable future.



Item 6. Management's Discussion and Analysis

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Caution Regarding Forward-Looking Information

Certain statements contained in this Registration  Statement including,  without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

Given these uncertainties,  readers of this Registration Statement and investors
are cautioned not to place undue  reliance on such  forward-looking  statements.
The Company  disclaims any  obligation to update any such factors or to publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained herein to reflect future events or developments.

Overview

We  were  incorporated  on  February  1,  2000 in the  State  of  California  as
FirsTelevision.com.  We  subsequently  changed our  corporate  name to FBI Fresh
Burgers International which unsuccessfully marketed a business plan concept of a
national "fast food" restaurant chain.

American Ammunition,  Inc. is a holding company with two operating subsidiaries:
F&F Equipment, Inc. and Industrial Plating Enterprise Co.

F&F Equipment,  Inc. was  incorporated  on October 4, 1983 under the laws of the
State of Florida.  The company was formed to engage  principally in the "import,
export, retail & wholesale of firearms equipment, ammunition & other devices and
for the purpose of transacting any and/or all lawful business." F&F conducts its
business operations under the assumed name of "American Ammunition."



                                       18
<PAGE>




In June  2002,  American  Ammunition,  Inc.  formed a wholly  owned  subsidiary,
Industrial  Plating  Enterprise Co., which started  production on June 14, 2002.
Industrial   Plating  is  a  fully   licensed   and   approved   electrochemical
metallization  facility with  significant  capacity for  processing  our line of
projectiles   as  well  as  other   products   and  services   while   employing
environmentally sound water conservation and proven waste treatment techniques.

During the third  quarter of 2003,  the  Company's  operations  experienced  the
negative  impact of a lower than  anticipated  or budgeted  purchases  by Ellett
Brothers, a significant customer.

However,  during this same time period, the Company has entered into a strategic
alliance   with  IMI,  an  entity  owned  by  the  State  of  Israel,   for  the
cross-production  and sale of various  small arms  ammunition.  This alliance is
anticipated  to greatly  expand the Company's  catalog of products and assist in
utilizing existing production capacity.

The Company has executed a private labeling agreement with Century International
Arms,  Inc.  ("Century").  Under this  agreement,  the Company  will produce its
standard  catalog  of small  arms  ammunition  plus  one  specialty  small  arms
cartridge  to Century's  specifications  for  packaging in Century's  designated
labeling.  This  agreement  will  require  no  modifications  to  the  Company's
production line and will not require the addition of  supplemental  personnel or
equipment.  The  initial  shipment  under  this  agreement  is for an  aggregate
2,010,000  rounds of ammunition at selling prices of $81.00 to $120.00 per 1,000
rounds, as defined in this agreement.  The agreement is for an initial period of
nine (9) months and covers periodic  orders/shipments of an aggregate 13,670,000
rounds of  ammunition  from the  Company's  standard  catalog  of  products  and
1,000,000 of the specialty rounds made to Century's specifications.  The Company
began shipments under this agreement during the fourth quarter of 2003.

Additionally,  the Company has been awarded  three (3) separate  contracts  from
various  departments  of the U. S.  Government.  Each contract is for an initial
term of one (1) year (commencing  between April 24, 2003 and September 30, 2003)
with four (4) successive  individual  one-year extension options.  The contracts
are summarized as follows:

     Contract  1:  U.  S.   Department  of  State.   Minimum  annual  volume  of
approximately  100,000 rounds of military grade small arms  ammunition.  Maximum
annual volume of approximately 5,000,000 rounds. Maximum volume may be increased
at  the  discretion  of  the  Contracting  Officer  and  respective  utilization
requirements. Through October 22, 2003, the Company has received firm orders for
2,265,000  rounds  of  ammunition  under  this  contract  and has  approximately
1,265,000 rounds ready for shipment.  The ammunition under this contract will be
subject to the strategic alliance with IMI.

     Contract 2: U. S.  Department  of Energy.  This  contract  covers seven (7)
separate  products in the  Company's  standard  catalog of  products.  The U. S.
Department  of Energy is obligated to purchase an aggregate of 4,549,000  rounds
of ammunition  under this contract.  Through  December 31, 2003, the Company has
not shipped any product under this contract.

     Contract 3: U. S.  Department of Homeland  Security.  This contract  covers
four (4) separate products being introduced to the Company's catalog through the
strategic  alliance  with IMI and  requires no  modifications  to the  Company's
production facilities or additions to the labor force. The minimum annual volume
is 1,000 rounds of each product and a maximum annual volume of 9,600,000  rounds
of two (2) products and 36,000,000 of the remaining two (2) products. Management
anticipates shipments of production product to commence during the first quarter
of 2004.

Results of Operations

Year ended December 31, 2003 compared with the year ended December 31, 2002

During the year ended December 31, 2003, we  experienced  aggregate net revenues
of approximately  $1,985,000,  with approximately $769,000 being realized during
the 4th  quarter,  as compared to  approximately  $1,409,000  for the year ended
December 31, 2002.



                                       19
<PAGE>



We  experienced  costs of goods sold of  approximately  $3,232,000  for the year
ended  December 31, 2003 as compared to  approximately  $2,457,000  for the year
ended December 31, 2002. During 2003, we experienced  negative trends off of our
standard production costs for material and labor due to difficulties in training
new  employees  and adding new  products to our  catalog.  Management  is of the
opinion  that the  production  labor  force is  stable  and able to  maintain  a
constant standard of quality for future periods. We experience variable costs in
the  area  of  material   consumption  and  direct  labor.  We  have  recognized
depreciation  expense on  production  equipment  of  approximately  $669,000 and
$653,000, respectively, in the above cost of goods expense totals.

These  depreciation  levels are anticipated to remain fairly constant for future
periods as management  does not anticipate  any  significant  capital  equipment
acquisitions in future periods.  Further, the addition of the Industrial Plating
Enterprise Co.  equipment  allows us to produce  certain  components  which were
previously outsourced to unrelated third parties.

For the year ended December 31, 2003 and 2002, respectively, we have generated a
negative  gross  profit  of  approximately   $(1,247,000),   or  (62.82%),   and
approximately $(1,047,000), or (74.31%). We anticipate that with the fulfillment
of the various private labeling  agreements and government  contracts  discussed
above,  continued  retail consumer demand for our product line, lower production
costs  being  experienced  from  internally  generated  plating  activities  and
adequate  liquidity,  we will be able to  generate  a positive  gross  profit in
future periods.  Further,  based on production cost information developed during
the 4th  quarter  of 2002  and  further  refined  during  2003,  management  has
developed a new model for the pricing of its  products to its  customers.  It is
anticipated  that this model  will allow  management  to better  manage  expense
levels, control labor costs and maximize revenue opportunities.

We experienced nominal research and development expenses of approximately $4,000
and $3,700,  respectively,  during the years ended  December  31, 2003 and 2002,
principally related to the expansion of our product line.

Other general and administrative  expenses  increased by approximately  $282,000
from approximately  $845,000 for the year ended December 31, 2002 as compared to
approximately  $1,127,000  for the  year  ended  December  31,  2003.  The  most
significant  increases relate to advertising and marketing expenses,  office and
administrative wages and salaries and overall office overhead.

Included in our results of  operations  for both 2003 and 2002 2001 are non-cash
expenditure charges. During 2003 and 2002, respectively,  we experienced charges
to operations of  approximately  $883,000 and $11,500 for  compensation  expense
related to common stock issuances at less than "fair value".  The calculation of
these charges  result from our issuing  common stock for either cash or services
at  valuations  below the closing  quoted  market  price of our common stock (as
discounted,  as  applicable)  and either the cash  received  or the value of the

services  provided to us by third parties.  During 2003, we experienced a charge
of  approximately  $94,000 for the  amortization  of the  Beneficial  Conversion
Feature Discount on our Preferred Stock. This charge results from the difference
between the closing  quoted market price on our common stock and the  equivalent
converted price of our Mandatory  Convertible Preferred Stock which was sold and
converted during 2003.

We recognized a net loss of approximately  $(2,968,000) and $(1,883,000) for the
respective years ended December 31, 2003 and 2002, respectively,  or $(0.05) and
$(0.04) per share.

Year ended December 31, 2002 compared with the year ended December 31, 2001

During the year ended December 31, 2002, we  experienced  aggregate net revenues
of approximately  $1,409,000 as compared to approximately  $428,000 for the year
ended December 31, 2001.  The 2002 levels compare  favorably to the 2000 revenue
levels of approximately $1,716,000.



                                       20
<PAGE>



We  experienced  costs of goods sold of  approximately  $2,457,000  for the year
ended  December 31, 2002 as compared to  approximately  $1,385,000  for the year
ended  December 31, 2001. We experience  variable  costs in the area of material
consumption  and  direct  labor.  We have  recognized  depreciation  expense  on
production equipment of approximately  $653,000 and $629,000,  respectively,  in
the above cost of goods expense totals.

These  depreciation  levels are anticipated to remain fairly constant for future
periods as management  does not anticipate  any  significant  capital  equipment
acquisitions in future periods.  Further, the addition of the Industrial Plating
Enterprise Co.  equipment  allows us to produce  certain  components  which were
previously outsourced to unrelated third parties.

For the year ended December 31, 2002 and 2001, respectively, we have generated a
negative  gross  profit  of  approximately   $(1,047,000),   or  (74.31%),   and
approximately $(957,000), or (223.84%). We anticipate that with continued demand
for our  product,  lower  production  costs being  experienced  from  internally
generated plating activities and adequate liquidity, it will be able to generate
a positive gross profit in future  periods.  Further,  based on production  cost
information developed during the 4th quarter of 2002, management has developed a
new model for the pricing of its products to its  customers.  It is  anticipated
that this model will allow  management to better manage expense levels,  control
labor costs and maximize revenue opportunities.

We experienced nominal research and development expenses of approximately $3,700
and $4,000,  respectively,  during the years ended  December  31, 2002 and 2001,
principally  related to the  expansion of our product line to add a .223 caliber
round and the evolving development of a new patent-pending projectile for use in
ammunition   specifically  for  the  public  safety  and  security  marketplace,
especially in the rapidly expanding U. S. Air Marshall program and other product
improvements.

Other  general  and  administrative   expenses   decreased   significantly  from
approximately  $845,000  for the year ended  December  31,  2002 as  compared to
approximately  $1,806,433  for the  year  ended  December  31,  2001.  The  most
significant  reductions  came in interest  expense as a result of  settling  all
litigation with the Company's former lending  institution,  savings in the areas
of legal and professional fees and other general and administrative fees.

Included  in our  results  of  operations  for both  2002  and 2001 are  various
non-cash expenditure charges.  During 2002, we experienced charges to operations
of  approximately  $11,500  for  compensation  expense  related to common  stock
issuances at less than "fair value".  The  calculation  of these charges  result
from our issuing  common stock for either cash or services at  valuations  below
the  closing  quoted  market  price  of our  common  stock  (as  discounted,  as
applicable)  and either the cash received or the value of the services  provided
to us by third parties.  During 2001, we  experienced a charge of  approximately

$1,208,000 for the amortization of the Beneficial Conversion Feature Discount on
our Preferred Stock. This charge results from the difference between the closing
quoted market price on our common stock and the  equivalent  converted  price of
our Mandatory  Convertible  Preferred Stock which was sold and converted  during
2001.

We recognized a net loss of approximately  $(1,883,000) and $(3,216,577) for the
respective years ended December 31, 2002 and 2001, respectively,  or $(0.04) and
$(0.11) per share.

Liquidity And Capital Resources

As of  December  31,  2003 and 2002,  respectively,  we had  working  capital of
approximately  $2,000,000 and $56,000.  Our working  capital  position  improved
significantly at December 31, 2003 due to the volume of shipments during the 4th
quarter to our customers and increases in inventory to support the pending U. S.
Government contracts.

We have  used cash in  operating  activities  of  approximately  $2,918,000  and
$1,236,000 during the years ended December 31, 2003 and 2002, respectively.





                                       21
<PAGE>


The most  significant  use of cash in operations  during the year ended December
31, 2003 was the production of inventory  shipped on open account during the 4th
quarter and the  increase in  inventory  levels to support the U. S.  Government
contracts with shipments to commence during the 1st quarter of 2004.

The most  significant  use of cash in operations  during the year ended December
31, 2002 was the  rebuilding of our  operations  after the problems  encountered
during  2001  while  we were in  litigation  with  our  former  primary  lending
institution.  We further used cash in building up our inventory in  anticipation
of Calendar 2003 orders as communicated to us by our customer base.

We  experience  relatively  consistent  expenditure  levels  for  executive  and
administrative  compensation,  interest expense and depreciation expense. During
the third  quarter of 2001,  we  renegotiated  our working  capital  note in the
principal amount of $950,000. This note bore interest at the Wall Street Journal
published  prime  rate plus  2.0%.  During  2002,  we  reduced  the  outstanding
principal on five (5) separate occasions to a balance of approximately $450,000.
The note payment terms were also modified as follows:  payments of interest only
through  January 28,  2004.  Thereafter,  starting on January  28,  2004,  equal
monthly  payments of principal  and interest  were due until June 28, 2007 which
payments  shall  represent the amount  necessary to fully amortize the remaining
principal balance of the note. The monthly payments shall be recalculated at the
time of any change in the  applicable  interest  rate.  At December 31, 2002, we
owed $450,000 on this note and retired the note in full during the first quarter
of 2003.

We anticipate that our improved  liquidity  position will continue to improve as
management is of the opinion that the production capacity is in place to support
all existing  orders and accept  existing  inquiries  which have previously been
denied due to the lack of production capacity and liquidity.

During  the years  ended  December  31,  2003 and 2002,  respectively,  we added
approximately  $289,000 and $387,000 in new  equipment,  of which  approximately
$225,000 was acquired in 2002 for our new  wholly-owned  subsidiary,  Industrial
Plating Enterprise Co. This equipment allows us to replace previously outsourced
portions of our  manufacturing  process with internally  managed processes which
resulted in cost savings to us and improve turnaround time on this process.

Depending on future  demand for our  products,  we may develop plans to increase
our  production  capability in the  foreseeable  future by an additional  50% to
100%, as influenced by the availability of  manufacturing  equipment on the open
market and product  sales demand.  Management is of the opinion that  sufficient
demand will be present,  as supported by new product  development  and increased
product marketing  efforts,  to justify this expansion.  However,  we may not be
able to obtain additional funding or, that such funding,  if available,  will be
obtained on terms favorable to or affordable by us.

Convertible Debenture

On October 4, 2002, we signed a Securities Purchase Agreement with La Jolla Cove
Investors,  Inc. (La Jolla) for the sale of a $250,000 8% convertible  debenture
and a warrant  to  purchase  up  30,000,000  shares  of our  common  stock.  The
debenture bears interest at 8% and matures two years from the date of issuance.

In December 2002, the Company and La Jolla, the Debenture and/or Warrant Holder,
amended the above-referenced debenture and warrants as follows:

          The number of common  shares into which the debenture may be converted
     is equal to the dollar amount of the debenture being  converted  multiplied
     by eleven,  minus the product of the  conversion  price,  multiplied by ten
     times the dollar amount of the debenture  being  converted,  divided by the
     conversion  price.  The  conversion  price is obtained by  multiplying  the
     average of the five (5) lowest Volume Weighted Average Prices (VWAP) during
     the 20  trading  days  prior  to the  date of  conversion  by the  Discount
     Multiplier of 80%.

          The  warrants are  exercisable  at $1.00 per share for up to 2,500,000
     shares.   The  Warrant   Holder  is   obligated  to  exercise  the  warrant
     concurrently  with the  conversion  of the debenture for a number of shares
     equal to ten times the dollar amount of the debenture being converted.



                                       22
<PAGE>



We were obligated to file a Registration  Statement  under the Securities Act of
1933 to register the underlying conversion shares on either Form SB-2 or S-3 and
have said Registration  Statement effective no later than 120 days after October
4, 2002. Our Registration  Statement on Form SB-2 was deemed effective by the U.
S. Securities and Exchange Commission on May 14, 2003 at 1:00 pm EDT.

La Jolla has contractually  committed to convert not less than 5.0% and not more
than 10.0% of the original  face value of the  Debenture  monthly  beginning the
month after the effective date of the Registration  Statement and is required to
concurrently  exercise warrants and purchase shares of common stock equal to ten
(10)  times the  number of shares of common  stock  issued to La Jolla  upon the
respective mandatory conversion of the Debenture.

La Jolla has further contractually agreed to restrict its ability to convert the
Debenture or exercise their warrants and receive shares of our common stock such
that the number of shares held them or their affiliates after such conversion or
exercise does not exceed 4.99% of the then issued and outstanding  shares of our
common stock.

In the event an  election  to convert is made and the  volume  weighted  average
price of our common stock is below $0.30 per share,  we have the right to prepay
any portion of the outstanding Debenture that was elected to be converted,  plus
any accrued and unpaid interest, at 125.0%.

La Jolla could have  demanded  repayment of the  Debenture of 125.0% of the face
amount  outstanding,  plus all accrued and unpaid interest,  in cash at any time
prior to May 14, 2003, the date that underlying Registration Statement under the
Securities  Act of 1933  was  declared  effective  by the U. S.  Securities  and
Exchange Commission, within 3 business days of such demand. If the repayment was
accelerated,  we were  obligated to issue La Jolla 25,000 shares of common stock
and $10,000 cash for each 30 day period,  or portion  thereof,  during which the
face amount, including interest thereon, remains unpaid with the cash payment to
increase to $15,000 for each 30 day period the balance  remains unpaid after the
initial 90 day period.

If La Jolla  does not elect to  accelerate  the  Debenture,  the  Company  shall
immediately  issue and pay La Jolla  25,000  shares of common  stock and $10,000
cash for each 30 day period,  or portion thereof,  during which the face amount,
including interest thereon,  remains unpaid with the cash payment to increase to
$15,000 for each 30 day period the balance  remains  unpaid after the initial 90
day period.

Due to the contractually agreed mandatory conversion of this Debenture,  we have
reflected  this  transaction  in our balance sheet as a  "mezzanine"  level debt
obligation on its balance sheet,  between "Total Liabilities" and "Stockholders'
Equity".  Upon  the  respective  mandatory  conversion,   we  will  relieve  the
respective  portion of the  Debenture  and the any related  accrued,  but unpaid
interest,   and  credit  this  amount  to  the  respective  "common  stock"  and
"additional  paid-in capital" accounts in the  stockholder's  equity section for
the par value and  excess  amount  over the par value of the  respective  shares
issued.

As the warrant is  non-detachable  from the Debenture and requires  simultaneous
exercise upon  conversion of the Debenture,  no value was assigned to the issued
warrant.  Upon exercise of the warrant,  the Company will record the issuance of
the  underlying  shares as a new  issuance  of common  stock on the date of each
respective exercise.

Concurrent  with the  execution  of the  Debenture  agreement,  we  executed  an
engagement letter with La Jolla's counsel for legal  representation  with regard
to the  preparation of the  Registration  Statement  under the Securities Act of
1933 on Form SB-2.

On March 13, 2003 and May 6, 2003, La Jolla Cove Investors,  Inc., the holder of
the Company's convertible debenture, advanced the Company an additional $200,000
and $150,000,  respectively,  for working  capital  purposes.  During the second
quarter of 2003, La Jolla elected to allocate the entire  $350,000 in additional
funding to the principal balance of the convertible debenture.



                                       23
<PAGE>



On various  dates  between May 7, 2003 and June 30,  2003,  La Jolla  elected to
convert  an  aggregate  $75,135,  through  six  (6)  separate  transactions,  in
outstanding Debenture principal into restricted, unregistered common stock. This
election   caused  the  Company  to  issue   1,334,777   shares  of  restricted,
unregistered common stock to the Debenture Holder. Additionally, pursuant to the
contract terms,  the Debenture  Holder  concurrently  exercised a portion of the
outstanding  Warrant to purchase  751,350  shares of the  Company's  restricted,
unregistered common stock for gross proceeds of $751,350.

During the period from July 1, 2003  through  September  30,  2003,  the Company
issued  an  aggregate   2,902,129   shares  of  common  stock,  in  15  separate
transactions,  to La Jolla  in  exchange  for the  redemption  of  approximately
$93,500 in outstanding debenture balance and approximately $935,000 in cash from
the exercise of the affiliated warrant. Where the closing price of the Company's
common stock was in excess of the  respective  price per share on the respective
transaction   date,   the  Company   recognized  a  charge  to  operations   for
"compensation  expense  related  to common  stock  issuances  at less than "fair
value".  The cumulative effect of transactions  where the transaction  price, as
established in the Debenture  Agreement,  was less than the closing price on the
date  of  the  respective  transactions  resulted  in  a  cumulative  charge  to
operations of approximately $317,539 during this time period.

In October  2003,  the Company  issued an aggregate  1,659,847  shares of common
stock,  in  3  separate   transactions,   in  exchange  for  the  redemption  of
approximately   $40,000  in  outstanding  debenture  balance  and  approximately
$400,000 in cash from the exercise of the affiliated warrant.  Where the closing
price of the Company's  common stock was in excess of the  respective  price per
share on the respective  transaction  date,  the Company  recognized a charge to
operations for  "compensation  expense related to common stock issuances at less
than "fair value".  The cumulative effect of transactions  where the transaction
price,  as  established  in the Debenture  Agreement,  was less than the closing
price on the date of the respective transactions resulted in a cumulative charge
to operations of approximately $146,189 during this time period.

Research and Development

Depending  on the  demand  for  new  product  lines  and the  refinement  of our
production   processes   under  our  production   agreement  with  IMI  for  the
cross-production  and sale of various small arms  ammunition,  we may or may not
incur increased spending on research and development  activities during Calendar
2004.

Further,  additional  ammunition calibers and/or projectiles may be developed by
us depending  upon market  research,  acceptance in the  marketplace of existing
products and  production  capabilities.  At this time,  there are no  definitive
plans for the further introduction of other new products into the marketplace.


Item 7. Financial Statements

The  required  consolidated  financial  statements  begin  on  page  F-1 of this
document.


Item 8.  Changes  In  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

On January 29, 2002 the Company notified its accountants,  Roger G. Castro,  CPA
that they were being dismissed as the Company's independent auditors. The stated
reasons  were  that  the  Registrant   wanted  to  retain  the  auditor  of  its
wholly-owned  subsidiary,  needed to  consolidate  the  audits of the parent and
subsidiary  to  comply  with SEC  requirements  and did not want to  engage  the
services of more than one (1) auditor. The Company's Board of Directors made the
decision to change accountants.

During  the  Registrant's  past two (2) fiscal  years and during any  subsequent
interim  period  preceding  the  date  of  dismissal,  the  Company  has  had no
disagreements with Roger G. Castro,  CPA on any matter of accounting  principles
or practices, financial statement disclosure or auditing scope or procedure.



                                       24
<PAGE>



The report of Roger G. Castro, CPA on the financial  statements for the past two
(2) fiscal years did not contain an adverse  opinion nor a disclaimer of opinion
nor was the report  qualified  or  modified  as to  uncertainty,  audit scope or
accounting principles.

On January 29, 2002 the Company  provided  Roger G.  Castro,  CPA with a copy of
this disclosure and requested that it furnish a letter to the Company, addressed
to the SEC,  stating  that it  agreed  with the  statements  made  herein or the
reasons why it  disagreed.  On January 29, 2002,  the Company  received a letter
from Roger G. Castro, CPA that it agreed with the statements contained herein.

On January 29, 2002, the Company  engaged the firm of S.W.  Hatfield,  CPA, P.O.
Box  820392,  Dallas,  TX  75382 as the  Company's  independent  auditors.  Such
appointment was accepted by S.W. Hatfield,  President of the firm. Prior to such
engagement,  the Registrant had not consulted  S.W.  Hatfield,  CPA on any prior
matters,  including  any  matters  relative  to the  application  of  accounting
principles or any subject of disagreement with Roger G. Castro, CPA.


Item 8A. Controls and Procedures

The  Company's  Chief  Executive   Officer  and  Chief  Financial  Officer  have
concluded,  based on an evaluation  conducted within 90 days prior to the filing
date of this  Annual  Report  on Form 10- KSB,  that  the  Company's  disclosure
controls and  procedures  have  functioned  effectively  so as to provide  those
officers the information necessary whether:

(i)  this  Annual  Report on Form  10-KSB  contains  any untrue  statement  of a
     material  fact or omits  to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made, not misleading with respect to the period covered by this Annual
     Report on Form 10-KSB, and

(ii) the financial statements,  and other financial information included in this
     Annual Report on Form 10-KSB,  fairly present in all material  respects the
     financial condition, results of operations and cash flows of the Company as
     of, and for, the periods  presented  in this Annual  Report on Form 10-KSB.
     There have been no significant  changes in the Company's  internal controls
     or in other  factors  since the date of the Chief  Executive  Officer's and
     Chief Financial Officer's  evaluation that could significantly affect these
     internal  controls,  including  any  corrective  actions  with  regards  to
     significant deficiencies and material weaknesses.

Critical Accounting Policies and Procedures

The Company records the intrinsic value of the beneficial  conversion feature of
the  convertible  debenture as  additional  paid-in  capital and  amortizes  the
interest over the life of the debenture.

Research and development costs are charged to operations when incurred.



                                    PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

Set forth below are the names,  ages,  positions,  with the Company and business
experiences of the executive officers and directors of the Company.

Name                 Age   Position(s) with Company
---------------      ---   -----------------------------------------
J.A. Fernandez, Sr.  67    Chairman of the Board and Director of Sales

Andres F. Fernandez  38    President and Chief Executive Officer

Emilio D. Jara       39    Vice-President of Operations, Secretary and Director

Maria A. Fernandez   44    Director



                                       25
<PAGE>



All  directors  hold  office  until the next  annual  meeting  of the  Company's
shareholders and until their successors have been elected and qualify.  Officers
serve at the pleasure of the Board of Directors. The officers and directors will
devote such time and effort to the business and affairs of the Company as may be
necessary  to  perform  their  responsibilities  as  executive  officers  and/or
directors of the Company.

Family Relationships

J.A. Fernandez, Sr. and Amelia Fernandez are the father and mother of Andres and
Maria Fernandez.  There are no other family  relationships  between or among the
executive officers and directors of the Company.

Business Experience

J. A. Fernandez,  Sr., age 67, currently serves as the Chairman of the Board and
Director or Sales.  He has been employed by AA since its inception in 1983.  Mr.
Fernandez is the patriarch of what began as a family business and is responsible
for the  sales  activities  of the  Company.  Mr.  Fernandez  has  over 40 years
experience  in  diverse  industries   including   aerospace,   advanced  polymer
manufacturing,  munitions, mining and processing of gemstones and metal ores and
has utilized such experience for the growth and  development of the Company.  He
is fluent in Spanish.

Andres  Fernandez,  age 38,  currently  serves as President and Chief  Executive
Officer.  Mr.  Fernandez has served in each of these  capacities since September
2001. He has been employed by AA for over a decade. Mr. Fernandez is responsible
for day to day  operations  and has been a driving  force behind the Company and
its success in becoming a vertically integrated manufacturer. He studied physics
and calculus at St. Thomas University, FL and at the University of Miami, FL. He
is  a  licensed  pilot,   having  graduated  from  the  American   Institute  of
Aeronautics, FL, and received his certificate as a private pilot (fixed wing) as
well as private  helicopter  (rotary)in 1989. In 1989, Mr.  Fernandez  graduated
from  the  Institute  of  Public  Service  (Pan  Am),  GA as a  tactical  rappel
instructor.  In 1990, he graduated from Omni Explosives,  TN with a specialty in
tactical  explosives.  Mr. Fernandez was certified by the Florida  Department of
Law Enforcement Academy in special  operations/entry  techniques in 1990. He has
served as a tactical  advisor to U.S.  Treasury  Department,  Bureau of Alcohol,

Tobacco and Firearms,  U.S.  Customs  Service and the Florida  Department of Law
Enforcement. He has received numerous commendations and letters of appreciation.
He also  served on the Board of  Veterans  Affairs  (Hialeah  , FL) from 1990 to
1991. He is fluent in Spanish.

Emilio Jara, age 39, currently serves as Vice President of Operations, Secretary
and a Director.  Mr. Jara has served in each of these capacities since September
2001.  He has been  employed with AA since 1988. He has been an integral part of
the Company's  technological  growth.  His  abilities  have  contributed  to the
Company's  research and  development  and  subsequent  increase in the number of
production  lines.  Mr.  Jara is  extremely  well  versed in  metallurgical  and
ballistic  issues. He studied business  administration  at Miami-Dade  Community
College (1984/1985).  In 1989, he graduated from the Institute of Public Service
(Pan Am), GA as a Tactical Rappel  Instructor.  In 1990, Mr. Jara graduated from
Omni  Explosives,  TN with a specialty in Tactical  Explosives.  He is fluent in
Spanish.

Maria A. Fernandez,  age 44, currently serves as a Director.  Mrs. Fernandez has
served as a Director since September 2001. She has been the managing  partner at
Fernandez  Friedman Grossman & Kohn PLLC since May 1998. Prior to that date, she
was a partner at Taustine Post Sotsky Berman  Fineman & Kohn.  She  concentrates
her legal practice in the areas of estate planning,  probate and administration.
She also practices in the areas of Medicaid and disability  planning,  corporate
and  individual  taxation and  Corporate  law,  with an emphasis in closely held
corporations.  She is a graduate of the  University  of Miami,  FL  (Bachelor of
Business Administration and Master of Professional  Accounting) and the Brandeis
School of Law at the University of Louisville,  KY. Ms. Fernandez is licensed to
practice  in  Kentucky  and  Florida.  She has  lectured  in the areas of estate
planning  and probate,  Medicaid  planning and elder law. She is a member of the




                                       26
<PAGE>



Louisville,  Florida,  Kentucky and American Bar  Associations  and is fluent in
Spanish. Ms. Fernandez is the past President of the Women Lawyers Association of
Jefferson  County,  Kentucky  and current  Board  Member of the  Louisville  Bar
Association.  A Graduate of the  Kentucky  Women's  Leadership  Network,  she is
active in various civic  organizations and is on the board of several non-profit
corporations.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

No Director,  Officer,  Beneficial  Owner of more than ten percent  (10%) of any
class of equity  securities  of the Company  failed to file reports  required by
Section  16(a) of the Exchange  Act during the most recent  fiscal year or prior
fiscal years.



Item 10. Executive Compensation

The  following  summary   compensation  table  sets  forth  the  aggregate  cash
compensation  paid or accrued by the Company to each of the Company's  executive
officers  and key  employees  for  services  rendered to the Company  during the
Company's  fiscal  year  ended  2002,  2001 and  2000 and all plan and  non-plan
compensation  awarded  to,  earned by or paid to  certain  designated  executive
officers.







                [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]








                                       27
<PAGE>


<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

                                                           Long Term Compensation
                         Annual Compensation                       Awards            Payouts
(a)               (b)     (c)       (d)      (e)          (f)         (g)          (h)      (i)
                                             Other        Restricted  Securities   LTIP     All
Name and                                     Annual         Stock     Underlying   Pay-     Other
Principal         Year    Salary    Bonus    Compen-      Award(s)    Options/     outs     Compen-
Position (1)              ($)       ($)      sation ($)   ($)         SARs  (f)             sation ($)
----------------- ------  --------  -------- ------------ ----------  ------------ -------- ----------
<S>               <C>     <C>        <C>      <C>          <C>         <C>          <C>      <C>
J.A.              2000    $ 59,202   $0       $0           $0          $0           $0       $0
Fernandez, Sr.,   2001    $ 50,859   $0       $0           $0          $0           $0       $0
Chairman,         2002    $ 77,770   $0       $0           $0          $0           $0       $0
Director of       2003    $104,000   $0       $0           $0          $0           $0       $0
Sales

Andres F.         2000    $ 88,438   $0       $0           $0          $0           $0       $0
Fernandez,        2001    $ 74,290   $0       $0           $0          $0           $0       $0
President and     2002    $103,508   $0       $0           $0          $0           $0       $0
Chief Executive   2003    $132,600   $0       $0           $0          $0           $0       $0
Officer

Emilio D.         2000    $ 36,400   $0       $0           $0          $0           $0       $0
Jara, Vice-       2001    $ 42,500   $0       $0           $0          $0           $0       $0
President         2002    $ 43,000   $0       $0           $0          $0           $0       $0
Of                2003    $ 52,000   $0       $0           $0          $0           $0       $0
Operations,
Secretary
and
Director

Amelia            2000    $ 59,202   $0       $0           $0          $0           $0       $0
Fernandez,        2001    $ 59,923   $0       $0           $0          $0           $0       $0
Former Vice       2002    $ 64,598   $0       $0           $0          $0           $0       $0
President         2003    $ 78,702   $50,000  $0           $0          $0           $0       $0
And former
Director

Maria A.          2000    $0         $0       $0           $0          $0           $0       $0
Fernandez,        2001    $0         $0       $0           $0          $0           $0       $0
Director          2002    $0         $0       $0           $0          $0           $0       $0
                  2003    $0         $0       $0           $0          $0           $0       $0
</TABLE>










                                       28
<PAGE>



Compensation of Directors

The Company has no standard  arrangements  for compensating the directors of the
Company for their attendance at meetings of the Board of Directors.



Item 11. Security Ownership of Certain Beneficial Owners and Management

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of our common stock as of December 31, 2003 by:

*    each  person  who is known by us to  beneficially  own more  than 5% of our
     common stock;
*    each of our officers and directors;
*    all of our officers and directors as a group.

Except as otherwise noted, each person's address is c/o American Ammunition,
Inc., 3545 NW 71st Street, Miami, FL 33147.


                                                   Shares Beneficially Owned
                                                  ---------------------------
Name and Address of Beneficial Owner                 Number        Percent
------------------------------------------------  -----------    ------------

Andres F. Fernandez, President, CEO and CFO        8,485,365           12.7%

J. A. Fernandez, Sr., Chairman of the Board
                      and Director of Sales       14,905,905           22.3%


Amelia C. Fernandez, Vice President and Director   4,281,900            6.4%

Maria A. Fernandez, Director                         260,000            0.4%

Emilio D. Jara, Director                              54,250               *

Total securities held by officers
and directors as a group (5 people):              27,987,420           41.8%

* Less than 1%

Beneficial  Ownership  is  determined  in  accordance  with  the  rules  of  the
Securities and Exchange  Commission and generally  includes voting or investment
power with respect to  securities.  Shares of common stock subject to options or
warrants  currently  exercisable or  convertible,  or exercisable or convertible
within 60 days of December 31, 2003 are deemed  outstanding  for  computing  the
percentage  of the person  holding  such  option or  warrant  but are not deemed
outstanding for computing the percentage of any other person.

J.A. Fernandez, Sr. and Amelia Fernandez are the father and mother of Andres and
Maria Fernandez.

The table above does not include the 384,500 shares Maria  Fernandez  holds as a
Trustee  for an  Irrevocable  Trust in which  neither  she nor any of the  other
Officers or Directors is the beneficial owner.  However,  the table does include
the shares owned by Amelia  Fernandez,  who was an officer and  director  during
2003.


Item 12. Certain Relationships and Related Transactions

The Company  leases its  corporate  office and  manufacturing  facility from its
controlling  stockholder under a long-term operating lease agreement.  The lease
requires a monthly payment of approximately  $5,410,  including applicable sales
taxes.  The Company is responsible for all utilities and  maintenance  expenses.
The lease  expires on July 31, 2004 and contains a clause that upon  expiration,
the Company and the controlling  shareholder shall renegotiate the annual rental
amount.  Total  rent  expense  under this lease was  approximately  $67,075  and
$54,100, respectively, for each of the years ended December 31, 2003 and 2002.


                                       29
<PAGE>



Item 13. Exhibits and Reports on Form 8-K.

     (a) The exhibits  required to be filed  herewith by Item 601 of  Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:

Exhibit No.    Description
----------  -------------------------------------

31.1 *      Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350.

32.1 *      Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350.

*    Filed herewith

     (b) A report on Form 8-K was filed on October 4, 2001  reporting  the Share
Exchange conducted between the Company, F&F Equipment, Inc. and the shareholders
of F&F Equipment, Inc. on September 29, 2001.

A report on Form 8-K was filed on January  29,  2002  reporting  a change in the
Registrant's Certifying Accountant.

A report on Form 8-K was filed on  October  21,  2002  reporting  a  Convertible
Debenture and a Warrant to La Jolla Cove Investors, Inc.

A report on Form 8-K was filed on February 11, 2004 in  connection  with a press
release describing both fourth quarter and year end results for 2003.

Another  report on Form 8-K was filed on  February  11,  2004  stating  that the
Company  had  executed a  non-binding  letter of intent to acquire the assets of
Triton Ammunition Corporation.


Item 14 - Principal Accountant Fees and Services

The Company paid or accrued the  following  fees in each of the prior two fiscal
years to its principal accountant, S. W. Hatfield, CPA of Dallas, Texas.

                                           Year ended        Year ended
                                          December 31,      December 31,
                                             2003               2002
                                          -------------------------------

(1)      Audit fees                       $  28,193         $  30,205
(2)      Audit-related fees                       -                 -
(3)      Tax fees                             1,208                 -
(4)      All other fees                           -                 -
                                          ---------         ---------

   Totals                                 $  29,401         $  30,205
                                          =========         =========

We  have  considered  whether  the  provision  of  such  non-audit  services  is
compatible with S. W. Hatfield,  CPA maintaining its independence and determined
that these services do not compromise their independence.

Financial Information System Design and Implementation.  S. W. Hatfield, CPA did
not charge the  Company any fees for  financial  information  system  design and
implementation fees.

The  Company  has no  formal  audit  committee.  However,  the  entire  Board of
Directors (the "Board") is the Company's defacto audit committee. In discharging
its oversight  responsibility  as to the audit process,  the Board obtained from
the independent auditors a formal written statement describing all relationships
between  the  auditors  and  the  Company  that  might  bear  on  the  auditors'
independence  as  required  by  Independence  Standards  Board  Standard  No. 1,
"Independence  Discussions with Audit  Committees." The Board discussed with the
auditors any  relationships  that may impact their objectivity and independence,
including fees for non-audit services,  and satisfied itself as to the auditors'




                                       30
<PAGE>



independence.  The Board also discussed with management,  the internal  auditors
and the independent  auditors the quality and adequacy of the Company's internal
controls.  The Board reviewed with the  independent  auditors  their  management
letter on internal controls.

The Board  discussed  and  reviewed  with the  independent  auditors all matters
required to be discussed by auditing standards  generally accepted in the United
States of America,  including those described in Statement on Auditing Standards
No. 61, as amended,  "Communication  with Audit Committees".  The Board reviewed
the audited  consolidated  financial statements of the Company as of and for the
year ended  December 31, 2003,  with  management and the  independent  auditors.
Management has the responsibility for the preparation of the Company's financial
statements  and  the  independent  auditors  have  the  responsibility  for  the
examination  of  those  statements.  Based  on the  above-mentioned  review  and
discussions with the independent auditors and management, the Board of Directors
approved the Company's audited consolidated financial statements and recommended
that they be  included  in its Annual  Report on Form  10-KSB for the year ended
December 31, 2003, for filing with the Securities and Exchange  Commission.  The
Board also approved the  reappointment  of S. W.  Hatfield,  CPA as  independent
auditors.

The Company's  principal  accountant,  S. W.  Hatfield,  CPA, did not engage any
other  persons  or  firms  other  than  the  principal  accountant's  full-time,
permanent employees.









                [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]







                                       31
<PAGE>



                                   SIGNATURES


In  accordance  with  Section 13 and 15(d) of the Exchange  Act, the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                            American Ammunition, Inc.
                                  (Registrant)


Date: May 5, 2004       By: /s/ J.A. Fernandez, Sr.
                        ------------------------------------------------------
                        J.A. Fernandez, Sr., Chairman and Director of Sales

                        By: /s/ Andres F. Fernandez
                        ------------------------------------------------------
                        Andres F. Fernandez, President and CEO

                        By: /s/ Emilio D. Jara
                        ------------------------------------------------------
                        Emilio D. Jara, V.P. of Operations, Secretary and
                          Director

                        By: /s/ Maria A. Fernandez
                        ------------------------------------------------------
                        Maria A. Fernandez, Director



Pursuant to the requirements of the Exchange Act, this report has been signed by
the following persons in the capacities and on the dates indicated.


Signature                   Title                             Date

/s/ J.A. Fernandez, Sr.
----------------------      Chairman of the Board             May 5, 2004
J.A. Fernandez, Sr.         and Director of Sales

/s/ Andres F. Fernandez
----------------------      President and Chief               May 5, 2004
Andres F. Fernandez         Executive Officer

/s/ Emilio D. Jara
----------------------      Vice-President of Operations,     May 5, 2004
Emilio D. Jara              Secretary and Director

/s/ Maria A. Fernandez
----------------------      Director                          May 5, 2004
Maria A. Fernandez






                                       32
<PAGE>



                   AMERICAN AMMUNITION, INC. AND SUBSIDIARIES

                                    CONTENTS


                                                                            Page

Report of Independent Certified Public Accountants                           F-2

Consolidated Financial Statements

   Consolidated Balance Sheets
     as of December 31, 2003 and 2002                                        F-3

   Consolidated Statement of Operations and Comprehensive Loss
     for the years ended December 31, 2003 and 2002                          F-5

   Consolidated Statement of Changes in Stockholders' Equity
     for the years ended December 31, 2003 and 2002                          F-6

   Consolidated Statement of Cash Flows
     for the years ended December 31, 2003 and 2002                          F-7

   Notes to Consolidated Financial Statements                                F-9










<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
American Ammunition, Inc.


We have  audited  the  accompanying  consolidated  balance  sheets  of  American
Ammunition,   Inc.  (a  California   corporation)  and   Subsidiaries   (Florida
corporations)  as of December  31,  2003 and 2002 and the  related  consolidated
statements of operations and comprehensive loss, changes in stockholders' equity
and cash  flows  for each of the two years  ended  December  31,  2003 and 2002,
respectively.  These consolidated financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
American Ammunition,  Inc. and Subsidiaries as of December 31, 2003 and 2002 and
the results of their  consolidated  operations and  consolidated  cash flows for
each of the two  years  ended  December  31,  2003 and  2002,  respectively,  in
conformity with accounting principles generally accepted in the United States of
America.


                                                         /s/ S. W. Hatfield, CPA
                                                             S. W. HATFIELD, CPA
Dallas, Texas
January 23, 2004




                                                                             F-2
<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002


                                                            December 31,        December 31,
                                                                 2003               2002
                                                            ---------------------------------
<S>                                                         <C>                 <C>
                                     ASSETS
Current Assets
   Cash on hand and in bank                                 $     505,671       $     157,316
   Accounts receivable - trade,
     net of allowance for doubtful accounts
      of $-0- and $-0-, respectively                              520,835              31,288
   Inventory                                                    1,112,756             384,814
   Prepaid expenses                                                40,388              19,391
                                                            -------------       -------------

     Total Current Assets                                       2,179,650             592,809
                                                            -------------       -------------


Property and Equipment - at cost or contributed value
   Manufacturing equipment                                      7,131,233           6,843,135
   Office furniture and fixtures                                   62,893              58,528
   Leasehold improvements                                         184,690             188,263
                                                            -------------       -------------
                                                                7,378,816           7,089,926
   Accumulated depreciation                                    (4,066,390)         (3,393,301)
                                                            -------------       -------------

     Net Property and Equipment                                 3,312,426           3,696,625
                                                            -------------       -------------

Other Assets
   Deposits and other                                              77,860              77,860
                                                            -------------       -------------

        TOTAL ASSETS                                        $   5,569,936       $   4,367,294
                                                            =============       =============
</TABLE>


                                  - Continued -




The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                                                             F-3

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                           December 31, 2003 and 2002


                                                            December 31,        December 31,
                                                                 2003               2002
                                                            ---------------------------------
<S>                                                         <C>                 <C>
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Current maturities of leases payable                      $      7,841       $       9,507
   Customer deposits                                                4,100              80,953
   Accounts payable - trade                                       128,865             414,910
   Accrued interest payable                                             -              18,709
   Accrued dividends payable                                       11,020              12,600
                                                            -------------       -------------

     Total Current Liabilities                                    151,826             536,679

Long-Term Liabilities
   Note payable to a bank                                               -             450,000
   Capital leases payable                                               -               7,841
                                                            -------------       -------------

     Total Liabilities                                            151,826             994,520
                                                            -------------       -------------

Commitments and Contingencies

Mandatory Convertible Debenture                                   391,365             250,000
                                                            -------------       -------------


Mandatory Convertible Preferred Stock
   103,700 and 41,000 shares issued and outstanding               518,500             205,000
                                                            -------------       -------------


Stockholders' Equity
   Preferred stock - $0.001 par value
     20,000,000 shares authorized.
     1,795,320 shares allocated to Series A                             -                   -
   Common stock - $0.001 par value.
     300,000,000 shares authorized.
     66,893,628 and 55,328,166 shares issued
     and outstanding                                               66,894              55,328
   Additional paid-in capital                                  21,070,395          16,523,164
   Accumulated deficit                                        (16,629,044)        (13,660,718)
                                                            -------------       -------------

   Total Stockholders' Equity                                   4,508,245           2,917,774
                                                            -------------       -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $   5,569,936       $   4,367,294
                                                            =============       =============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                                                             F-4

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                     Years ended December 31, 2003 and 2002

                                                            Year ended          Year ended
                                                            December 31,        December 31,
                                                                 2003               2002
                                                            ---------------------------------
<S>                                                         <C>                 <C>

Revenues                                                    $   1,984,997       $   1,409,364
                                                            -------------       -------------
Cost of Sales
   Materials                                                    1,355,098           1,041,553
   Direct Labor                                                   868,004             663,787
   Other direct costs and expenses                                340,346             128,371
   Depreciation                                                   668,574             652,943
                                                            -------------       -------------
     Total Cost of Sales                                        3,232,022           2,456,654
                                                            -------------       -------------

Gross Profit                                                   (1,247,025)         (1,047,290)
                                                            -------------       -------------
Operating Expenses
   Research and development expenses                                4,038               3,662
   Marketing and promotion expenses                               115,767              23,453
   Salaries, wages and related expenses                           399,710             341,532
   Other operating expenses                                       567,700             389,732
   Interest expense                                                35,154              72,444
   Depreciation expense                                             4,516               2,642
   Compensation expense related to common stock
     issuances at less than "fair value"                          882,291              11,538
                                                            -------------       -------------
     Total Operating Expenses                                   2,009,176             845,003
                                                            -------------       -------------
Loss from Operations                                           (3,256,201)         (1,892,293)

Other Income (Expense)
   Other income (expense)                                          63,382               9,206
   Gain on forgiveness of accounts payable                        339,202                   -
   Gain on sale of equipment                                        7,900                   -
   Amortization of Beneficial Conversion
     Feature Discount on Preferred Stock                          (93,678)                  -
                                                            -------------       -------------
Loss before Income Taxes                                       (2,939,395)         (1,883,087)

Provision for Income Taxes                                              -                   -
                                                            -------------       -------------
Net Loss                                                       (2,939,395)         (1,883,087)

Other Comprehensive Income                                              -                   -
                                                            -------------       -------------
Comprehensive Loss                                             (2,939,395)         (1,883,087)

Preferred Stock Dividends                                         (28,931)            (23,000)
                                                            -------------       -------------
Net Loss available to Common Shareholders                   $  (2,968,326)      $  (1,883,087)
                                                            =============       =============

Loss per weighted-average share of common stock outstanding,
   computed on net loss - basic and fully diluted           $       (0.05)      $       (0.04)
                                                            =============       =============

Weighted-average number of common shares outstanding           61,202,839          52,605,993
                                                            =============       =============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                                                             F-5

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     Years ended December 31, 2003 and 2002

                                           Mandatory Convertible
                                               Preferred Stock         Common Stock       Additional
                                           ----------------------   -------------------     paid-in    Accumulated
                                              Shares     Amount      Shares      Amount     capital      deficit         Total
                                           --------------------------------------------------------------------------------------
<S>                                        <C>        <C>          <C>          <C>       <C>          <C>            <C>
Balances at January 1, 2002                  46,000   $  230,000    49,971,214  $ 49,971  $14,678,776  $(11,734,631)  $2,994,116

Issuance of common stock for
   Cash                                           -            -     4,470,805     4,471    1,469,462             -    1,473,933
   Conversion of debt and accrued interest        -            -       277,777       278      124,722             -      125,000
   Conversion of trade accounts payable           -            -       432,721       433      181,584             -      182,017
   Consulting fees                                -            -        98,664        98       33,297             -       33,395
   Payment of preferred stock dividends           -            -        21,985        22       10,378             -       10,400
   Conversion of preferred stock             (5,000)     (25,000)       55,000        55       24,945             -       25,000
Costs of acquiring convertible debenture          -            -             -         -            -       (20,000)     (20,000)
Dividends declared on Preferred Stock             -            -             -         -            -       (23,000)     (23,000)
Net loss for the year                             -            -             -         -            -    (1,883,087)  (1,883,087)
                                             ------   ----------    ----------  --------   ----------   -----------   ----------

Balances at December 31, 2002                41,000      205,000    55,328,166    55,328   16,523,164   (13,660,718)   2,917,774

Issuance of preferred stock for Cash         91,700      458,500             -         -            -             -      458,500
   Less costs of raising capital                  -            -             -         -      (45,850)            -      (45,850)
Issuance of common stock for
   Cash                                           -            -     4,552,183     4,552    1,179,630             -    1,184,182
   Conversion of debenture                        -            -     4,561,753     4,562    1,086,364             -    1,090,926
   Exercise of warrant for cash                   -            -     2,086,350     2,086    2,084,264             -    2,086,350
   Payment of preferred stock dividends           -            -        46,176        46       20,464             -       20,510
   Conversion of preferred stock            (29,000)    (145,000)      319,000       319      144,681             -            -
Costs of acquiring convertible debenture          -            -             -         -      (16,000)            -            -
Beneficial Conversion Discount
   Feature on preferred stock                     -            -             -         -       93,678             -       93,678
Dividends declared on Preferred Stock             -            -             -         -            -       (28,931)     (28,931)
Net loss for the year                             -            -             -         -            -    (2,939,395)  (2,939,395)
                                            -------   ----------    ----------  --------   ----------   -----------    ---------

Balances at December 31, 2003                62,700   $  518,500    66,893,628  $ 66,894  $21,070,395  $(16,629,044)  $4,508,245
                                            =======   ==========    ==========  ========   ==========   ===========    =========
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.
                                                                             F-6

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2003 and 2002

                                                                                 Year ended      Year ended
                                                                                December 31,    December 31,
                                                                                    2003           2002
                                                                                ------------------------------
<S>                                                                             <C>             <C>
Cash flows from operating activities
   Net loss for the year                                                        $(2,939,395)    $(1,883,087)
   Adjustments to reconcile net loss to net
     cash provided by operating activities
       Depreciation and amortization                                                673,090         655,585
       Bad debt expense                                                               2,522               -
       Gain on forgiveness of accounts payable                                     (339,202)              -
       Gain on sale of equipment                                                     (7,900)              -
       Amortization of conversion discount on preferred stock                        93,678               -
       Compensation expense related to common stock
         issuances at less than "fair value"                                        882,291          11,538
       Common stock issued for fees and services                                          -          33,395
       Accrued interest converted to common stock                                         -          24,000
       (Increase) Decrease in
         Accounts receivable                                                       (492,069)        (31,288)
         Inventory                                                                 (727,942)       (258,884)
         Prepaid expenses, deposits and other                                       (20,997)        (13,483)
       Increase (Decrease) in
         Accounts payable and other accrued liabilities                              53,157         126,384
         Accrued payroll                                                            (18,709)         18,709
         Customer deposits                                                          (76,853)         80,953
                                                                                -----------     -----------
Net cash provided by (used in) operating activities                              (2,918,329)     (1,236,178)
                                                                                -----------     -----------

Cash flows from investing activities
   Cash received on sale of equipment                                                 7,900               -
   Purchase of property and equipment                                              (288,891)       (386,955)
                                                                                -----------     -----------
Net cash used in investing activities                                              (280,991)       (386,955)
                                                                                -----------     -----------

Cash flows from financing activities
   Increase in cash overdraft                                                             -               -
   Cash received (paid) on short term loans - net                                         -               -
   Cash received on long-term loans                                                       -               -
   Principal paid on long-term loans                                               (450,000)       (500,000)
   Principal paid on long-term capital leases                                        (9,507)         (8,365)
   Cash received on sale of Mandatory Convertible Preferred Stock                   458,500               -
   Cash received on issuance of Mandatory Convertible Debenture                     350,000         250,000
   Cash received on sale of common stock                                          3,260,532       1,462,395
   Cash paid to acquire capital                                                     (61,850)        (20,000)
                                                                                -----------     -----------
Net cash provided by financing activities                                         3,547,675       1,184,030
                                                                                -----------     -----------

INCREASE (DECREASE) IN CASH                                                         348,355        (439,103)

Cash at beginning of year                                                           157,316         596,419
                                                                                -----------     -----------
Cash at end of year                                                             $   505,671     $   157,316
                                                                                ===========     ===========
</TABLE>

                                  - Continued -

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                                                             F-7

<PAGE>



<TABLE>
<CAPTION>
                            AMERICAN AMMUNITION, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                     Years ended December 31, 2003 and 2002


                                                                                 Year ended      Year ended
                                                                                December 31,    December 31,
                                                                                    2003           2002
                                                                                ------------------------------
<S>                                                                             <C>             <C>
Supplemental disclosure of interest
   and income taxes paid
     Interest paid for the period                                               $    26,170     $    29,735
                                                                                ===========     ===========
     Income taxes paid for the period                                           $         -     $         -
                                                                                ===========     ===========

Supplemental disclosure of non-cash
   investing and financing activities
     Conversion of debt into common stock                                       $   208,635     $   101,000
                                                                                ===========     ===========
     Payment of accounts payable with
       issuance of common stock                                                 $         -     $   182,017
                                                                                ===========     ===========
     Payment of accrued dividends on preferred
       stock with common stock                                                  $    30,511     $    10,400
                                                                                ===========     ===========
</TABLE>




The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                                                             F-8

<PAGE>



                            AMERICAN AMMUNITION, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note A - Organization and Description of Business

American Ammunition,  Inc. (AAI or Company) was incorporated on February 1, 2000
in the State of California as  FirsTelevision.com.  AAI subsequently changed its
corporate name to FBI Fresh Burgers International which unsuccessfully  marketed
a business plan concept of a national "fast food" restaurant chain.

On September 29, 2001, the Company, F&F Equipment, Inc. (F&F) and the individual
shareholders of F&F entered into an "Agreement For The Exchange Of Common Stock"
(Exchange  Agreement)  whereby the  shareholders of F&F exchanged  100.0% of the
issued and outstanding stock of F&F for 21,000,000  post-forward split shares of
restricted,  unregistered common stock of the Company. F&F Equipment,  Inc. then
became a wholly-owned subsidiary of the Company.

F&F Equipment,  Inc.(Company) was incorporated on October 4, 1983 under the laws
of the State of Florida.  The Company  was formed to engage  principally  in the
"import,  export,  retail & wholesale of firearms equipment,  ammunition & other
devices and for the purpose of transacting any and/or all lawful  business." The
Company  conducts  its business  operations  under the assumed name of "American
Ammunition".

In June  2002,  American  Ammunition,  Inc.  formed a wholly  owned  subsidiary,
Industrial  Plating  Enterprise Co. (IPE),  which started production on June 14,
2002.  IPE is a fully  licensed  and approved  state of the art  electrochemical
metallization  facility for processing the Company's line of projectiles as well
as other  products  and services  while  employing  environmentally  sound water
conservation  and proven  waste  treatment  techniques.  The  facility  meets or
exceeds all current  environmental  requirements  and enjoys the  "conditionally
exempt small quantity generator" status for State and Federal regulations.


Note B - Preparation of Financial Statements

The  acquisition of F&F  Equipment,  Inc., on September 29, 2001, by the Company
effected a change in control and was  accounted  for as a "reverse  acquisition"
whereby F&F Equipment,  Inc. was the accounting acquiror for financial statement
purposes.  Accordingly,  the historical  financial statements of the Company are
those of F&F Equipment,  Inc. from it's inception and those of the  consolidated
entity subsequent to the September 29, 2001 transaction date.

The  Company and its  subsidiaries  follow the accrual  basis of  accounting  in
accordance with accounting principles generally accepted in the United States of
America and have adopted a year-end of December 31 for all entities.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.


                                                                             F-9

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note B - Preparation of Financial Statements - Continued

Management further acknowledges that it is solely responsible for adopting sound
accounting  practices,   establishing  and  maintaining  a  system  of  internal
accounting  control and preventing and detecting  fraud. The Company's system of
internal  accounting  control is designed to assure,  among other items, that 1)
recorded  transactions  are valid; 2) valid  transactions  are recorded;  and 3)
transactions  are  recorded in the proper  period in a timely  manner to produce
financial  statements which present fairly the financial  condition,  results of
operations  and cash  flows of the  Company  for the  respective  periods  being
presented

For  segment  reporting  purposes,  the Company  operated  in only one  industry
segment during the periods represented in the accompanying  financial statements
and makes all  operating  decisions and  allocates  resources  based on the best
benefit to the Company as a whole.

The  accompanying  consolidated  financial  statements  contain the  accounts of
American Ammunition, Inc. and its wholly-owned subsidiaries, F&F Equipment, Inc.
and Industrial Plating Enterprise Co. All significant intercompany  transactions
have been eliminated.  The consolidated entities are collectively referred to as
"Company".


Note C - Summary of Significant Accounting Policies

1.   Cash and cash equivalents

     For  Statement of Cash Flows  purposes,  the Company  considers all cash on
     hand  and  in  banks,  including  accounts  in  book  overdraft  positions,
     certificates of deposit and other highly-liquid investments with maturities
     of three months or less, when purchased, to be cash and cash equivalents.

     Cash  overdraft  positions may occur from time to time due to the timing of
     making bank deposits and releasing checks, in accordance with the Company's
     cash management policies.

2.   Accounts receivable and Revenue Recognition

     In the normal course of business,  the Company extends  unsecured credit to
     virtually  all of its  customers  which are located  throughout  the United
     States.  Because of the credit risk  involved,  management  has provided an
     allowance for doubtful accounts which reflects its opinion of amounts which
     will   eventually   become   uncollectible.   In  the  event  of   complete
     non-performance, the maximum exposure to the Company is the recorded amount
     of trade  accounts  receivable  shown on the  balance  sheet at the date of
     non-performance.

     The Company ships all product on an FOB-Plant basis.  Accordingly,  revenue
     is recognized by the Company at the point at which an order is shipped at a
     fixed price, collection is reasonably assured, the Company has no remaining
     performance obligations and no right of return by the purchaser exists.






                                                                            F-10

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note C - Summary of Significant Accounting Policies - Continued

3.   Inventory

     Inventory  consists of raw  materials,  work-in-process  and finished goods
     related to the production and sale of small arms  ammunition.  Inventory is
     valued at the lower of cost or market using the first-in, first-out method.

4.   Property, plant and equipment

     Property and  equipment are recorded at  historical  cost.  These costs are
     depreciated over the estimated useful lives of the individual  assets using
     the straight-line method, generally three to ten years.

     Gains and losses from  disposition of property and equipment are recognized
     as incurred and are included in operations.

5.   Income Taxes

     The Company uses the asset and liability  method of  accounting  for income
     taxes.  At December 31, 2003 and 2002,  the deferred tax asset and deferred
     tax  liability  accounts,  as  recorded  when  material  to  the  financial
     statements,  are entirely the result of  temporary  differences.  Temporary
     differences   represent  differences  in  the  recognition  of  assets  and
     liabilities for tax and financial reporting purposes, primarily accumulated
     depreciation and amortization, allowance for doubtful accounts and vacation
     accruals.

     As of December 31, 2003 and 2002,  the  deferred  tax asset  related to the
     Company's net  operating  loss  carryforward  is fully  reserved.  If these
     carryforwards are not utilized, they will begin to expire in 2005.

6.   Earnings (loss) per share

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss) by the weighted-average  number of shares of common stock and common
     stock  equivalents  (primarily  outstanding  options and warrants).  Common
     stock equivalents  represent the dilutive effect of the assumed exercise of
     the  outstanding  stock  options and  warrants,  using the  treasury  stock
     method.  The calculation of fully diluted earnings (loss) per share assumes
     the dilutive effect of the exercise of outstanding  options and warrants at
     either the  beginning  of the  respective  period  presented or the date of
     issuance,  whichever  is later.  As of  December  31,  2003 and  2002,  and
     subsequent thereto, the Company had no options outstanding. The outstanding
     warrants  and  convertible  preferred  stock  and  mandatorily  convertible
     debentures  are  anti-dilutive  due to the  Company's  net  operating  loss
     position.






                                                                            F-11

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note C - Summary of Significant Accounting Policies - Continued

7.   Advertising costs

     The Company does not conduct any direct  response  advertising  activities.
     For non-direct response advertising, the Company charges the costs of these
     efforts  to  operations  at the  first  time  the  related  advertising  is
     published.

Note D - Fair Value of Financial Instruments

The carrying amount of cash,  accounts  receivable,  accounts  payable and notes
payable, as applicable,  approximates fair value due to the short term nature of
these items  and/or the current  interest  rates  payable in relation to current
market conditions.

Interest  rate risk is the risk  that the  Company's  earnings  are  subject  to
fluctuations  in interest  rates on either  investments  or on debt and is fully
dependent  upon  the  volatility  of  these  rates.  The  Company  does  not use
derivative instruments to moderate its exposure to interest rate risk, if any.

Financial  risk  is  the  risk  that  the  Company's  earnings  are  subject  to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the  volatility  of  these  rates.  The  company  does  not use  derivative
instruments to moderate its exposure to financial risk, if any.


Note E - Inventory

As of  December  31,  2003  and  2002,  inventory  consisted  of  the  following
components:

                                        December 31,      December 31,
                                            2003               2002
                                     -------------------------------------

Raw materials                            $  523,550         $ 149,824
Work in process                             360,450           116,216
Finished goods                              212,832           118,774
                                         ----------          --------

Totals                                   $1,112,756         $ 384,814
                                         ==========          ========


Note F - Property and Equipment

Property and equipment consist of the following components:

                                    December 31,   December 31,      Estimated
                                        2003             2002        useful life
                                    -------------- ------------   --------------

   Manufacturing equipment          $7,131,233       $6,843,135     3-10 years
   Office furniture and fixtures        62,893           58,528     3- 7 years
   Leasehold improvements              184,690          188,263     8-20 years
                                    ----------       ----------
                                     7,378,816        7,089,926
   Accumulated depreciation         (4,066,390)      (3,393,301)
                                    ----------       ----------

   Net property and equipment       $3,312,426       $3,696,625
                                    ==========       ==========

Total  depreciation  expense  charged to operations for the years ended December
31, 2003 and 2002 was approximately $673,090 and $655,585, respectively.


                                                                            F-12

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note F - Property and Equipment - Continued

Included in the amounts  reflected  in the  accompanying  balance  sheet are the
following fixed assets on long-term capital leases:

                                                 December 31,   December 31,
                                                     2003            2002
                                                 ------------------------------

     Manufacturing and processing equipment       $153,400      $153,400
     Less accumulated depreciation                 (69,859)      (54,519)
                                                  ---------     --------

                                                  $ 83,541      $ 98,881
                                                  =========     ========

Note G - Capital Leases Payable

Capital  leases  payable  consist of the  following  as of December 31, 2003 and
2002, respectively:

<TABLE>
<CAPTION>
                                                                   December 31, December 31,
                                                                      2003          2002
                                                                   ------------ ------------
<S>                                                                 <C>         <C>
Three separate  capital leases payable to various  equipment
financing  companies.  Interest  ranging  between 11.37% and
14.05%.   Payable  in  aggregate  monthly   installments  of
approximately  $935,  including  interest.  Final maturities
occur   between    September   2004   and   December   2004.
Collateralized    the   underlying   leased    manufacturing
equipment.                                                           $ 7,841    $17,348

     Less current maturities                                          (7,841)    (9,507)
                                                                     -------    -------

     Long-term portion                                               $     -    $ 7,841
                                                                     =======    =======
</TABLE>

Future maturities of capital leases payable are as follows:

                             Year ending
                             December 31      Amount
                             ------------------------

                               2004           $7,841
                                              ======



                                                                            F-13

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note H - Long-Term Debt Payable to a Bank

On June 28, 2001,  the Company  executed a $950,000  note payable to a financial
institution.  This note bore interest at the Wall Street Journal published prime
rate plus 2.0%.

During  Calendar 2002, the Company made five (5) lump-sum  principal  reductions
aggregating $500,000 to the outstanding balance on this note. As of December 31,
2002, the Company owed $450,000 on this note.  Upon each lump-sum  payment,  the
Company executed a modification to the payment terms on the note.

During  Calendar  2003, the Company made two (2) lump-sum  principal  reductions
aggregating  $450,000 to the  outstanding  balance on this note. As of March 31,
2003, this note was retired in full.


Note I - Convertible Debenture

On October 4, 2002, the Company issued an 8.0% Convertible Debenture (Debenture)
in the face  amount of  $250,000  and a Warrant  which  requires  the  Holder to
purchase  shares of common stock equal to ten (10) times the number of shares of
common stock issued to the Holder on  conversion of the  Debenture.  In no event
shall the number of shares issued under the Warrant exceed 30,000,000.

During the second  quarter of Calendar  2003,  the Holder made  additional  cash
advances  to the  Company  totaling  $350,000  which  were  applied  to the then
outstanding principal balance on the Debenture.

The Debenture  bears  interest at 8.0% and matures on October 4, 2004.  The full
principal  amount  of the  Debenture  is due upon  default,  as  defined  in the
Debenture  agreement.  The  Debenture  interest  is  payable  monthly in arrears
commencing on November 15, 2002.

At December  31, 2003 and 2002,  respectively,  the  outstanding  balance on the
Debenture was approximately $391,365 and $250,000.

In  December   2002,   the  Company  and  the  Debenture   Holder   amended  the
above-referenced debenture and warrants as follows:

     The number of common  shares into which the  debenture  may be converted is
     equal to the dollar amount of the debenture being  converted  multiplied by
     eleven, minus the product of the conversion price,  multiplied by ten times
     the  dollar  amount  of  the  debenture  being  converted,  divided  by the
     conversion  price.  The  conversion  price is obtained by  multiplying  the
     average of the five (5) lowest Volume Weighted Average Prices (VWAP) during
     the 20  trading  days  prior  to the  date of  conversion  by the  Discount
     Multiplier of 80%.



                                                                            F-14

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note I - Convertible Debenture - Continued

     The warrants are exercisable at $1.00 per share for up to 2,500,000 shares.
     The warrant holder is obligated to exercise the warrant  concurrently  with
     the  conversion  of the debenture for a number of shares equal to ten times
     the dollar amount of the debenture being converted.

The Company was obligated to file a Registration  Statement under the Securities
Act of 1933 to register the underlying  conversion shares on either Form SB-2 or
S-3. This Registration  Statement was declared effective by the U. S. Securities
and Exchange Commission on May 14, 2003.

The Debenture Holder has  contractually  committed to convert not less than 5.0%
and not more than  10.0% of the  original  face value of the  Debenture  monthly
beginning the month after the effective date of the  Registration  Statement and
the Holder is required to concurrently  exercise warrants and purchase shares of
common stock equal to ten (10) times the number of shares of common stock issued
to the Holder upon the respective mandatory conversion of the Debenture.

The Holder has further  contractually  agreed to restrict its ability to convert
the  Debenture or exercise  their  warrants and receive  shares of the Company's
common  stock  such  that  the  number  of  shares  held by the  Holder  and its
affiliates  after such  conversion or exercise does not exceed 4.99% of the then
issued and outstanding shares of common stock of the Company.

In the event an  election  to convert is made and the  volume  weighted  average
price of the Company's  common stock is below $0.30 per share, the Company shall
have the right to prepay  any  portion  of the  outstanding  Debenture  that was
elected to be converted, plus any accrued and unpaid interest, at 125.0%.

Due to the  contractually  agreed  mandatory  conversion of this Debenture,  the
Company has  reflected  this  transaction  in its balance sheet as a "mezzanine"
level debt  obligation on its balance  sheet,  between "Total  Liabilities"  and
"Stockholders'  Equity". Upon the respective mandatory  conversion,  the Company
will  relieve  the  respective  portion  of the  Debenture  and the any  related
accrued,  but unpaid interest,  and credit this amount to the respective "common
stock" and "additional  paid-in capital"  accounts in the  stockholder's  equity
section for the par value and excess amount over the par value of the respective
shares issued.

As the warrant is  non-detachable  from the Debenture and requires  simultaneous
exercise upon  conversion of the Debenture,  no value was assigned to the issued
warrant.  Upon exercise of the warrant,  the Company will record the issuance of
the  underlying  shares as a new  issuance  of common  stock on the date of each
respective exercise.



                                                                            F-15

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note I - Convertible Debenture - Continued

On various dates through  December 31, 2003,  the  Debenture  Holder  elected to
convert an aggregate $208,635, through 24 separate transactions,  in outstanding
Debenture  principal into restricted,  unregistered  common stock. This election
caused the Company to issue 4,561,753 shares of restricted,  unregistered common
stock to the Debenture Holder. Additionally, pursuant to the contract terms, the
Debenture Holder concurrently  exercised a portion of the outstanding Warrant to
purchase 2,086,350 shares of the Company's restricted, unregistered common stock
for gross proceeds of $2,086,350.

As of December 31, 2003, pursuant to the conversion terms of the Debenture,  the
Debenture  Holder was  approximately  $77,500  in  arrears in the  contractually
obligated conversions,  and accordingly,  the related mandatory warrant exercise
of approximately $775,000.


Note J - Preferred Stock Transactions

Preferred  stock  consists of the  following  as of December  31, 2003 and 2002,
respectively:

                                         December 31, 2003    December 31, 2002
                                        -----------------    -----------------
                                         # shares   value    # shares  value
                                         -------- --------   -------- --------
Series A Cumulative Convertible Stock     12,000  $ 60,000    41,000  $205,000
Series B Cumulative Convertible Stock     91,700   458,500         -         -
                                         -------  --------   -------  --------
                                         103,700  $518,500    41,000  $205,000
                                         =======  ========   =======  ========

In September,  October and November 2001, the Company sold an aggregate  222,600
shares of $5.00 Series A Convertible  Preferred Stock (Series A Preferred Stock)
for total  proceeds  of  approximately  $1,113,000  through a Private  Placement
Memorandum.  The Series A Convertible  Preferred  Stock  provides for cumulative
dividends at a rate of 8.0% per year,  payable  quarterly,  in cash or shares of
the  Company's  common stock at the Company's  election.  Each share of Series A
Preferred  Stock is  convertible  into 11 shares of the  Company's  common stock
initially  at any time  after 6 months  of the  date of issue  and  prior to the
notice of redemption  at the option of the holder,  subject to  adjustments  for
customary  anti-dilution events. In December 2001, at the request of the holders
of the Series A Preferred Stock, the Company and the individual holders modified
the holding period for conversion to allow for conversion in December 2001.

In September 2001, the Company's principal stockholder  converted  approximately
$4,007,327 of unsecured  debt and  approximately  $3,546,273  of cumulative  and
unpaid accrued interest into 1,510,710 shares of Series A Preferred Stock.



                                                                            F-16

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note J - Preferred Stock Transactions - Continued

In  September  2001, a creditor of the Company  agreed to convert  approximately
$10,000 of trade accounts payable into 2,000 shares of Series A Preferred Stock.

In December 2001,  concurrent with a modification in the holding period prior to
conversion,  certain holders of the Series A Preferred Stock orally notified the
Company of their intent to exercise the conversion  features on 1,749,720 issued
and outstanding  shares of Series A Preferred  Stock into  19,246,920  shares of
common  stock prior to December  31,  2001.  Due to the timing of the  requisite
documentation,  the  clerical  activities  related to this  conversion  were not
completed until February 2002.

In conjunction with the Series A Preferred Stock, certain shares were sold after
the Company's common stock was approved for trading by the National  Association
of Securities  Dealers on the OTC Bulletin  Board in October 2001. The shares of
Series A Preferred  Stock sold  subsequent  to this date had an  equivalent  per
share  value of  common  stock  below  the  ending  quoted  market  price of the
Company's common stock on their respective issue dates. This difference  created
a Beneficial  Conversion  Feature  Discount of  approximately  $1,207,993.  This
discount was then  amortized  over the unexpired time period between the date of
issue of the eligible shares and the eligible  conversion date, as amended.  All
of the shares sold  subsequent  to the initial  trading  date were  converted in
December  2001  and,  accordingly,  the  approximate  $1,207,993  in  Beneficial
Conversion Feature Discount was fully amortized to operations.

In December 2002, a holder of 5,000 shares of Series A Preferred Stock exercised
his  conversion  rights and converted  these shares of Series A Preferred  Stock
into 55,000 shares of restricted, unregistered common stock.

In January 2003,  three  separate  holders of 9,000 shares of Series A Preferred
Stock exercised their  conversion  rights and converted these shares of Series A
Preferred stock into 99,000 shares of restricted, unregistered common stock.

In May 2003,  the Company  sold an  aggregate  91,700  shares of $5.00  Series B
Convertible  Preferred  Stock (Series B Preferred  Stock) for total  proceeds of
approximately  $458,500 through a separate  Private  Placement  Memorandum.  The
Series B Convertible Preferred Stock provides for cumulative dividends at a rate
of 8.0% per year, payable  quarterly,  in cash or shares of the Company's common
stock at the  Company's  election.  Each  share of Series B  Preferred  Stock is
convertible  into 11 shares of the Company's  common stock initially at any time
after 6 months of the date of issue and prior to the notice of redemption at the
option of the holder, subject to adjustments for customary anti-dilution events.

Note K - Common Stock Transactions

In February 2002, the Company converted  $100,000 in short-term debt payable and
accrued  interest  of  approximately  $25,000 to an  existing  stockholder  into
277,778 shares of restricted,  unregistered  common stock.  This transaction was
consummated  at a price of $0.45 per share,  which  approximates  the discounted
"fair value" of the Company's  common stock based on the quoted closing price of
the  Company's  common  stock on the date of the  respective  transaction.  This
transaction paid in full all outstanding short-term debt.

In March 2002,  in two  separate  transactions,  the Company  sold an  aggregate
1,388,890  shares  of  restricted,  unregistered  common  stock to two  separate
investors for aggregate proceeds of approximately  $500,000.  Each sale was made
at a price of $0.36 per share, which approximates the discounted "fair value" of
the  Company's  common stock based on the quoted  closing price of the Company's
common stock on the date of each  respective  transaction.  These  proceeds were
used to supplement operational working capital.


                                                                            F-17

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

In March 2002,  the Company  issued  32,000 shares of  restricted,  unregistered
common  stock to a member of the  Company's  Board of Directors  for  consulting
services  related to the Company's  reverse merger  transaction  and for various
marketing  services.  This transaction was valued at approximately  $11,520,  or
$0.36 per share, which approximates the discounted "fair value" of the Company's
common stock based on the quoted closing price of the Company's  common stock on
the date of the respective transaction.

In March 2002,  the Company  issued  41,665 shares of  restricted,  unregistered
common stock to an unrelated  party for  stockholder  and other public  relation
services.  This  transaction was valued at approximately  $15,000,  or $0.36 per
share,  which  approximates  the discounted "fair value" of the Company's common
stock based on the quoted  closing  price of the  Company's  common stock on the
date of the respective transaction.

In April  and May  2002,  the  Company  issued an  aggregate  432,721  shares of
restricted,  unregistered  common  stock to three  creditors  in  settlement  of
approximately $182,017 in open trade accounts payable. Each issuance was made at
a price of either $0.45 or $0.36 per share,  which  approximates  the discounted
"fair value" of the Company's  common stock based on the quoted closing price of
the Company's common stock on the date of each respective transaction.

In June 2002, the Company  issued  347,223  shares of  restricted,  unregistered
common stock to an existing  stockholder to reimburse said  stockholder  for his
cash  payment  on  behalf  of the  Company  of  previously  accrued  legal  fees
associated with the bank related  litigation,  which was concluded in June 2001,
and for other consulting  services  currently being provided by the stockholder.
This transaction was valued at approximately $125,000, or $0.36 per share, which
approximates  the discounted "fair value" of the Company's common stock based on
the  quoted  closing  price  of the  Company's  common  stock on the date of the
respective transaction.

In June 2002, the Company sold 277,778 shares of restricted, unregistered common
stock to an investor for aggregate proceeds of approximately $100,000. This sale
was made at a price of $0.36 per share,  which approximates the discounted "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this transaction were used to supplement operational working capital.

In July 2002, the Company sold 384,615 shares of restricted, unregistered common
stock to an existing  stockholder for cash proceeds of  approximately  $100,000.
This  sale was  made at a price  of $0.26  per  share,  which  approximates  the
discounted  "fair  value" of the  Company's  common  stock  based on the  quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.





                                                                            F-18

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

In August  2002,  the Company sold 384,615  shares of  restricted,  unregistered
common stock to an existing stockholder for cash proceeds of $100,000. This sale
was made at a price of $0.26 per  share,  which was below the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's  common  stock  on  the  date  of  the  respective  transaction.   The
differential between the discounted "fair value" (approximately $0.29 per share)
and the  selling  price  resulted  in a charge to  operations  of  approximately
$11,346 for compensation  expense related to common stock issuances at less than
"fair  value".  The  proceeds  of this  transaction  were  used  to pay  down an
equivalent portion of the Company's long-term note payable to a bank.

In August  2002,  the Company  sold 20,506  shares of  restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$6,152. This sale was made at a price of $0.30 per share, which approximates the
discounted  "fair  value" of the  Company's  common  stock  based on the  quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The proceeds of this  transaction  were used to directly  retire a
trade account payable to a specific vendor.

In August 2002,  the Company  issued 24,999 shares of  restricted,  unregistered
common stock to an unrelated  party for  stockholder  and other public  relation
services.  This  transaction was valued at  approximately  $6,875,  or $0.28 per
share,  which  approximates  the discounted "fair value" of the Company's common
stock based on the quoted  closing  price of the  Company's  common stock on the
date of the respective transaction.

In September  2002, the Company sold 277,778 shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.36 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In September  2002, the Company sold 277,778 shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.26 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction. The proceeds from this transaction were used to support operational
working capital.

In September  2002, the Company sold 222,222 shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.45 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The proceeds of this transaction were used to support  operational
working capital.



                                                                            F-19

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

In November 2002,  the Company sold 384,615  shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.26 per share,  which approximates
the  discounted  "fair value" of the Company's  common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In December  2002,  the Company sold an aggregate  120,170 shares of restricted,
unregistered  common  stock  to  an  existing   stockholder  in  three  separate
transactions valued at an aggregate of approximately  $31,244.  These sales were
made at a price of $0.26 per share,  which was in excess of the discounted "fair
value" of the Company's common stock on the date of each respective transaction.
The proceeds of this  transaction  were used to directly  retire a trade account
payable to a specific vendor.

In December 2002,  the Company sold 384,615  shares of restricted,  unregistered
common  stock to an existing  stockholder  for cash  proceeds  of  approximately
$100,000.  This sale was made at a price of $0.26 per share, which was in excess
of the discounted "fair value" of the Company's common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The  proceeds  of  this  transaction  were  used  to pay  down  an
equivalent portion of the Company's long-term note payable to a bank.

In December 2002,  the Company issued 55,000 shares of restricted,  unregistered
common stock upon the exercise of 5,000 shares of outstanding Series A Preferred
Stock upon the exercise of the  conversion  option by the Holder of the Series A
Preferred Stock.

During June,  July and September  2002, the Company  issued an aggregate  21,987
shares of  restricted,  unregistered  common  stock in payment of  approximately
$10,400  in accrued  dividends  payable on the  Company's  outstanding  Series A
Preferred  Stock for the quarters ended December 31, 2001,  March 31, 2002, June
30, 2002 and September 30, 2002.

In January 2003, the Company  issued an aggregate  937,568 shares of restricted,
unregistered  common stock for cash proceeds of  approximately  $324,182.  These
sales  were made at a price of either  $0.23 or $0.36  per  share,  which was in
excess of the discounted "fair value" of the Company's common stock based on the
quoted closing price of the Company's common stock on the date of the respective
transaction.  The proceeds of this transaction  were used for operating  working
capital.

In February 2003, the Company issued 384,615 shares of restricted,  unregistered
common stock for cash proceeds of approximately $100,000.  These sales were made
at a price of $0.26 per  share,  which was in  excess  of the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this  transaction  were used to reduce the  Company's  outstanding  long-term
debt.




                                                                            F-20

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

In March 2003, the Company  issued  972,222  shares of restricted,  unregistered
common stock for cash proceeds of approximately $350,000.  These sales were made
at a price of $0.36 per  share,  which was in  excess  of the  discounted  "fair
value" of the  Company's  common stock based on the quoted  closing price of the
Company's common stock on the date of the respective  transaction.  The proceeds
of this  transaction  were used to reduce the  Company's  outstanding  long-term
debt.

In March 2003,  the Company  issued an aggregate  966,608  shares of restricted,
unregistered  common  stock to the  Holder  of the  Company's  8.0%  Convertible
Debenture  upon notice of  conversion  of $35,000 of  outstanding  principal and
exercise of a portion of the outstanding  warrant to purchase  350,000 shares of
common stock.  This transaction was valued at $385,000,  or approximately  $0.40
per share,  which was in excess of the discounted  "fair value" of the Company's
common stock based on the quoted closing price of the Company's  common stock on
the date of the respective  transaction.  The cash proceeds of this  transaction
were used to provide working capital and support operations.

In May 2003, the Company issued 1,967 shares of restricted,  unregistered common
stock in payment of  approximately  $1,200 in accrued  dividends  payable on the
Company's  outstanding  Series A Preferred Stock for the quarter ended March 31,
2003.

During the period from July 1, 2003  through  September  30,  2003,  the Company
issued  an  aggregate   2,902,129   shares  of  common  stock,  in  15  separate
transactions,  in  exchange  for the  redemption  of  approximately  $93,500  in
outstanding  debenture  balance  and  approximately  $935,000  in cash  from the
exercise of the affiliated warrant.

Where  the  closing  price of the  Company's  common  stock was in excess of the
respective  price per share on the  respective  transaction  date,  the  Company
recognized a charge to operations for  "compensation  expense  related to common
stock issuances at less than "fair value". The cumulative effect of transactions
where the transaction price, as established in the Debenture Agreement, was less
than the closing price on the date of the respective  transactions resulted in a
cumulative  charge to  operations  of  approximately  $317,539  during this time
period.

In October 2003, in a separate transaction, the Company sold 2,200,000 shares of
restricted,  unregistered common stock to the Debenture Holder for cash proceeds
of approximately $400,000, or approximately $0.18 per share, which was in excess
of the discounted "fair value" of the Company's common stock based on the quoted
closing  price of the  Company's  common  stock  on the  date of the  respective
transaction.  The cash proceeds of this transaction were used to provide working
capital and support operations.






                                                                            F-21

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note K - Common Stock Transactions - Continued

In October  2003,  the Company  issued an aggregate  1,659,847  shares of common
stock,  in  3  separate   transactions,   in  exchange  for  the  redemption  of
approximately   $40,000  in  outstanding  debenture  balance  and  approximately
$400,000 in cash from the exercise of the affiliated warrant.  Where the closing
price of the Company's  common stock was in excess of the  respective  price per
share on the respective  transaction  date,  the Company  recognized a charge to
operations for  "compensation  expense related to common stock issuances at less
than "fair value".  The cumulative effect of transactions  where the transaction
price,  as  established  in the Debenture  Agreement,  was less than the closing
price on the date of the respective transactions resulted in a cumulative charge
to operations of approximately $146,189 during this time period.

In October 2003,  the Company  issued an aggregate  37,866 shares of restricted,
unregistered  common  stock in  payment  of  approximately  $16,710  in  accrued
dividends payable on the Company's  outstanding  Series A and Series B Preferred
Stock for the quarters ended June 30, 2003 and September 30, 2003, collectively.


Note L - Rental Commitments

The Company  leases its  corporate  office and  manufacturing  facility from its
controlling stockholder under a long- term operating lease agreement.  The lease
requires a monthly payment of approximately  $5,410,  including applicable sales
taxes.  The Company is responsible for all utilities and  maintenance  expenses.
The lease  expires on July 31, 2004 and contains a clause that upon  expiration,
the Company and the controlling  shareholder shall renegotiate the annual rental
amount.  Total  rent  expense  under this lease was  approximately  $67,075  and
$54,100, respectively, for each of the years ended December 31, 2003 and 2002.

The  Company's  subsidiary,  IPE,  leases it's  manufacturing  facility  from an
unrelated third-party under a long-term operating lease agreement. This lease is
for a period of five (5) years and requires graduated monthly payments, changing
on the lease anniversary date, ranging from approximately $1,751 to $1,914, plus
the applicable  sales taxes.  The Company is  responsible  for all utilities and
maintenance expenses.  The lease expires on February 28, 2007 and may be renewed
for an additional five (5) year term at a rental rate of  approximately  $1,971,
plus applicable sales taxes for the first renewal year and 3.0% increase on each
succeeding   anniversary   date.   Total  rent  expense  under  this  lease  was
approximately  $20,752 and  $16,622,  respectively,  for each of the years ended
December 31, 2003 and 2002.


                                                                            F-22

<PAGE>




                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note L - Rental Commitments - Continued

Future minimum rental payments on the above leases are as follows:

                     Year ended
                     December 31,       Amount
                     ----------------------------
                     2004              $  60,754
                     2005                 23,565
                     2006                 24,276
                     2007                  4,076
                                       ---------

                     Totals            $ 112,671
                                       =========

Note M - Income Taxes

The components of income tax (benefit)  expense for the years ended December 31,
2003 and 2002, respectively, are as follows:

                              Year ended        Year ended
                             December 31,      December 31,
                                2003              2002
                             ------------------------------
       Federal:
         Current              $     -           $    -
         Deferred                   -                -
                              -------           ------
                                    -                -
                              -------           ------
       State:
         Current                    -                -
         Deferred                   -                -
                              -------           ------
                                    -                -
                              -------           ------
         Total                $     -           $    -
                              =======           ======

As of December 31, 2003,  the Company has a net operating loss  carryforward  of
approximately  $8,500,000 to offset future  taxable  income.  Subject to current
regulations,  components of this  carryforward will begin to expire in 2003. The
amount and availability of the net operating loss  carryforwards  may be subject
to  limitations  set forth by the  Internal  Revenue  Code.  Factors such as the
number of shares ultimately issued within a three year look-back period; whether
there is a deemed  more  than 50  percent  change  in  control;  the  applicable
long-term  tax  exempt  bond  rate;  continuity  of  historical  business;   and
subsequent  income of the  Company  all enter  into the  annual  computation  of
allowable annual utilization of the carryforwards.







                (Remainder of this page left blank intentionally)



                                                                            F-23

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note M - Income Taxes - Continued

The Company's income tax expense (benefit) for the years ended December 31, 2003
and 2002, respectively, differed from the statutory federal rate of 34 percent
as follows:
                                                       Year ended    Year ended
                                                      December 31,  December 31,
                                                          2003           2002
                                                      --------------------------

Statutory rate applied to loss before income taxes     $(999,400)   $  (640,000)
Increase (decrease) in income taxes resulting from:
     State income taxes                                        -              -
     Other, including reserve for deferred tax asset     999,400        640,000
                                                       ---------    -----------

       Income tax expense                              $       -    $         -
                                                       =========    ===========

Temporary  differences,  consisting  primarily of statutory  differences  in the
depreciable  lives for property and equipment,  between the financial  statement
carrying  amounts and tax bases of assets and liabilities  give rise to deferred
tax assets and liabilities as of December 31, 2003 and 2002, respectively:

                                                 Year ended     Year ended
                                                December 31,   December 31,
                                                    2003           2002
                                                ---------------------------
     Deferred tax assets - long-term
       Net operating loss carryforwards         $2,900,000     $2,244,000
     Deferred tax liabilities - long-term
       Statutory depreciation differences         (250,000)      (250,000)
                                                ----------     ----------
                                                 2,650,000      1,994,000
     Less valuation allowance                   (2,650,000)    (1,994,000)
                                                ----------     ----------

       Net Deferred Tax Asset                   $        -     $        -
                                                ==========     ==========

During the years ended December 31, 2003 and 2002,  respectively,  the valuation
allowance increased by approximately $656,000 and $629,000.






                                                                            F-24

<PAGE>



                            AMERICAN AMMUNITION, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Note N - Revenue Concentrations

The  Company  sells  to both  commercial  and  governmental  customers,  in both
domestic and foreign  markets.  The following  table shows the  Company's  gross
revenue composition:

                             Year ended                Year ended
                          December 31, 2003         December 31, 2002
                          -----------------         -----------------
                        Amount     % of total     Amount     % of total
                        ---------------------     ---------------------
Domestic
   Commercial
     Customer A         $   524,210    24.96      $  555,895     43.24
     Customer B             463,423    22.07               -         -
     Customer C             188,546     8.98         347,100     22.80
     Others                 348,022    16.58         619,705     33.96
                        -----------   ------      ----------    ------
                          1,524,201    72.59       1,522,700    100.00
                        -----------   ------      ----------    ------
   Governmental
     Customer D             421,290    20.06               -         -
     Others                  23,663     1.12               -         -
                        -----------   ------      ----------    ------
                            444,953    21.18               -         -
                        -----------   ------      ----------    ------
Foreign
   Governmental             130,710     6.23               -         -
                        -----------   ------      ----------    ------
     Totals             $ 2,099,864   100.00      $ 1,522,700   100.00
                        ===========   ======      ===========   ======

Note O - Selected Financial Data (Unaudited)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2003 and 2002, respectively.

<TABLE>
<CAPTION>
                              Quarter ended   Quarter ended   Quarter ended   Quarter ended   Year ended
                                March 31,       June 30,       September 30,   December 31,   December 31,
<S>                            <C>             <C>             <C>             <C>            <C>
Calendar 2003
   Revenues - net              $   608,437     $    289,551    $    317,729    $    769,280   $   1,984,997
   Gross profit                $   (66,668)    $   (463,653)   $   (462,483)   $   (254,221)  $  (1,247,025)
   Net earnings after
     provision for
     income taxes              $  (300,355)    $ (1,232,951)   $ (1,200,981)   $   (205,108)  $  (2,939,395)
   Basic and fully diluted
     earnings per share        $     (0.01)    $      (0.02)   $      (0.02)            nil   $       (0.05)
   Weighted average
     number of shares
     issued and outstanding     56,638,979       59,294,402      61,683,424      66,253,535      61,202,839

Calendar 2002
   Revenues - net              $   272,493     $    434,641    $    570,320    $    131,910   $   1,409,364
   Gross profit                $  (144,971)    $    (74,098)   $   (223,402)   $   (604,819)  $  (1,047,290)
   Net earnings after
     provision for
     income taxes              $  (236,254)    $   (262,562)   $   (528,024)   $   (856,247)  $  (1,883,087)
   Basic and fully diluted
     earnings per share        $     (0.01)    $      (0.01)   $      (0.01)   $      (0.01)  $       (0.04)
   Weighted average
     number of shares
     issued and outstanding     50,165,120       52,023,409      53,395,558      54,684,555      52,605,993
</TABLE>


                                                                            F-25