Business context and reporting period
The supplied filing is AMMO, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017; it does not identify Outdoor Holding Co. as the registrant. AMMO designs, manufactures and markets ammunition. It began selling its Jesse James-branded ammunition on February 22, 2017, following a March 17 reverse merger that brought the operating business into the public company.
Financial results and position
| Metric | Quarter ended March 31, 2017 |
|---|---|
| Net sales | $653,784 |
| Gross profit / margin | $187,351 / 28.7% |
| Operating expenses | $863,601 |
| Operating loss | $(676,250), or approximately -103.4% of sales |
| Interest expense | $421,180 |
| Net loss / loss per share | $(1,097,430) / $(0.06) |
| Operating cash flow | $(766,511) in the cash flow statement |
| Financing cash flow | $892,547 |
| Cash at quarter-end | $100,135 |
| Current assets / current liabilities | $1,804,536 / $3,059,391; negative working capital of $1,254,855 |
| Shareholders’ equity | $852,855 |
At March 31, current debt and obligations included a $1,875,000 convertible note, $598,000 payable to related party Mansfield, and a $101,433 insurance-premium note. Total current liabilities were $3,059,391. Inventory was $1,493,872, up from $219,105 at year-end.
Changes versus prior comparable period
The filing reports no sales, expenses or net loss for the three months ended March 31, 2016, so year-over-year comparison is not meaningful. The company transitioned from an inactive predecessor to an operating ammunition business and recorded its first-quarter sales after launching product in February. The March transaction included the acquisition of ATAC collateral through a secured-party credit bid, resulting in recorded equipment, inventory and $1,770,221 of goodwill.
Outlook, risks and unusual items
- Management said it intends to make the company fully operational and achieve substantial sales in the coming year. It expects existing working capital, operating cash flow and further financing to support operations for 12 months, but also disclosed uncertainty about obtaining financing on acceptable terms.
- The company reported accumulated losses of $1,252,454 from inception through March 31 and stated that these conditions raise uncertainty about its ability to continue as a going concern. Additional equity or convertible-debt financing could dilute shareholders or have senior rights.
- The $1.5 million convertible note was originally due 60 days after issuance in December 2016, remained unpaid or unconverted at March 31, and generated $356,250 of debt-discount amortization included in interest expense. The filing also records a $375,000 one-time fee on the note.
- AMMO depends on regulatory licensing and compliance, including ATF requirements; it disclosed that noncompliance could constrain operations or threaten licenses. Its top ten retail customers represented approximately 70% of fiscal 2016 sales.
- Management concluded disclosure controls were ineffective. The stated evaluation date in the filing is March 31, 2013, an apparent date inconsistency in a 2017 quarterly report.
- After quarter-end, the company sold 252,500 shares and issued 252,500 warrants for $315,625.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for AMMO, Inc., not Outdoor Holding Co.
- Reconcile the reported quarter-end share counts: the balance sheet and cover page report 17,976,171 shares, while the statement of shareholders’ equity reports 17,979,171.
- Verify the operating cash use: the cash flow statement reports $766,511, while MD&A reports $766,571.
- Confirm the convertible note’s maturity, outstanding balance, and any repayment, conversion or waiver after quarter-end.
- Assess liquidity, financing availability, the going-concern uncertainty, and the basis for the recorded ATAC-related goodwill.
- Clarify the disclosure-controls evaluation date and the filing’s stated conclusion that controls were ineffective.