Filing identity and reporting period
The supplied filing is AMMO, Inc.’s unaudited Form 10-Q for the three months ended June 30, 2020 (fiscal 2021 first quarter), filed August 19, 2020. This does not match the request metadata identifying Outdoor Holding Co. and 2019 Q3; the source text does not provide a clear basis to reconcile that discrepancy.
Business context and financial results
AMMO manufactures and sells ammunition and ammunition casings. The filing compares the quarter ended June 30, 2020 with the quarter ended June 30, 2019. Amounts below are in U.S. dollars.
- Revenue was $9.66 million, up 125% from $4.30 million. Ammunition sales rose to $6.41 million from $1.14 million; casing sales were $3.25 million, compared with $3.16 million.
- Gross profit was $1.07 million, versus a gross loss of $653,216. Gross margin improved to 11.1% from negative 15.2%. Management attributed improvement partly to higher sales absorbing fixed manufacturing costs, while citing depreciation and amortization, product mix, raw material, and overhead costs as margin pressures.
- Operating expenses were $3.85 million, up from $2.99 million, including a $1.0 million loss related to the Jagemann Munition Components settlement. Operating loss narrowed to $2.78 million from $3.65 million.
- Net loss was $3.10 million, compared with $3.84 million; loss per share was $0.07 versus $0.09. Adjusted EBITDA, a non-GAAP measure, was a loss of $307,090 versus a loss of $1.84 million.
- Operating cash use was $1.76 million, broadly similar to $1.75 million in the prior-year quarter. Investing cash use was $472,000, primarily equipment purchases. Financing provided $2.37 million; cash increased $133,239 to $1.02 million.
Liquidity, debt, and material changes
- At June 30, 2020, current assets were $14.16 million and current liabilities $13.23 million, giving working capital of $923,655, compared with a deficit of $2.69 million at March 31, 2020. Cash was $1.02 million.
- Total liabilities were $25.38 million. Significant balances included $8.24 million of long-term related-party notes, $2.37 million of current convertible notes, $1.91 million of factoring liability, and $1.76 million drawn under an inventory credit facility. The company also reported $1.05 million of Paycheck Protection Program notes and $2.66 million of operating lease liabilities.
- Inventory increased to $6.52 million from $4.41 million, while accounts receivable rose to $4.13 million from $3.00 million. These working-capital increases contributed to operating cash use.
- A June 2020 settlement with Jagemann Stamping restructured amounts owed into two notes totaling $8.24 million, due August 15, 2021, and granted Jagemann a security interest in company personal property. The notes require monthly payments totaling $204,295 and include mandatory prepayment terms upon certain registered offerings.
- During the quarter, AMMO issued 1.0 million shares for $1.75 million; the balance was recorded as a stock subscription receivable at quarter-end. After quarter-end, it reported issuing shares for $275,000 and amending its inventory facility to increase its maximum amount to $2.25 million.
Outlook, risks, and unusual items
- Management and the financial statements state that substantial doubt exists about the company’s ability to continue as a going concern. The company anticipates operating losses for the foreseeable future and says additional financing is needed; no assurance is given that financing will be available on acceptable terms. Failure to obtain funding could require cuts, divestitures, or bankruptcy.
- Management aims to improve gross margins over the next 12–24 months through higher sales of proprietary ammunition, new products, lower component costs, automation, and better use of production capacity. It expects proprietary ammunition sales to outpace standard ammunition, but gives no quantified revenue or earnings guidance.
- Management says government, law-enforcement, and international markets offer opportunities but have long sales cycles. Exports require applicable U.S. licenses and approvals; the company reported renewing its ITAR registration on July 21, 2020.
- The $1.0 million Jagemann-related loss reflects construction-in-progress assets that would no longer be transferred to AMMO under the settlement. The quarter also included increased interest expense, stock-based compensation, and a rise in production-related costs.
- The filing describes a Department of Labor/OSHA investigation following a former employee complaint and a separate lawsuit and counterclaim involving a former employee. AMMO disputes the allegations and says it will defend itself. Management reported no other known contingencies at June 30, 2020.
- Disclosure controls and procedures were deemed ineffective, with identified weaknesses including limited staffing, lack of segregation of duties, governance-control deficiencies, and delayed communication of certain contracts.
Most important facts to verify
- Confirm the issuer and period: the source is AMMO, Inc., quarter ended June 30, 2020, not Outdoor Holding Co.’s 2019 Q3 filing.
- Assess the going-concern warning against available financing, cash needs, and subsequent funding or debt developments.
- Review the Jagemann settlement’s payment obligations, security interest, and offering-related prepayment requirements.
- Evaluate whether improved sales and gross margin are sustainable given negative operating cash flow, increased inventory and receivables, and ongoing losses.
- Monitor the employment-related legal matters and remediation of the disclosed control weaknesses.