AMMO, Inc. — Form 10-Q summary
Registrant and period: The supplied filing is for AMMO, Inc., not Outdoor Holding Co. It reports unaudited results for the quarter and six months ended September 30, 2018. With a March 31 fiscal year-end, this is the fiscal second quarter of 2019.
Financial performance
| Metric | Three months ended September 30, 2018 | Six months ended September 30, 2018 | Comparable 2017 period |
|---|---|---|---|
| Net sales | $1.46 million | $2.71 million | $0.15 million quarterly; $0.47 million six-month |
| Gross profit | $188,219 | $332,791 | $53,493 quarterly; $74,308 six-month |
| Gross margin | 12.9% | 12.3% | 35.1% quarterly; 15.9% six-month |
| Operating loss | $1.58 million | $3.36 million | $0.54 million quarterly; $1.32 million six-month |
| Net loss | $1.58 million | $3.36 million | $0.57 million quarterly; $1.37 million six-month |
| Loss per share | $0.05 | $0.11 | $0.03 quarterly; $0.07 six-month |
Revenue rose 859% for the quarter and 479% for the six-month period versus 2017, led by proprietary ammunition sales, including STREAK and the new Jeff Rann line. Management attributed lower gross margins to added manufacturing costs, raw-material and overhead costs, and production running below facility capacity. Selling, general and administrative expenses increased as the company expanded staffing, marketing, and acquisition and investor-relations activity.
Cash, liquidity, and capitalization
- Cash was $6.70 million at September 30, 2018, up from $4.38 million at March 31. Working capital was $10.57 million, versus $7.20 million.
- The cash flow statement reports $3.25 million used in operating activities and $1.41 million used in investing activities; financing provided $7.22 million. Investing included $1.16 million of equipment purchases and a $250,000 acquisition deposit.
- Current liabilities were $988,406, including a $27,909 insurance premium note. The balance sheet reports no other debt or long-term borrowings.
- Equity financing and warrant exercises generated substantial cash, while shares outstanding rose from 28.39 million at March 31 to 32.60 million at September 30. The filing reports 5.40 million warrants outstanding at quarter-end.
- Cash held at banks exceeded FDIC-insured limits. The company reported no off-balance-sheet arrangements and no known contingencies at September 30.
Outlook, risks, and notable items
- Management expected available working capital and potential financing sources to fund operations for at least 12 months, but cautioned that additional funding may not be available on acceptable terms or at all. No numerical revenue or earnings guidance was provided.
- Management’s stated priorities included expanding distribution and proprietary product sales, entering law-enforcement, military, and international markets, and improving margins over the next 12–24 months through greater volume, automation, and lower component costs. It noted that government and export sales can have long sales cycles; export transactions require U.S. approvals.
- On October 5, 2018, the company completed its acquisition of SW Kenetics after quarter-end. Preliminary consideration was $7.07 million: $250,000 cash, 1,700,002 restricted shares valued at about $5.57 million, and up to $1.25 million contingent on milestones. The valuation remained preliminary.
- After quarter-end, the company signed a Scottsdale office and warehouse lease with an initial term through December 2023 and disclosed estimated lease obligations of $1.13 million. The Payson manufacturing lease was expected to require another $380,000 through fiscal 2022.
- Management said disclosure controls were effective and reported no material quarterly change in internal control over financial reporting. No legal proceedings were reported.
Most important facts to verify
- Confirm the intended issuer: the supplied filing identifies AMMO, Inc., not Outdoor Holding Co.
- Reconcile operating cash use: the cash flow statement reports $3.25 million, while MD&A states $3.50 million.
- Assess whether revenue growth can translate into improved margins and lower operating losses as production scales.
- Review customer and funding concentration: three customers accounted for 66.75% of six-month revenue, and two customers represented 80.76% of receivables; growth also relied on equity and warrant proceeds.
- Review the final SW Kenetics valuation, milestone conditions, potential dilution, and the costs and commitments of the new lease.