AMMO, Inc. — Form 10-Q Summary
Entity and period: The supplied filing is for AMMO, Inc., not Outdoor Holding Co. It covers the fiscal quarter and nine months ended December 31, 2020; the comparable periods ended December 31, 2019. The filing states a March 31 fiscal year-end.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $16.62 million | $2.77 million | $38.29 million | $10.03 million |
| Gross profit (loss) | $3.34 million | $(0.89) million | $5.70 million | $(2.26) million |
| Gross margin | 20.1% | (32.1%) | 14.9% | (22.6%) |
| Operating loss | $(0.43) million | $(2.65) million | $(4.92) million | $(9.54) million |
| Net loss | $(1.91) million | $(2.86) million | $(7.35) million | $(10.15) million |
| Loss per share | $(0.04) | $(0.06) | $(0.15) | $(0.22) |
| Adjusted EBITDA, non-GAAP | $2.36 million | $(1.21) million | $3.31 million | $(4.70) million |
Revenue growth was driven chiefly by standard ammunition, alongside higher proprietary ammunition and casing sales. Management attributed improved gross margins to increased volume absorbing fixed manufacturing costs. Operating expenses rose in dollars, but fell as a percentage of sales. Interest expense increased substantially, including non-cash expense associated with warrants issued in connection with note conversions.
Cash flow, liquidity and debt
- Cash was $19.01 million at December 31, 2020, up from $0.88 million at March 31, 2020. Current assets were $36.50 million and current liabilities $14.12 million.
- For the nine months, operating cash use was $5.25 million, investing cash use was $4.49 million, and financing provided $27.87 million. Cash generation from financing included equity proceeds, debt, warrant exercises and credit facilities; factoring proceeds and repayments were both substantial.
- Total liabilities were $24.33 million, compared with $21.85 million at March 31. Reported obligations included $2.29 million of factoring liability, a $2.25 million inventory credit facility, related-party notes, a $4.00 million note payable, convertible notes and PPP notes.
- Management said existing cash, working capital and access to financing were expected to fund operations for at least 12 months, while cautioning that financing might not be available on acceptable terms or at all.
The MD&A reports working capital of $22.38 million versus a deficit of $3.07 million at March 31, 2020. The March comparative does not clearly reconcile to the balance-sheet current-asset and current-liability totals in the supplied filing text.
Material changes, outlook and risks
- Quarterly revenue increased about 500% year over year; nine-month revenue increased about 282%. Standard ammunition represented most sales, and management expected proprietary ammunition sales to outpace standard ammunition over time.
- Management’s stated priorities include growing sales and distribution, developing commercial and government markets, and improving gross margins over the next 12 to 24 months through product mix, lower component costs, automation and better fixed-cost absorption. No quantified financial guidance was provided.
- The company raised equity in a public offering and over-allotment completed in December. It also reported significant share issuance and warrants; subsequent warrant exercises through February 5, 2021 resulted in 4.19 million shares issued for cash proceeds of approximately $9.01 million.
- Unusual items included a $1.00 million loss related to the Jagemann settlement and sizable non-cash warrant-related interest expense. The company reported PPP loan forgiveness, including forgiveness of one loan during the quarter and the other after quarter-end.
- Disclosure controls and procedures were deemed ineffective. Management cited limited accounting personnel, lack of segregation of duties, governance-control weaknesses, and potentially delayed or ineffective communication of contracts.
- Risks include continued operating losses and cash use, dependence on equity and debt financing, working-capital needs, customer concentration, lengthy government and international sales cycles, export approvals, and ongoing legal matters. The filing describes a former employee’s DOL/OSHA matter and litigation involving a former employee; management disputes the allegations.
Key facts for investors to verify
- Confirm the intended issuer: the supplied 10-Q identifies AMMO, Inc., while the request names Outdoor Holding Co.
- Reconcile the MD&A working-capital comparison with the balance-sheet totals, and verify the relevant debt balances, maturities, collateral and subsequent repayments or conversions.
- Assess whether revenue growth and gross-margin improvement are sustainable, particularly given the large share of standard ammunition sales and the company’s continued net losses.
- Review dilution from equity offerings, warrant exercises, stock compensation and other share issuances, including post-quarter activity.
- Monitor remediation of the disclosed ineffective controls and the outcomes of the described legal matters and PPP forgiveness.