Filing summary
Entity and period: The supplied metadata names Outdoor Holding Co and “2020 Q2,” but the filing itself is for AMMO, Inc. (ticker POWW), a smaller reporting company. It reports the unaudited quarter and six months ended September 30, 2020; the company’s fiscal year ends March 31, making this fiscal Q2 of 2021. The discrepancy in company and period labeling should be verified.
Financial performance
| Metric | Three months ended Sep. 30, 2020 | Six months ended Sep. 30, 2020 | Prior-year comparison |
|---|---|---|---|
| Net sales | $12.0 million | $21.7 million | Up 307% and 199%, respectively |
| Gross profit (loss) | $1.3 million | $2.4 million | Prior periods had gross losses of $0.7 million and $1.4 million |
| Gross margin | 10.7% | 10.9% | Prior periods: (24.3)% and (18.9)% |
| Operating loss | $1.7 million | $4.5 million | Prior periods: $3.2 million and $6.9 million |
| Net loss | $2.3 million | $5.4 million | Prior periods: $3.4 million and $7.3 million |
| Adjusted EBITDA, non-GAAP | $0.4 million | $0.8 million | Prior periods: loss of $1.6 million and $3.6 million |
Ammunition sales drove much of the growth: quarterly sales were $8.7 million, versus $1.3 million a year earlier; casing sales were $3.3 million, versus $1.6 million. For the six-month period, ammunition sales were $15.2 million and casing sales $6.5 million. Management attributed improved gross margin to higher sales absorbing fixed manufacturing costs. It expects proprietary ammunition sales to outpace standard ammunition sales, though standard ammunition contributed most of the reported ammunition growth.
Cash flow, liquidity and debt
- Cash was $3.4 million at September 30, up from $0.9 million at March 31, 2020. Working capital was $2.6 million, compared with a $3.1 million deficit at fiscal year-end.
- Six-month operating cash outflow was $3.8 million, versus $3.0 million in the prior-year period. Inventory and receivables increased by $3.2 million and $2.3 million, respectively.
- Investing cash outflow was $2.3 million, primarily for equipment. Financing provided $8.6 million, including equity proceeds, related-party borrowing, inventory credit, PPP funding and net factoring activity.
- Total liabilities were $29.9 million. Key reported obligations included $11.3 million of related-party notes, $2.5 million of convertible notes, a $2.3 million inventory facility, $2.1 million of factoring liability and $1.1 million of PPP notes. These are selected balances, not a calculation of total debt.
- The company reported substantial doubt about its ability to continue as a going concern and said it needs additional financing. Although one MD&A passage says existing resources are expected to fund operations over the next year, management’s formal assessment concludes funds are insufficient within one year after issuance. Financing availability and terms are uncertain.
Changes, outlook and material items
- Revenue and margins improved materially versus the prior-year periods, while GAAP losses narrowed but continued. Operating expenses rose to $3.0 million for the quarter and $6.9 million for six months; interest expense also increased.
- The six-month results include a $1.0 million loss related to construction-in-progress assets that the company would not receive under its Jagemann settlement. Management also reported approximately $187,000 of other expense, primarily registration-related liquidated damages.
- Management’s priorities include expanding commercial distribution, introducing products and pursuing law-enforcement, military and international sales. It cited long sales cycles in government and international markets, and identified higher-margin products, automation and production scale as ways to improve margins over the next 12 to 24 months. No quantified revenue or earnings guidance was provided.
- After quarter-end, holders converted $2.5 million principal and $146,104 interest on the earlier convertible notes into 2,157,358 shares; the company also issued related warrants. In November, it raised $1.684 million through new 8% convertible notes and borrowed $4.0 million at 12% to help pay Jagemann obligations.
- On November 5, the company paid Jagemann $6.0 million; it reported that the payment satisfied one note and partially paid another, leaving an amended note balance of $1.688 million. The company also applied for forgiveness of approximately $1.0 million of PPP loans; forgiveness was not assured.
- Management disclosed ineffective disclosure controls, citing limited accounting personnel, inadequate segregation of duties and governance/control weaknesses, among other issues. The filing describes a Department of Labor investigation following a former employee complaint and a separate lawsuit and counterclaim; the company disputes the allegations.
Investor verification priorities
- Confirm the correct issuer and reporting period: the filing is AMMO, Inc., not the company named in the request metadata.
- Reconcile the filing’s equity statement: its six-month net-loss line shows $5.442 million in accumulated deficit but a different $5.281 million amount in the total column; the statement of operations and cash flow report a $5.442 million loss.
- Review cash runway, financing needs and near-term debt service, including related-party terms, secured collateral, interest rates and the effects of post-quarter borrowing and repayments.
- Assess whether growth and positive gross margins can be sustained, given working-capital cash use, customer concentration and the long sales cycles in government and export markets.
- Track PPP forgiveness, the disclosed legal matters, registration-related damages and remediation of material weaknesses in disclosure controls.