AMMO, Inc. Form 10-Q Summary
Entity and period: The request identifies Outdoor Holding Co, but the filing text identifies the registrant as AMMO, Inc. The report covers the fiscal third quarter ended December 31, 2018, and the nine months then ended; AMMO’s fiscal year ends March 31. The financial statements are unaudited.
Financial performance
- Revenue: Third-quarter net sales were $489,080, up 183% from $172,886 a year earlier. Nine-month sales were $3,201,967, up 399% from $641,077. Nine-month proprietary ammunition sales were $2,125,750, versus $140,804; standard ammunition sales were $1,076,217, versus $500,273.
- Gross profit and margin: Third-quarter gross loss was $91,086, an approximately negative 19% margin, compared with a $261,927 gross loss and approximately negative 152% margin. Nine-month gross profit was $241,705, approximately 8% of sales, compared with a $187,619 gross loss, approximately negative 29%.
- Operating costs and earnings: Operating expenses were $2,077,499 for the quarter and $5,768,650 for nine months. Operating losses were $2,168,585 and $5,526,945, respectively. Net losses were $612,542 for the quarter and $3,973,806 for nine months, versus $1,896,456 and $3,268,093 in the comparable periods. The quarter included a $1,599,161 bargain-purchase gain related to the SW Kenetics acquisition; without it, the reported quarterly loss would have been larger.
- Cash flow: Nine-month operating cash use was $5,204,386, investing cash use was $1,879,833, and financing provided $8,745,878. Cash increased $1,661,659 to $6,043,302. Operating cash use included a $1,546,301 inventory build.
- Liquidity and balance sheet: At December 31, cash was $6,043,302, current assets $10,901,406, and current liabilities $3,586,378; reported working capital was $7,315,028. Total assets were $22,313,708 and shareholders’ equity $18,727,330. Cash balances exceeded FDIC-insured limits.
- Debt and obligations: Current liabilities included $1,545,505 of convertible notes, net of issuance costs, and $1,200,000 of contingent consideration payable. Notes with $1,710,000 principal were raised during October–December and issued/completed January 9, 2019; they bear 10% interest, mature two years after issuance, and generally convert at $2.50 per share under specified conditions. The company also disclosed two operating leases with aggregate future payments of approximately $1.48 million.
Changes and management commentary
- Management attributed the sales increase to proprietary product sales, particularly STREAK Visual Ammunition, and growth in standard ammunition. It said sales were below expectations because anticipated large orders were delayed, while expressing an expectation that they would be fulfilled in future periods.
- Management attributed improved gross margins to higher sales absorbing a greater share of fixed manufacturing costs. It also cited equipment installation, raw-material costs, and overhead as pressures on margins. Cost of goods sold remained 119% of quarterly sales, despite improving from 252% a year earlier.
- Nine-month selling, general and administrative costs rose about $2.7 million year over year, reflecting expanded staffing, stock compensation, marketing and trade shows, investor relations, acquisition activity, professional fees, and efforts to uplist from OTC markets.
- Management said existing working capital, operating cash flow, borrowings, and equity/debt sales were expected to fund operations for at least 12 months, while cautioning that financing might not be available on acceptable terms or at all. It planned further equipment and capacity investment, funded through working capital, securities offerings, and bank financing.
Acquisitions, outlook, and risks
- AMMO acquired SW Kenetics in October 2018 for cash, restricted stock, and milestone-based contingent consideration. The acquisition added a pending modular-projectile patent; the filing recognized a $1,599,161 bargain-purchase gain. The related patent was valued at $7,723,166 by a third-party valuation firm.
- Subsequent to quarter-end, the company agreed to acquire Jagemann Stamping Company ammunition casing and projectile operations for $15.4 million in cash and 1 million AMMO shares in exchange for 51% of the assets, with Jagemann contributing the remaining 49%. The parties expected completion by March 31, 2019.
- AMMO introduced its TAC-P tactical precision ammunition line in January 2019. Management targeted growth in commercial, law-enforcement, military, and international markets, but noted that government and export sales have long cycles; export approvals may take six months to a year and are reviewed per transaction.
- Additional investor considerations include customer concentration (five customers represented 58.40% of nine-month revenue, and five accounted for 66.35% of year-end receivables), substantial operating losses and cash burn, potential dilution from equity issuances and warrants, and execution risk in scaling production and completing acquisitions. Management reported no known contingencies or legal proceedings and no off-balance-sheet arrangements with a material effect.
Important facts for investors to verify
- Confirm the registrant’s identity: the supplied request says Outdoor Holding Co, while the filing and financial statements name AMMO, Inc.
- Track whether delayed large orders materialize and whether revenue growth translates into sustained positive gross margins and lower operating losses.
- Review cash burn, financing availability, convertible-note terms, dilution, and the funding and closing terms of the Jagemann transaction.
- Assess customer concentration, inventory levels, production utilization, and the timing of regulatory approvals for government and export sales.