AMMO Inc. Urvan Group Settlement is Welcomed News - Next Steps......
Today’s news of the settlement between Ammo Inc. and The Urvan Group was welcome news. Delaying this only enriched the proxy contest defense advisors of the company to the detriment of shareholders. While I am a big fan of forgiving and forgetting, the entire debacle brought issues to light that need to be addressed. Here are my thoughts on appropriate next steps, aside from the CEO Succession planning that was discussed in the agreement.
There may have been an undisclosed related-part transaction given that Chris Larson’s – VP of Finance – brother is the president of the construction company that built the new manufacturing facility.
First, this needs to be properly disclosed.
Second, an investigation needs to be conducted to investigate if any kick-back or similar payments occurred.
Given the allegations in Kathleen Hanrahan lawsuit, there is too much smoke around Chris Larson and John Flynn. They need to leave the company. Having two senior officers of the company under professional sanctions is not good. [Update, reading the settlement agreement, these two are gone!]
Higher an experienced CFO. The Hanrahan lawsuit alleged that the current CFO was a proxy for Larson. Move Wiley to controller and bring in a proper CFO.
One issue around the three above senior employees likely make it difficult for the company to secure a credit facility.
Bring in a strong COO. Both e-commerce and manufacturing facility is needed at the senior level. Supplement the new CEO’s experience with a strong COO.
Secure a credit facility to use it to manage working capital swings, so excess cash can be used to retire shares.
Search for new board members with relevant industry experience, to replace current members who are there via their friendship with the CEO.
Finally, clean up the accounting. Stopping adding back excise taxes in the calculation of EBITDA, doing so destroys management’s credibility. Better yet, disclose revenue net of excise taxes, as other in similar situation do (psst: it will make the company’s margins go up). Along similar lines don’t add back stock-based comp in the calculation of adjusted earnings. Stock based comp is an expense.
Doing the above should help get the stock into the double digits. I anxious to follow the company’s progress.
The current CFO should be let go for cause. He knows what he was there for, took the pay and the shares, and then tries to play both sides as an innocent victim and active executive.