Outdoor Holding Co: Form 10-Q for the period ended Jun 30, 2025

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended June 30, 2025, (ii) the audited consolidated financial statements and notes thereto for the year ended March 31, 2025 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on June 16, 2025 (the "Form 10-K") and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of March 31, 2025, all amounts herein are unaudited. The following discussion contains forward-looking statements that are subject to risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), particularly in the section entitled “Risk Factors.” Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Outdoor Holding Company (formerly AMMO, Inc.) and its consolidated subsidiaries.

Overview

Outdoor Holding Company, is the owner of the GunBroker Marketplace ("GunBroker" or the "Marketplace"), a leading online marketplace serving the firearms and shooting sports industries. Through our Marketplace, we allow third party sellers to list items consisting of firearms, hunting gear, fishing equipment, outdoor gear, collectibles, and much more, while facilitating compliance with federal and state laws that govern the sale of firearms and other restricted items. This allows our base of over 8.5 million users to follow ownership policies and regulations through our network of approximately 32,000 federally licensed firearms dealers who serve as transfer agents. The nature and operation of the Marketplace as an online auction and sales platform also affords us a unique view into the total domestic market for the purpose of understanding sales trends at a granular level across all elements of the outdoor sports and shooting space. We generate revenue from marketplace fees, which include marketplace revenue, compliance fee revenue, advertising campaign revenue and shipping revenue. Our key strategic initiatives for fiscal year 2026 include: launching universal payment processing to drive electronic transactions, decrease transaction friction, increase GMV, and accelerate user adoption; repurchasing shares (subject to Board approval) to improve the Company’s capital structure; advancing our restructuring efforts to further streamline the business and reduce operational costs; and implementing further user enhancements to the platform with new tools, analytics, and personalization features to deliver best-in-class buyer and seller experiences.

Recent Developments

Discontinued Operations

Outdoor Holding Company began its operations in 2017 as a producer of high-performance ammunition and premium components. Following the acquisition of the GunBroker.com business in 2021, the Company conducted operations through two operating and reportable segments, Ammunition and Marketplace. The Ammunition segment engaged in the design, production and marketing of ammunition, ammunition component and related products. The Marketplace segment consists of the GunBroker e-commerce marketplace, which, in its role as an e-commerce marketplace site, supports the lawful sale of firearms, ammunition, and hunting/shooting accessories.

In fiscal 2025, we initiated a formal review of various strategic alternatives. This review resulted in the decision to sell the Ammunition segment. On January 20, 2025, we entered into an Asset Purchase Agreement, as amended (the “Asset Purchase Agreement”) with Olin Winchester, LLC (the “Buyer”), pursuant to which the Buyer agreed to (i) acquire all assets of our business of designing, manufacturing, marketing, distributing and selling ammunition and ammunition components (collectively, the “Ammunition Manufacturing Business”) along with certain assets related to the Ammunition Manufacturing Business, including the Ammunition Manufacturing Business’ dedicated manufacturing facility in Manitowoc, WI, and (ii) assume certain liabilities related to the Ammunition Manufacturing Business, for a gross purchase price of $75.0 million, subject to adjustments for estimated net working capital and real property costs and pro-rations (the “Transaction”). The Transaction closed on April 18, 2025. The net proceeds after all adjustments totaled approximately $42.9 million. On April 21, 2025, the Company changed its name from “AMMO, Inc.” to “Outdoor Holding Company”. As of January 20, 2025, the Ammunition segment met the held for sale and discontinued operations accounting criteria. For information on discontinued operations, refer to Note 2 to our condensed consolidated financial statements under the caption “Discontinued Operations” and Note 4, "Discontinued Operations and Assets Held for Sale".

Settlement of Delaware Litigation

As described in Note 12, “Related Party Transactions” and Note 14, “Contingencies,” in April 2023, Steven F. Urvan filed a lawsuit against the Company and certain of its directors, former directors, employees, former employees, and consultants, related to the Company’s acquisition of GunBroker.com and certain affiliated companies. At the time the lawsuit was filed, Mr. Urvan was a member of the Board of Directors and our largest stockholder. Mr. Urvan now serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. In May 2023, the Board of Directors established a special committee to address the litigation initiated by Mr. Urvan, as well as a separate lawsuit subsequently filed by the Company against Mr. Urvan (the lawsuit filed by Mr. Urvan together with the lawsuit filed by the Company, the “Delaware Litigation”).

On May 21, 2025, the Company entered into a Settlement Agreement (the “Settlement Agreement”), by and among the Company, Speedlight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Speedlight”), Mr. Urvan, and the following persons, each of whom serves or previously served on the Board of Directors: Richard R. Childress, Jared Smith, Fred W. Wagenhals and Russell Williams Wallace, Jr. (collectively, the “Legacy Directors”). The Settlement Agreement became effective as of 5:00 p.m. Eastern Time on May 30, 2025, pursuant to its terms (the “Settlement Effective Date”). As a result and pursuant to the Settlement Agreement, effective as of the Settlement Effective Date, (i) Jared Smith resigned as a member of the Board of Directors and from his position as the Chief Executive Officer of the Company and as an officer or member of each of the Company’s direct and indirect subsidiaries and (ii) Mr. Urvan was appointed as the Chief Executive Officer of the Company and as the Chairman of the Board of Directors. In addition, in accordance with the Settlement Agreement, on June 3, 2025, the Company, Speedlight, Mr. Urvan and the Legacy Directors filed a Stipulation of Voluntary Dismissal With Prejudice dismissing, with prejudice, all claims asserted in the Delaware Litigation.

As partial consideration for the settlement, on the Settlement Effective Date, the Company issued to an affiliated designee of Mr. Urvan, a warrant to purchase 7.0 million shares of Common Stock (the “Warrant”). The Warrant has a five-year term and an exercise price of $1.81 per share. Pursuant to the terms of the Warrant, the Warrant is exercisable at the holder’s discretion, in whole or in part, on or after the six-month anniversary of the Settlement Effective Date, subject to certain accelerated vesting in certain circumstances.

In addition to the Warrant, the Company issued to an affiliated designee of Mr. Urvan, (i) an unsecured promissory note in a principal amount of $12.0 million (“Note 1”) and (ii) an unsecured promissory note in a principal amount of $39.0 million (“Note 2” and together with Note 1, the “Notes”). Note 1 bears interest at 6.50% per annum (subject to a 2.00% increase during an event of default), which interest is payable to the holder annually on the anniversary of the Settlement Effective Date, beginning on the first anniversary of the Settlement Effective Date (each interest payment due date, an “Interest Payment Date”). Note 2 bears interest at a rate per annum equal to the applicable federal rate for long-term loans in effect on the Settlement Effective Date (subject to a 2.00% increase during an event of default), which is payable to the holder annually on the Interest Payment Date.

The unpaid principal balance of Note 1 and Note 2 and all accrued and unpaid interest thereon is due on the 12th and 10th anniversary, respectively, of the Settlement Effective Date. Pursuant to the terms of Note 1 and Note 2, the Company is required to make annual prepayments of $1.0 million (inclusive of accrued and unpaid interest then due and payable) and $1.95 million, respectively, to the holder on each Interest Payment Date. The Company has the right to prepay all or any part of the principal or interest of the Notes without penalty.

With respect to Note 2, the Company also has the option, at any time prior to the first anniversary of the Settlement Effective Date, to prepay all, but not less than all, of the then-outstanding principal amount of Note 2 and accrued and unpaid interest thereon in exchange for the issuance of a warrant (the “Additional Warrant”) to purchase 13.0 million shares of Common Stock (the “Additional Warrant Shares”), provided that the Company must first obtain stockholder approval of the issuance of the Additional Warrant and the Additional Warrant Shares pursuant to Nasdaq Listing Rule 5635. The Additional Warrant, if issued, would have a five-year term and an exercise price of $1.00 per share. Pursuant to the terms of the Additional Warrant, the Additional Warrant would be exercisable at the holder’s discretion, in whole or in part, on or after the first anniversary of the issuance date. Except with respect to the exercise price and the vesting date, the terms of the Additional Warrant and the Warrant are substantially similar.

Results of Operations

The following table presents summarized financial information taken from our unaudited condensed consolidated statements of operations for the three months ended June 30, 2025, compared with the three months ended June 30, 2024:

(unaudited)

Non-GAAP Financial Measures

We analyze operational and financial data to evaluate our business, allocate our resources, and assess our performance. In addition to total net sales, net loss, and other results under accounting principles generally accepted in the United States (“GAAP”), the following information includes key operating metrics and non-GAAP financial measures that we use to evaluate our business. We believe that these measures are useful for period-to-period comparisons of the Company's performance. We have included these non-GAAP financial measures in this Form 10-Q because they are key measures management uses to evaluate our operational performance, produce future strategies for our operations, and make strategic decisions, including those relating to operating expenses and the allocation of our resources. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

Adjusted EBITDA

(Unaudited)

(1) For the three months ended June 30, 2024, other nonrecurring expenses consisted of a contingency related to the previously disclosed settlement with Triton Value Partners, LLC.

Adjusted EBITDA is a non-GAAP financial measure that displays our net loss from continuing operations, adjusted to eliminate the effect of certain items as described below. We define Adjusted EBITDA as net income (loss) from continuing operations excluding (i) provision or benefit for income taxes, (ii) depreciation and amortization, (iii) interest expense, net, (iv) share-based compensation expenses relating to employee stock awards and common stock purchase options, (v) other income (expense), net, (vi) expenses related to acquisition and divestitures, (vii) professional service and legal fees related to an investigation conducted by a special committee of the Board of Directors (the “Special Committee Investigation”), the SEC Investigation and the Delaware Litigation and (vii) other nonrecurring expenses, such as contingencies associated with litigation or settlements and corporate restructuring costs related to headcount reductions, severance, and expense consolidation.

We believe that it is useful to exclude these expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:

• employee stock awards, and common stock purchase options expense has been, and will continue to be for the foreseeable future, a significant recurring expense for the Company and an important part of our compensation strategy;
• the assets being depreciated or amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments;
• non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs; and
• other companies, including companies in our industry, may calculate their non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net loss and our other financial results presented in accordance with GAAP.

Net Revenues

We generate revenue from marketplace fees, which includes marketplace revenue, compliance fee revenue, advertising revenue and shipping revenue. Marketplace revenue consists of optional listing fees with variable pricing components based on customer options and final value fees based on a percentage of the final selling price of the listed item. Compliance fee revenue consists of fees charged to customers based on the final price of an item at the time of purchase. Advertising revenue consists of fees charged for advertisement placement and impressions generated through the GunBroker website. Shipping revenue consists of fees for shipping of items sold on the GunBroker website.

Net revenues for the three months ended June 30, 2025, decreased by $0.4 million, or 3.5%, from the prior period due to changes in market conditions. This decrease was due to a decrease in gross merchandise sales generated from our Marketplace partially offset by a minor increase in our take rate. We believe the reduction in gross merchandise sales was a result of an overall decrease in gun and related product sales across the industry.

Cost of Revenues

Cost of revenues consists of costs associated with facilitating transactions on the GunBroker platform as well as advertising costs.

Cost of revenues decreased from $1.7 million to $1.5 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. This decrease was the result of a decrease in credit card processing fees and advertising expenses.

Gross Margin

Our gross margin, which measures our gross profit as a percentage of sales increased to 87.2% during the three months ended June 30, 2025 from 85.8% for the three months ended June 30, 2024. The increase in gross margin was a result of improved platform monetization and an increasing mix of high-margin seller services, such as advertising and listing enhancements.

Operating Expenses

Operating expenses consist of selling and marketing expenses, which include tradeshows and marketing expenses, corporate general and administrative expenses, which include legal and professional fees and as well as insurance and rent, employee salaries and related expenses, which include salaries, benefits and stock based compensation as well as depreciation and amortization expenses.

Operating expenses decreased by approximately $0.4 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The decrease in operating expenses was the result a reduction of $3.2 million in settlement contingencies that were recorded in the three months ended June 30, 2024 without a corresponding expense in the three months ended June 30, 2025 as well as a decrease in stock based compensation expense of $0.7 million due to a reduction in stock award grants. These decreases were partially offset by an increase in employee salaries and related expenses as a result of $1.4 million in severance costs associated with corporate restructuring, an increase of $1.9 million in legal and professional fees related to the Special Committee Investigation, restatement and Delaware Litigation and an increase in depreciation and amortization resulting from increased capitalized software development costs. We experienced increased costs at the corporate level related to the winding down of the operations supporting the ammunition manufacturing business that were not included in the sale. We expect to gradually eliminate the vast majority of them by the end of Q3 2026.

Other Income and Expenses

Total other income, net for the three months ended June 30, 2025 decreased by $0.1 million compared to the three months ended June 30, 2024. This decrease was primarily the result of an increase in interest expense of $0.3 million related to the Notes issued in the Delaware Litigation settlement partially offset by an increase in interest income on cash held in our bank account of $0.2 million.

Income Taxes

For the three months ended June 30, 2025, we did not record a provision or benefit for federal and state income taxes due to recording a full valuation allowance against our net deferred tax assets. For the three months ended June 30, 2024, we recorded a provision for federal and state income taxes of approximately $6.0 million.

Liquidity and Capital Resources

As of June 30, 2025, we had $63.4 million of cash and cash equivalents, an increase of $33.1 million from March 31, 2025. The increase was primarily attributable to the net proceeds received from the sale of the Ammunition manufacturing business of $42.9 million.

Working Capital is summarized and compared as follows:

Changes in cash flow are summarized as follows:

Operating Activities

For the three months ended June 30, 2025, net cash used in operations was primarily the result of a reduction in accounts payable and accrued liabilities primarily associated with legal and professional fees as well as payments for insurance resulting in an increase in prepaid expenses.

For the three months ended June 30, 2024, net cash provided by operations was primarily the result of an increase in accrued liabilities related to accrued and unpaid legal and professional fees, an increase in due from related parties associated with our settlement with Triton Value Partners, LLC in June 2024 and an increase in deferred income taxes. The cash provided by operations also included the benefit of non-cash expenses for depreciation and amortization and employee stock compensation offset by the change in the valuation allowance placed on deferred income taxes.

Investing Activities

For the three months ended June 30, 2025, net cash provided by investing activities consisted primarily of proceeds of $42.9 million related to the sale of the Ammunition manufacturing business partially offset by $0.9 million in capitalized development costs related to our Marketplace.

For the three months ended June 30, 2024, net cash used in investing activities consisted of $0.8 million related capitalized development costs related to our Marketplace.

Financing Activities

For the three months ended June 30, 2025, net cash used in financing activities consisted of $0.6 million in payments of preferred stock dividends and $0.2 million used in the repurchase of common stock to cover taxes on shares issued to employees.

For the three months ended June 30, 2024, net cash used in financing activities consisted of $0.7 million of insurance premium note payments, $0.6 million in payments of preferred stock dividends, $1.1 million used to repurchase shares of common stock pursuant to our then-existing repurchase plan, and $0.4 million used in the repurchase of common shares to cover taxes on shares issued to employees.

Liquidity

We expect existing working capital and cash flows from operations to be adequate to fund our operations over the next 12 months. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, sales of equity, the sale of our Ammunition manufacturing business and related-party notes. These sources have been adequate to fund our recurring cash expenditures including but not limited to our working capital requirements, capital expenditures to expand our operations, debt repayments, and acquisitions. In the longer-term, we intend to continue to use the aforementioned sources of funding for capital expenditures, debt repayments and any potential acquisitions.

Leases

We currently lease two locations that are used for our offices. As of June 30, 2025, we had $1.6 million of fixed lease payment obligations with $0.6 million payable within the next 12 months. Please refer to Note 6, "Leases" for additional information.

Promissory Notes Issued in Settlement of the Delaware Litigation

As described in the "Recent Developments" section, on May 30, 2025, we issued Note 1 and Note 2 pursuant to the Settlement Agreement. The aggregate principal amount of Note 1 and Note 2 is $51.0 million, and we are required to make aggregate annual prepayments of $2.95 million beginning on May 30, 2026.

For the three months ended June 30, 2025, we recorded interest expense of $81,955 and $266,375 on Notes 1 and 2, respectively.

Revolving Loan

On December 29, 2023, we entered into a Loan and Security Agreement (the “Sunflower Agreement”) by and among the Company and the other borrowers party to the Sunflower Agreement, the lenders party thereto (collectively, the “Lenders”) and Sunflower Bank, N.A., as administrative agent and collateral agent (the “Agent”), pursuant to which the Lenders provided us a revolving loan ("Revolving Loan") in the principal amount of the lesser of (a) $20.0 million (the “Total Commitment Amount”) and (b) the borrowing base (a formula based on certain amounts owed to borrower for goods sold or services provided and eligible inventory). The proceeds of loans under the Sunflower Agreement could be used for working capital, general corporate purposes, permitted acquisitions, to pay fees and expenses incurred in connection with the Revolving Loan, to facilitate our stock repurchase program and to fund our general business requirements.

We could borrow, repay and re-borrow under the Revolving Loan until December 29, 2026, at which time the commitments would terminate and all outstanding loans, together with all accrued and unpaid interest, must be repaid. If the Revolving Loan is refinanced by another lender prior to December 29, 2026, there is an additional fee payable concurrently with such refinancing based on a percentage (ranging from 1.0% to 3.0%) of the Total Commitment Amount depending on the date of the refinancing. Upon an event of default under the Sunflower Agreement, all obligations under the Sunflower Agreement would bear interest at a rate equal to three (3.0) percentage points above the interest rate applicable immediately prior to the occurrence of the event of default.

On April 18, 2025, we entered into a Consent and Second Amendment to the Sunflower Agreement (the "Second Sunflower Loan Amendment"). Pursuant to the Second Sunflower Loan Amendment, we and the Agent agreed to, among other things: (i) release the Agent’s security interest in all collateral securing our obligations under the Sunflower Agreement upon consummation of the sale of the Ammunition Manufacturing Business; (ii) reduce all amounts available under the Revolving Loan to zero dollars as of the effective date of the Second Sunflower Loan Amendment; (iii) enter into an Amended and Restated Revolving Line Promissory Note in the amount of $5.0 million, representing 100% of the Revolving Line Commitment (as defined in the Sunflower Agreement) available under the Sunflower Agreement, executed by the Company in favor of Agent as of the effective date of the Second Sunflower Loan Amendment; and (iv) certain other amendments to the Company's customary covenants and obligations under the Sunflower Agreement that only take effect in the event the Revolving Line Availability (as defined in the Sunflower Agreement) is greater than zero dollars.

Upon signing of the Second Sunflower Loan Amendment, the Revolving Line Availability was reduced to zero dollars and will remain at zero dollars unless we provide the Agent with a security interest in new collateral or otherwise further amend the Sunflower Agreement.

On May 13, 2025, the Company entered into a Third Amendment to the Sunflower Agreement (the “Third Sunflower Loan Amendment”. Pursuant to the Third Sunflower Loan Amendment, we and the Agent agreed to change the definitions in the Sunflower Agreement of: (i) “AMMO, Inc” to “Outdoor Holding Company,” (ii) “Ammo” to “OHC,” (iii) “AMMO TECHNOLOGIES, INC” to “OHC TECHNOLOGIES, INC,” and (iv) AMMO MUNITIONS, INC” to “OHC MUNITIONS, INC.”

As of June 30, 2025, we did not have an outstanding balance on the Revolving Loan.

Off-Balance Sheet Arrangements

As of June 30, 2025 and March 31, 2025, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.

Critical Accounting Estimates

Our condensed consolidated financial statements were prepared in accordance with GAAP. Critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our estimates are evaluated on an ongoing basis and are drawn from historical operations, current trends, future business plans and other factors that management believes are relevant at the time our condensed consolidated financial statements are prepared. Actual results may differ from our estimates. Management believes that the accounting estimates reflect the more significant judgments and estimates we use in preparing our condensed consolidated financial statements.

Certain accounting policies that require significant management estimates, and are deemed critical to our results of operations or financial position, are discussed in the critical accounting policies and estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K. There have been no material changes to the critical accounting policies disclosed in the Form 10-K.

There have been no material changes from the market risks disclosed under the caption “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of the Form 10-K.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) accurately recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) properly accumulated and communicated to our management, including our principal executive officer (“Chief Executive Officer” or “CEO”) and principal financial officer (“Chief Financial Officer” or “CFO”), to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2025. Based upon the evaluation, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weaknesses previously identified and disclosed in our Annual Report on Form 10-K for the year ended March 31, 2025 and listed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management determined that the previously disclosed material weaknesses in its internal control over financial reporting continue to exist as of June 30, 2025, specifically:

Control Environment, Information and Communication, and Monitoring Activities – Under the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework, the Board of Directors and senior management establish the tone at the top regarding the importance of internal controls and management reinforces expectations at the various levels of the company.

Control Activities – These material weaknesses in the control environment resulted in certain instances of inappropriate accounting decisions and inappropriate changes in accounting methodology and contributed to the following additional material weaknesses whereby we did not design, implement and maintain effective controls within certain business processes:

• Complex Technical Accounting: Stock Compensation / Warrants / Convertible Notes – We did not design and maintain controls over the effective review of the models, assumptions and data used in developing estimates or changes made to models, assumptions and data to ensure the appropriate application of GAAP. It was further determined that the existence of complementary or compensating controls could not be relied upon to mitigate the identified deficiencies given failures were detected in all critical procedures from initiation to disclosure of the related transactions, including: timely and accurate accounting assessments performed over newly executed contracts to ensure appropriate application of GAAP; the review and approval of the issuance of stock awards to employees and third-party service providers including determining specific grant dates and key terms; determination of an appropriate fair value measurement for financial instruments; review of the classification and recording of equity compensation expenses; timely and accurate application of GAAP related to equity issuance costs; and recognition and disclosure of compensation expense for all share-based payment awards to employees, directors and third parties.
• Related Party Transactions and Executive Compensation – We did not properly maintain controls over the identification and disclosure of related party transactions and executive compensation. There were insufficient management review procedures to validate the completeness and accuracy of related party and executive compensation disclosures and to clearly define and evidence the process used and criteria and judgment applied to identify and disclose related party transactions and executive compensation.
• Financial Reporting – We did not properly maintain controls over period-end financial reporting, including tie-out and review of supporting documentation. There were insufficient management review procedures to validate the completeness and accuracy of complex technical accounting transactions and to clearly define and evidence the process used and criteria and judgment applied in the performance of critical business components.
• Segregation of Duties – We failed to properly separate the execution of certain controls by designated senior management, which did not provide for proper segregation between preparer and reviewer for select transactions. We further failed to fully resolve identified segregation of duties conflicts with system access for designated business and IT users, thus related user access review and application change management procedures could not be relied upon for select Company systems.

Management’s Remediation Initiatives for Existing Material Weaknesses

We have begun the process of, and we are focused on, designing and implementing effective measures to strengthen our internal controls over financial reporting and remediate the material weaknesses. The Company has initiated remediation activities and expects to complete testing of the design and operating effectiveness of new controls over at least two consecutive quarters of financial reporting, in accordance with COSO and PCAOB guidance. Our planned internal control remediation efforts include the following:

Control Environment, Information and Communication, and Monitoring Activities:

• Executive Communications to Reinforce Compliance – The Company’s CEO and other executives, at the direction of the Board of Directors, have reinforced and continue to reinforce the importance of adherence to the Company’s policies and procedures regarding ethics and compliance and the importance of identifying misconduct and raising and communicating concerns. This reinforcement has occurred through email and employee newsletter communications, staff meetings, remarks given to senior management, as well as other employee forums, including mandatory ethics training. The Company’s CEO and other executives, at the direction of the Board of Directors, have prioritized the remediation of the previously disclosed material weaknesses and have begun implementing additional compliance efforts required to achieve remediation status.
• Organizational Enhancements – The Company successfully hired of a Chief Financial Officer and a Vice President of Accounting and External Reporting during the 2025 fiscal year, who bring extensive knowledge around finance, strategy, transformation, and accounting, and are both highly committed to ongoing evaluation and improvements within the Company.

The Company continues to implement other organizational enhancements, as follows: (i) the enhancement of the Company’s organizational structure over all finance functions and an increase in the Company’s accounting personnel with the requisite knowledge, experience, and training in GAAP to ensure that a formalized process for determining, documenting, communicating, implementing and monitoring controls over the period-end financial close and reporting processes is maintained and proper segregation exists between the preparer and reviewer for select transactions, and (ii) enhancement of accounting policies and procedures related to journal entries, invoice approval, account reconciliations and variance thresholds.

• Significant and Unusual Transactions - The Company continues to implement improvements related to significant non-recurring transactions, including: (i) following a new process to address agreements with non-standard terms, including formalized review and approval (ii) more formalized practices for assessing the need for utilization of a third-party expert for unusual or complex transactions and (iii) the development of a more comprehensive review process and monitoring controls over significant transactions to ensure accurate accounting and the preparation of accounting memoranda.
• Related Party Transaction Policy – The Company implemented a Related Party Transactions Policy in June 2024 to proactively identify transactions and improve disclosures. Guidance is provided by corporate disclosure counsel with review/approval by the Audit Committee. Management has implemented procedures for identification and disclosure of related party transactions.
• Perquisites Policy – The Company implemented a new Perquisites Policy in May 2025 to better define its perquisites disclosure requirements, perquisite identification, training, and employee compliance requirements. Management has implemented processes for identifying perquisites to be disclosed.
• Establishment of Disclosure Committee - In fiscal year 2025, the Company established a formal disclosure committee that includes key members of management that have responsibility for disclosure information necessary for periodic reports filed with the SEC. This committee meets on an as-needed basis, as well as prior to the Audit Committee meeting in which a Form 10-K, Form 10-Q or other relevant Exchange Act

document will be approved. Its role includes coordinating disclosures, validating completeness and accuracy of information, and ensuring cross-functional input from legal, finance, and operations. The meetings cover all significant events from the period being reported upon and supporting information.

Control Activities:

• Implementation of New Accounting System – The Company implemented a new accounting system to allow management to effectively design and implement appropriate general information technology and automated system controls, including system enforced segregation of duties. The Company continues to ensure the correct roles and responsibilities are assigned to ensure enforcement of segregation of duties, and to evaluate other systems and applications for additional controls. Management will also continue the rollout of IT remediation action plans, including developing an enhanced risk assessment process for third-party IT systems and implementation of IT monitoring procedures.
• Implementation and Enhancement of Entity Wide Controls - The Company is in the process of enhancing existing entity-wide controls as a result of the control design remediation efforts and Audit Committee recommendations, and implementing the following new controls entity wide around the quarterly/annual financial reporting process:
• Enhanced Review Procedures : The Company has initiated enhancements to its management review procedures through additional training of accounting staff, improved evidence of review through tick marks and screenshots to validate the completeness and accuracy of transactions and to clearly define and evidence the process used and criteria and judgment applied in performance of critical business activities.
• The Company hired additional personnel and engaged third-party accounting experts, as needed, in its financial reporting and accounting function to ensure we have a sufficient complement of personnel with an appropriate level of knowledge, experience, and training commensurate with our financial reporting requirements.

While these actions and planned actions will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address these control deficiencies or modify the remediation plan described above.

Changes in Internal Control Over Financial Reporting

Other than the changes described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Exchange Act in Rule 13a-15(c) and 15d-15(e) under the Exchange Act) during the three months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management continues to monitor the effectiveness of newly implemented controls and assess whether any additional changes are warranted.

There were no material changes to the risk factors disclosed in Part I, Item 1A "Risk Factors" of the Form 10-K for the year ended March 31, 2025, and filed with the SEC on June 16, 2025.